-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NZSO1FCzh6IwkVA7g7aU118ADgw2tLOVAkO7NrKPfru9xCC4b2rEe3EmQ+aCz0hu HV51cbW6Xlqc87EG/hUF5A== 0000912057-97-013542.txt : 19970423 0000912057-97-013542.hdr.sgml : 19970423 ACCESSION NUMBER: 0000912057-97-013542 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 29 FILED AS OF DATE: 19970418 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATLANTIC EXPRESS TRANSPORTATION CORP CENTRAL INDEX KEY: 0001035423 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133924567 STATE OF INCORPORATION: NY FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-25507 FILM NUMBER: 97583798 BUSINESS ADDRESS: STREET 1: 7 NORTH STREET STREET 2: STATEN ISLAND CITY: NEW YORK STATE: NY ZIP: 10302-1205 BUSINESS PHONE: 7184427000 MAIL ADDRESS: STREET 1: 7 NORTH STREET STREET 2: STATEN ISLAND CITY: NEW YORK STATE: NY ZIP: 10302-1205 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 18, 1997 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------------- ATLANTIC EXPRESS TRANSPORTATION CORP. (Exact name of Registrant as Specified in its Charter) NEW YORK 4151 13-392-4567 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
-------------------------- 7 NORTH STREET STATEN ISLAND, NEW YORK 10302-1205 (718) 442-7000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) -------------------------- NATHAN SCHLENKER CHIEF FINANCIAL OFFICER 7 NORTH STREET STATEN ISLAND, NEW YORK 10302-1205 (718) 442-7000 (Name, address, including zip code, and telephone number, including area code, of agent for service) -------------------------- COPIES OF ALL COMMUNICATIONS TO: PETER R. SILVERMAN, ESQ. ROBERT A. ZUCCARO, ESQ. MICHAEL WORONOFF, ESQ. SILVERMAN, COLLURA, CHERNIS, & JONES, DAY, REAVIS & POGUE SKADDEN, ARPS, SLATE, MEAGHER & BALZANO P.C. 599 LEXINGTON AVENUE FLOM 381 PARK AVENUE SOUTH NEW YORK, NEW YORK 10022 300 SOUTH GRAND AVENUE SUITE 1601 (212) 326-3939 LOS ANGELES, CALIFORNIA 90017 NEW YORK, NEW YORK 10016 (213) 687-5000 (212) 779-8600
-------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT HAS BECOME EFFECTIVE. -------------------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / -------------------------- CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE (1) OFFERING PRICE REGISTRATION FEE 10 3/4% Senior Secured Notes due 2004 $110,000,000 100% $110,000,000 $33,334 Guarantees of the 10 3/4% Senior Secured Notes due 2004 $110,000,000 (2) (2) (2)
(1) Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(a) under the Securities Act. (2) Pursuant to Rule 457(n), no separate registration fee is required as no additional consideration is being paid for Guarantees. -------------------------- 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 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUBJECT TO COMPLETION, DATED APRIL 18, 1997 PROSPECTUS 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 OF ANY SUCH STATE. OFFER TO EXCHANGE 10 3/4% SENIOR SECURED NOTES DUE 2004 FOR ANY AND ALL OUTSTANDING 10 3/4% SENIOR SECURED NOTES DUE 2004 OF [LOGO] THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED. ------------------------ ATLANTIC EXPRESS TRANSPORTATION CORP., A NEW YORK CORPORATION ("ATLANTIC" OR THE "COMPANY"), A WHOLLY OWNED SUBSIDIARY OF ATLANTIC EXPRESS TRANSPORTATION GROUP INC. ("AETG"), HEREBY OFFERS (THE "EXCHANGE OFFER"), UPON THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH IN THIS PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL (THE "LETTER OF TRANSMITTAL"), TO EXCHANGE ITS OUTSTANDING 10 3/4% SENIOR SECURED NOTES DUE 2004 (THE "OLD NOTES"), OF WHICH $110,000,000 AGGREGATE PRINCIPAL AMOUNT IS OUTSTANDING AS OF THE DATE HEREOF, FOR AN EQUAL AGGREGATE PRINCIPAL AMOUNT OF NEWLY ISSUED 10 3/4% SENIOR SECURED NOTES DUE 2004 (THE "NEW NOTES"). THE NEW NOTES ARE BEING OFFERED HEREBY IN ORDER TO SATISFY CERTAIN OBLIGATIONS OF THE COMPANY UNDER THE REGISTRATION RIGHTS AGREEMENT, DATED FEBRUARY 4, 1997, AMONG THE COMPANY AND CERTAIN OTHER SIGNATORIES THERETO (THE "REGISTRATION RIGHTS AGREEMENT"). THE FORM AND TERMS OF THE NEW NOTES WILL BE THE SAME AS THOSE OF THE OLD NOTES EXCEPT THAT THE NEW NOTES WILL HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND CONSEQUENTLY WILL NOT BE SUBJECT TO CERTAIN TRANSFER RESTRICTIONS, REGISTRATION RIGHTS AND RELATED LIQUIDATED DAMAGES PROVISIONS APPLICABLE TO THE OLD NOTES. THE NEW NOTES WILL EVIDENCE THE SAME DEBT AS THE OLD NOTES AND WILL BE ENTITLED TO THE BENEFITS OF AN INDENTURE (THE "INDENTURE"), DATED AS OF FEBRUARY 4, 1997, BY AND BETWEEN THE COMPANY AND THE BANK OF NEW YORK, AS TRUSTEE (THE "TRUSTEE"). THE INDENTURE PROVIDES FOR THE ISSUANCE OF BOTH THE OLD NOTES AND THE NEW NOTES. THE OLD NOTES AND THE NEW NOTES ARE REFERRED TO HEREIN COLLECTIVELY AS THE "NOTES" AND HOLDERS OF THE NOTES ARE SOMETIMES REFERRED TO HEREIN AS THE "HOLDERS." THE NEW NOTES WILL MATURE ON FEBRUARY 1, 2004. INTEREST ON THE NEW NOTES WILL BE PAYABLE SEMI-ANNUALLY ON FEBRUARY 1 AND AUGUST 1, COMMENCING AUGUST 1, 1997. THE NEW NOTES WILL BE REDEEMABLE AT THE OPTION OF THE COMPANY, IN WHOLE OR IN PART, ON OR AFTER FEBRUARY 1, 2001, AT THE REDEMPTION PRICES SET FORTH HEREIN, PLUS ACCRUED AND UNPAID INTEREST, IF ANY, TO THE DATE OF REDEMPTION. NOTWITHSTANDING THE FOREGOING, AT ANY TIME OR FROM TIME TO TIME PRIOR TO FEBRUARY 1, 2000, THE COMPANY MAY REDEEM UP TO ONE-THIRD OF THE ORIGINAL PRINCIPAL AMOUNT OF THE NEW NOTES AT THE REDEMPTION PRICE OF 110.75% OF THE PRINCIPAL AMOUNT THEREOF, PLUS ACCRUED AND UNPAID INTEREST, IF ANY, THROUGH THE DATE OF REDEMPTION, WITH THE NET CASH PROCEEDS OF ONE OR MORE PUBLIC EQUITY OFFERINGS (AS DEFINED); PROVIDED, THAT AT LEAST $73,333,333 AGGREGATE PRINCIPAL AMOUNT OF THE NEW NOTES REMAIN OUTSTANDING IMMEDIATELY THEREAFTER. UPON A CHANGE OF CONTROL (AS DEFINED), THE COMPANY WILL BE REQUIRED TO OFFER TO REPURCHASE ALL OF THE OUTSTANDING NEW NOTES AT 101% OF THE PRINCIPAL AMOUNT THEREOF, TOGETHER WITH ACCRUED AND UNPAID INTEREST, IF ANY, TO THE DATE OF REPURCHASE. SEE "DESCRIPTION OF NOTES." THE NEW NOTES WILL BE SENIOR SECURED OBLIGATIONS OF THE COMPANY AND WILL RANK SENIOR IN RIGHT OF PAYMENT TO ALL SUBORDINATED INDEBTEDNESS OF THE COMPANY, AND PARI PASSU IN RIGHT OF PAYMENT WITH ALL SENIOR INDEBTEDNESS OF THE COMPANY. THE NEW NOTES WILL BE UNCONDITIONALLY GUARANTEED BY EACH OF THE CURRENT AND FUTURE RESTRICTED SUBSIDIARIES (AS DEFINED) OF THE COMPANY AND INITIALLY SECURED BY A FIRST PRIORITY SECURITY INTEREST IN AND A PLEDGE OF ALL OF THE CAPITAL STOCK OF THE COMPANY AND ITS SUBSIDIARIES (AS DEFINED) AND A SECOND PRIORITY SECURITY INTEREST IN THOSE ASSETS OF THE COMPANY AND ITS RESTRICTED SUBSIDIARIES (INCLUDING CASH, ACCOUNTS RECEIVABLE, INVENTORY, AND CERTAIN RELATED ASSETS) SECURING INDEBTEDNESS OUTSTANDING UNDER THE REVOLVING CREDIT FACILITY (AS DEFINED). HOWEVER, THE NEW NOTES WILL BE EFFECTIVELY SUBORDINATED TO ALL OTHER SECURED INDEBTEDNESS OF THE COMPANY AND ITS SUBSIDIARIES, INCLUDING INDEBTEDNESS UNDER THE REVOLVING CREDIT FACILITY, TO THE EXTENT OF THE ASSETS THAT SECURE SUCH INDEBTEDNESS. THE INDENTURE CONTAINS A COVENANT THAT PROHIBITS THE COMPANY AND ITS RESTRICTED SUBSIDIARIES FROM CREATING CONSENSUAL LIENS ON THEIR EXISTING VEHICLES. AS OF DECEMBER 31, 1996, ON A PRO FORMA BASIS AFTER GIVING EFFECT TO THE EXCHANGE OFFER, THE COMPANY AND ITS SUBSIDIARIES WOULD NOT HAVE HAD ANY SECURED INDEBTEDNESS OUTSTANDING, OTHER THAN THE NEW NOTES AND $0.7 MILLION OF SECURED EQUIPMENT FINANCING. THE COMPANY WILL NOT RECEIVE ANY PROCEEDS FROM THE EXCHANGE OFFER. THE COMPANY WILL PAY ALL EXPENSES INCIDENTAL TO THE EXCHANGE OFFER (WHICH SHALL NOT INCLUDE THE EXPENSES OF ANY HOLDER IN CONNECTION WITH RESALES OF THE NEW NOTES). THE COMPANY WILL ACCEPT FOR EXCHANGE ANY AND ALL VALIDLY TENDERED OLD NOTES ON OR PRIOR TO 5:00 P.M. NEW YORK CITY TIME, ON , 1997 (SUCH DATE AND TIME, IF AND AS EXTENDED, THE "EXPIRATION DATE"). TENDERS OF OLD NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE. THE EXCHANGE OFFER IS NOT CONDITIONED UPON ANY MINIMUM PRINCIPAL AMOUNT OF OLD NOTES BEING TENDERED FOR EXCHANGE. OLD NOTES MAY BE TENDERED ONLY IN INTEGRAL MULTIPLES OF $1,000. IN THE EVENT THE COMPANY TERMINATES THE EXCHANGE OFFER AND DOES NOT ACCEPT FOR EXCHANGE ANY OLD NOTES, THE COMPANY WILL PROMPTLY CAUSE THE RETURN OF ALL PREVIOUSLY TENDERED OLD NOTES. THIS PROSPECTUS HAS BEEN PREPARED FOR USE IN CONNECTION WITH THE EXCHANGE OFFER AND MAY BE USED BY JEFFERIES & COMPANY, INC. (THE "INITIAL PURCHASER") IN CONNECTION WITH OFFERS AND SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE NOTES. THE INITIAL PURCHASER MAY ACT AS PRINCIPAL OR AGENT IN SUCH TRANSACTIONS. SUCH SALES WILL BE MADE AT PRICES RELATED TO PREVAILING MARKET PRICES AT THE TIME OF SALE. ------------------------------ SEE "RISK FACTORS" COMMENCING ON PAGE 13 FOR A DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR OLD NOTES IN THE EXCHANGE OFFER. --------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. -------------------------- , 1997 [DESCRIPTION OF PHOTOGRAPHS ON INSIDE COVER PAGE] Four photographs of vehicles used by Atlantic Express Transportation Corp. in its transportation business with the following captions: (i) "School Bus Division;" (ii) "Paratransit Division;" (iii) "Coach Division;" and (iv) "Pre-K/Medicaid Operations." Based on interpretations contained in no action letters issued to third parties by the staff of the Commission, the Company believes that the New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold, and otherwise transferred by a holder thereof (other than (i) a broker-dealer who purchases such New Notes directly from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act or (ii) a person who is an affiliate of the Company (within the meaning of Rule 405 under the Securities Act)), without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the holder is acquiring the New Notes in its ordinary course of business and is not participating, and has no arrangement or understanding with any person to participate, in the distribution of the New Notes. Holders of Old Notes wishing to accept the Exchange Offer must represent to the Company that such conditions have been met. Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a Prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a Prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old 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 up to 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 this Exchange Offer, there has been no public market for the Notes. The Company does not intend to list the Notes on any securities exchange or to seek approval for quotation through any automated quotation system. There can be no assurance that an active market for the Notes will develop. To the extent that a market for the Notes does develop, the market value of the Notes will depend on many factors, including, among other things, prevailing interest rates, market conditions, general economic conditions, the Company's results of operations and financial condition, the market for similar securities, and other conditions. Such conditions might cause the Notes, to the extent that they are actively traded, to trade at a significant discount from face value. See "Risk Factors -- Absence of Public Market for the Notes." PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS (INCLUDING NOTES THERETO) INCLUDED ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED OR THE CONTEXT OTHERWISE REQUIRES, REFERENCES TO THE "COMPANY" AND "ATLANTIC" ARE TO ATLANTIC EXPRESS TRANSPORTATION CORP. AND ITS SUBSIDIARIES, AND, FOR PERIODS PRIOR TO FEBRUARY 4, 1997, THE SUBSIDIARIES OF ATLANTIC EXPRESS TRANSPORTATION GROUP INC. (TOGETHER WITH ITS PREDECESSORS, "AETG") ENGAGED IN THE TRANSPORTATION BUSINESS. ATLANTIC CONDUCTS ITS BUSINESS THROUGH ITS SUBSIDIARIES. REFERENCES TO FISCAL YEARS ARE TO YEARS ENDING JUNE 30. THE COMPANY Atlantic is one of the largest providers of school bus transportation in the United States. The Company has contracts with 53 school districts in New York, Missouri, Pennsylvania, Connecticut and New Jersey. In addition to its school bus transportation operations (the "School Bus Division"), the Company provides services to public transit systems for physically or mentally challenged passengers (the "Paratransit Division"), express commuter line and charter and tour bus services (the "Coach Division"), and transportation for pre-kindergarten children and Medicaid recipients (the "Pre-K/Medicaid Operations"). At December 31, 1996, Atlantic had a fleet of 3,106 vehicles operating from 25 facilities. For the fiscal year ended June 30, 1996, the Company generated revenues of $142.6 million, approximately 84% of which was derived from the School Bus Division. The Company's school bus transportation contracts have provided a relatively predictable and stable stream of revenues over their terms, which range from one to five years. Since 1979, Atlantic has achieved a contract renewal rate of approximately 98%, which management believes is due to (i) its reputation for passenger safety and providing efficient, on-time service; (ii) its long-standing relationships with the school districts it services; (iii) the preference of school districts to maintain continuity of service with their current proven contractor rather than risk the uncertainty associated with a replacement; and (iv) the disadvantage of prospective competitors who generally would have to make substantially greater investments than the Company in new equipment and who may experience difficulty obtaining suitable parking and maintenance facilities in Atlantic's primary markets, especially in the New York greater metropolitan area. By capitalizing on the stable revenue stream provided by its existing contracts and its reputation for passenger safety and service, Atlantic has become one of the fastest growing major school bus companies in the United States. This growth has resulted from (i) securing additional contracts from existing and new customers (including replacing underperforming contractors); (ii) expanding into new markets; and (iii) consummating a series of strategic acquisitions. Management believes that three major trends affecting the school bus transportation industry provide the Company with significant opportunities for continued growth. First, privatization of student transportation is becoming an increasingly attractive cost-cutting option to school districts, which reportedly operate approximately two-thirds of the approximately 400,000 school buses in the United States. Consequently, since 1990, while the total number of school buses in the industry overall has only grown by 11%, the number of school buses operated by the private sector has increased by over 60%. Second, continuing consolidation is occurring among the over 5,000 private contractors representing the remaining one-third of the industry. Management believes that this consolidation is driven largely by the inability of smaller companies to absorb the costs of complying with increasingly stringent government regulations while still providing commensurate levels of service at competitive prices. The Company has acquired over 20 school bus companies in the last 15 years. Third, the expected increase in school enrollment, attributable to a rise in the U.S. birth rate since 1984, will lead to growth in the school bus transportation industry. In addition, the Company believes that the demand for school bus transportation is generally insensitive to economic cycles and is fundamentally strong, with an industry source projecting increases in school enrollment each 3 year through 2006. Management believes that resources required to effectively capitalize on the above-mentioned industry trends favor larger school bus contractors such as the Company. BUSINESS STRATEGY The Company believes that the proven strength and experience of its management team and its reputation for passenger safety and service provide a strong foundation for continued growth and increased cash flow. To capitalize on the opportunities presented by the Company's business environment, Atlantic's management team is concentrating on the following areas: EXPANSION INTO NEW MARKETS. Atlantic seeks to continue expanding its operations into new geographic markets. In 1993, the Company made its first major expansion beyond the New York greater metropolitan area by winning a school bus transportation contract in Philadelphia which generated $5.9 million of revenues in fiscal 1996. Currently, the Company has school bus operations in five states. The Company is presently targeting large urban markets in the midwest, pacific and southeast regions of the United States because management believes that (i) these areas may offer opportunities to win contracts from smaller regional contractors; (ii) the trend towards privatization in these areas should result in the availability of additional large contracts; and (iii) the projected total increase in school enrollment should be larger in major urban markets in these areas. In addition, the Company may pursue acquisitions in regions where having an established local presence is necessary to obtain contracts. EXPANSION WITHIN EXISTING MARKETS. The Company plans to continue strengthening its presence in its existing markets by aggressively pursuing additional contracts and by consummating tuck-in acquisitions of smaller contractors. Management believes that the Company's reputation has enabled it to win additional contracts in its existing markets. The Company has won additional contracts in each of Missouri and Pennsylvania since entering those markets. Most recently, in September 1996, the Company expanded its presence in Missouri, a market it entered in 1995, by winning a new contract. The Company has consummated over 20 tuck-in acquisitions in its existing markets. Management believes that expansion in regions where it already has established operations, whether through additional contracts or through tuck-in acquisitions, has enabled it to capitalize on its existing maintenance, parking and administrative infrastructure, thereby improving profit margins. In general, the Company plans to benefit from economies of scale as its business grows by (i) spreading the costs of its administrative staff and facilities over a larger revenue base; and (ii) capturing savings in expenses such as insurance, workers' compensation and vehicle and parts purchases. GROWTH OF THE PARATRANSIT DIVISION. The Paratransit Division is Atlantic's second largest and fastest growing division. The Paratransit Division's revenues have increased from $3.4 million in fiscal 1994 to $11.8 million in fiscal 1996. Management believes the demand for paratransit services in the United States will continue to grow over the next several years. Pursuant to the Americans with Disabilities Act of 1990 (the "ADA"), certain public transit systems are required to provide comparable services to disabled persons who are unable to use standard public transportation. The ADA required over 500 public transit systems in the United States to implement fully operational paratransit systems by January 1997. Because the ADA was enacted in 1990, the paratransit services industry is relatively young, with most existing contracts awarded in the last five years. Management believes many small companies that have been providing paratransit services may be unable to fulfill the complex service requirements of paratransit contracts, and thus many of the contracts presently held by such operators may not be renewed. Since 1990, the Company has gained substantial experience in satisfying the rigorous demands of such contracts and plans to compete aggressively to obtain new paratransit contracts as contracts awarded to other operators expire. FOCUS ON PASSENGER SAFETY AND SERVICE. Management has developed a corporate culture focused on passenger safety and service. Atlantic participates in the "Safe Bus" program, under which complaints regarding school bus drivers' performance and safety are registered by an independent party and forwarded to the Company for remedial action. Unlike many of its competitors, the Company requires its 4 drivers to wear standardized uniforms, thereby reinforcing its professional image. In addition, all drivers are required to attend periodic safety workshops and training programs, which emphasize defensive driving and courteous behavior. Management believes that its emphasis on passenger safety and service is a competitive advantage and a major contributor to its success in winning new contracts. RECENT FINANCING ACTIVITY On February 4, 1997 the Company issued $110,000,000 aggregate principal amount of its 10 3/4% Senior Secured Notes due 2004 (the "Old Notes") to Jefferies & Company, Inc., as initial purchaser (the "Initial Purchaser"), who resold the Old Notes to qualified institutional buyers pursuant to Rule 144A ("Rule 144A") under the Securities Act of 1933, as amended (the "Securities Act"), and to a limited number of institutional accredited investors. The offering of the Old Notes was part of a refinancing plan designed to extend the maturity of the Company's indebtedness, provide the Company with additional financing and operating flexibility, and enhance the Company's financial liquidity. The Company applied the net proceeds of the offering of the Old Notes (i) to repay existing indebtedness; (ii) to terminate certain operating leases and purchase the vehicles and other assets leased thereunder; (iii) to acquire a New Medicaid Contract (as defined) and purchase additional vehicles to perform the Company's obligations thereunder; and (iv) for general corporate purposes. Upon consummation of the offering of the Old Notes, the Company entered into a $30.0 million revolving credit facility (the "Revolving Credit Facility"). See "The Old Notes Offering" and "Description of Revolving Credit Facility." THE EXCHANGE OFFER The Company is offering (the "Exchange Offer") to exchange its Old Notes, of which $110,000,000 aggregate principal amount is outstanding, for an equal aggregate principal amount of newly issued 10 3/4% Senior Secured Notes due 2004 (the "New Notes"). The form and terms of the New Notes will be the same as those of the Old Notes except that the New Notes will have been registered under the Securities Act, and consequently will not be subject to certain transfer restrictions, registration rights and related liquidated damages provisions applicable to the Old Notes. THE EXCHANGE OFFER........................... The Company is offering to exchange an aggregate of $110,000,000 principal amount of New Notes for an equal aggregate principal amount of Old Notes. The Old Notes may be exchanged only in multiples of $1,000 principal amount. The Company will issue the New Notes on or promptly after the Expiration Date (as defined below). See "The Exchange Offer." EXPIRATION DATE.............................. The Exchange Offer will expire at 5:00 p.m., New York City time, on , 1997, unless extended in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. CONDITIONS TO THE EXCHANGE OFFER............. The Exchange Offer is subject to certain conditions, which may be waived by the Company in whole or in part and from time to time in its sole discretion. See "The Exchange Offer -- Certain Conditions to the Exchange Offer." The Exchange Offer is not
5 conditioned upon any minimum aggregate principal amount of Old Notes being tendered for exchange. PROCEDURES FOR TENDERING OLD NOTES........... Each Holder desiring to accept the Exchange Offer must complete and sign the Letter of Transmittal, have the signature thereon guaranteed if required by the Letter of Transmittal, and mail or deliver the Letter of Transmittal, together with the Old Notes or a Notice of Guaranteed Delivery and any other required documents (such as evidence of authority to act satisfactory to the Company in its sole discretion, if the Letter of Transmittal is signed by someone acting in a fiduciary or representative capacity), so that such materials are received by the Exchange Agent (as defined) at the address set forth in "The Exchange Offer -- Exchange Agent" prior to the Expiration Date. Any beneficial owner of the Old Notes whose Old Notes are registered in the name of a nominee, such as a broker, dealer, commercial bank or trust company and who wishes to tender Old Notes in the Exchange Offer, should instruct such entity or person to promptly tender on such beneficial owner's behalf. See "The Exchange Offer -- Procedures for Tendering Old Notes." GUARANTEED DELIVERY PROCEDURES............... Holders of Old Notes who wish to tender their Old Notes and (i) whose Old Notes are not immediately available; or (ii) who cannot deliver their Old Notes or any other documents required by the Letter of Transmittal to the Exchange Agent prior to the Expiration Date (or complete the procedure for book-entry transfer on a timely basis), may tender their Old Notes according to the guaranteed delivery procedures set forth in the Letter of Transmittal. See "The Exchange Offer -- Guaranteed Delivery Procedures." The Letter of Transmittal provides that each Holder of Old Notes (other than participating broker-dealers) will represent to the Company that, among other things, the New Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such New Notes, that neither such Holder of Old Notes nor any such other person has an arrangement or understanding with any person to participate in the distribution of such New Notes and that neither the Holder nor any such person is an "affiliate" of the Company, as defined in Rule 405 under the Securities Act. Any tendered Old Note not accepted for exchange for any reason will be returned promptly after the expiration or
6 termination of the Exchange Offer. See "The Exchange Offer." WITHDRAWAL RIGHTS............................ Tenders of Old Notes may be withdrawn at any time prior to the Expiration Date. See "The Exchange Offer -- Withdrawal Rights." ACCEPTANCE OF OLD NOTES AND DELIVERY OF NEW The Company will accept for exchange any and NOTES...................................... all Old Notes which are properly tendered in the Exchange Offer prior to the Expiration Date. The New Notes issued pursuant to the Exchange Offer will be delivered promptly following the Expiration Date. See "The Exchange Offer -- Terms of the Exchange Offer." RESALES OF NEW NOTES......................... Based on an interpretation by the staff of the Securities and Exchange Commission (the "Commission") set forth in no-action letters issued to third parties, the Company believes that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by any Holder thereof (other than any such Holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such Holder's business and that such Holder has no arrangement or understanding with any person to participate in the distribution of such New Notes, and provided, further, that each broker-dealer that receives New Notes for its own account in exchange for Old Notes must acknowledge that it will deliver a Prospectus in connection with any resale of such New Notes. See "Plan of Distribution." If a Holder of Old Notes does not exchange such Old Notes for New Notes pursuant to the Exchange Offer, such Old Notes will continue to be subject to the restrictions on transfer contained in the legend thereon. In general, the Old Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exception 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" and "Description of Notes." CONSEQUENCES OF FAILURE TO EXCHANGE.......... Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant to the Exchange offer will continue to be subject to the restrictions on transfer of such Old Notes as set forth in the legend thereon. In general, Old Notes may not be
7 offered or sold, except pursuant to a registration statement under the Securities Act or any exemption from registration thereunder and in compliance with applicable state securities laws. In the event the Company completes the Exchange Offer, holders of Old Notes will have no further rights to registration or liquidated damages pursuant to the Registration Rights Agreement between the Company, the Guarantors (as defined therein) and the Initial Purchaser dated February 4, 1997 (the "Registration Rights Agreement"). CERTAIN TAX CONSIDERATIONS................... There will be no federal income tax consequences to Holders exchanging Old Notes for New Notes pursuant to the Exchange Offer and a Holder will have the same adjusted basis and holding period in the New Notes as in the Old Notes immediately before the exchange. See "Certain U.S. Federal Income Tax Considerations." REGISTRATION RIGHTS AGREEMENT................ The Exchange Offer is intended to satisfy the registration rights of Holders of Old Notes under the Registration Rights Agreement, which rights terminate upon consummation of the Exchange Offer. EXCHANGE AGENT............................... The Bank of New York is the Exchange Agent. The address and telephone number of the Exchange Agent are set forth in "The Exchange Offer -- Exchange Agent." THE NEW NOTES SECURITIES OFFERED........................... $110,000,000 aggregate principal amount of 10 3/4% Senior Secured Notes due 2004. MATURITY DATE................................ February 1, 2004. INTEREST RATE AND PAYMENT DATES.............. The New Notes will bear interest at a rate of 10 3/4% per annum. Interest on the New Notes will be payable semi-annually in cash in arrears on February 1 and August 1 of each year, commencing August 1, 1997. GUARANTEES................................... The New Notes will be unconditionally guaranteed by each of the current and future Restricted Subsidiaries (as defined) of the Company (collectively, the "Guarantors"). SECURITY..................................... The New Notes will initially be secured by a first priority security interest in and a pledge of all of the capital stock of the Company and its subsidiaries and a second priority security interest in those assets of the Company and its Restricted Subsidiaries (including cash, accounts receivable,
8 inventory, and certain related assets) securing indebtedness outstanding under the Revolving Credit Facility. The indenture relating to the New Notes (the "Indenture") contains a covenant that prohibits the Company and its Restricted Subsidiaries from creating consensual liens on their existing vehicles. See "Description of the Revolving Credit Facility" and "Description of Notes -- Collateral." RANKING...................................... The New Notes will be senior secured obligations of the Company and will rank senior in right of payment to all subordinated indebtedness of the Company and PARI PASSU in right of payment with all senior indebtedness of the Company. However, the New Notes will be effectively subordinated to all other secured indebtedness of the Company and its subsidiaries, including indebtedness under the Revolving Credit Facility, to the extent of the assets that secure such indebtedness. OPTIONAL REDEMPTION.......................... The New Notes will be redeemable at the option of the Company, in whole or in part, on or after February 1, 2001, at the redemption prices set forth herein, plus accrued and unpaid interest, if any, to the date of redemption. Notwithstanding the foregoing, at any time or from time to time prior to February 1, 2000, the Company may redeem up to one-third of the original principal amount of the New Notes at the redemption price of 110.75% of the principal amount thereof, plus accrued and unpaid interest, if any, through the date of redemption, with the net cash proceeds of one or more Public Equity Offerings (as defined); provided, that at least $73,300,000 aggregate principal amount of the New Notes remain outstanding immediately thereafter. See "Description of Notes -- Redemption." MANDATORY REDEMPTION......................... None. CHANGE OF CONTROL............................ Upon a Change of Control (as defined), the Company will be required to offer to repurchase all of the outstanding New Notes at 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of repurchase. See "Description of Notes -- Repurchase Upon Change of Control." CERTAIN COVENANTS............................ The Indenture contains certain covenants which limit the ability of the Company and its Restricted Subsidiaries to (i) incur additional indebtedness; (ii) make restricted payments; (iii) issue and sell
9 capital stock of subsidiaries; (iv) enter into certain transactions with affiliates; (v) create certain liens; (vi) sell certain assets; and (vii) merge, consolidate or sell substantially all of the Company's assets. See "Description of Notes -- Certain Covenants."
For a more detailed discussion of the terms of the New Notes, see "Description of Notes." RISK FACTORS An investment in the New Notes involves a high degree of risk. For a discussion of certain matters that should be considered by Holders in connection with the Exchange Offer, see "Risk Factors." Atlantic Express Transportation Corp. is a New York corporation. Its principal office is located at 7 North Street, Staten Island, New York 10302-1205 (telephone number (718) 442-7000). 10 SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION The summary historical financial data of the Company for each of the years in the three-year period ended June 30, 1996 and for the six-month periods ended December 31, 1995 and 1996 were derived from the historical consolidated financial information of the Company included elsewhere in this Prospectus. The pro forma financial data for the year ended June 30, 1996 and for the six months ended December 31, 1996 were derived from the "Unaudited Pro Forma Consolidated Financial Information" included elsewhere in this Prospectus. The summary pro forma financial data are presented for informational purposes only and do not purport to represent what the Company's financial position or results of operations would actually have been if the offering of "Old Notes" had occurred on the assumed dates or project the Company's financial position or results of operations at any future date or for any future periods. The Company's unaudited consolidated financial information includes all adjustments, consisting of normal recurring accruals, that the Company considers necessary for a fair presentation of the financial position and the results of operations for those periods. Operating results for the six months ended December 31, 1996 are not necessarily indicative of the results for the entire year ending June 30, 1997. The following data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma Consolidated Financial Information" and the historical consolidated financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus.
PRO HISTORICAL FORMA(1) ----------------------------------------------------- ----------- SIX MONTHS ENDED DECEMBER 31, YEAR ENDED YEAR ENDED JUNE 30, JUNE 30, ------------------------------- -------------------- ----------- 1994 1995 1996 1995 1996 1996 --------- --------- --------- --------- --------- ----------- ($ IN MILLIONS) OPERATING DATA: Revenues................................................. $ 101.5 $ 114.0 $ 142.6 $ 59.6 $ 70.2 $ 144.6 Gross profit............................................. 20.2 22.6 27.4 11.1 10.5 29.7 Income (loss) from operations............................ 5.6 5.8 7.3 1.1 (0.4) 8.4 Net Income (loss)(2)..................................... 12.3 2.6 1.4 (0.7) (2.1) (2.2) OTHER DATA: EBITDA(3)................................................ 12.2 13.4 17.0 6.0 5.0 19.2 Depreciation and amortization............................ 6.6 7.6 9.7 4.9 5.4 10.8 Total capital expenditures............................... 1.8 18.0 20.7 17.6 13.6 28.6 Number of vehicles(4).................................... 1,799 2,116 2,760 2,700 3,106 2,786 Number of contracts (5).................................. 87 91 93 93 95 94 Ratio of EBITDA to net interest expense (6).............. 1.7x Ratio of Net Debt (7) to EBITDA.......................... 4.1x SIX MONTHS ENDED DECEMBER 31, --------------- 1996 --------------- OPERATING DATA: Revenues................................................. $ 71.2 Gross profit............................................. 11.6 Income (loss) from operations............................ 0.1 Net Income (loss)(2)..................................... (3.3) OTHER DATA: EBITDA(3)................................................ 6.0 Depreciation and amortization............................ 5.9 Total capital expenditures............................... 20.7 Number of vehicles(4).................................... 3,132 Number of contracts (5).................................. 96 Ratio of EBITDA to net interest expense (6).............. 1.0x Ratio of Net Debt (7) to EBITDA..........................
AT DECEMBER 31, 1996 ----------- HISTORICAL ----------- ($ IN MILLIONS) BALANCE SHEET DATA: Cash and cash equivalents................................ $ 1.5 Net property, plant and equipment........................ 66.9 Total assets............................................. 113.0 Total debt............................................... 68.2 Total stockholder's equity............................... 27.4 PRO FORMA(8) ----------- BALANCE SHEET DATA: Cash and cash equivalents................................ 31.3 Net property, plant and equipment........................ 74.1 Total assets............................................. 154.6 Total debt............................................... 110.7 Total stockholder's equity............................... 26.5
(FOOTNOTES ON FOLLOWING PAGE). 11 - ------------------------------ (1) The pro forma financial data gives effect to the offering of the Old Notes and the application of the net proceeds therefrom as if they had occurred on July 1, 1995. See "Capitalization" and "Unaudited Pro Forma Consolidated Financial Information." Expected penalties upon early extinguishment of debt of approximately $0.9 million and a further $0.9 million write-off of remaining unamortized deferred finance charges relative to existing indebtedness have not been reflected in the pro forma financial data as these costs will be reported net of their related tax effects as extraordinary items. (2) Net Income (loss) includes extraordinary income (net of taxes) pertaining to forgiveness of indebtedness of $10.4 million and $1.1 million in 1994 and 1995, respectively. (3) EBITDA represents income from operations before depreciation 3 and amortization. EBITDA is used in certain financial covenants in the Indenture and is frequently used by securities analysts and is presented here to provide additional information about the Company's operations. EBITDA is not a measurement presented in accordance with generally accepted accounting principles. EBITDA should not be considered in isolation; as a substitute for net income, cash flow provided by operating activities or other income or cash flow data prepared in accordance with generally accepted accounting principles; or as a measure of the Company's profitability or liquidity. (4) Vehicles include the Company's fleet of school buses, paratransit vehicles, coaches and other service and support vehicles that are either owned or leased by the Company as of the last day of each period. See "Business -- Fleet Management and Maintenance." (5) Represents the number of contracts as of the last day of each period. See "Business -- School Bus Division -- Contracts" and "Business -- Paratransit Division -- Contracts." (6) Net interest expense is defined as interest expense less interest income, and does not include amortization of debt issuance costs of $771,429 and $385,714 for the year ended June 30, 1996 and the six months ended December 31, 1996, respectively. (7) Net Debt is defined as total debt less cash and cash equivalents, at December 31, 1996. At December 31, 1996, on a pro forma basis after giving effect to the offering of the Old Notes and the application of the net proceeds therefrom, the Company's Net Debt would have been $79.4 million. (8) The pro forma balance sheet data give effect to the offering of the Old Notes and the application of the net proceeds therefrom (see note 1 above) as if they had occurred on December 31, 1996. 12 RISK FACTORS AN INVESTMENT IN THE NOTES INVOLVED A HIGH DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD GIVE CAREFUL CONSIDERATION TO THE SPECIFIC FACTORS SET FORTH BELOW AND THE OTHER INFORMATION SET FORTH HEREIN, PRIOR TO TENDERING THEIR OLD NOTES. FAILURE TO EXCHANGE OLD NOTES The New Notes will be issued in exchange for Old Notes only after timely receipt by the Exchange Agent of valid tenders of such Old Notes. Therefore, holders of Old Notes desiring to tender such Old Notes in exchange for New Notes should allow sufficient time to ensure timely delivery. Neither the Exchange Agent nor the Company is under any duty to give notification of defects or irregularities with respect to tenders of Old Notes for exchange. Old Notes that are not tendered or are tendered but not accepted will, following consummation of the Exchange Offer, continue to be subject to the existing restrictions upon transfer thereof. In addition, any holder of Old Notes who tenders in the Exchange Offer for the purpose of participating in a distribution of the New Notes will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer who receives New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or any other trading activities, must acknowledge that it will deliver a Prospectus in connection with any resale of such New Notes. See "Plan of Distribution." To the extent that Old Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Old Notes could be adversely affected. See "The Exchange Offer." BLUE SKY RESTRICTIONS In order to comply with the securities laws of certain jurisdictions, the New Notes may not be offered or resold by any Holder unless they have been registered or qualified for sale in such jurisdictions or an exemption from registration or qualification is available and the requirements of such exemption have been satisfied. The Company does not currently intend to register or qualify the resale of the New Notes in any such jurisdictions. However, an exemption is generally available for sales to registered broker-dealers and certain institutional buyers. Other exemptions under applicable state securities laws may also be available. Holders must ensure their own compliance with respect to such laws, which could limit the ability of Holders to resell New Notes. SIGNIFICANT LEVERAGE At December 31, 1996, on a pro forma basis after giving effect to the offering of the Old Notes and the application of the net proceeds therefrom, the Company's total debt and stockholder's equity would have been $110.7 million and $26.4 million, respectively. The Company would also have had borrowing availability under the Revolving Credit Facility of $30.0 million, subject to the borrowing conditions contained therein. The ratio of EBITDA to net interest expense would have been 1.7 to 1.0 for the pro forma year ended June 30, 1996 and 1.0 to 1.0 for the pro forma six months ended December 31, 1996, respectively. The Company's high level of debt and debt service requirements will have several important consequences, including (i) a substantial portion of the Company's cash flow from operations will be dedicated to servicing its indebtedness; (ii) the covenants contained in the Company's debt instruments will impose certain restrictions on the Company which, among other things, will limit its ability to borrow funds; (iii) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions and general corporate purposes may be impaired; and (iv) the Company's ability to withstand competitive pressures and adverse economic conditions may be adversely affected. 13 The Company's ability to meet its debt service obligations and to reduce its total indebtedness will depend upon its future performance, which will be subject to general economic conditions, its ability to achieve cost savings and other financial, business and other factors affecting the operations of the Company, many of which are beyond its control. If the Company cannot generate sufficient cash flow from operations in the future to service its debt, it may be required to refinance all or a portion of such debt (including the Notes), sell assets or obtain additional financing. There can be no assurance that any such refinancing or asset sales would be possible or that any additional financing could be obtained. COLLATERAL; OTHER SECURED INDEBTEDNESS In the event of a default under the Notes, the proceeds from the sale of the collateral securing the Notes may not be sufficient to satisfy in full the Company's obligations under the Notes. The amount to be received upon such a sale would depend upon numerous factors, including the timing and the manner of the sale. In addition, the book value of the collateral, particularly the outstanding capital stock of the Guarantors, should not be relied upon as a measure of realizable value. The Notes will be effectively subordinated to all other secured indebtedness of the Company and its Subsidiaries, including indebtedness under the Revolving Credit Facility, to the extent of the assets that secure such indebtedness. As of December 31, 1996, on a pro forma basis after giving effect to the offering of the Old Notes and the application of the net proceeds therefrom, the Company would not have had any secured indebtedness outstanding, other than $0.7 million of secured equipment financing. RELIANCE UPON AND CONCENTRATION OF SCHOOL BUS TRANSPORTATION CONTRACTS WITH SCHOOL DISTRICTS Historically, the Company's school bus transportation contracts have had terms between one and five years, generally subject to extension upon expiration at the discretion of the school districts with the agreement of the Company for additional contract periods. Although since 1979 the Company has achieved a contract renewal rate of approximately 98%, the decision to renew contracts is not made solely by the Company and may be based upon factors beyond the Company's control. Any significant decrease in this historical renewal rate could have a material adverse effect on the Company. There can be no assurance that any of the Company's current or future contracts will be extended, or if extended, that the rates of compensation for such extensions will be acceptable to the Company. Moreover, there can be no assurance that the school districts that currently employ the Company's services will not seek to satisfy their transportation needs in the future by alternative means. A loss of a significant number of contracts, or those contracts specified in the next paragraph, which account for a significant percentage of the Company's revenues, would have a material adverse effect on the Company. For fiscal 1996, the Company derived 49.8% of its revenues from the Board of Education of the City of New York (the "New York Board of Education"). For fiscal 1996, no other customer accounted for more than 7% of the Company's revenues. The New York Board of Education contracts, most of which originated in 1979, do not expire (because of renewals) until June 30, 2000. The loss of the foregoing contracts would have a material adverse effect upon the Company. There can be no assurance that all or some of such contracts will be extended following their scheduled dates of expiration, or, if extended, that the rate of compensation will be acceptable to the Company, nor can there be any assurance that the Company will be able to fulfill its plans to expand and diversify prior to the dates of such scheduled expirations. TRANSPORTATION CONTRACT REQUIREMENTS The Company's school bus transportation contracts generally provide for performance security in one or more of the following forms: performance bonds, letters of credit and cash retainages. The contracts also require the maintenance of minimum amounts of insurance coverage, the maintenance of appropriate facilities and transportation equipment; and the implementation of various operating rules and regulations. 14 There can be no assurance that either letters of credit or performance bonds will continue to be available to the Company as security for its contracts or, if available, at a cost that does not adversely affect the Company's margins. The failure of the Company to procure the required security or maintain required levels of insurance coverage could result in the default of a school bus transportation contract by the Company and subject it to damages as a result thereof or prevent the renewal or extension of such contract. In addition, the number of school buses to be provided under the Company's contracts generally may be decreased, and hence the revenues generated under such contracts may decrease based on the requirements of the relevant school district. All school bus contracts can be terminated by school districts for certain performance related factors. FRAUDULENT TRANSFER CONSIDERATIONS The obligations of any Guarantor under the Indenture and the grant by any Guarantor of a security interest under the Collateral Agreements (as defined) may be subject to review under applicable fraudulent transfer or similar laws in the event of the bankruptcy or other financial difficulty of any such Guarantor. In the United States, under such laws, if a court in a lawsuit by an unpaid creditor or representative of creditors of any such person, such as a trustee in bankruptcy or any such person as debtor in possession, were to find that at the time such person incurred its obligations under its guarantee or pledged its assets, it (i) received less than fair consideration or reasonably equivalent value therefor; and (ii) either (a) was insolvent, (b) was rendered insolvent by such guarantee or pledge, (c) was engaged in a business or transaction for which its remaining unencumbered assets constituted unreasonably small capital, or (d) intended to incur or believed that it would incur debts beyond its ability to pay such debts as they matured, such court could avoid such obligations under its guarantee and/or the security interest in its assets and direct the return of any amounts paid with respect thereto. Moreover, regardless of the factors identified in the foregoing clauses (i) and (ii), a court could take such action if it found that the guarantee was entered into or the security interest granted with actual intent to hinder, delay, or defraud creditors. The measure of insolvency for purposes of the foregoing will vary depending on the law of the jurisdiction being applied. Generally, however, an entity would be considered insolvent if the sum of its debts (including contingent or unliquidated debts) is greater than all of its property at a fair valuation or if the present fair salable value of its assets is less than the amount that would be required to pay its probable liability on its existing debts as they become absolute and matured. REORGANIZATION On March 2, 1992, AETG and certain subsidiaries of the Company filed a voluntary petition requesting relief from creditors under chapter 11 of the Bankruptcy Code of 1986, as amended (the "Bankruptcy Code"). A major cause of the chapter 11 filing was the seizure of the Company's principal bank by the Federal Deposit Insurance Corporation on the maturity date of the Company's outstanding notes due to such bank (and the consequent non-renewal of such notes) during a period when the Company was experiencing liquidity constraints due to, among other things, certain non-recurring expenses. On August 23, 1993, the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") entered an order confirming a Joint Plan of Reorganization (the "Plan"). The Plan has been consummated and a final decree closing the chapter 11 proceeding was entered by the Bankruptcy Court in January 1994. As a result of the emergence from bankruptcy in fiscal 1994, AETG's consolidated financial statements recorded forgiveness of debt of $11.1 million (net of taxes) and certain other nonrecurring items. Accordingly, certain financial information included elsewhere in this Offering Circular for fiscal 1994 and prior periods is not directly comparable to financial information for fiscal 1995 and subsequent periods. Although management believes that circumstances similar to that which gave rise to the chapter 11 proceeding will not recur, no assurance can be given that such circumstances will not recur. See "Business -- General." 15 FLUCTUATION IN THE COST OF FUEL The Company, which operates a fleet of approximately 3,100 vehicles, consumes substantial quantities of fuel for its operations. The Company's fuel costs for fiscal 1996 were approximately $4.9 million. Historically, the Company has been unable to pass through increases in the price of fuel to the school districts it services. The average fuel cost per gallon for the Company has increased by approximately 20% compared to its average fuel costs in fiscal 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- General." There can be no assurance that future market conditions will not result in further increases in the cost of fuel, which increased costs may have a material adverse effect on the Company. Historically, the Company has not entered into hedging contracts to protect it from fluctuations in the cost of fuel, but it may seek to do so in the future. No assurance can be given that such hedging contracts, if entered into, would adequately protect the Company from fluctuating fuel costs. LABOR RELATIONS At December 31, 1996, approximately 65% of the Company's employees were members of various labor unions and the Company was party to 13 collective bargaining agreements, 11 of which, covering 2,870 employees, expire over the next three years, and two of which, covering 282 employees of the Coach Division and Pre-K/Medicaid Operations, have already expired. Although the two expired agreements are in the process of being renegotiated, no assurance can be given that such negotiations will be successfully concluded. In the third quarter of fiscal 1997, the Transport Workers Union of America won an election to unionize a subsidiary of the Company that has approximately 354 employees. No assurance can be given as to the outcome of negotiations with the representatives of the newly unionized employees. Labor contracts are not necessarily co-terminus with school bus transportation contracts. Although the Company believes that historically it has had satisfactory labor relations with its employees and their unions, the Company's inability to negotiate acceptable union contracts in the future or a deterioration of labor relations could result in strikes or work stoppages and increased operating costs as a result of higher wages or benefits paid to union members, which would have a material adverse effect on the Company. In addition, labor shortages in selected markets could materially adversely affect the Company's ability to enter or expand in such markets. Although the Company has had no strikes or work stoppages in the last 10 years, there can be no assurance that the Company will not have a strike or work stoppage in the future. See "Business -- Employees." POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES The Company's operations are subject to various federal, state and local environmental laws, ordinances and regulations, including those governing discharges into the air and water, the storage, handling and disposal of solid and hazardous wastes, the remediation of soil and groundwater contaminated by petroleum products or hazardous substances or wastes, and the health and safety of employees ("Environmental Laws"). The nature of the Company's operations and the history of industrial uses and presence of asbestos at some of its facilities expose the Company to the risk of liabilities or claims with respect to environmental and worker health and safety matters. In connection with its ownership and operation of its properties, the Company may be potentially liable for costs in connection with Environmental Laws (including costs of investigation and remediation), which costs could have a material adverse effect on the Company. See "Business -- Environmental Matters." GOVERNMENT REGULATIONS The Company is required to comply with laws and regulations promulgated by various federal and state regulatory agencies including, among others, state motor vehicle agencies, state departments of 16 education, the Federal Highway and Safety Administration, the Occupational Safety and Health Administration and the ADA. The Company cannot predict whether new laws or regulations relating to the Company's transportation services will be adopted and, if adopted, no assurance can be given that the implementation of such laws or regulations and any additional compliance costs associated therewith will not have a material adverse effect on the Company. See "Business - -- Government Regulations." INSURANCE COSTS; CLAIMS The Company's cost of maintaining automobile liability, personal injury, property damage and workers' compensation insurance is significant. The Company could experience higher insurance premiums as a result of adverse claims experience or because of general increases in premiums by insurance carriers for reasons unrelated to the Company's own claims experience. As an operator of school buses and other high occupancy vehicles, the Company is exposed to claims for personal injury or death and property damage as a result of accidents. Under its present insurance coverage, the Company self insures for the first $250,000 of losses per accident subject to a maximum aggregate of $3.4 million in claims per year. The Company is also responsible for the first $250,000 of losses per claim subject to a maximum aggregate of $2.8 million in claims per year for workers compensation claims. Generally, the Company's insurance policies must be renewed annually. The Company's ability to continue to obtain insurance at affordable premiums depends upon its ability to continue to operate with an acceptable safety record. A significant increase in the number of claims against the Company, the assertion of one or more claims in excess of its policy limits or the inability to obtain adequate insurance coverage at acceptable rates, or at all, could have a material adverse effect on the Company. See "Business -- Risk Management and Insurance." RISKS RELATED TO THE COMPANY'S GROWTH STRATEGY The Company intends to grow by winning new school bus contracts (from other contractors and as a result of privatizations) and through selective acquisitions. The Company expects that there will be substantial competition for new contract bidding and for prospective acquisitions. Such competition may decrease the profitability associated with any new contract and increase the cost of acquisitions. There can be no assurance that the Company will be able to identify, acquire or profitably manage additional contracts or successfully integrate acquired businesses into the Company without substantial costs, delay or other operational or financial problems. In addition, there can be no assurance that either school bus transportation contracts or acquired businesses will achieve anticipated levels of revenues and earnings. See "Business -- School Bus Industry Overview." Moreover, in order to expand its school bus fleet, the Company will be required to invest significant capital. There can be no assurance that adequate financing will be available to the Company on terms which will enable the Company to acquire a sufficient number of new vehicles or make capital expenditures necessary to implement any expansion of service. The Company's inability to procure the financing necessary to acquire additional school buses or make needed capital improvements could delay or prevent the Company from achieving its growth objectives and would have a material adverse effect on the Company. See "Business -- Fleet Management and Maintenance." DEPENDENCE ON MANAGEMENT AND KEY PERSONNEL Certain of the executive officers of the Company, including Domenic Gatto, who is the Chairman of the Board, President and Chief Executive Officer of the Company, are key to the management and direction of the Company. The loss of the services of such persons could have a material adverse effect on the Company, and there can be no assurance that the Company would be able to find replacements for such persons with equivalent business experience and skills. 17 CONTROL OF THE COMPANY The Board of Directors of the Company is comprised of seven directors, three of whom are designated by Domenic Gatto and his brothers, Michael Gatto and Patrick Gatto (collectively, the "Majority Stockholders"), and two of whom are designated by the holder (the "Preferred Stockholder") of AETG's Series A convertible preferred stock, par value $0.01 per share (the "Series A Preferred Stock"). There are two vacant seats on the Board of Directors, one of which is to be designated by the Majority Stockholders and one of which is to be designated by the Initial Purchaser. The Majority Stockholders own a majority of the voting stock of AETG, which owns all of the outstanding capital stock of the Company. Pursuant to a stockholders agreement (the "Stockholders' Agreement") among the Majority Stockholders and the Preferred Stockholder, the Board of Directors of AETG consists of five directors, three of whom have been designated by the Majority Stockholders and two of whom have been designated by the Preferred Stockholder. The Series A Preferred Stock is currently convertible into 45% of the full voting power of all of AETG's outstanding voting securities, assuming full conversion thereof. Prior to a Default (as defined in the Stockholders' Agreement), the Majority Stockholders have the power to direct the affairs of the Company and to determine the outcome of all matters required to be submitted to stockholders for approval; provided, that the approval of a supermajority of the directors of each of AETG and the Company is required before the Company or any of its subsidiaries may take any action with respect to any Significant Transaction (as defined in the Stockholders' Agreement). Following any such Default, the Preferred Stockholder is entitled to vote on stockholder issues as though it had four times the vote it would have on conversion, and the Board of Directors of each of AETG and the Company will be increased to a number so that the ratio of the directors designated by the Preferred Stockholder is maintained at a level of four to three. There can be no assurance that conditions will not arise which will result in the Preferred Stockholder obtaining voting control of AETG, and therefore of the Company. Beginning on February 28, 1999, the Preferred Stockholder has the right, subject to certain exceptions, to require AETG to redeem all of the Series A Preferred Stock then outstanding. However, it is unlikely AETG will have sufficient cash to make such redemption. In addition to any other rights the Preferred Stockholder may have if AETG fails to make such redemption, the Preferred Stockholder will obtain the right to control certain matters relating to the capitalization of AETG and its subsidiaries (including the Company and its subsidiaries), which right includes matters relating to repayments of the Notes. See "Ownership of the Company -- Stockholders' Agreement." SUBSTANTIAL COMPETITION The school bus transportation industry is highly competitive. Contracts are generally awarded pursuant to public bidding, where price is the primary criteria for a contract award. The Company has many competitors in the school bus transportation business including transportation companies with resources and facilities substantially greater than that of the Company. Although the Company has historically been competitive in the market for new contracts as well as for acquisitions of other companies, there can be no assurance that the Company will be able to compete effectively in the future. Any failure to compete effectively could have a material adverse effect on the Company. See "Business -- Competition." LACK OF PUBLIC MARKET The Old Notes have not been registered under the Securities Act and are subject to significant restrictions on resale. The New Notes will be new securities for which there is currently no public market. The Company does not intend to list the Notes on any national securities exchange or to seek the admission thereof to trading in the National Association of Securities Dealers Automated Quotation System. The Initial Purchaser has advised the Company that it currently intends to make a market in the Notes. However, the Initial Purchaser is not obligated to do so and any market making may be 18 discontinued at any time without notice. In addition, such market making activity may be limited during the Exchange Offer. Although the Old Notes sold to qualified institutional buyers are eligible for trading in the Private Offerings, Resale and Trading through Automatic Linkages ("PORTAL") market, there can be no assurance as to the development of any market or the liquidity of any market that may develop for the Notes. If a trading market does not develop or is not maintained, holders of the Notes may experience difficulty in reselling the Notes or may be unable to sell them at all. If a market for the Notes develops, any such market may be discontinued at any time. If a public trading market develops for the Notes, future trading prices of the Notes will depend on many factors, including, among other things, prevailing interest rates, the Company's results of operations and the market for similar securities. Depending on prevailing interest rates, the market for similar securities and other factors, including the financial condition of the Company, the Notes may trade at a discount from their principal amount. SEASONALITY; FLUCTUATION IN QUARTERLY OPERATING RESULTS The School Bus Division, which accounted for over 80% of the Company's revenues for each of the last three fiscal years, is seasonal in nature and generally follows the pattern of the school year, with sustained levels of business during the months of September through June. As a result, the Company has experienced a substantial decline in revenues during the months of July through September. The Company's quarterly operating results have also fluctuated due to a variety of factors, including variation in the number of school days in each quarter (which is affected by the timing of the first and last days of the school year, holidays, the month in which spring break occurs and adverse weather conditions, which can close schools) and the profitability of the Company's other divisions. In particular, historically the Company has generated net losses during the first quarter of each fiscal year. Consequently, interim results are not necessarily indicative of the full fiscal year and quarterly results may vary substantially, both within a fiscal year and between comparable fiscal years. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 19 THE EXCHANGE OFFER PURPOSE OF THE EXCHANGE OFFER The Old Notes were sold by the Company on February 4, 1997 (the "Closing Date") to the Initial Purchaser. The Initial Purchaser subsequently resold the Old Notes to "qualified institutional buyers" (within the meaning of Rule 144A) and to a limited number of institutional "accredited investors" (within the meaning of Rule 501 under the Securities Act) in transactions not requiring registration under the Securities Act or applicable state securities laws, including sales pursuant to Rule 144A. As a condition to the sale of the Old Notes, the Company, the Guarantors and the Initial Purchaser entered into the Registration Rights Agreement on the Closing Date. Pursuant to the Registration Rights Agreement, the Company agreed to (i) file within 90 days after the Closing Date a Registration Statement with the Commission with respect to the Exchange Offer and the New Notes; and (ii) use its best efforts to cause such Registration Statement to become effective under the Securities Act within 150 days after the Closing Date. If applicable law or interpretations of the Commission do not permit the Company to effect the Exchange Offer, or if certain Holders of the Notes do not receive freely tradeable Notes pursuant to the Exchange Offer or if the Exchange Offer is not consummated within 240 days after the Closing Date, the Company will use its best efforts to cause to become effective a registration statement (the "Shelf Registration Statement") with respect to the resale of the Notes and to keep the Shelf Registration Statement effective until three years after the Closing Date. The Registration Rights Agreement also provides that unless the Exchange Offer would not be permitted by a policy of the Commission, the Company will have commenced the Exchange Offer and will use its best efforts to issue on or prior to 30 business days after the date on which the Exchange Offer Registration statement was declared effective by the Commission New Notes in exchange for all Notes tendered prior thereto in the Exchange Offer. A copy of the Registration Rights Agreement has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. This description of the Registration Rights Agreement is qualified in its entirety by reference to such exhibit. The Registration Statement, of which this Prospectus is a part, is intended to satisfy certain of the Company's obligations under the Registration Rights Agreement. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal, the Company will accept any and all Old Notes validly tendered and not withdrawn prior to the Expiration Date. As of the date of this Prospectus, $110,000,000 aggregate principal amount of the Old Notes is outstanding. This Prospectus, together with the Letter of Transmittal, is first being sent on or about , 1997, to all Holders of Old Notes known to the Company. The Company's obligation to accept Old Notes for exchange pursuant to the Exchange Offer is subject to certain conditions as set forth under "-- Certain Conditions to the Exchange Offer" below. The Company will issue $1,000 principal amount of New Notes in exchange for each $1,000 principal amount of outstanding Old Notes accepted in the Exchange Offer. Holders may tender some or all of their Old Notes pursuant to the Exchange Offer. See "Risk Factors -- Failure to Exchange Old Notes." However, Old Notes may be tendered only in integral multiples of $1,000. The New Notes will evidence the same debt as the Old Notes for which they are exchanged, and are entitled to the benefits of the Indenture. The form and terms of the New Notes are the same as the form and terms of the Old Notes except that the New Notes have been registered under the Securities Act and hence will not bear legends restricting the transfer thereof. Holders do not have any appraisal or dissenters' rights under the New York Business Corporation Law or the Indenture in connection with the Exchange Offer. The Company intends to conduct the Exchange Offer in accordance with the applicable requirements of Regulation 14E under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 20 The Company shall be deemed to have accepted validly tendered Old Notes when, as and if the Company has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering Holders for the purpose of receiving the New Notes from the Company. If any tendered Old Notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, such unaccepted tenders of Old Notes will be returned, without expense to the Holder thereof, as promptly as practicable after the Expiration Date. Holders whose Old Notes are not tendered or are tendered but not accepted in the Exchange Offer will continue to hold such Old Notes and will be entitled to all the rights and preferences and subject to the limitations applicable thereto under the Indenture. Following consummation of the Exchange Offer, the Holders will continue to be subject to the existing restrictions upon transfer thereof and the Company will have no further obligation to such Holders to provide for the registration under the Securities Act of the Old Notes held by them. To the extent that Old Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Old Notes could be adversely affected. See "Risk Factors -- Failure to Exchange Old Notes." Holders who tender Old Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than certain applicable taxes, in connection with the Exchange Offer. See "-- Fees and Expenses; Solicitation of Tenders." EXPIRATION DATE; EXTENSIONS AMENDMENTS The term "Expiration Date" shall mean 5:00 p.m., New York City time on , 1997, unless the Company extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. In order to extend the Expiration Date, the Company will notify the Exchange Agent of any extension by oral or written notice and will make a release to the Dow Jones News Services prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. The Company reserves the right at its sole discretion (i) to delay accepting any Old Notes; (ii) to extend the Exchange Offer; (iii) to terminate the Exchange Offer and not accept Old Notes not previously accepted if any of the conditions set forth below under "-- Certain Conditions to the Exchange Offer" shall have occurred and shall not have been waived by the Company, by giving oral or written notice of such delay, extension or termination to the Exchange Agent; or (iv) to amend the terms of the Exchange Offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the Holders. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, the Company will promptly disclose such amendment by means of a Prospectus supplement that will be distributed to all Holders, and the Company will extend the Exchange Offer for a period of five to 10 business days, depending upon the significance of the amendment and the manner of disclosure to Holders, if the Exchange Offer would otherwise expire during such five to 10 business day period. During any extension of the Expiration Date, all Old Notes previously tendered will remain subject to the Exchange Offer and may be accepted for exchange by the Company. The Company shall have no obligation to publish, advertise, or otherwise communicate any such public announcement, other than by making a timely release to the Dow Jones News Service. INTEREST ON THE NEW NOTES Interest accrues on the Notes at the rate of 10 3/4% per annum and will be payable in cash semi-annually in arrears on each February 1 and August 1, commencing on August 1, 1997. No interest will be 21 payable on the Old Notes on the date of the exchange for the New Notes and therefore no interest will be paid thereon to the Holders at such time. PROCEDURES FOR TENDERING OLD NOTES The tender to the Company of Old Notes by a beneficial owner thereof as set forth below and the acceptance by the Company thereof 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 the Letter of Transmittal. At March 1, 1997 substantially all of the Old Notes are held of record by a nominee of the Depository. Except as set forth below, a Holder who wishes to tender Old Notes for exchange pursuant to the Exchange Offer must ensure that a properly completed and duly executed Letter of Transmittal, including all other documents required by such Letter of Transmittal, are received by the Exchange Agent at one of the addresses set forth below under "Exchange Agent" on or prior to the Expiration Date. In addition (i) certificates for such Old Notes must be received by the Exchange Agent along with the Letter of Transmittal; (ii) a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old Notes into the Exchange Agent's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date; or (iii) the Holder must comply with the guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY, NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. Each signature on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the Old Notes surrendered for exchange pursuant thereto are tendered (i) by a registered Holder of the Old Notes who has not completed the box entitled "Special Issuance Instructions" or the box entitled "Special Delivery Instructions" in the Letter of Transmittal; or (ii) for the account of an Eligible Institution (as defined below). In the event that a signature on a Letter of Transmittal or a notice of withdrawal, as the case may be, is required to be guaranteed, such guarantee must be by a firm which is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company having an office or correspondent in the United States or otherwise an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act (collectively, "Eligible Institutions"). If Old Notes are registered in the name of a person other than the person signing the Letter of Transmittal, the Old Notes surrendered for exchange must be endorsed by, or be accompanied by, a written instrument or instruments of transfer or exchange, in satisfactory form as determined by the Company in its sole discretion, duly executed by the registered Holder with the signature thereon guaranteed by an Eligible Institution. If the Letter of Transmittal is signed by a person or persons other than the registered Holder or Holders of Old Notes, such Old Notes must be endorsed by the registered Holder with signature guaranteed by an Eligible Institution or accompanied by appropriate powers of attorney with signature guaranteed by an Eligible Institution, in either case signed exactly as the name or names of the registered Holder or Holders that appear on the Old Notes. If the Letter of Transmittal or any Old Notes or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such person should so indicate when signing and, unless waived by the Company, proper evidence satisfactory to the Company of its authority so to act must be submitted with the Letter of Transmittal. 22 By tendering, each Holder will represent to the Company that, among other things (i) the New Notes acquired pursuant to the Exchange Offer are being acquired in the ordinary course of business of the person receiving such New Notes, whether or not such person is the Holder; (ii) 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; (iii) if the Holder is not a broker-dealer, or is a broker-dealer but will not receive New Notes for its own account in exchange for Old Notes, neither the Holder nor any such other person is engaged in or intends to participate in the distribution of such New Notes; and (iv) neither the Holder nor any such other person is an "affiliate," as defined under Rule 405 of the Securities Act, of the Company. If the tendering Holder is a broker-dealer that will receive New Notes for its own account in exchange for Old Notes that were acquired as a result of market-making activities or other trading activities, it will be required to acknowledge that it will deliver a Prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a Prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. DELIVERY OF DOCUMENTS TO THE DEPOSITORY OR THE COMPANY DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of Old Notes tendered for exchange will be determined by the 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 Old Notes not properly tendered or to not accept any particular Old Notes which acceptance might, in the judgment of the Company or its counsel, be unlawful. The Company also reserves the absolute right in its sole discretion to waive any defects or irregularities or conditions of the Exchange Offer as to any particular Old Notes either before or after the Expiration Date (including the right to waive the ineligibility of any Holder who seeks to tender Old Notes in the Exchange Offer). The interpretation of the terms and conditions of the Exchange Offer as to any particular Old Notes either before or after the Expiration Date (including the Letter of Transmittal and instructions thereto) by the Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with the tenders of Old 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 Old Notes for exchange, nor shall any of them incur any liability for failure to give such notification. ACCEPTANCE OF OLD 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 Old Notes properly tendered and will issue the New Notes promptly after acceptance of the Old Notes. See "-- Certain Conditions to the Exchange Offer." For purposes of the Exchange Offer, the Company shall be deemed to have accepted properly tendered Old Notes for exchange when, and if the Company has given oral or written notice thereof to the Exchange Agent. In all cases, issuance of New Notes for Old Notes that are accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry Confirmation of such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described below, a properly completed and duly executed Letter of Transmittal and all other required documents. If any tendered Old Notes are not accepted for any reason set forth in the terms and conditions of the Exchange Offer or if certificates representing Old Notes are submitted for a greater principal amount than the Holder desires to exchange, such unaccepted or non-exchanged Old Notes will be returned without expense to the tendering Holder thereof (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described 23 below, such non-exchanged Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility) as promptly as practicable after the expiration or termination of the Exchange Offer. BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the Old Notes at the Book-Entry Transfer Facility for purposes of the Exchange Offer promptly after the date of this Prospectus. Any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of Old Notes by causing the Book-Entry Transfer Facility to transfer such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's Automated Tender Offer Program ("ATOP") procedures for transfer. However, the exchange for the Notes so tendered will only be made after timely confirmation of such book-entry transfer of Notes into the Exchange Agent's account, and timely receipt by the Exchange Agent of an Agent's Message (as such term is defined in the next sentence) and any other documents required by the Letter of Transmittal on or prior to the Expiration Date or pursuant to the guaranteed delivery procedures described below. The term "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility and received by the Exchange Agent and forming a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgement from a participant tendering Notes that are the subject of such Book-Entry Confirmation that such participant has received and agrees to be bound by the terms of the Letter of Transmittal, and that the Company may enforce such agreement against such participant. GUARANTEED DELIVERY PROCEDURES If a registered Holder of the Old Notes desires to tender such Old Notes and the Old Notes are not immediately available, or time will not permit such Holder's Old Notes or other required documents 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 (i) the tender is made through an Eligible Institution; (ii) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form provided by the Company (by telegram, telex, facsimile transmission, mail or hand delivery), setting forth the name and address of the Holder of Old Notes and the amount of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that within five New York Stock Exchange ("NYSE") trading days after the date of execution of the Notice of Guaranteed Delivery, the certificates of all physically tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent; and (iii) the certificates for all physically tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and all other documents required by the Letter of Transmittal, are received by the Exchange Agent within five NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. WITHDRAWAL RIGHTS Tenders of Old Notes may be withdrawn at any time prior to the Expiration Date. For a withdrawal to be effective, a written notice of withdrawal must be received by the Exchange Agent at one of the addresses set forth below under "Exchange Agent." Any such notice of withdrawal must specify the name of the person having tendered the Old Notes to be withdrawn, identify the Old Notes to be withdrawn (including the principal amount of such Old Notes), and (where certificates for Old Notes have been transmitted) specify the name in which such Old Notes are registered, if different from that of the withdrawing Holder. If certificates for Old Notes have been delivered or otherwise identified to the Exchange Agent, then, prior to the release of such certificates, the withdrawing Holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal 24 with signatures guaranteed by an Eligible Institution unless such Holder is an Eligible Institution. If Old Notes have been tendered pursuant to the procedure for book-entry transfer described above, any note of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Old Notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the Holder thereof without cost to such Holder (or, in the case of Old Notes tendered by book-entry transfer procedures described above, such Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility for the Old Notes) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described under "Procedures for Tendering Old Notes" above at any time on or prior to the Expiration Date. CERTAIN CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other provision of the Exchange Offer, the Company shall not be required to accept for exchange, or to issue New Notes in exchange for, any Old Notes and may terminate or amend the Exchange Offer, if at any time before the acceptance of such Old Notes for exchange or the exchange of the New Notes for such Old Notes, there shall be threatened, instituted or pending any action or proceeding before, or any injunction, order or decree shall have been issued by, any court or governmental agency or other governmental regulatory or administrative agency or commission (i) seeking to restrain or prohibit the making or consummation of the Exchange Offer or any other transaction contemplated by the Exchange Offer, or assessing or seeking any damages as a result thereof; or (ii) resulting in a material delay in the ability of the Company to accept for exchange or exchange some or all of the Old Notes pursuant to the Exchange Offer; or any statute, rule, regulation, order or injunction shall be sought, proposed, introduced, enacted, promulgated or deemed applicable to the Exchange Offer or any of the transactions contemplated by the Exchange Offer by any government or governmental authority, domestic or foreign, or any action shall have been taken, proposed or threatened, by any government, governmental authority, agency or court, domestic or foreign, that in the sole judgment of the Company might directly or indirectly result in any of the consequences referred to in clause (i) or (ii) above or, in the sole judgment of the Company, might result in the holders of New Notes having obligations with respect to resales and transfers of New Notes which exceed those described herein, or would otherwise make it inadvisable to proceed with the Exchange Offer. If the Company determines in good faith that any of the conditions are not met, the Company may (i) refuse to accept any Old Notes and return all tendered Old Notes to exchanging Holders; (ii) extend the Exchange Offer and retain all Old Notes tendered prior to the expiration of the Exchange Offer, subject, however, to the rights of Holders to withdraw such Old Notes (See "-- Withdrawal Rights"); or (iii) waive certain of such unsatisfied conditions with respect to the Exchange Offer and accept all properly tendered Old Notes which have not been withdrawn or revoked. If such waiver constitutes a material change to the Exchange Offer, the Company will promptly disclose such waiver by means of a Prospectus supplement that will be distributed to all Holders. Holders have certain rights and remedies against the Company under the Registration Rights Agreement. Upon the occurrence of certain Registration Defaults (as defined), the Company will pay liquidated damages to each Holder during the first 90-day period immediately following the occurrence of such Registration Default in an amount equal to $0.05 per week per $1,000 principal amount of Old Notes held by such Holder. Thereafter, the weekly liquidated damages amount will increase to $0.10 per $1,000 principal amount of Old Notes until such Registration Default is cured. All accrued liquidated damages will be paid in the same manner as interest payments on the Old Notes on semi-annual damages payment 25 dates that correspond to interest payment dates for the Old Notes. Following the cure of a Registration Default, the accrual of liquidated damages will cease. Such conditions are not intended to modify those rights or remedies in any respect. The foregoing conditions are for the benefit of the Company and may be asserted by the Company in good faith regardless of the circumstances giving rise to such condition or may be waived by the Company in whole or in part at any time and from time to time in its discretion. The failure by the Company at any time to exercise 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. EXCHANGE AGENT The Bank of New York has been appointed as Exchange Agent for the Exchange Offer. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal should be directed to the Exchange Agent addressed as follows: BY REGISTERED OR CERTIFIED FACSIMILE TRANSMISSIONS: BY HAND OR OVERNIGHT MAIL: DELIVERY: (Eligible Institutions Only) The Bank of New York (212) 571-3080 The Bank of New York 101 Barclay Street, 7E 101 Barclay Street New York, New York 10286 TO CONFIRM BY TELEPHONE Corporate Trust Services Attn: Reorganization Section OR FOR INFORMATION CALL: Window (212) 815-6333 Ground Level New York, New York 10286 Attn: Reorganization Section Floor 7E
DELIVERY 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. FEES AND EXPENSES; SOLICITATION OF TENDERS The expenses of soliciting tenders will be borne by the Company. The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telephone or in person by officers and regular employees of the Company and its affiliates. The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments 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 in connection with the Exchange Offer will be paid by the Company and are estimated in the aggregate to be $ and include fees and expenses of the Exchange Agent and Trustee and accounting and legal fees. The Company will pay all transfer taxes, if any, applicable to the exchange of Old Notes pursuant to the Exchange Offer. If, however, certificates representing New Notes or Old Notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be registered or issued in the name of, any person other than the registered Holder of the Old Notes tendered, or if a transfer tax is imposed for any reason other than the exchange of Old Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering Holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted to the Exchange Agent, the amount of such transfer taxes will be billed directly to such tendering Holder. 26 ACCOUNTING TREATMENT The New Notes will be recorded by the Company at the same carrying value as the Old Notes, which is face value, 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. The costs of the Exchange Offer will be amortized over the term of the New Notes. CONSEQUENCES OF FAILURE TO EXCHANGE Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Old Notes as set forth in the legend thereon. In general, the Old Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. The Company does not intend to register the Old Notes under the Securities Act. The Company believes that, based upon interpretations contained in no action letters issued to third parties by the staff of the Commission, New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold or otherwise transferred by Holders thereof (other than any such Holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such Holders' business and such Holders have no arrangement with any person to participate in the distribution of such New Notes, and provided, further, that each broker-dealer that receives New Notes for its own account in exchange for Old Notes must acknowledge that it will deliver a Prospectus in connection with any resale of such New Notes. See "Plan of Distribution." If any Holder (other than a broker-dealer described in the preceding sentence) 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 any resale transaction. 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. 27 THE OLD NOTES OFFERING On February 4, 1997 the Company issued the Old Notes to the Initial Purchaser, who resold the Old Notes to "qualified institutional buyers" (within the meaning of Rule 144A) in transactions meeting the requirements of Rule 144A and to a limited number of institutional "accredited investors" (within the meaning of Rule 501 under the Securities Act) in transactions not involving a public offering. The offering of the Old Notes was part of a refinancing plan designed to extend the maturity of the Company's indebtedness, provide the Company with additional financing and operating flexibility, and enhance the Company's financial liquidity. The Company applied the net proceeds of the offering of the Old Notes (i) to repay existing indebtedness (approximately $73.8 million); (ii) to terminate certain operating leases and purchase the vehicles and other assets leased thereunder (approximately $5.9 million); (iii) to acquire a Medicaid business and purchase additional vehicles to perform the Company's obligations thereunder (approximately $1.5 million); and (iv) the remainder for general corporate purposes. Upon consummation of the offering of the Old Notes, the Company entered into the Revolving Credit Facility. See "Description of the Revolving Credit Facility." CAPITALIZATION The following table sets forth the actual capitalization of the Company as of December 31, 1996 and the capitalization of the Company at that date after giving effect to the offering of the Old Notes and the application of the net proceeds therefrom. This table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Unaudited Pro Forma Consolidated Financial Information," and the respective notes thereto included elsewhere in this Prospectus.
DECEMBER 31, 1996 -------------------------- HISTORICAL PRO FORMA ------------- ----------- ($ IN MILLIONS) Cash...................................................................................... $ 1.5 $ 31.3 ----- ----------- ----- ----------- Debt: Revolving Credit Facility............................................................... $ -- $ --(1) Existing debt........................................................................... 68.2 0.7(2) The Notes............................................................................... -- 110.0 ----- ----------- Total debt............................................................................ 68.2 110.7 Stockholder's equity...................................................................... 27.4 26.5 ----- ----------- Total capitalization.................................................................. $ 95.6 $ 137.2 ----- ----------- ----- -----------
- ------------------------ (1) Borrowings of up to $30.0 million will be available to the Company for working capital and general corporate purposes, subject to the borrowing conditions contained therein. See "Description of the Revolving Credit Facility." (2) Consists of indebtedness secured by vehicles used in the Company's Paratransit Division. Historically, the monthly payments in connection with this indebtedness have been passed through directly to the New York City Transit Authority. 28 SELECTED HISTORICAL FINANCIAL INFORMATION The selected historical financial data for each of the years in the three-year period ended June 30, 1996 were derived from the audited historical financial statements of the Company included elsewhere in this Prospectus. The historical financial data for the years ended June 30, 1992 and 1993 and for the six-month periods ended December 31, 1995 and 1996 are unaudited, but in the opinion of management include all material adjustements necessary for a fair presentation of the financial position and the results of operations for those periods. Operating results for the six months ended December 31, 1996 are not necessarily indicative of the results for the entire year ending June 30, 1997. The information contained in this table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements of the Company, including the notes thereto, included elsewhere in this Prospectus.
SIX MONTHS ENDED YEAR ENDED JUNE 30, DEC. 31, ------------------------------------------------------- --------- 1992 1993 1994(1) 1995 1996 1995 --------- --------- ----------- --------- --------- --------- ($ IN MILLIONS) OPERATING DATA: Revenues.............................................. $ 91.6 $ 93.3 $ 101.5 $ 114.0 $ 142.6 $ 59.6 Income (loss) from operations (2)....................... 6.7 5.2 5.6 5.8 7.3 1.1 Income (loss) before extraordinary items................ 1.4 1.1 1.9 1.5 1.4 (0.7) Net Income (loss)....................................... 1.4 1.1 12.3 2.6 1.4 (0.7) BALANCE SHEET DATA (AT END OF PERIOD)(3): Total assets............................................ 64.2 63.1 68.9 83.0 104.4 96.0 Long-term obligations................................... 47.2 11.3 28.9 42.3 59.7 55.8 Total stockholders' equity.............................. 1.4 2.5 25.5 28.1 29.5 27.4 1996 --------- OPERATING DATA: Revenues.............................................. $ 70.2 Income (loss) from operations (2)....................... (0.4) Income (loss) before extraordinary items................ (2.1) Net Income (loss)....................................... (2.1) BALANCE SHEET DATA (AT END OF PERIOD)(3): Total assets............................................ 113.0 Long-term obligations................................... 68.2 Total stockholders' equity.............................. 27.4
- ------------------------ (1) In 1994, certain subsidiaries of the Company emerged from bankruptcy. See "Risk Factors -- Reorganization." Net income for the year ended June 30, 1994 included $10.4 million extraordinary income pertaining to forgiveness of indebtedness. (2) The ratio of earnings to fixed charges for each of fiscal years 1992 through 1996 were 1.2x, 1.6x, 1.7x, 1.5x and 1.3x, respectively. For the six months ended December 31, 1995 and 1996, earnings were inadequate to cover fixed charges by $1.2 million and $3.5 million, respectively. Fixed charges in 1993 and 1994 exclude $4.0 million and $0.7 million of contractual interest not incurred due to the bankruptcy proceedings. See Note 3 of Notes to Consolidated Financial Statements. (3) The Company paid no dividends during any of the periods in the table. 29 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE "SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION," "UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION" AND THE HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY, INCLUDING THE NOTES THERETO, INCLUDED ELSEWHERE IN THIS PROSPECTUS. GENERAL Atlantic is one of the largest providers of school bus transportation in the United States. The Company has contracts with 53 school districts in New York, Missouri, Pennsylvania, Connecticut and New Jersey. In addition to the School Bus Division, the Company provides services to public transit systems for physically or mentally challenged passengers through the Paratransit Division, express commuter line and charter and tour bus services through the Coach Division, and transportation for pre-kindergarten children and Medicaid recipients through the Pre-K/Medicaid Operations. At December 31, 1996, Atlantic had a fleet of 3,106 vehicles operating from 25 facilities. The Company generated revenues of $142.6 million in the fiscal year ended June 30, 1996. The School Bus Division accounted for 84.4%, 84.4% and 88.9% of the Company's revenues for each of fiscal 1996, 1995 and 1994, respectively. The Company's school bus transportation contracts have provided a relatively predictable and stable stream of revenues over their terms, which range from one to five years. Since 1979, Atlantic has achieved a contract renewal rate of approximately 98%, which management believes is due to (i) its reputation for passenger safety and providing efficient, on-time service; (ii) its long-standing relationships with the school districts it services; (iii) the preference of school districts to maintain continuity of service with their current proven contractor rather than risk the uncertainty associated with a replacement; and (iv) the disadvantage of prospective competitors, who generally would have to make substantially greater investments than the Company in new equipment and who may experience difficulty obtaining suitable parking and maintenance facilities in Atlantic's primary markets, especially in the New York greater metropolitan area. The price per day per vehicle varies, depending upon a wide range of factors including (i) vehicle type (standard school buses, minivans, or vehicles with wheelchair lifts); (ii) the nature of service to be provided (transportation of regular enrollment students or transportation of physically or mentally challenged students); (iii) special requirements of a particular school district concerning age of vehicles and/or upgrades on equipment; and (iv) the cost of labor. Salaries and related labor costs are the most significant factors in the Company's cost structure. In urban areas, particularly those with a strong union presence, the cost of providing school bus transportation is substantially greater than in suburban and rural areas, where unions are generally less prevalent and salaries are lower. As a result, prices paid by school districts vary accordingly. School Bus Division revenues have historically been seasonal, based on the school year and holiday schedules. During the months of September through June, the Company's fleet of school buses has been generally fully utilized. Historically, during the summer months, only a portion of the Company's school buses have been needed to fulfill the Company's summer contracts for school and camp activities and special trips. The Company conducts periodic maintenance and overhauls of its school vehicles during the summer months, which increases costs during a season of lower revenues. See "Risk Factors -- Seasonality; Fluctuation in Quarterly Operating Results." The Paratransit Division which accounted for 8.3%, 5.3% and 3.3% of the Company's revenues in fiscal 1996, 1995 and 1994, respectively, is Atlantic's second largest and fastest growing division. The terms of the Company's paratransit contracts range from one to five years. The contracts are awarded by public transit systems through a public bidding or request for proposal ("RFP") process. The Company is generally entitled to a specified charge per hour of vehicle service together with other fixed charges. The method of contract compensation also varies. See "Business -- Paratransit Division -- Contracts." 30 The Coach Division, which accounted for 3.9%, 4.9% and 7.2% of the Company's revenues in fiscal 1996, 1995 and 1994, respectively, operates luxury coaches for express commuter services and charter and tour contracts for individual special events. The Company's contracts for coach services vary based on term and length of the trip. Coach Division charter and tour revenues are generally a function of the size and number of coaches utilized rather than the number of passengers carried. The Company's Pre-K/Medicaid Operations accounted for less than 6% of the Company's revenues in each of the last three fiscal years. Pre-K contracts are generally awarded to the lowest responsible bidder in a public bidding process. Medicaid contracts are generally awarded through negotiations with private agencies. The Company generally services specific Pre-K bus routes during the months of September through June, and services Medicaid routes throughout the year. Pre-K and Medicaid contracts are generally paid based on number of passengers per trip. The principal elements of the Company's costs of sales are labor, fuel, parts, vehicle insurance, equipment lease expense and rent. Historically, costs of sales have been highly variable, and approximately 88.7% of fiscal 1996 costs of sales were variable costs consisting of direct labor (primarily driver wages and related employment expenses), fuel costs and maintenance costs. At December 31, 1996, approximately 65% of the Company's employees were members of various labor unions and the Company was party to 13 collective bargaining agreements, 11 of which, covering 2,870 employees, expire over the next three years, and two of which, covering 282 employees of the Coach Division and Pre-K/Medicaid Operations, have already expired. Management does not expect a material increase in its labor costs from the renewal of the two expired contracts. In the third quarter of fiscal 1997, the Transport Workers Union of America won an election to unionize a subsidiary of the Company that has approximately 354 employees. Management does not expect a material increase in its labor costs as a result of such unionization, although no assurance can be given as to the outcome of negotiations with the representatives of the newly unionized employees. Historically, the Company has generally not been able (or permitted under some contracts) to raise its prices to school districts as a result of increase in labor costs during a contract term. See "Risk Factors -- Labor Relations." The average fuel cost per gallon for the Company has increased approximately 20% compared to its average fuel costs in fiscal 1996. The Company spent approximately $4.9 million on fuel in fiscal 1996. See "Risk Factors -- Fluctuation in the Cost of Fuel." General and administrative expenses include costs associated with the Company's headquarters in Staten Island and terminal office and managerial salaries. In the first half of fiscal 1997, the Company increased the size of its staff in its corporate headquarters to accommodate the Company's growth. Management believes that it currently has sufficient staff to support anticipated revenues levels. The above cost increases are anticipated to be offset somewhat as the Company's business grows and the Company realizes economies of scale by (i) spreading the cost of the administrative staff and facilities over a larger revenue base; and (ii) capturing savings in expenses such as vehicle insurance and vehicle parts and purchases. In addition, the Company obtained a reduction of approximately $1 million in the initial scheduled premium for its workers' compensation coverage for calendar 1997 compared to calendar 1996. Such reduction was due in part to the Company's recent claims experience and to recent tort reform and managed care initiatives in New York State, where most of the Company's employees work. The Company's ability to permanently obtain the benefit of such premium reductions is subject to the Company's future claims experience, which cannot be predicted with certainty. If the Company's workers' compensation claims experience is significantly adverse, the Company may be required to apply a portion or all of its premium savings towards policy retentions and future premiums could increase. Commencing June 1995, the Company received five-year extensions on all 17 of its New York Board of Education school bus transportation contracts. To receive these extensions, the Company agreed to a reduction in its rates in fiscal 1996 and to a ceiling on rate increases in fiscal 1997 and 1998. Thereafter, the contracts provide that the Company will receive increases based upon the applicable Consumer Price Index ("CPI") increase. 31 RESULTS OF OPERATIONS
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ---------------------------------------------------------------- ------------------------------- 1994 1995 1996 1995 1996 -------------------- -------------------- -------------------- -------------------- --------- ($) % ($) % ($) % ($) % ($) ($ IN MILLIONS) Revenues.................... $ 101.5 100.0% $ 114.0 100.0% $ 142.6 100.0% $ 59.6 100.0% $ 70.2 Gross profit................ 20.2 19.9 22.6 19.8 27.4 19.3 11.1 18.6 10.5 General and administrative expenses.................. 8.0 7.9 9.2 8.0 10.4 7.3 5.1 8.5 5.6 EBITDA...................... 12.2 12.0 13.4 11.8 17.0 11.9 6.0 10.0 5.0 Depreciation and amortization.............. 6.6 6.5 7.6 6.7 9.7 6.8 4.9 8.2 5.4 Income (loss) from operations................ 5.6 5.5 5.8 5.1 7.3 5.1 1.1 1.8 (0.4) Net interest expense........ 2.7 2.7 3.1 2.7 5.1 3.6 2.3 3.8 3.1 Net income (loss)........... 12.3(1) 12.1 2.6(2) 2.3 1.4 1.0 (0.7) (1.1) (2.1) % Revenues.................... 100.0% Gross profit................ 15.0 General and administrative expenses.................. 7.9 EBITDA...................... 7.1 Depreciation and amortization.............. 7.6 Income (loss) from operations................ (0.6) Net interest expense........ 4.5 Net income (loss)........... (3.0)
- ------------------------ (1) Includes extraordinary item, forgiveness of indebtedness of $10.4 million net of $1.6 million of taxes. (2) Includes extraordinary item, forgiveness of indebtedness of $1.1 million net of $0 of taxes. SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED TO SIX MONTHS ENDED DECEMBER 31, 1995 REVENUES. Revenues were $70.2 million for the six months ended December 31, 1996 compared to $59.6 million for the comparable period in 1995, an increase of $10.6 million or 17.8%. This increase was due primarily to (i) the award of a new St. Louis Contract which was initiated in September 1996 and added $3.6 million of revenues; (ii) new contracts awarded to the Paratransit Division, which added $3.4 million of revenues; (iii) $1.8 million in contract rate increases and other billings; (iv) the acquisition of school bus routes in the State of New York in October 1995, which added $0.8 million of revenues; (v) $0.6 million of additional summer contracts; and (vi) $0.4 million of additional Pre-K/Medicaid billings. The Company's revenues are generally significantly lower during the months of July and August and therefore results for the first six months are not representative of annual operations. See "Risk Factors -- Seasonality; Fluctuation in Quarterly Operating Results." GROSS PROFIT. Gross profit was $10.5 million for the six months ended December 31, 1996, compared to $11.1 million for the six months ended December 31, 1995, a decrease of $0.6 million or 5.1%. This decrease was due primarily to (i) the increase in fuel costs by approximately 20% and a greater number of vehicles, for the six months ended December 31, 1996 from the six months ended December 31, 1995; and (ii) three additional salary days offset by one additional revenue day, in New York City due to the nature of the school calendar. As a percentage of revenues, gross profit was 15.0% and 18.6% for each of the six months ended December 31, 1996 and December 31, 1995, respectively. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were $5.6 million for the six months ended December 31, 1996 compared to $5.1 million for the six months ended December 31, 1995, an increase of $0.5 million or 9.1%. This increase was related primarily to the new St. Louis Contract, which required hiring additional local staff. However, general and administrative expenses decreased as a percentage of revenues to 7.9% in the six months ended December 31, 1996 from 8.5% in the six months ended December 31, 1995, primarily as a result of the Company's increase in sales and its ability to spread the cost of its administrative staff and facilities over a larger revenue base. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was $5.4 million for the six months ended December 31, 1996, compared to $4.9 million for the six months ended December 31, 1995, an increase of $0.5 million or 9.6%. This increase was due primarily to the purchase of additional vehicles for new contracts, including the new St. Louis Contract. 32 INCOME (LOSS) FROM OPERATIONS. The Company generated a $0.4 million loss from operations for the six months ended December 31, 1996 compared to a $1.1 million of income from operations for the six months ended December 31, 1995, a $1.5 million decrease. NET INTEREST EXPENSE. Net interest expense was $3.1 million for the six months ended December 31, 1996 compared to $2.3 million for the six months ended December 31, 1995, an increase of $0.9 million or 37.5%. This increase was due primarily to interest expense associated with debt acquired in connection with the purchase of new vehicles. NET INCOME (LOSS). As a result of the foregoing factors, the Company generated a net loss of $2.1 million for the six months ended December 31, 1996 compared to a net loss of $0.7 million for the six months ended December 31, 1995, a $1.4 million increase. FISCAL YEAR ENDED JUNE 30, 1996 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1995 REVENUES. Revenues were $142.6 million in fiscal 1996 compared to $114.0 million in fiscal 1995, an increase of $28.5 million or 25.0%. This increase was due primarily to (i) the acquisition of certain routes in the State of New York in May 1995 and October 1995, which added revenues of approximately $10.3 million; (ii) new school bus contracts in St. Louis, which added revenues of $9.2 million; (iii) the acquisition of Raybern Bus Service, Inc. and related companies in August 1995, which added revenues of $4.7 million; (iv) the award of a new Paratransit Division contract in Kentucky, which added $3.4 million of revenues; and (v) approximately $2.4 million of additional Paratransit Division revenues in New York City. These increases were partially offset by a decrease of approximately $1.2 million in revenues in the Company's Pre-K/Medicaid Division due primarily to lost contracts and a further decrease of approximately $0.3 million due to a reduction in other billings. GROSS PROFIT. Gross profit was $27.4 million in fiscal 1996 compared to $22.6 million in fiscal 1995, an increase of $4.9 million or 21.6%. This increase was due primarily to the increase in revenues described above. As a percentage of revenues, gross profit was 19.3% and 19.8% in fiscal 1996 and fiscal 1995, respectively. Commencing June 1995, the Company received five-year extensions on all 17 of its New York Board of Education school bus transportation contracts. To receive these extensions, the Company agreed to a reduction in its rates in fiscal 1996 and to a ceiling on rate increases in fiscal 1997 and 1998. Thereafter, the contracts provide that the Company will receive increases based upon the applicable CPI increase. Consequently, the Company's gross margins in fiscal 1996 were lower than in fiscal 1995. See "-- General." GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were $10.4 million in fiscal 1996 compared to $9.2 million in fiscal 1995, an increase of $1.3 million or 14.0%. This increase was due primarily to increased corporate staff to accommodate growth in the Company's operations, although a portion of this growth was absorbed by existing staff. As a result, general and administrative expenses decreased as a percentage of revenues to 7.3% in fiscal 1996 from 8.0% in fiscal 1995. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was $9.7 million in fiscal 1996 compared to $7.6 million in fiscal 1995, an increase of $2.1 million or 27.6%. Depreciation increased $1.5 million due to the increased level of capital expenditures primarily relating to school buses acquired in connection with contracts in St. Louis, and amortization increased $0.6 million due to the purchase of certain school bus route contract rights in fiscal 1996 and amortization of deferred financing costs. INCOME (LOSS) FROM OPERATIONS. Income from operations was $7.3 million or 5.1% of revenues in fiscal 1996 and was $5.8 million or 5.1% of revenues in fiscal 1995. NET INTEREST EXPENSE. Net interest expense was $5.1 million in fiscal 1996 compared to $3.1 million in fiscal 1995, an increase of $2.0 million or 66.7%. This increase was due primarily to interest expense in 33 connection with (i) acquisitions of new subsidiaries; (ii) the purchase of new vehicles; and (iii) the term loan obtained in October 1994. NET INCOME (LOSS). The Company generated net income of $1.4 million for fiscal 1996 compared to $2.6 million (including extraordinary item, forgiveness of indebtedness of $1.1 million net of $0 of taxes) for fiscal 1995, a $1.2 million decrease. FISCAL YEAR ENDED JUNE 30, 1995 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1994 REVENUES. Revenues were $114.0 million in fiscal 1995 compared to $101.5 million in fiscal 1994, an increase of $12.5 million or 12.3%. This increase was due primarily to (i) the purchase of Medicaid and a Pre-K contracts in May 1994, which added $5.6 million of aggregate revenues; (ii) the award of new Paratransit Division contracts in October 1994, which added approximately $2.6 million of revenues; (iii) the acquisition of school bus routes in Pennsylvania in October 1994, which added $3.0 million of revenues; (iv) $2.7 million in contract rate increases and other billings; and (v) the acquisition of K. Corr, Inc. in May 1995, which contributed $0.3 million of revenues. These increases were offset in part by a $1.7 million decrease in revenues in the Coach Division resulting from the sale of certain routes and 11 vehicles. GROSS PROFIT. Gross profit was $22.6 million in fiscal 1995 compared to $20.2 million in fiscal 1994, an increase of $2.4 million or 11.9%. This increase was due primarily to the increase in revenues described above. As a percentage of revenues, gross profit was 19.8% and 19.9% in fiscal 1995 and fiscal 1994, respectively. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were $9.2 million in fiscal 1995 compared to $8.0 million in fiscal 1994, an increase of $1.1 million or 14.1%. This increase was due primarily to $0.3 million of consulting expenses incurred in connection with the acquisition of Medicaid and Pre-K contracts and due to increased overhead associated the Company's integration of new routes and businesses. As a percentage of revenues, general and administrative expenses increased to 8.0% in fiscal 1995 from 7.9% in fiscal 1994. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was $7.6 million compared to $6.6 million in fiscal 1994, an increase of $1.0 million. This increase was due to increased capital expenditures made in connection with the purchase of previously leased transportation equipment. INCOME (LOSS) FROM OPERATIONS. Income from operations was $5.8 million or 5.1% of revenues in fiscal 1995 and was $5.6 million or 5.5% of revenues in fiscal 1994. NET INTEREST EXPENSE. Net interest expense was $3.1 million in fiscal 1995 compared to $2.7 million in fiscal 1994, an increase of $0.4 million or 14.6%. This increase was due primarily to interest expense in connection with (i) the purchase of new vehicles; (ii) the term loan obtained in October 1994; and (iii) $0.7 million of interest forgiven in connection with the Plan in fiscal 1994. NET INCOME (LOSS). The Company generated net income of $2.6 million (including extraordinary item, forgiveness of indebtedness of $1.1 million net of $0 of taxes) in fiscal 1995 compared to a net income of $12.3 million (including an extraordinary item, forgiveness of indebtedness of $10.4 million net of $1.6 million of taxes) for fiscal 1994, a $9.5 million decrease. LIQUIDITY AND CAPITAL RESOURCES The Company had historically financed both its working capital and capital expenditures with short-term financing. As a result, the Company had been subject to significant debt amortization and refinancing requirements which strained the Company's cash flows, especially during the seasonal low periods. Management believes the proceeds from the offering of the Old Notes, and the establishment of the 34 Revolving Credit Facility, which was undrawn at March 31, 1997, will provide the Company with significantly more liquidity. Management anticipates total capital expenditures of $22.1 million in fiscal 1997 of which approximately $14.0 million was funded by December 31, 1996 and $5.8 million was funded from the proceeds of the offering of the Old Notes. See "The Old Notes Offering." The capital expenditures made by December 31, 1996 include approximately $10.0 million for the purchase of new buses for the St. Louis Contract and $4.0 million of capital expenditures for additional vehicles, equipment and the expansion of the Company's corporate headquarters. The capital expenditures funded and to be funded from the proceeds of the offering of the Old Notes relate to the New Medicaid Contract and purchase of certain assets currently under operating lease. See "The Old Notes Offering." With the current fleet size, management anticipates making approximately $3.0 million of annual capital expenditures for regular replacement of vehicles and approximately $2.0 million of annual maintenance capital expenditures. NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES. Net cash provided by operating activities was $5.4 million for the six months ended December 31, 1996, primarily due to $5.4 million of depreciation and amortization and a $3.3 million increase in accounts payable and accrued expenses. These sources of funds were offset in part by a $2.1 million net loss. Net cash provided by operating activities was $4.5 million for fiscal 1996, due primarily to net income of $1.4 million and depreciation and amortization of $9.7 million which were offset in part by $3.8 million of funds used for working capital and $1.9 million of funds transferred to restricted cash as collateral for a letter of credit. NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES. For the six months ended December 31, 1996, the Company made $13.6 million of capital expenditures to acquire additional vehicles and equipment and for expansion of the Company's corporate headquarters. Of these capital expenditures, $11.9 million were directly financed. In fiscal 1996, the Company made $20.7 million of capital expenditures, of which $17.4 million were directly financed. In addition, the Company purchased $3.0 million of contract rights in fiscal 1996, of which $2.7 million were directly financed. The Company operates in a capital intensive industry which has historically required significant capital expenditures to attain additional bus routes and purchase additional buses to service such routes. The Company's maintenance capital expenditures were approximately $1.7 million in fiscal 1996. NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES. Net cash used in financing activities totaled $3.5 million for the six months ended December 31, 1996, due primarily to a reduction in the Company's revolving line of credit of $3.4 million and $5.4 million of principal repayments and debt amortization requirements, which were offset by additional borrowings of $5.3 million. In addition, the Company incurred $11.9 million of indebtedness to directly finance capital expenditures for the six months ended December 31, 1996. In fiscal 1996, net cash used in financing activities totaled $4.1 million due to $12.4 million of principal repayments and debt amortization requirements, which were offset by $8.3 million of additional borrowings, used to finance normal working capital needs. In addition, the Company incurred $20.1 million of aggregate indebtedness to directly finance capital expenditures and acquisitions of contract rights. QUARTERLY FINANCIAL INFORMATION; SEASONALITY The table below sets forth unaudited summary financial information for the Company for the last 10 quarters. This information has been prepared by the Company on a basis consistent with its audited financial statements and includes all adjustments that management considers necessary for a fair presentation of the results for such quarters. The Company's operations are seasonal in nature. Historically, the first quarter of the Company's fiscal year has generated operating losses due to significantly reduced revenues of the School Bus Division during the summer months. The Company's school bus contracts generally resume in late August and early 35 September. The Company's quarterly operating results also fluctuate due to a variety of factors, including variation in the number of school days in each quarter (which is affected by the timing of the first and last days of the school year, holidays, the month in which spring break occurs and adverse weather conditions, which can close schools) and the profitability of the Company's other divisions. Consequently, interim results are not necessarily indicative of the full year and quarterly results may vary substantially, both within a fiscal year and between comparable fiscal years. For example, in most of the Company's markets, the second quarter of fiscal 1997 had one less revenue day and one more payroll day when compared to the second quarter of fiscal 1996, which had a negative impact on operating results of approximately $0.6 million. See "Risk Factors -- Seasonality; Fluctuation in Quarterly Operating Results."
FISCAL 1995 FISCAL 1996 ---------------------------------------------------- ---------------------------------------------------------- SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, 1994 1994 1995 1995 1995 1995 1996 1996 ----------- ----------- ------------- ----------- ----------------- ----------- ------------- ----------- ($ IN MILLIONS) Revenue........... $ 15.8 $ 31.7 $ 32.9 $ 33.7 $ 18.9 $ 40.7 $ 41.6 $ 41.4 Income (loss) from operations...... (2.7) 2.6 2.7 3.3 (2.8) 3.8 2.6 3.7 Net income (loss) before extraordinary item............ (2.1) 1.0 1.2 1.4 (2.5) 1.6 0.8 1.5 EBITDA............ (1.1) 4.4 4.6 5.5 (0.5) 6.4 5.2 5.9 FISCAL 1997 ------------------------ SEPT. 30, DEC. 31, 1996 1996 ----------- ----------- Revenue........... $ 25.2 $ 45.0 Income (loss) from operations...... (2.8) 2.4 Net income (loss) before extraordinary item............ (2.5) 0.5 EBITDA............ (0.2) 5.2
36 BUSINESS GENERAL Atlantic is one of the largest providers of school bus transportation in the United States. The Company has contracts with 53 school districts in New York, Missouri, Pennsylvania, Connecticut and New Jersey. In addition to the School Bus Division, the Company provides services to public transit systems for physically or mentally challenged passengers through the Paratransit Division, express commuter line and charter and tour bus services through the Coach Division, and transportation for pre-kindergarten children and Medicaid recipients through the Pre-K/Medicaid Operations. At December 31, 1996, Atlantic had a fleet of 3,106 vehicles operating from 25 facilities. For the fiscal year ended June 30, 1996, the Company generated revenues of $142.6 million, approximately 84% of which was derived from the School Bus Division. The Company's school bus transportation contracts have provided a relatively predictable and stable stream of revenues over their terms, which range from one to five years. Since 1979, Atlantic has achieved a contract renewal rate of approximately 98%, which management believes is due to (i) its reputation for passenger safety and providing efficient, on-time service; (ii) its long-standing relationships with the school districts it services; (iii) the preference of school districts to maintain continuity of service with their current proven contractor rather than risk the uncertainty associated with a replacement; and (iv) the disadvantage of prospective competitors who generally would have to make substantially greater investments than the Company in new equipment and who may experience difficulty obtaining suitable parking and maintenance facilities in Atlantic's primary markets, especially in the New York greater metropolitan area. By capitalizing on the stable revenue stream provided by its existing contracts and its reputation for passenger safety and service, Atlantic has become one of the fastest growing major school bus companies in the United States. This growth has resulted from (i) securing additional contracts from existing and new customers (including replacing underperforming contractors); (ii) expanding into new markets; and (iii) consummating a series of strategic acquisitions. Management believes that the proven strength and experience of its management team and its reputation for passenger safety and service provide a strong foundation for continued growth and increased cash flow. To capitalize on the opportunities presented by the transportation industry, Atlantic's management team focuses on the following areas: (i) expansion into new markets; (ii) expansion into existing markets; (iii) growth of the Paratransit Division; and (iv) focus on passenger safety and service. Atlantic was founded in 1964 as a school bus company based in Staten Island, New York. Domenic Gatto, Chairman of the Board, Chief Executive Officer and President of the Company, commenced employment with the Company in 1973 and purchased the Company in 1974, at which time the Company operated only 16 buses. In 1979, the Company was awarded two major school bus transportation contracts by the New York Board of Education, which substantially increased the Company's revenues. These contracts, which were originally awarded for a period of three years, have been extended successively through fiscal 2000. From 1982 to 1987, the Company strengthened its presence in New York City through the acquisition of 13 regional school bus transportation companies which, in aggregate, contributed approximately $22.4 million of revenues in fiscal 1996. In 1986, the Company won and purchased additional contracts in New York City, which also have been extended successively through fiscal 2000, and which contributed revenues of approximately $25.1 million in fiscal 1996. From 1986 to 1989, the Company further strengthened its presence in New York City through the acquisitions of five local contractors and expanded its operations to Nassau and Suffolk counties on Long Island, New York, through a combination of acquisitions and winning new contracts. From 1990 to 1995, the Company consummated six additional acquisitions in the New York metropolitan area and three acquisitions on Long Island, New York, which generated approximately $20.6 million of revenues in fiscal 1996. In addition to the Company's expansion in the New York greater metropolitan area, the Company extended its operations to Philadelphia in 1993, 37 where it was the successful bidder for a new contract, which, when combined with subsequent acquisitions in 1993, contributed approximately $8.2 million of revenues in fiscal 1996. Continuing its strategy of expanding its operations outside New York City, the Company established operations in St. Louis in 1995 by winning contracts, which contributed $9.2 million of revenues in fiscal 1996. The St. Louis operations were expanded in September 1996 by winning a school bus transportation contract for a voluntary student desegregation program, requiring an additional 246 school buses, which is expected to generate $7.5 million of revenues in fiscal 1997. In March 1992, AETG and certain subsidiaries of the Company filed a voluntary petition requesting relief from creditors under chapter 11 of the Bankruptcy Code. In August 1993, the Bankruptcy Court entered an order confirming the Plan. The Plan has been consummated and a final decree closing the chapter 11 proceeding was entered by the Bankruptcy Court in January 1994. A major cause of the chapter 11 filing was the seizure of the Company's principal bank by the Federal Deposit Insurance Corporation on the maturity date of the Company's outstanding notes due to such bank (and the consequent non-renewal of such notes) during a period when the Company was experiencing liquidity constraints due to, among other things, certain non-recurring expenses. The chapter 11 proceedings did not adversely affect the Company's relationship with any of the school districts which it serviced at the time of, or subsequent to, the chapter 11 proceedings. All transportation contracts of the Company were performed without interruption and have since been further extended by each of such school districts. Moreover, the Company has not encountered difficulty in bidding for or negotiating contracts with new school districts as a result of the chapter 11 proceedings. See "Risk Factors -- Reorganization." In February 1994, an investor group represented by Wafra Investment Advisory Group, Inc. ("Wafra") purchased Series A Preferred Stock from the Company, in exchange for $12.75 million in cash and common stock, no par value of AETG (the "Common Stock"), valued at $2.95 million on the date of purchase. The Preferred Stock represents 100% of the authorized preferred stock and, upon full conversion, 45% of the issued and outstanding Common Stock. Wafra is a multi-disciplined investment manager with over $1.3 billion of capital under management, $200 million of which is committed to direct equity investments. Prior to any such conversion, all of the Common Stock is owned by the Majority Stockholders. See "Ownership of the Company." SCHOOL BUS INDUSTRY OVERVIEW According to the most recently available industry sources, an estimated 24 million children ride school buses each school day in the United States, at an annual cost of approximately $12 billion. Approximately two-thirds of the approximately 400,000 school buses used to transport these children are operated by school districts, with the remaining one-third operated by over 5,000 private contractors. Based on 1996 industry sources, Laidlaw Transit, Inc., a division of Laidlaw, Inc., is the largest private school bus transportation contractor in North America, followed by Ryder Student Transportation, a division of Ryder System, Inc., Durham Transportation Inc. and the Company follow, based on fleet size. Management believes that, if measured by revenues, it would be the third largest school bus contractor because of its significant operations in higher-priced urban markets, especially in New York City. Management believes that three major trends, described below, affecting the school bus transportation industry provide the Company with significant opportunities for continued growth. PRIVATIZATION. Privatization of student transportation is becoming an increasingly attractive cost-cutting option to school districts. Management believes that, by outsourcing school bus transportation and related regulatory compliance activities, school boards can focus more of their efforts on education. Consequently, since 1990, while the total number of school buses in the industry overall has only grown by approximately 10%, the number of school buses operated by the private sector has increased by over 60%. According to a recent industry survey, 65 school districts converted portions of their transportation operations to the private sector in the 1995-96 school year. School bus transportation contractors, 38 including the Company, are increasing their efforts to persuade school boards that contracting for student transportation services will conserve scarce public dollars while providing safe and reliable service. CONSOLIDATION. According to an industry source, in 1996, the 10 largest contractors accounted for approximately 50% of school buses in the private sector, with the remaining 50% reportedly operated by approximately 5,000 regional contractors. Continuing consolidation is occurring among private contractors, driven largely by the inability of smaller companies to absorb the costs of complying with increasingly stringent government regulations while still providing commensurate levels of service at competitive prices. EXPECTED INCREASE IN SCHOOL ENROLLMENT. The U.S. Department of Education has projected a substantial increase in public school enrollment in the 10-year period between 1996 and 2006. In addition, the 1996 school year is projected to set a new national record for public school enrollment of 51.7 million students. This growth, which is attributable to a rise in the birth rate since 1984, has been termed the "baby boom echo." Through 2006, an estimated 6,000 additional schools would be required to accommodate the projected increase in enrollment. An estimated 33 states are expected to face substantial rising enrollments, with a 14% increase in the west and a 6% increase in the south, while the north and mid-west are estimated to remain relatively stable. An enrollment increase of 6% has been projected in New York City. The school bus transportation industry will need to grow accordingly to accommodate the expected increase in school enrollment. Management believes that resources required to effectively capitalize on the above-mentioned industry trends favor larger school bus contractors like the Company. In addition, management believes that the demand for school bus transportation is generally insensitive to economic cycles and is fundamentally strong, with industry sources projecting increases in public and private school enrollment each year through 2006 from the record level projected in 1996. SCHOOL BUS DIVISION The Company has contracts to provide school bus transportation for approximately 103,000 children each school day in 53 school districts located in New York, Missouri, Pennsylvania, Connecticut and New Jersey. The Company's revenues from school bus operations (which generated 84.4% of the Company's revenues in fiscal 1996) have increased at a compound annual rate of 15.4% from $90.3 million in fiscal 1994 to $120.3 million in 1996. SERVICES. The Company generally provides services for transportation of open enrollment ("Regular Education") students through the use of standard school buses, and transportation for physically or mentally challenged ("Special Education") students through the use of an assortment of vehicles, including standard school buses, passenger vans, and lift-gate vehicles, which are capable of accommodating wheelchair bound students. In most jurisdictions serviced by the Company, escorts are required to accompany drivers on Special Education vehicles. CONTRACTS. The Company's school bus transportation contracts are awarded by school districts based on public bidding or a RFP. The Company's school bus transportation contracts have provided a relatively predictable and stable stream of revenues over their terms, which range from one to five years. Since 1979, Atlantic has achieved a contract renewal rate of approximately 98%. Compensation under school bus transportation contracts is generally based upon a daily rate per vehicle which is established either by public bidding or by proposal and negotiation with respect to RFP contracts. Contracts in New York City provide for the payment of the daily vehicle rate (which encompasses all costs of the Company, including driver and escorts) for days of scheduled performance in accordance with the school calendar and provides for payment in the event of school cancellation as a result of inclement weather or other emergencies. The number of vehicles required is determined by the school districts, initially pursuant to its bid specifications and/or RFP, and is subject to change. 39 Commencing June 1995, the Company received five-year extensions on all 17 of its New York Board of Education school bus transportation contracts. To receive these extensions, the Company agreed to a reduction in its rates in fiscal 1996 and to a ceiling on the increases in fiscal 1997 and 1998. Thereafter, the contracts provide that the Company will receive increases based upon the applicable CPI increase. The Company's school bus transportation contracts generally provide for performance security in one or more of the following forms: performance bonds, letters of credit and cash retainages. Under current arrangements, the Company secures the performance of its New York Board of Education contracts through the use of performance bonds plus cash retainages of 5% of amounts due to the Company. In most instances, the Company has opted to satisfy its security performance requirements by posting performance bonds. At December 31, 1996, the Company had provided performance bonds aggregating $18.6 million. The new Revolving Credit Facility will provide for the issuance of letters of credit. See "Risk Factors -- Transportation Contract Requirements" and " -- Reliance Upon and Concentration of School Bus Transportation Contracts with School Districts." CUSTOMERS. The Company has longstanding relationships with many of the school districts which it services. School districts with which the Company does business generally appoint a business manager and/ or transportation supervisor to oversee school bus transportation operations. Larger school districts have separate bureaus or divisions which regulate and supervise the provision of school bus transportation services. Passenger safety, timeliness and quality of service are among the factors used by school bus transportation administrators to evaluate the Company. In the Company's experience, unless a school district is dissatisfied with the services of a school bus transportation contractor, school districts tend to extend existing contracts rather than solicit bids from potential replacement contractors, unless applicable law or the terms of the contract otherwise require. Management believes that replacing an existing contractor through a bidding process generally has resulted in higher prices to districts than contract extensions because of the significant start-up costs that a replacement contractor faces. Bidding also exposes a school district to uncertainty in the quality of service which would be provided by a new contractor. Historically, school districts awarded school bus transportation contracts through a public bidding process by which such contracts were required to be awarded to the lowest responsible bidder, without regard to quality of service. However, management believes that due, in part, to the poor performance of certain low-priced school bus transportation contractors, school districts will increasingly rely on a RFP process, which enables school administrators to broaden the factors considered when awarding a contract. Factors such as passenger safety, timeliness and quality of service, among others, are generally considered under the RFP process. In 1996, the State of New York (where the Company has its largest concentration of school bus transportation contracts) adopted legislation which, for the first time, permits school districts in the State of New York to select school bus transportation contractors through a RFP process. Management believes that because of the reputation it has developed in the school bus transportation industry, it is well-positioned to obtain contracts which are awarded by the RFP process as well as by public bidding. The Company's 17 contracts with the New York Board of Education have been successively extended through fiscal 2000. The New York Board of Education accounted for 49.8%, 57.0%, and 63.2% of the Company's revenues in fiscal 1996, 1995 and 1994, respectively. No other customer contributed greater than 7% of the Company's revenues during these periods. See "Risk Factors -- Reliance Upon and Concentration of School Bus Transportation Contracts with School Districts." PARATRANSIT DIVISION The Paratransit Division is Atlantic's second largest and fastest growing division. The Paratransit Division's revenues have increased from $3.4 million in fiscal 1994 to $11.8 million in fiscal 1996. Management believes the demand for paratransit services in the United States will continue to grow over 40 the next several years. Pursuant to the ADA, certain public transit systems are required to provide comparable services to disabled persons who are unable to use standard public transportation. The ADA required over 500 public transit systems in the United States to implement fully operational paratransit systems by January 1997. Because the ADA was enacted in 1990, the paratransit services industry is relatively young, with most existing contracts having been awarded in the last five years. The larger public transit systems in the United States rely predominantly upon the private sector to perform paratransit services, while approximately one-half of the small and medium size systems outsource paratransit transportation services. Management believes many small companies that have been providing paratransit services may be unable to fulfill the complex service requirements of paratransit contracts, and thus many of the contracts presently held by such operators may not be renewed. The Company has gained substantial experience in satisfying the rigorous demands of such contracts and plans to compete aggressively to obtain new paratransit contracts in the next five years as contracts awarded expire. With the exception of relatively minor contributions for some vehicle acquisition costs, the ADA requirement to provide paratransit services was an unfunded mandate by the federal government. An industry source estimates that the annual cost of providing paratransit services in the United States is approximately $1 billion. Better known national paratransit providers include Laidlaw Transit, Inc., DAVE Transportation Services, Inc., Ryder ATE, a division of Ryder Systems Inc., Southeast Transit Management Inc. and the Company. In addition, paratransit services are also provided by several hundred smaller local paratransit companies and by local municipalities. To achieve passenger safety and to satisfy paratransit contract requirements, the Company has instituted a comprehensive driver training course which encompasses defensive driving, passenger sensitivity, first aid and CPR procedures, passenger assistance techniques and a comprehensive knowledge of disabilities of the passengers which the Company transports. The Company has also developed and implemented complex and comprehensive routing and scheduling programs in order to provide its paratransit services in accordance with rapid response times which are contractually mandated. Paratransit services are primarily funded by public transit systems. SERVICES. The Company's paratransit services are rendered based upon advance call-in requests for transportation, which are generally scheduled by the Company. At December 31, 1996, the Company had approximately 224 vehicles consisting of full-size four-door sedan automobiles and lift-equipped vans to service its paratransit transportation contracts. The Paratransit Division has developed a substantial degree of expertise in developing and providing transportation services required by its physically or mentally challenged passengers in this developing segment of the transportation industry. CONTRACTS. The terms of the Company's paratransit contracts range from one to five years. The scope of services and contract requirements vary considerably from one jurisdiction to another. The three general components of paratransit transportation services are (i) providing the actual transportation services; (ii) reserving passenger requests for service; and (iii) sorting and scheduling passenger requests for service. Some of the Company's customers require the Company to perform all three components of service while other customers perform one or more of such functions themselves. Paratransit vehicles are either provided by the transit agency or the Company depending upon the terms of a particular contract. The Company is generally entitled to a specified charge per hour of vehicle service. Paratransit users pay the Company a fixed amount per trip determined by the local transit system governmental entity (which may be equal to or based upon prevailing public transportation fees in the jurisdiction in question), which is credited against the monthly contract price due from the local transit system. CUSTOMERS. The Company presently performs paratransit services under contracts with public transit systems in New York City; Yonkers, New York; Louisville, Kentucky; Atlantic City, New Jersey; and Philadelphia, Pennsylvania. Management believes that its New York City Transit Authority contract is one of the largest paratransit contracts awarded to date in the United States. 41 COACH DIVISION The Company provides express commuter, charter and tour bus transportation services with a fleet of 32 luxury motor coaches and 15 mini coaches. For the six months ended December 31, 1996, express commuter services were provided to approximately 750 passengers from a "Park and Ride" facility (which is leased from an affiliate company in AETG's entertainment business) in Staten Island, New York to and from Manhattan on a daily basis. See "Certain Transactions." Charter and tour bus operations include single day and multi-day charters throughout the continental United States and Canada. In addition, the Company operates scheduled line services between New York City and Atlantic City under contractual arrangements with tour operators. Luxury coaches are generally contracted for individual special events. The Company's contracts for coach services vary based on duration and length of trip. This segment of the Company's operations generated 3.9% of the Company's revenues in fiscal 1996. PRE-K/MEDICAID OPERATIONS The Company provides transportation for physically or mentally challenged children between the ages of three and five, to and from pre-kindergarten facilities located in the New York City metropolitan area. At December 31, 1996, the Company transported approximately 250 children each school day with approximately 35 vehicles pursuant to contracts with the New York City Department of Transportation. Each vehicle requires the presence of an escort who is responsible to assist the children on and off the bus. Escorts are employed and trained by the Company. The Company is compensated on a per child basis at rates which were determined pursuant to public bidding. The Company expects that the current Pre-K contracts, which are scheduled to expire in June 1997, will not be extended and will be re-bid based upon the industry-wide policy of the New York City Department of Transportation. The Company also performs contracts with private, not-for-profit organizations, which are funded under Medicaid, for the transportation of physically or mentally challenged passengers to and from rehabilitation facilities. At December 31, 1996, the Company utilized 40 vehicles in the performance of these contracts and receives compensation based upon a daily rate per person transported, which rates of compensation vary based upon ambulatory and nonambulatory passengers. The Company generated approximately 3.5% of its revenues in fiscal 1996 from its Pre-K/Medicaid Operations. FOCUS ON PASSENGER SAFETY AND SERVICE Management has developed a corporate culture focused on passenger safety and service. Atlantic participates in the "Safe Bus" program, under which complaints regarding school bus drivers' performance and safety are registered by an independent party and forwarded to the Company for remedial action. Unlike many of its competitors, the Company requires its drivers to wear standardized uniforms, thereby reinforcing its professional image. In addition, all drivers are required to attend periodic safety workshops and training programs, which emphasize defensive driving and courteous behavior. Management believes that its emphasis on passenger safety and service is a competitive advantage and a major contributor to its success in winning new contracts. FLEET MANAGEMENT AND MAINTENANCE At December 31, 1996, the Company had a fleet of 3,106 vehicles and the average age of the Company's fleet was 5.9 years (6.7 years for school buses, which account for 62% of the Company's fleet). School buses have an average useful life of approximately 16 years. 42 At December 31, 1996, the fleet was maintained by the Company's approximately 270 trained mechanics at its 25 facilities. The Company has a comprehensive preventive maintenance program for its equipment to minimize equipment down time and prolong equipment life. Programs implemented by the Company include standard maintenance, regular safety checks, lubrication, wheel alignments and oil and filter changes, all of which are performed on a regularly scheduled basis by the Company's mechanics. The following is a breakdown of the Company's fleet of vehicles at December 31, 1996:
SCHOOL MINIVANS LIFT/RAMP BUSES AND CARS EQUIPPED VEHICLES COACHES ----------- ------------- --------------------- ------------- Owned............................................ 1,750 478 217 32 Leased........................................... 174 253 130 15 -- ----- --- --- Total............................................ 1,924 731 347 47 -- -- ----- --- --- ----- --- --- Average age (years).............................. 6.7 4.5 4.6 4.7 -- -- ----- --- --- ----- --- --- SERVICE AND SUPPORT VEHICLES TOTAL --------------------- --------- Owned............................................ 29 2,506 Leased........................................... 28 600 -- --------- Total............................................ 57 3,106 -- -- --------- --------- Average age (years).............................. 5.8 5.9 -- -- --------- ---------
The Company used $5.8 million of the net proceeds of the offering of the Old Notes to terminate certain operating leases and purchase approximately 233 related vehicles and other assets. Currently, the Company's operating leases have terms which range from five to seven years and require fixed monthly payments of principal and interest. The leases generally have fixed rates which are negotiated on the lease origination date. EMPLOYEES At December 31, 1996, the Company had over 4,800 employees to provide transportation services, consisting of approximately 3,602 drivers, 629 escorts, 272 mechanics and 10 porters. In addition, there were approximately 312 employees in executive, operations, clerical and sales functions. The Company's school bus drivers and escorts are required to undergo background checks, drug and alcohol testing and fingerprinting as a condition for employment on school buses. All drivers are licensed to drive school buses and/or motor coaches in accordance with federal and state licensing requirements. The Company requires its drivers to complete a thorough and comprehensive training process in addition to satisfying federal and state requirements. In some states, such as New York, a special subclass of license is required for school bus drivers. The Company's paratransit drivers are also required to complete special training. See "-- Paratransit Division." Drivers undergo a 20 hour basic training course once a year and a two hour refresher class twice per year. In addition, drivers are required to be fingerprinted and pass a defensive driving test, as well as physical, oral and written tests. Further, all drivers must pass a pre-employment drug test as well as random drug and alcohol tests during the course of each year. Pursuant to federal and state law, each year the Company is required to randomly test 50% of its drivers for drug use and 25% for alcohol use. At December 31, 1996, approximately 65% of the Company's employees were members of various labor unions and the Company was a party to 13 collective bargaining agreements, 11 of which, covering 2,870 employees, expire over the next three years and two of which, covering 282 employees, have already expired. In the third quarter of fiscal 1997, the Transport Workers Union of America won an election to unionize a subsidiary of the Company that has approximately 354 employees. Management does not expect a material increase in its labor costs as a result of such unionization, although no assurance can be given as to the outcome of negotiations with the representatives of the newly unionized employees. See "Risk Factors -- Labor Relations." Management believes that its relations with its employees are satisfactory. The Company has had no strikes or work stoppages in the past 10 years. At December 31, 1996, approximately 40% of the Company's school bus drivers, escorts and mechanics were represented by Local 1181 of the Amalgamated Transit Union, which primarily represents personnel rendering services on behalf of the New York Board of Education. Labor agreements with Local 1181 require contributions to the Local 1181 welfare fund and pension plan on behalf of drivers, mechanics 43 and certain escorts. All contracts awarded by the New York Board of Education during the past 17 years contain employee protection provisions and require continued contributions to the Local 1181 pension plan and welfare fund for rehired employees opting to remain in such plan and such fund. Pursuant to a plan amendment approved by the Pension Benefit Guarantee Corporation, withdrawal liability for contributing employers to the plan, such as the Company, is essentially eliminated, provided that withdrawal is based upon the loss of New York Board of Education contracts and that the successor contractor becomes a contributing employer to the plan. FACILITIES The Company is headquartered in Staten Island, New York. Subsidiaries of the Company provide transportation services from 25 facilities (of which three are owned, 19 leased and three which are partially owned and partially leased) in six states. The facilities are utilized for bus storage, repair and maintenance and/or administrative purposes. The following table outlines the facilities owned or leased by the Company or its subsidiaries.
SQUARE TYPE OF AREA FACILITY LOCATION OWNERSHIP FOOTAGE OPERATION - ------------------------------------- ------------------------------------- ----------- ----------- -------------- New York............................. 7 North Street Owned 131,000 Coach Staten Island 52 Bayview Ave. Leased 37,500 School Bus Staten Island 141 East Service Road Leased 300,250 Coach West Shore Expressway Staten Island 46-81 Metropolitan Ave. Owned 203,000 School Bus Ridgewood Paratransit Pre-K/Medicaid 107-10 180th St. Leased 221,000 School Bus Jamaica 1752 Shore Parkway Leased 225,000 School Bus Brooklyn 1380-86 Ralph Avenue Leased 186,840 School Bus Brooklyn Exterior St. Owned/ 177,000 School Bus The Bronx Leased c/o Somers Jr. High School Leased 87,120 School Bus Route 202 Somers 870 Nepperhan Ave. Leased 33,500 Paratransit Yonkers Gnarled Hollow Road Owned/ 128,763 School Bus Setauket Leased 1575 Route 112 Leased 65,000 School Bus Port Jefferson Station(1) Lawson Blvd. Owned/ 720,000 School Bus Oceanside Leased 1620 New Highway Leased 161,172 School Bus Farmingdale(2) 91 Baiting Place Road Leased 130,680 School Bus Farmingdale New Jersey........................... 2628 Fire Road Leased 12,000 Paratransit Egg Harbor Township
44
SQUARE TYPE OF AREA FACILITY LOCATION OWNERSHIP FOOTAGE OPERATION - ------------------------------------- ------------------------------------- ----------- ----------- -------------- Pennsylvania......................... 3740 East Thompson St. Leased 54,425 School Bus Philadelphia Paratransit 6940 Norwitch Dr. Leased 2,000 School Bus Philadelphia(2) Paratransit 6971 Norwitch Dr. Leased 90,291 School Bus Philadelphia Paratransit Connecticut.......................... 57 South St. Leased 78,408 School Bus Ridgefield Kentucky............................. 925 West Broadway Leased 42,385 Paratransit Louisville Missouri............................. 200 Sidney St. Owned 148,104 School Bus St. Louis 5411 Brown Ave. Leased 208,696 School Bus St. Louis 1808 So. 3rd St. Leased 115,200 School Bus St. Louis 6810 Prescott St. Leased 301,000 School Bus St. Louis
- ------------------------ (1) This lease expires in June 1997. (2) These leases are occupied on a statutory month-to-month basis. RISK MANAGEMENT AND INSURANCE The Company maintains various forms of liability insurance against claims made by third parties for bodily injury or property damage resulting from operations. Such insurance consists of (i) general liability insurance of $50 million per occurrence with no deductible against claims resulting from other (e.g., non-automobile) liability exposures; (ii) automobile liability insurance of $250,000 per occurrence, subject to an aggregate annual deductible of $3.4 million; and (iii) statutory workers' compensation and employers' liability insurance, subject to an aggregate annual deductible of $2.8 million ($250,000 per occurrence). Beyond the deductibles and per occurrence limits mentioned herein, the automobile liability coverage provides indemnity for an unlimited number of occurrences and the general liability coverage provides $50 million aggregate coverage per location. The Company's insurance policies provide coverage for a one year term and are, therefore, subject to annual renewal. The Company self-insures its annual automobile and workers compensation insurance deductibles through Atlantic North Casualty Company ("Atlantic North"), a wholly owned captive insurance company chartered in Vermont. The Company believes it is able to (i) reduce the premium expense paid to its third- party insurance carriers and (ii) increase its investment income through the retention and investment of premium income in excess of amounts paid under claims in any given period. Atlantic North's total claims liability is partially funded by premium income and receivables from the Company, which, in turn, are limited to the amount of the combined deductibles on the Company's automobile and workers compensation insurance policies (currently $6.2 million annually). As of December 31, 1996, Atlantic North's assets exceeded its maximum claims liability by approximately $1.0 million, which amount represented its equity capital at such date. The Company obtained a reduction of approximately $1 million in the initial scheduled premium for its workers' compensation coverage for calendar 1997 compared to calendar 1996. Such reduction was due in part to the Company's recent claims experience and to recent tort reform and managed care initiatives in New York State, where most of the Company's employees work. The Company's ability to permanently obtain the benefit of such premium reductions is subject to the Company's future claims experience, which 45 cannot be predicted with certainty. If the Company's workers' compensation claims experience is significantly adverse, the Company may be required to apply a portion or all of its premium savings towards policy retentions and future premiums could increase. In addition, the Company maintains catastrophic coverage of $20 million per occurrence, for an unlimited number of occurrences, subject to a $100,000 deductible per occurrence. This insurance provides replacement cost coverage for losses on the Company's fleet and insurance against business interruptions resulting from the occurrence of natural catastrophes. The Company also maintains property insurance for the replacement cost of all of its real and personal property. COMPETITION The school bus transportation industry is highly competitive. The Company competes on the basis of its reputation for passenger safety, quality of service and price. Management believes it is competitive in each of these areas. Contracts are generally awarded pursuant to public bidding, where price is the primary criteria for a contract award. The Company has many competitors in the school bus transportation business including transportation companies with resources and facilities substantially greater than those of the Company. The Company competes with Laidlaw Transit, Inc., a division of Laidlaw, Inc., the largest private transportation contractor in North America, Ryder Student Transportation, a division of Ryder System, Inc., the second largest company in the industry and Durham Transportation Inc., in addition to other regional and local companies. See "Risk Factors -- Substantial Competition." ENVIRONMENTAL MATTERS The Company's operations are subject to a broad range of Environmental Laws. In addition, a number of the Company's facilities are located in metropolitan areas where there is a long history of industrial and/or commercial use. The Company is taking into account the requirements of such Environmental Laws in the improvement, modernization, expansion and start-up of its facilities and therefore has retained a consultant to implement a program to assure that existing facilities comply with such requirements. As with most transportation companies, the Company could incur significant costs related to environmental compliance or remediation; these costs, however, most likely would be incurred over a period of years. Compliance with Environmental Laws or more vigorous enforcement policies of regulatory agencies, or stricter or different interpretations of such laws and future regulatory action regarding soil or groundwater, may require material expenditures by the Company. Under various Environmental Laws a current or previous owner of real estate or operations conducted thereon may be liable for the costs of removal or remediation of certain hazardous substances or petroleum products on, under or in such property, without regard to whether the owner or operator knew of, or caused, the presence of the contaminants. The presence of, or failure to properly remediate, such substances, may adversely affect the ability to sell or rent such real estate or to borrow using such real estate as collateral. Persons who generate, arrange for the disposal or treatment of, or dispose hazardous substances may be liable for the costs of investigation, remediation or removal of such hazardous substances at or from the disposal or treatment facility regardless of whether such facility is owned or operated by such person. Finally, the owner of a site may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site. Certain federal, state and local laws, regulations and ordinances govern the removal, encapsulation or disturbance of asbestos-containing material ("ACM") when such materials are in poor condition or in the event of building remodeling, renovation or demolition. Such laws may impose liability for the release of ACM and may provide for third parties to seek recovery from owners or operators of real estate for personal injury associated with ACM. The Company has not undertaken an environmental assessment or ACM survey at all of its facilities. However, based on previous inquiries, the Company is aware that ACM 46 is present at various facilities, some of which may be in a condition requiring removal or encapsulation at this time. Underground storage tanks ("USTs") are located at many of the Company's properties. In the case of USTs operated by previous owner-operators, the Company has not evaluated whether such USTs were closed in accordance with applicable legal requirements. The Company has retained a consultant to assist it in implementing a compliance program to assure that its USTs conform to applicable legal requirements that become effective in 1998. The Company estimates the costs of implementing such program will not exceed $500,000. In addition, property owned and/or operated by the Company may be impacted by offsite issues, such as leaking USTs or previous or current industrial operations. Except in certain instances in connection with the removal of a UST, the Company has not undertaken an analysis of the condition of the subsurface soils at its properties. In connection with its ownership and operation of its properties, the Company may be potentially liable for costs in connection with the matters discussed above (including costs of investigation and remediation), which costs could have a material adverse effect on the Company. GOVERNMENT REGULATIONS The Company is subject to a wide variety of federal, state and municipal laws and regulations concerning vehicle standards and equipment maintenance; qualification, training and testing of employees; and qualification and maintenance of operating facilities. The Company's vehicles are subject to federal motor vehicle safety standards established by the National Highway Traffic Safety Administration ("NHTSA"). Specific standards are promulgated by the NHTSA with regard to school buses pursuant to the School Bus Safety Act of 1974. The Company's vehicles are also subject to the laws and regulations of each state in which it operates, which are often more stringent than applicable federal requirements. For example, in New York State, in addition to federal standards, regulations promulgated by the New York State Department of Motor Vehicles and the New York State Department of Transportation ("NYSDOT") require that school buses be equipped with high back seats, lefthand emergency door exits, 16 gauge side panels and illuminated school bus signs. All school buses and paratransit vehicles are required to be inspected twice annually by NYSDOT inspectors in accordance with a rigorous set of standards covering each mechanical component of the vehicles. The Company's employees are subject to various federal and state laws and regulations pertaining to driver qualifications, and drug, alcohol and substance abuse testing. The Commercial Motor Vehicle Safety Act of 1986 requires drivers of commercial vehicles, including school buses, motor coaches and paratransit vehicles, to obtain a commercial drivers license. Many states have additional licensing requirements for subclasses of drivers such as school bus drivers and/or paratransit drivers. Under regulations enacted at the state and/or local levels, the Company's school bus drivers and paratransit drivers are required to complete certain minimum basic training and follow-up refresher classes annually. Pursuant to regulations promulgated by the United States Department of Transportation under the Drug Free Workplace Act of 1988, the Company's drivers are required to undergo pre-employment drug and alcohol testing, and the Company is required to conduct random testing for drug and/or alcohol abuse. Similar drug and alcohol abuse testing is also required under various state laws. The Company's operating and maintenance facilities for its School Bus Division, Paratransit Division and Pre-K/Medicaid Operations are also required to be maintained in accordance with regulations promulgated by various federal and state agencies including departments of education, departments of motor vehicles and state departments of transportation. LEGAL PROCEEDINGS The Company's subsidiaries have been and are subject to claims for personal injury or property damage, which are routine and incidental to transportation operations. These claims are generally 47 defended by counsel designated by the Company's liability insurance carrier. The Company does not believe that any such currently pending claims will have material adverse effect on the Company. The Company is a plaintiff in a multi-party action against the New York Board of Education. The action, which is pending in the Supreme Court of the State of New York, New York County, concerns the method of calculation for increases to the daily rate of compensation paid to the Company under contract extension agreements. The New York Board of Education has claimed in preliminary audits that transportation contractors, including the Company, received contract payments in prior years which exceeded the amount to which the contractors were entitled in accordance with contract rate adjustment procedures. Following the commencement of the litigation, the Company and other school bus contractors agreed that on a prospective basis, contractors would accept the lower contract rate which the New York Board of Education calculated to be due (based upon cumulative rate adjustments) and that the difference would be held in escrow by the New York Board of Education. A favorable result in the pending action would result in a prospective increase in the Company's daily rate of compensation and the release to the Company of the funds presently held in escrow. An unfavorable result would not affect the rates of payment which the Company is presently receiving, but could result in a liability of up to $1.0 million to the New York Board of Education for claimed overpayments for past years. The Company does not believe that such pending litigation will have a material adverse effect on the Company. 48 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information concerning the members of the Board of Directors and executive officers of the Company. Directors serve for a term of one year or until their successors are elected and qualified.
NAME AGE POSITION - --------------------------------------------------- ------------- --------------------------------------------------- Domenic Gatto...................................... 48 Chairman of the Board, President and Chief Executive Officer Michael Gatto...................................... 41 Executive Vice President, Secretary, Treasurer and Director Patrick Gatto...................................... 35 Executive Vice President and Director Nathan Schlenker................................... 58 Chief Financial Officer Noel Cabrera....................................... 37 Executive Vice President Jerome Dente....................................... 51 Director of New York School Bus Operations David Kessler...................................... 57 Vice President and Director of the Paratransit Division John Shea.......................................... 47 Director Peter Petrillo..................................... 36 Director
The Company has expanded its Board of Directors to seven seats consisting of two directors designated by the Preferred Stockholder, three directors designated by the Majority Stockholders, one director to be designated by the Majority Stockholders and one director to be designated by the Initial Purchaser. Neither the Majority Stockholders or the Initial Purchaser has yet designated a director to fill its respective vacancy on the Board of Directors. DOMENIC GATTO, CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER. Mr. Gatto has been President, Chief Executive Officer and Chairman of the Board of the Company and AETG since their formations. Mr. Gatto, a disabled Vietnam veteran, began his career in the school bus business as a bus driver and has been responsible for the development of all facets of the business of the Company and AETG. MICHAEL GATTO, EXECUTIVE VICE PRESIDENT, SECRETARY, TREASURER AND DIRECTOR. Mr. Gatto has been Executive Vice President, Secretary, Treasurer and a Director of the Company since its formation and has held the positions of Vice President, Secretary, Treasurer and Director of AETG since 1982. He has been employed in various capacities by AETG since 1979. Mr. Gatto oversees the overall day to day operations of the Company's school bus transportation terminals in the New York greater metropolitan area. PATRICK GATTO, EXECUTIVE VICE PRESIDENT AND DIRECTOR. Mr. Gatto has been Executive Vice President and a Director of the Company since its formation and has held the positions of Vice President and Director of AETG since 1990 and has been employed by AETG since 1982 in various capacities. Mr. Gatto oversees the paratransit and maintenance operations of the Company and coordinates certain facets of the Company's school bus operations in the New York greater metropolitan area. NATHAN SCHLENKER, CHIEF FINANCIAL OFFICER. Mr. Schlenker has been Chief Financial Officer of the Company since its formation, and has held such position at AETG since 1991. Prior to 1991 Mr. Schlenker was the Vice President of Finance of Feuer Leather Corporation, an international leather manufacturer and marketing firm. From 1973 until 1985, Mr. Schlenker was a partner of Ekstein, Ekstein & Schlenker, a firm of certified public accountants. NOEL CABRERA, EXECUTIVE VICE PRESIDENT. Mr. Cabrera has been Executive Vice President of the Company since its formation, a Vice President of AETG since 1994 and Executive Vice President of AETG since July 1996. Mr. Cabrera joined AETG in 1990 as a management analyst. He was previously employed as a consultant for Manasia Enterprises, a New York based consulting firm, and as a project manager for the Office of the President of the Republic of the Philippines with respect to financing of industrial projects. 49 JEROME DENTE, DIRECTOR OF NEW YORK SCHOOL BUS OPERATIONS. Mr. Dente has been the Director of New York School Bus Operations for the Company since 1994. Prior to 1994 Mr. Dente served 28 years as a Transportation Officer in the United States Army, achieving the rank of Colonel. Mr. Dente received a Master of Science in Transportation Management from Florida Institute of Technology, a Master of Arts in Strategic Studies from the U.S. Naval War College and a Bachelors of Science from Widener University. DAVID KESSLER, VICE PRESIDENT AND DIRECTOR OF THE PARATRANSIT DIVISION. Mr. Kessler has been Vice President and Director of the Paratransit Division since 1994. He has been employed by AETG since 1989. Mr. Kessler received a Master of Public Affairs/Master of Science in Engineering from Princeton University and a Bachelors of Science in Engineering from Cornell University. JOHN SHEA, DIRECTOR. Mr. Shea has been a director of AETG since February 1994. Since 1991 he has been responsible for merchant banking and direct equity investments at Wafra. From 1984 to 1991, Mr. Shea was responsible for direct equity investments at Lambert Brussels Capital Corporation. He is a director of CAPMAC Holdings Inc. and Capital Markets Assurance Corporation. PETER PETRILLO, DIRECTOR. Mr. Petrillo has been a director of AETG and the Company since January 1997. Since January 1995, he has been a Vice President in the merchant banking and direct equity investments group at Wafra. From January 1991 to December 1994, Mr. Petrillo was a partner at Claymore Partners Ltd., a strategic and turnaround consulting firm. All of the members of the Board of Directors and executive officers, other than Messrs. Dente, Shea and Petrillo, were executive officers of the Company's predecessors in March 1992, when certain subsidiaries of the Company filed a voluntary petition requesting relief from creditors under chapter 11 of the Bankruptcy Code. See "Risk Factors -- Reorganization." There are no family relationships between any of the aforementioned persons, except that Messrs. Domenic Gatto, Michael Gatto and Patrick Gatto are brothers. DIRECTOR COMPENSATION AND ARRANGEMENTS Directors who are employees of the Company or one of its subsidiaries or affiliates of the Preferred Stockholder do not receive additional compensation for serving as directors. It is currently contemplated that the independent director of the Company to be designated by the Initial Purchaser will receive $25,000 as compensation for services as a director. See "Ownership of the Company -- Stockholders' Agreement." 50 EMPLOYMENT AGREEMENTS The Company has an employment agreement with Domenic Gatto which provides for his continued employment with the Company as President, Chief Executive Officer and Chairman of the Board of Directors until January 15, 2002, unless earlier terminated, subject to extension by the Board of Directors for up to three years. The agreement provides for an annual base salary at the rate of $510,935 (effective January 15, 1997), subject to annual increases, commencing on January 15, 1998, by a percentage equal to the percentage increase in the Regional CPI (as defined) provided that such increase shall in no event be more than 5% nor less than 3% of the base salary. In the event that the employment agreement is not renewed by the Company, Mr. Gatto is entitled to severance pay equal to six months of his base salary as of the date of his termination. The employment agreement between AETG and Mr. Gatto will continue in effect, and has been amended to provide that no compensation will be provided for the employment of Mr. Gatto as President, Chief Executive Officer and Chairman of the Board of Directors of AETG. Michael Gatto and Patrick Gatto are each employed as Executive Vice Presidents of the Company, and as Directors, and Michael Gatto is also employed as Secretary and Treasurer of the Company pursuant to employment agreements having terms expiring January 15, 2002, unless earlier terminated, subject to extension by the Board of Directors for up to three years. The employment agreements for Michael Gatto and Patrick Gatto include terms similar to the employment agreement of Domenic Gatto, except that under each such agreement the annual base salary is $340,252 effective as of January 15, 1997. The employment agreements between AETG and each of Michael Gatto and Patrick Gatto will continue in effect, and have been amended to provide that no compensation will be provided for the employment of Michael Gatto and Patrick Gatto as Vice President, Secretary, Treasurer, and Director of AETG and Vice President and Director of AETG, respectively. The Company employs Nathan Schlenker as Chief Financial Officer pursuant to an employment agreement having a term commencing on January 15, 1997, and expiring on January 15, 1998, unless earlier terminated, subject to extension by the Board of Directors for up to three years. The agreement provides for base salary of $191,227 per annum, subject to the same annual percentage increases as provided for in the employment agreement of Domenic Gatto. Upon the expiration of the employment agreement, Mr. Schlenker is entitled to severance pay in the amount of $2,000 per month for 96 months, plus reimbursement for 60 months of certain medical insurance costs, provided that the amount of such reimbursements shall not exceed $3,000 per year. A previous employment agreement between AETG and Mr. Schlenker, due to expire on February 28, 1998, has been terminated effective January 15, 1997, by operation of the First Amendment to the Stockholders' Agreement and by a separate consent to terminate signed by Mr. Schlenker. 51 SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION(1)
OTHER ANNUAL NAME AND PRINCIPAL POSITION FISCAL YEAR(2) SALARY BONUS COMPENSATION - --------------------------------------------------------------- ----------------- ---------- --------- ------------- Domenic Gatto.................................................. 1996 $471,328(3) -- $ 96,090(4) President and Chief Executive Officer Michael Gatto.................................................. 1996 315,129(3) -- 40,208(5) Executive Vice President, Secretary and Treasurer Patrick Gatto.................................................. 1996 315,129(3) -- 40,208(5) Executive Vice President Nathan Schlenker............................................... 1996 187,102(3) $ 2,000 -- Chief Financial Officer
- ------------------------ (1) There is no non-cash compensation in lieu of salary or bonus or other long-term compensation awards or payouts or any other compensation payable to the individuals named in the table. There is no applicable defined benefit plan or actuarial plan under which benefits are determined, other than under Section 401(k) of the Internal Revenue Code. See note (3). (2) In accordance with Item 402(b) of Regulation S-K, information is presented only for the Company's last completed fiscal year. (3) Includes a contribution of $3,750 under Section 401(k) of the Internal Revenue Code. (4) Includes (i) $25,800 for automobile allowance; (ii) $35,000 for life insurance allowance; (iii) $6,516 for disability insurance; and (iv) $28,774 for vacation time not taken. (5) Includes (i) $17,208 for automobile allowance; and (ii) $23,000 for life insurance allowance. 52 OWNERSHIP OF THE COMPANY AETG owns all of the Company's issued and outstanding capital stock. The following table sets forth certain information with respect to the beneficial ownership of the Common Stock and Series A Preferred Stock of AETG as of February 28, 1997 by (i) each person who is known by the Company to beneficially own more than 5% of the outstanding shares of Common Stock and Series A Preferred Stock; (ii) each director of AETG; (iii) AETG's Chief Executive Officer and the other executive officers listed in the Summary Compensation Table above; and (iv) all current directors and executive officers of AETG as a group.
PERCENTAGE OF ALL NUMBER OUTSTANDING TITLE OF OF PERCENTAGE VOTING NAME(1) CLASS SHARES OF CLASS SECURITIES(2) - ----------------------------------------------- ------------------------ ------------- ------------- ------------------- Domenic Gatto(3)............................... Common Stock 88 100.0% 55.0% Michael Gatto(4)............................... Common Stock 25 28.4 15.6% Patrick Gatto(5)............................... Common Stock 25 28.4 15.6% Nathan Schlenker............................... -- -- -- -- Noel Cabrera................................... -- -- -- -- John Shea(6)................................... -- -- -- -- Peter Petrillo(6).............................. -- -- -- -- Busco Capital Inc.(7).......................... Series A Preferred Stock 72 100.0% 45.0% All directors and executive officers of AETG as a group (9 persons).......................... Common Stock 88 100.0% 55.0%
- ------------------------ (1) Unless otherwise indicated, the business address of each beneficial owner is c/o Atlantic Express Transportation Group Inc., 7 North Street, Staten Island, New York 10302-1205 and each beneficial owner has sole voting power and investment power (or shares such power with his spouse) with respect to all shares of capital stock listed as owned by such beneficial owner. (2) Under certain circumstances Busco Capital Inc. is entitled to vote on stockholder issues as though it had four times the vote it would otherwise have. See " -- Stockholders' Agreement." (3) Includes 25 shares of Common Stock beneficially owned by Michael Gatto and 25 shares of Common Stock beneficially owned by Patrick Gatto, as to which Domenic Gatto has sole voting power over the shares pursuant to irrevocable proxies. See notes (4) and (5). (4) Michael Gatto shares beneficial ownership of all of the shares shown as being beneficially owned by him pursuant to an irrevocable proxy under which Domenic Gatto has sole voting power as to such shares. See note (3). (5) Patrick Gatto shares beneficial ownership of all of the shares shown as being beneficially owned by him pursuant to an irrevocable proxy under which Domenic Gatto has sole voting power as to such shares. See note (3). (6) The business address of Messrs. Shea and Petrillo is c/o Wafra Investment Advisory Group, Inc., 9 West 57th Street, New York, New York 10019. (7) Busco Capital Inc. is represented by Wafra. The shares of Series A Preferred Stock held by Busco Capital Inc. represent, upon full conversion, 45% of the Common Stock. Busco Capital Inc.'s business address is Citco Building, Wickhams Cay, P.O. Box 662, Road Town, Tortola, British Virgin Islands. Holders of Series A Preferred Stock are entitled to one vote per share subject to greater voting rights under certain conditions pursuant to which the holders of Series A Preferred Stock may select a majority of the Board of Directors. See " -- Stockholders' Agreement." AETG PREFERRED STOCK AND COMMON STOCK The AETG Certificate of Incorporation provides that AETG may issue 228 shares of Common Stock and 72 shares of Series A Preferred Stock. The holders of the outstanding shares of Common Stock and Series A Preferred Stock vote together, without regard to class, with each holder of outstanding shares of Common Stock and Series A Preferred Stock being entitled to one vote for each share of Common Stock or Series A Preferred Stock. The Series A Preferred Stock may be converted into Common Stock at an initial conversion price of one share of the Series A Preferred Stock for each share of Common Stock (subject to adjustment in accordance with certain anti- dilution provisions). The Series A Preferred Stock 53 participates PRO RATA (as if converted to Common Stock) with the Common Stock with respect to any cash dividends or distributions paid in shares of, or options, warrants or rights to subscribe for or purchase shares of Common Stock. So long as the Series A Preferred Stock shall remain outstanding, neither Common Stock nor any other stock ranking junior to the Series A Preferred Stock shall be redeemed, purchased or otherwise acquired for any consideration. In the event of any liquidation, dissolution or winding up of AETG, before any payment or distribution of its assets shall be made or set apart for the holders of Common Stock or any other series or classes of stock ranking junior to the Series A Preferred Stock, the holders of the Series A Preferred Stock shall be entitled to receive $218,055.56 per share. AETG may require conversion of the Series A Preferred Stock upon a public offering providing for at least $20 million in net proceeds to AETG provided the per share issue price in such offering shall be equal to or greater than the conversion price of the Series A Preferred Stock at the time of the offering compounded at 30% annually from the date of purchase of such stock and provided further that the holders of the Series A Preferred Stock have the opportunity to sell 75% of their securities at such price. Under the Stockholders' Agreement, if Domenic Gatto's employment agreement, described above, is not renewed or if Domenic Gatto's employment is terminated by the Company without cause (as defined), Domenic Gatto has the right, subject to certain exceptions, to resell his shares of Common Stock to AETG for a purchase price equal to the greatest of (i) $1.5 million; (ii) if such shares are not then publicly traded, the fair market value of the shares as determined by an appraiser; or (iii) if such shares are then publicly traded, the market value of such shares. Such employment agreement includes certain non-competition and non-solicitation covenants which are effective during the term of Domenic Gatto's employment and for 24 months after his termination. The employment agreements for Michael Gatto and Patrick Gatto include terms similar to the employment agreement of Domenic Gatto except that the minimum purchase price of the shares of Common Stock subject to the put right is $1.0 million. STOCKHOLDERS' AGREEMENT Pursuant to the Stockholders' Agreement, the Board of Directors of AETG consists of five directors, three of whom have been designated by the Majority Stockholders and two of whom have been designated by the Preferred Stockholder. Prior to a Default (as defined in the Stockholders' Agreement), the Majority Stockholders have the power to direct the affairs of the Company and to determine the outcome of all matters required to be submitted to stockholders for approval; provided, that the approval of a supermajority of the directors of each of AETG and the Company is required before the Company or any of its subsidiaries may take any action with respect to any Significant Transaction. Following any such Default, the Preferred Stockholder is entitled to vote on stockholder issues as though it had four times the vote it would have on conversion, and the Board of Directors of each of AETG and the Company will be increased to a number so that the ratio of the directors designated by the Preferred Stockholder is maintained at a level of four to three. "Significant Transactions" include, among other things, (i) the creation of any additional classes of common stock or certain other securities; (ii) certain transactions (including acquisitions outside of the ordinary course of business) with a value of $3.5 million or more (except that, under certain circumstances, such threshold may be lower); (iii) any amendment or modification of any provision of AETG's or the Company's certificate of incorporation or by-laws; (iv) certain extensions and any amendments or modifications of any employment agreements between AETG or the Company and Domenic Gatto, Patrick Gatto, Michael Gatto or Nathan Schlenker; and (v) any consolidation or merger of AETG or its affiliates with any other entity in which AETG or its affiliates will not be the controlling or surviving corporation, or the sale of all or substantially all of the assets of AETG or its affiliates. In addition, the approval of all of the directors appointed by the Majority Stockholders and the Preferred Stockholder is required to amend AETG's certificate of incorporation or its by-laws. The approval of a majority of disinterested directors is required under the Stockholders' Agreement to approve any transaction between AETG and the Majority Stockholders, the Preferred Stockholder, or an affiliate of either, except in the 54 case of the renewal of any employment agreements between AETG and Domenic Gatto, Patrick Gatto, Michael Gatto and Nathan Schlenker, which may be approved by a majority of directors present at a meeting of the Board of Directors. The Preferred Stockholder also has the right, subject to certain exceptions, to require AETG to purchase 100% of its shares of Series A Preferred Stock commencing February 28, 1999 (subject to six months prior written notice) at a price based upon the higher of (i) their proportionate share of the fair market value of AETG appraised as a public company; (ii) if then publicly traded, the valuation of AETG at market price; or (iii) the liquidation preference value of such Series A Preferred Stock ($15.7 million). AETG at its option can pay the price for the preferred stock in three annual installments, subject to a premium for payments not made within a period of one year. In the event AETG is legally precluded from redeeming the preferred stock as the result of insufficient surplus, it is required to redeem such shares at the rate of 60% of its cash flow. It is unlikely AETG will have sufficient cash to make such redemption. The ability of the Company to pay a dividend to AETG is restricted by the Indenture. See "Description of Notes -- Certain Covenants." In addition to any other rights the Preferred Stockholder may have if AETG fails to make such redemption, the Preferred Stockholder will obtain the right to control certain matters relating to the capitalization of AETG and its subsidiaries (including the Company and its subsidiaries), which right includes matters relating to repayments of the Notes. See "Risk Factors -- Control of the Company." 55 CERTAIN TRANSACTIONS The Company's Coach Division is operated through its wholly owned subsidiary, Atlantic Coachways, Inc. ("Coachways"), which leases "Park & Ride" and administrative facilities from Showplace Bowling Center, Inc. ("Showplace"), a wholly owned subsidiary of AETG which is engaged in the entertainment business. The administrative facilities consist of an office and ticket sales facilities. The lease also provides for use of parking facilities for commuters who purchase express tickets on Coachways' express bus service between Staten Island and Manhattan in New York City. The lease, which is for a term of 10 years, with two five year renewal options, commenced July 1, 1995 for an annual base rental of $180,000. The Company believes that the rental reflects the reasonable market value for the lease. Staten Island Bus, Inc., a wholly owned subsidiary of the Company, leases a facility from Dom-Rich Associates, Inc., a wholly owned subsidiary of AETG. The lease, which is for a term of five years, with two five-year renewal options, commenced January 1, 1997 for an annual base rental of $48,000. The Company believes that the rental reflects the reasonable market value for the lease. The subsidiaries of AETG which make up its entertainment business were collectively indebted to the Company in the amount of $4.6 million as of December 31, 1996 (the "Affiliate Loan"). Such indebtedness resulted from numerous intercompany loans among the various subsidiaries of AETG prior to the formation of the Company. The Affiliate Loan is evidenced by a note accruing interest, payable at maturity at 6.8%, commencing January 1, 1997 until maturity in the principal amount of $4.6 million payable on July 1, 2004. Pursuant to the Stockholders' Agreement, Wafra is entitled to receive an annual management fee from AETG equal to (i) $229,503, subject to the same percentage adjustment, on an annual basis, as the average of the two highest salaries paid by the Company to its employees (other than Domenic Gatto); plus (ii) $120,000. The management fee is payable in equal monthly installments of $29,126, subject to the foregoing adjustments. Wafra is under common control with the Preferred Stockholder. At December 31, 1996, the Company had an amount payable to AETG of $82,932. 56 DESCRIPTION OF THE REVOLVING CREDIT FACILITY A COPY OF THE REVOLVING CREDIT FACILITY HAS BEEN FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART. THE FOLLOWING DESCRIPTION OF THE REVOLVING CREDIT FACILITY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH EXHIBIT. The Company and the Restricted Subsidiaries entered into the $30.0 million Revolving Credit Facility with Congress Financial Corporation (the "Bank"). Borrowings under the Revolving Credit Facility are available for working capital and general corporate purposes, including letters of credit, subject to the borrowing conditions contained therein. The Revolving Credit Facility is secured by first priority liens on the cash, accounts receivable, inventory, general intangibles and documents and instruments related thereto of the Company and its Restricted Subsidiaries. Under the terms of the Revolving Credit Facility, each of the Borrowers (as defined in the Revolving Credit Facility) has guaranteed the obligations of the other Borrowers and each Subsidiary (as defined in the Revolving Credit Facility) of the Company, other than Atlantic North, has guaranteed the obligations of all Borrowers. The Revolving Credit Facility expires three years from the Closing Date, unless extended. The interest rate per annum applicable to the Revolving Credit Facility will be the prime rate, as announced by CoreStates Bank N.A., plus 0.75% or, at the Company's option, the adjusted Eurodollar rate (as defined) plus 2.75% and provides for a one-time 0.25% reduction in rates upon the Company reaching certain profitability levels. The Company is required to pay certain fees in connection with the Revolving Credit Facility, including but not limited to a closing fee of 0.50% of the total commitment and an unused line fee of 0.375% on the undrawn portion of the first $22 million of the revolving credit commitment. The Revolving Credit Facility contains customary representations and warranties, and events of default and certain other covenants. 57 DESCRIPTION OF NOTES GENERAL The Old Notes were issued pursuant to the Indenture among the Company, the Guarantors and The Bank of New York, as trustee (the "Trustee"). The New Notes will also be issued pursuant to the Indenture. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The following summary of certain provisions of the Indenture and the Collateral Agreements among the Company and the Guarantors does not purport to be complete and is qualified in its entirety by reference to the Indenture and the Collateral Agreements including the definitions therein of certain terms used below. The Indenture and the Collateral Agreements are filed as exhibits to the Registration Statement of which this Prospectus is part. The definitions of certain terms used in the following summary are set forth below under "-- Certain Definitions." The Notes will be senior secured obligations of the Company and rank senior in right of payment to all subordinated Indebtedness of the Company and PARI PASSU in right of payment with all senior Indebtedness. The Notes will be effectively subordinated to all other senior secured indebtedness of the Company and its Subsidiaries, including indebtedness under the Revolving Credit Facility, to the extent of the assets securing such debt. As of December 31, 1996, on a pro forma basis after giving effect to the offering of the Old Notes and the application of the net proceeds therefrom, the Company would not have had any secured indebtedness outstanding, other than the Notes and $0.7 million of secured equipment financing. The Notes will be issued in registered form, without coupons, in denominations of $1,000 and integral multiples thereof. PRINCIPAL MATURITY AND INTEREST The Notes are limited in aggregate principal amount to $110,000,000 and will mature on February 1, 2004. Interest on the Notes will be payable semi-annually on February 1 and August 1 of each year, commencing on August 1, 1997, to holders of record on the immediately preceding January 15 and July 15, respectively. The Notes will bear interest at 10 3/4% per annum. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the Issue Date. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. The Notes will be payable both as to principal and interest at the office or agency of the Company maintained for such purpose within The City of New York or, at the option of the Company, payment of interest may be made by check mailed to the holders of the Notes at their respective addresses set forth in the register of holders of Notes. Until otherwise designated by the Company, such office or agency will be the office of the Trustee maintained for such purpose. If a payment date is a Legal Holiday, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. REDEMPTION The Notes are not redeemable at the Company's option prior to February 1, 2001. Thereafter, the Notes will be subject to redemption at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) 58 set forth below plus accrued and unpaid interest thereon, if any, to the applicable date of redemption, if redeemed during the 12-month period beginning on February 1 of the years indicated below:
YEAR PERCENTAGE - ---------------------------------------------------------------------- ----------- 2001.................................................................. 105.375% 2002.................................................................. 102.688% 2003 and thereafter................................................... 100.000%
Notwithstanding the foregoing, at any time or from time to time prior to February 1, 2000, the Company may, at its option, redeem up to one-third of the original principal amount of the Notes, at a redemption price of 110.75% of the principal amount thereof, plus accrued and unpaid interest, if any, through the date of redemption, with the net cash proceeds of one or more Public Equity Offerings; provided, that (a) such redemption shall occur within 90 days of the date of closing of such public offering and (b) at least $73,300,000 aggregate principal amount of Notes remains outstanding immediately after giving effect to each such redemption. If less than all of the Notes are to be redeemed at any time, selection of Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed, or, if the Notes are not so listed, on a PRO RATA basis, by lot or by such other method as the Trustee deems to be fair and appropriate, provided, that Notes of $1,000 or less may not be redeemed in part. Notice of redemption will be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each holder of Notes to be redeemed at such holder's registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note will 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. On and after the date of redemption, interest will cease to accrue on Notes or portions thereof called for redemption. The Notes will not be entitled to any mandatory redemption or sinking fund. GUARANTORS The repayment of the Notes will be unconditionally and irrevocably guaranteed by all Restricted Subsidiaries of the Company. The Indenture provides that as long as any Notes remain outstanding, any future Restricted Subsidiary shall enter into a similar guarantee and the stock of such Restricted Subsidiary will be pledged to secure the Notes. The obligations of each Guarantor will be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee, result in the obligations of such Guarantor under the Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. See "Risk Factors -- Fraudulent Transfer Considerations." COLLATERAL Subject to certain exceptions, the Notes and Guarantees will be secured by a security interest in all of the Capital Stock of the Company and each of its Subsidiaries (other than any such Capital Stock that is owned by a person other than AETG, the Company or any Restricted Subsidiary). In addition, the Notes will be secured by the cash, accounts receivable, inventory, general intangibles and documents and instruments related thereto of the Company and its Restricted Subsidiaries (except to the extent that the terms of any such general intangibles prohibit the granting of a security interest therein); provided, that the Lien with respect thereto shall be subordinated to the Liens securing obligations under the Revolving 59 Credit Facility. All of the assets described above are collectively referred to herein as the "Collateral." The Notes will not be secured by any other property. The Company and the Guarantors entered into security and pledge agreements as of February 4, 1997 (collectively, the "Collateral Agreements") that provide for the grant of a security interest in or pledge of the Collateral to the Trustee, as collateral agent (in such capacity, the "Collateral Agent"), for the benefit of the holders of the Notes. Such pledges and security interests will secure the payment and performance when due of all of the Obligations of the Company and the Guarantors under the Indenture, the Notes, the Guarantees and the Collateral Agreements. So long as no Event of Default has occurred and is continuing, and subject to certain terms and conditions in the Indenture and the Collateral Agreements, the Company will be entitled to receive all cash dividends, interest and other payments made upon or with respect to the Capital Stock of any Subsidiary's collateral pledged by it, and to exercise any voting, other consensual rights and other rights pertaining to such Collateral pledged by it. Upon the occurrence and during the continuance of an Event of Default (i) all rights of the Company to exercise such voting, other consensual rights or other rights will cease upon notice from the Collateral Agent, which may be pursuant to the direction of the Holders of a majority in outstanding principal amount of the Notes, and all such rights will become vested in the Collateral Agent, which to the extent permitted by law, will have sole right to exercise such voting, other consensual rights or other rights; and (ii) all rights of the Company to receive all cash dividends, interest and other payments made upon or with respect to the pledged Collateral will, upon notice from the Collateral Agent, cease and such cash dividends, interest and other payments will be paid to the Collateral Agent. All funds distributed under the Collateral Agreements and received by the Collateral Agent for the benefit of the holders of the Notes will be retained and/or distributed by the Collateral Agent in accordance with the provisions of the Indenture. Under the terms of the Collateral Agreements, the Collateral Agent will determine the circumstances and manner in which the Collateral will be disposed of, including, but not limited to, the determination of whether to foreclose on the Collateral following an Event of Default. Holders of the Notes may not enforce the Collateral Agreements. Subject to certain limitations, holders of a majority in principal amount of the then outstanding Notes may direct the Collateral Agent in its exercise of any trust or power under the Collateral Agreements. Upon the full and final payment and performance of all Obligations of the Company under the Indenture and the Notes, the Collateral Agreements will terminate and the pledged Collateral will be released. In addition, in the event that the pledged Collateral is sold and the Net Proceeds are or will be applied in accordance with the terms of the covenant described under "-- Limitation on Asset Sales," the Collateral Agent will release simultaneously with such sale the Liens in favor of the Collateral Agent in the assets sold, provided, that the Collateral Agent has received all documentation required by the Trust Indenture Act therefor. In the event of a Default under the Notes, the proceeds from the sale of the Collateral may not be sufficient to satisfy the Company's Obligations under the Notes in full. The amount to be received upon such a sale would be dependent upon numerous factors including the timing and the manner of the sale. In addition, the book value of the Collateral should not be relied upon as a measure of realizable value. By its nature, the Collateral will be illiquid and may have no readily ascertainable market value. Accordingly, there can be no assurance that the Collateral can be sold in a short period of time. While indebtedness is outstanding under the Revolving Credit Facility, Holders will have no vote on any decisions with respect to the Collateral that is subject to the lien of the Revolving Credit Facility, including the time or method of disposition thereof. To the extent that third parties enjoy Permitted Liens, such third parties may have rights and remedies with respect to the property subject to such Lien that, if exercised, could adversely affect the value of the Collateral. In addition, the ability of the Holders to realize upon any of the Collateral may be subject to certain bankruptcy law limitations in the event of a bankruptcy. 60 If the Notes become due and payable prior to the final stated maturity thereof for any reason or are not paid in full at the final stated maturity thereof and, after any applicable grace period has expired, at a time in which Indebtedness is outstanding under the Revolving Credit Facility, the Collateral Agent will not have the right to foreclose upon the Collateral that is subject to the Revolving Credit Facility unless the lender forecloses upon such Collateral. Thereafter, the Collateral Agent has the right to foreclose upon such Collateral, which may be in accordance with instructions from the Holders of a majority in aggregate principal amount of the Notes or, in the absence of such instructions, in such manner as the Collateral Agent deems appropriate in its absolute discretion. Proceeds from the sale of Collateral that is subject to the Revolving Credit Facility will first be applied to repay Indebtedness outstanding under the Revolving Credit Facility, if any, and thereafter paid to the Trustee. The proceeds received by the Trustee will be applied by the Trustee first to pay the expenses of any foreclosure and fees and other amounts then payable to the Trustee under the Indenture and, thereafter, to pay all amounts owing to the Holders under the Indenture (with any remaining proceeds to be payable to the Company or as may otherwise be required by law). REPURCHASE UPON CHANGE OF CONTROL Upon the occurrence of a Change of Control, the Company will be required to offer to repurchase all the Notes then outstanding (the "Change of Control Offer") at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company must mail or cause to be mailed a notice to each holder stating, among other things (i) that the Change of Control Offer is being made pursuant to this provision and that all Notes tendered will be accepted for payment; (ii) the purchase price and the purchase date, which will be no earlier than 30 days nor later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"); (iii) that any Note not tendered will continue to accrue interest; (iv) that, unless the Company defaults in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer will cease to accrue interest on the Change of Control Payment Date; (v) that any holder electing to have Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed, to the paying agent with respect to the Notes (the "Paying Agent") at the address specified in the notice prior to the close of business on the third business day preceding the Change of Control Payment Date; (vi) that any holder will be entitled to withdraw such election if the Paying Agent receives, not later than the close of business on the second business day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the holder, the principal amount of Notes delivered for purchase, and a statement that such holder is withdrawing his election to have such Notes purchased; and (vii) that a holder whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes in connection with a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the "Change of Control" provisions of the Indenture, the Company will comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the "Change of Control" provisions of the Indenture by virtue thereof. On the Change of Control Payment Date, the Company will, to the extent lawful, (i) accept for payment the Notes or portions thereof tendered pursuant to the Change of Control Offer; (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and not withdrawn; and (iii) deliver or cause to be delivered to the Trustee the Notes 61 so accepted together with an Officer's Certificate stating that the Notes or portions thereof tendered to the Company are accepted for payment. The Paying Agent will promptly mail to each holder of Notes so accepted payment in an amount equal to the purchase price for such Notes, and the Trustee will authenticate and mail to each holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any, PROVIDED, that each such new Note will be in principal amount of $1,000 or an integral multiple thereof. The Company will announce the result of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the holders of the Notes to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar restructuring. There can be no assurance that sufficient funds will be available at the time of any Change of Control Offer to make required repurchases. "Change of Control" means (i) the transfer (in one transaction or a series of transactions) of all or substantially all of the Company's assets to any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act) other than to one or more Existing Holders; (ii) the liquidation or dissolution of the Company or the adoption of a plan by the stockholders of the Company relating to the dissolution or liquidation of the Company; (iii) the acquisition by any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act), except for one or more Existing Holders, of beneficial ownership, directly or indirectly, of more than 50% of the aggregate ordinary voting power of the total outstanding Voting Stock of AETG; (iv) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company or AETG (together with any new directors who are designated pursuant to the Stockholders' Agreement or approved by a vote of at least 66 2/3 % of the directors 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 or AETG, as the case may be, then still in office; or (v) the failure by AETG to own 51% of the voting power of the total outstanding Voting Stock of the Company. "Existing Holders" shall mean the Majority Stockholders and the Preferred Stockholder. CERTAIN COVENANTS LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly (i) declare or pay any dividend or make any distribution on account of any Equity Interests of the Company or any of its Subsidiaries (other than (A) dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or (B) dividends or distributions payable to the Company or any 90% Owned Subsidiary); (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interest of the Company, any Subsidiary or any other Affiliate of the Company (other than any such Equity Interest owned by the Company or any Wholly Owned Subsidiary); (iii) make any principal payment on, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness of the Company or any Guarantor that is subordinated in right of payment to the Notes or such Guarantor's Guarantee thereof, as the case may be, prior to any scheduled principal payment, sinking fund payment or other payment at the stated maturity thereof; (iv) make any Restricted Investment; or (v) make any payment or transfer any assets to, or on behalf of, AETG or any of its Affiliates (all such payments and other actions set forth in clauses (i) through (v) above being collectively referred to as "Restricted Payments") unless, at the time of such Restricted Payment: (a) no Default or Event of Default has occurred and is continuing or would occur as a consequence thereof, 62 (b) immediately after giving effect thereto on a PRO FORMA basis, the Company could incur at least $1.00 of additional Indebtedness under the Interest Coverage Ratio test set forth in the covenant described under "Limitation on Incurrence of Indebtedness," and (c) such Restricted Payment (the value of any such payment, if other than cash, being determined in good faith by the Board of Directors and evidenced by a resolution set forth in an Officers' Certificate delivered to the Trustee), together with the aggregate of all other Restricted Payments made after the date of the Indenture (including Restricted Payments permitted by clauses (i) and (ii) of the next following paragraph and excluding Restricted Payments permitted by the other clauses therein), is less than the sum of (1) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first quarter commencing immediately after the Issue Date to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, 100% of such deficit), plus (2) 100% of the aggregate net cash proceeds (or of the net cash proceeds received upon the conversion of non-cash proceeds into cash) received by the Company from the issuance or sale, other than to a Subsidiary, of Equity Interests of the Company (other than Disqualified Stock) after the Issue Date and on or prior to the time of such Restricted Payment, plus (3) 100% of the aggregate net cash proceeds (or of the net cash proceeds received upon the conversion of non-cash proceeds into cash) received by the Company from the issuance or sale, other than to a Subsidiary, of any convertible or exchangeable debt security of the Company that has been converted or exchanged into Equity Interests of the Company (other than Disqualified Stock) pursuant to the terms thereof after the Issue Date and on or prior to the time of such Restricted Payment (including any additional net cash proceeds received by the Company upon such conversion or exchange). The foregoing provisions will not prohibit (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would not have been prohibited by the provisions of the Indenture; (ii) the redemption, purchase, retirement or other acquisition of any Equity Interests of the Company or Indebtedness of the Company or any Restricted Subsidiary in exchange for Equity Interests of the Company (other than Disqualified Stock); (iii) the redemption, repurchase or payoff of any Indebtedness with proceeds of any Refinancing Indebtedness permitted to be incurred pursuant to the provision described under "-- Limitation on Incurrence of Indebtedness;" (iv) payments by the Company to AETG pursuant to the Tax Sharing Agreement; (v) distributions, loans or advances to AETG in an aggregate amount not to exceed the Permitted Amount during any fiscal year; provided, that such amounts are used by AETG to pay ordinary operating expenses and Management Fees (as defined in the Stockholders' Agreement); (vi) Permitted Affiliate Transactions; or (vii) other Restricted Payments in an aggregate amount not to exceed $1.0 million; provided, that with respect to clauses (v), (vi) and (vii) above, no Default or Event of Default shall have occurred and be continuing at the time, or shall occur as a consequence thereof. Not later than the date of making any Restricted Payment, the Company will deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this covenant were computed, which calculations may be based upon the Company's latest available financial statements. LIMITATION ON INCURRENCE OF INDEBTEDNESS. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, (1) create, incur, issue, assume, guaranty or otherwise become directly or indirectly liable with respect to, contingently or otherwise (collectively, "incur"), any Indebtedness (including Acquired Debt) or (2) issue any Disqualified Stock; provided, that the Company may incur Indebtedness (including Acquired Debt or Indebtedness incurred under the Revolving Credit Facility) or issue shares of Disqualified Stock and any Restricted Subsidiary may incur Acquired Debt or Indebtedness incurred under the Revolving Credit Facility, in each case if (x) no Default or Event of Default shall have occurred and be continuing at the time of, or would occur after giving effect on a pro forma basis to such incurrence or issuance, and (y) the Interest Coverage Ratio for the Company's most 63 recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least equal to the ratio set forth below opposite the period in which such incurrence or issuance occurs, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness (including Acquired Debt or Indebtedness incurred under the Revolving Credit Facility) had been incurred, or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period:
PERIOD ENDING RATIO - ------------------------------------------------------------------------------------------- ----- February 1, 1998........................................................................... 2.00 February 1, 1999........................................................................... 2.25
; provided, that in the case of Indebtedness (other than Purchase Money Indebtedness, Acquired Debt or Indebtedness incurred under the Revolving Credit Facility) the Weighted Average Life to Maturity and final stated maturity of such Indebtedness exceeds the Weighted Average Life to Maturity and final stated maturity of the Notes. The foregoing limitations will not prohibit the incurrence of: (a) Indebtedness under the Revolving Credit Facility, provided, that the aggregate principal amount of Indebtedness so incurred on any date, together with all other Indebtedness incurred pursuant to this clause (a) and outstanding on such date, shall not exceed $30.0 million, less any repayments thereunder pursuant to the provisions under "Limitation on Asset Sales," (b) performance bonds, appeal bonds, surety bonds, insurance obligations or bonds and other similar bonds or obligations incurred in the ordinary course of business, (c) obligations incurred to fix the interest rate on any variable rate Indebtedness otherwise permitted by the Indenture (collectively, "Hedging Obligations"), (d) Indebtedness arising out of Capital Lease Obligations or Purchase Money Obligations (collectively, "Purchase Money Indebtedness") in an aggregate amount not to exceed $10.0 million outstanding at any time, (e) Indebtedness owed by (i) a Restricted Subsidiary to the Company or to a Wholly Owned Subsidiary; or (ii) the Company to a Wholly Owned Subsidiary, (f) Indebtedness outstanding on the Issue Date, including the Notes, (g) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, that such Indebtedness is extinguished within three business days of incurrence, and (h) Indebtedness issued in exchange for, or the proceeds of which are contemporaneously used to extend, refinance, renew, replace, or refund (collectively, "Refinance") Indebtedness referred to in clause (f) above or this clause (h) or Indebtedness incurred pursuant to the Interest Coverage Ratio test set forth in the immediately preceding paragraph ("Refinancing Indebtedness"); provided, that (1) the principal amount of such Refinancing Indebtedness does not exceed the principal amount of Indebtedness so Refinanced (plus the premiums required to be paid, and the out-of-pocket expenses (other than those payable to an Affiliate of the Company) reasonably incurred, in connection therewith), (2) the Refinancing Indebtedness has a final scheduled maturity that exceeds the final stated maturity, and a Weighted Average Life to Maturity that is equal to or greater than the Weighted Average Life to Maturity, of the Indebtedness being Refinanced and (3) the Refinancing Indebtedness ranks, in right of payment, no more favorable to the Notes as the Indebtedness being Refinanced. 64 LIMITATION ON ASSET SALES. The Company will not, and will not permit any Restricted Subsidiary to, make any Asset Sale unless (i) the Company or such Restricted Subsidiary receives consideration at the time of such Asset Sale at least equal to the fair market value (as determined in good faith by the Board of Directors as evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets subject to such Asset Sale; (ii) at least 85% of the consideration for such Asset Sale is in the form of cash, Cash Equivalents or liabilities of the Company or any Restricted Subsidiary (other than liabilities that are by their terms subordinated to the Notes or any Guarantee of the Notes) that are assumed by the transferee of such assets (provided, that following such Asset Sale there is no further recourse to the Company and its Restricted Subsidiaries with respect to such liabilities); and (iii) within 12 months of such Asset Sale, the Net Proceeds thereof are (a) invested in assets related to the business of the Company or its Restricted Subsidiaries, or (b) to the extent not used as provided in clause (a), applied to make an offer to purchase Notes as described below (an "Excess Proceeds Offer"); provided, that if (x) the amount of Net Proceeds from any Asset Sale not invested pursuant to clause (a) above is less than $5.0 million or (y) the Net Proceeds from an Asset Sale of Collateral with respect to which the Lien thereon is subordinate to the Lien securing obligations under the Revolving Credit Facility are used to repay obligations under the Revolving Credit Facility, the Company will not be required to make an offer pursuant to clause (b). Pending the final application of any such Net Proceeds, the Company or any Restricted Subsidiary may temporarily reduce Indebtedness under the Revolving Credit Facility or temporarily invest such Net Proceeds in Cash Equivalents. The amount of Net Proceeds not invested as set forth in the preceding clause (a) constitutes "Excess Proceeds." If the Company elects, or becomes obligated to make an Excess Proceeds Offer, the Company will offer to purchase Notes having an aggregate principal amount equal to the Excess Proceeds (the "Purchase Amount"), at a purchase price equal to 100% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the purchase date. The Company must commence such Excess Proceeds Offer not later than 30 days after the expiration of the 12-month period following the Asset Sale that produced Excess Proceeds. If the aggregate purchase price for the Notes tendered pursuant to the Excess Proceeds Offer is less than the Excess Proceeds, the Company and its Restricted Subsidiaries may use the portion of the Excess Proceeds remaining after payment of such purchase price for general corporate purposes. Each Excess Proceeds Offer will remain open for a period of 20 business days and no longer, unless a longer period is required by law (the "Excess Proceeds Offer Period"). Promptly after the termination of the Excess Proceeds Offer Period (the "Excess Proceeds Payment Date"), the Company will purchase and mail or deliver payment for the Purchase Amount for the Notes or portions thereof tendered, PRO RATA or by such other method as may be required by law, or, if less than the Purchase Amount has been tendered, all Notes tendered pursuant to the Excess Proceeds Offer. The principal amount of Notes to be purchased pursuant to an Excess Proceeds Offer may be reduced by the principal amount of Notes acquired by the Company through purchase or redemption (other than pursuant to a Change of Control Offer) subsequent to the date of the Asset Sale and surrendered to the Trustee for cancellation. Each Excess Proceeds Offer will be conducted in compliance with applicable regulations under the federal securities laws, including Exchange Act Rule 14e-1. To the extent that the provisions of any securities laws or regulations conflict with the "Asset Sale" provisions of the Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the "Asset Sale" provisions of the Indenture by virtue thereof. There can be no assurance that sufficient funds will be available at the time of any Excess Proceeds Offer to make required repurchases. LIMITATION ON LIENS. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist any Lien on any asset (including, without limitation, all real, tangible or intangible property) of the Company or any Restricted Subsidiary, whether now owned or 65 hereafter acquired, or on any income or profits therefrom, or assign or convey any right to receive income therefrom, except (i) Liens securing Indebtedness permitted to be incurred under the Revolving Credit Facility; provided, that the Notes are secured by a second priority security interest in the assets subject to such Liens; (ii) Purchase Money Liens; and (iii) Permitted Liens. LIMITATION ON RESTRICTIONS ON SUBSIDIARY DIVIDENDS. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary (a) to (1) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (A) on such Restricted Subsidiary's Capital Stock or (B) with respect to any other interest or participation in, or measured by, such Restricted Subsidiary's profits or (2) pay any indebtedness owed to the Company or any of its Restricted Subsidiaries, or (b) make loans or advances to the Company or any of its Restricted Subsidiaries, or (c) transfer any of its assets to the Company or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (i) the Revolving Credit Facility, as in effect on the Closing Date, or any refinancings, amendments, modifications or supplements thereof containing dividend and other payment restrictions that are not materially more restrictive than those contained in the Revolving Credit Facility on the Closing Date; (ii) the Indenture, the Collateral Agreements and the Notes; (iii) applicable law; (iv) restrictions with respect to a Subsidiary that was not a Subsidiary on the Closing Date in existence at the time such Person becomes a Subsidiary (but not created as a result of or in anticipation of such Person becoming a Subsidiary); provided, that such restrictions are not applicable to any other Person or the properties or assets of any other Person; (v) customary non-assignment and net worth provisions of any contract or lease entered into in the ordinary course of business; (vi) customary restrictions on the transfer of assets subject to a Lien permitted under the Indenture imposed by the holder of such Lien; (vii) restrictions imposed by any agreement to sell assets or Capital Stock to any Person pending the closing of such sale; and (viii) permitted Refinancing Indebtedness (including Indebtedness Refinancing Acquired Debt), provided, that such restrictions contained in any agreement governing such Refinancing Indebtedness are not materially more restrictive than those contained in any agreements governing the Indebtedness being Refinanced. MERGER, CONSOLIDATION OR SALE OF ASSETS. The Company may not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets (determined on a consolidated basis for the Company and its Restricted Subsidiaries) in one or more related transactions to, any other Person unless (i) the Company is the surviving Person or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition has been made is a corporation organized and existing under the laws of the United States, any state thereof or the District of Columbia, (ii) the Person formed by or surviving any such consolidation or merger (if other than the Company) or the Person to which such sale, assignment, transfer, lease, conveyance or other disposition has been made assumes all the Obligations of the Company, pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee, under the Notes, the Indenture, the Collateral Agreements and the Registration Rights Agreement; (iii) immediately after such transaction, no Default or Event of Default exists; and (iv) the Company, or any Person formed by or surviving any such consolidation or merger, or to which such sale, assignment, transfer, lease, conveyance or other disposition has been made, (A) has a Consolidated Net Worth (immediately after the transaction but prior to any purchase accounting adjustments resulting from the transaction) not less than 90% of the Consolidated Net Worth of the Company immediately preceding the transaction and (B) will be permitted, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, to incur at least $1.00 of additional Indebtedness pursuant to the Interest Coverage Ratio test set forth in the covenant described under "Incurrence of Indebtedness." In the event of any transaction (other than a lease) complying with the conditions listed in the immediately preceding paragraph in which the Company is not the surviving Person, such surviving Person 66 or transferee shall succeed to, and be substituted for, and may exercise every right and power of, the Company, and the Company shall be discharged from its Obligations under, the Indenture, the Notes, the Collateral Agreements and the Registration Rights Agreement. LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), except for (i) Affiliate Transactions, which together with all Affiliate Transactions that are part of a common plan, have an aggregate value of not more than $1.0 million; provided, that such transactions are conducted in good faith and on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of the Company or such Restricted Subsidiary; (ii) Affiliate Transactions, which together with all Affiliate Transactions that are part of a common plan, have an aggregate value of not more than $5.0 million; provided, that a majority of the disinterested members of the Board of Directors of the Company determine that such transactions are conducted in good faith and on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of the Company or such Restricted Subsidiary; (iii) Affiliate Transactions for which the Company delivers to the Trustee an opinion as to the fairness to the Company or such Restricted Subsidiary from a financial point of view, issued by an investment banking firm of national standing; and (iv) Permitted Affiliate Transactions and other Restricted Payments permitted by the provisions described above under "Limitations on Restricted Payments." RESTRICTIONS ON SALE AND ISSUANCE OF SUBSIDIARY STOCK. The Company shall not sell, and shall not permit any of its Restricted Subsidiaries to issue or sell, any shares of Capital Stock of any Restricted Subsidiary to any Person other than the Company or a Wholly Owned Subsidiary, other than directors' qualifying shares; provided, that the Company and its Restricted Subsidiaries may sell all of the Capital Stock of a Restricted Subsidiary owned by the Company and its Restricted Subsidiaries if the Net Proceeds from such Asset Sale are used in accordance with the terms of the covenant described under "-- Limitation on Asset Sales." LINE OF BUSINESS. The Company will not, and will not permit any Restricted Subsidiary to, engage in any business other than (a) the business conducted or proposed to be conducted by the Company and the Restricted Subsidiaries on the Closing Date and (b) any transportation business that is ancillary or complementary to any business described in clause (a) above. GUARANTORS. The Indenture will provide that as long as any Notes remain outstanding, any Restricted Subsidiary shall (a) execute and deliver to the Trustee a supplemental indenture in form reasonably satisfactory to the Trustee pursuant to which such Restricted Subsidiary shall unconditionally guarantee all of the Company's obligations under the Notes and the Indenture on the terms set forth in the Indenture and (b) deliver to the Trustee an opinion of counsel that such supplemental indenture has been duly authorized, executed and delivered by such Restricted Subsidiary and constitutes a legal, valid, binding and enforceable obligation of such Restricted Subsidiary. Thereafter, such Restricted Subsidiary shall be a Guarantor for all purposes of the Indenture. If all of the Capital Stock of any Guarantor is sold to a Person (other than the Company or any of its Restricted Subsidiaries) and the Net Proceeds from such Asset Sale are used in accordance with the terms of the covenant described under "-- Limitation on Asset Sales," then such Guarantor will be released and discharged from all of its obligations under its Guarantee of the Notes and the Indenture. The obligations of each Guarantor will be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from 67 or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee of the Notes, result in the obligations of such Guarantor under its Guarantee of the Notes not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. See "Risk Factors -- Guarantees." REPORTS. Whether or not required by the rules and regulations of the Commission, so long as any Notes are outstanding, the Company will furnish to the Trustee, and deliver or cause to be delivered to the holders of Notes (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including for each a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's independent certified public accountants; and (ii) all reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports. From and after the time a registration statement with respect to the Notes is declared effective by the Commission, the Company will file such information with the Commission, provided that the Commission will accept such filing. EVENTS OF DEFAULT AND REMEDIES Each of the following will constitute an Event of Default under the Indenture (i) default for 30 days in the payment when due of interest on the Notes; (ii) default in payment of principal (or premium, if any) on the Notes when due at maturity, redemption, by acceleration or otherwise; (iii) default in the performance or breach of the provisions of "Repurchase Upon Change of Control," "Limitation on Asset Sales," and "-- Merger, Consolidation or Sale of Assets;" (iv) default in the performance or breach of the provisions of "Limitation on Restricted Payments" and "Limitation on Incurrence of Indebtedness," and the continuance of such default for a period of 30 days; (v) failure by the Company or any Guarantor for 30 days after notice to comply with certain other agreements in the Indenture or the Notes; (vi) default under (after giving effect to any waivers, amendments, applicable grace periods or any extension of any maturity date) any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any Restricted Subsidiary (or the payment of which is guaranteed by the Company or any Restricted Subsidiary), whether such Indebtedness or guarantee now exists or is created after the date of the Indenture, if (a) either (1) such default results from the failure to pay principal on such Indebtedness or (2) as a result of such default the maturity of such Indebtedness has been accelerated, and (b) the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness with respect to which such a payment default (after the expiration of any applicable grace period or any extension of the maturity date) has occurred, or the maturity of which has been so accelerated, exceeds $2.5 million in the aggregate; (vii) failure by the Company or any Restricted Subsidiary to pay final non-appealable judgments (other than any judgment as to which a reputable insurance company has accepted full liability) aggregating in excess of $2.5 million which judgments are not discharged, bonded or stayed within 60 days after their entry; (viii) breach by the Company, AETG or any Guarantor of any provision of the Collateral Agreements to which they are a party; (ix) written assertion by the Company, AETG or any of the Guarantors, of the unenforceability of their obligations under the Indenture, the Collateral Agreements, the Notes or the Guarantees to which they are a party; and (x) certain events of bankruptcy or insolvency with respect to the Company or any Material Subsidiary. If any Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the then outstanding Notes may declare by written notice to the Company and the Trustee all the Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. 68 The holders of a majority in aggregate principal amount of the Notes then outstanding, by written notice to the Company and the Trustee, may on behalf of the holders of all of the Notes (i) waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes or a Default or an Event of Default with respect to any covenant or provision which cannot be modified or amended without the consent of the holder of each outstanding Note affected; and/or (ii) rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal or interest that has become due solely because of the acceleration) have been cured or waived. The Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS No director, officer, employee, incorporator, stockholder or controlling person of the Company or any Guarantor, as such, will have any liability for any obligations of the Company or any Guarantor under the Notes, the Indenture or the Registration Rights Agreement or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release will be part of the consideration for issuance of the Notes and the Guarantees. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. DEFEASANCE AND DISCHARGE OF THE INDENTURE AND THE NOTES The Indenture provides that the Company will be discharged from any and all obligations in respect of the Notes, other than the obligation to duly and punctually pay the principal of, and premium, if any, and interest on, the Notes in accordance with the terms of the Notes and the Indenture upon irrevocable deposit with the Trustee, in trust, of money and/or U.S. government obligations that will provide money in an amount sufficient in the opinion of a nationally recognized accounting firm to pay the principal of and premium, if any, and each installment of interest, if any, on the due dates thereof on the Notes. Such trust may only be established if, among other things (i) the Company has delivered to the Trustee an opinion of independent counsel to the effect that the 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, in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred; (ii) no Default or Event of Default shall have occurred or be continuing; and (iii) certain customary conditions precedent are satisfied. The Company may satisfy and discharge its Obligations under the Indenture to holders of the Notes by delivering to the Trustee for cancellation all outstanding Notes or by depositing with the Trustee or the Paying Agent, if applicable, after the Notes have become due and payable, cash sufficient to pay at the stated maturity of all of the outstanding Notes and paying all other sums payable under the Indenture by the Company. If the Company has so deposited such cash, the Guarantors will be discharged from their Obligations under their Guarantees of the Notes and the Indenture. TRANSFER AND EXCHANGE A holder may transfer or exchange Notes in accordance with the Indenture. The Registrar and the Trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a holder to pay any taxes and fees required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Note selected for redemption. Also, the Company is not required to transfer or exchange any Note for a period of 15 days before a selection of Notes to be redeemed. The registered holder of a Note will be treated as the owner of it for all purposes. 69 AMENDMENT, SUPPLEMENT AND WAIVER Except as provided in the two succeeding paragraphs, the Indenture and the Notes may be amended or supplemented with the consent of the holders of at least a majority in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for Notes) and any existing Default or Event of Default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for Notes). Without the consent of each holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting holder of Notes) (i) reduce the principal amount of Notes whose holders must consent to an amendment, supplement or waiver; (ii) reduce the principal of, or the premium on, or change the fixed maturity of any Note, alter the provisions with respect to the redemption of the Notes in a manner adverse to the holders of the Notes, or alter the price at which repurchases of the Notes may be made pursuant to an Excess Proceeds Offer or Change of Control Offer; (iii) reduce the rate of or change the time for payment of interest on any Note; (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes; (v) make any Note payable in money other than that stated in the Notes; (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of holders of Notes to receive payments of principal of or interest on the Notes; (vii) waive a redemption payment with respect to any Note; (viii) adversely affect the contractual ranking of the Notes or Guarantees of the Notes; or (ix) make any change in the foregoing amendment and waiver provisions. Notwithstanding the foregoing, without the consent of the holders of Notes, the Company, the Guarantors and the Trustee may amend or supplement the Indenture or the Notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to holders of the Notes or any Guarantor's obligation under its Guarantee of the Notes in the case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such holder, to release any Guarantee of the Notes permitted to be released under the terms of the Indenture, or to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. CONCERNING THE TRUSTEE The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; provided, that if the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. The holders of a majority in principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default occurs (and is not cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any holder of Notes, unless such holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. 70 ADDITIONAL INFORMATION A copy of the Indenture has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. This description of the Indenture is qualified in its entirety by reference to such exhibit. CERTAIN DEFINITIONS Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full definition of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "Acquired Debt" means Indebtedness of a Person existing at the time such Person is merged with or into the Company or a Restricted Subsidiary or becomes a Restricted Subsidiary, other than Indebtedness incurred in connection with, or in contemplation of, such Person merging with or into the Company or a Restricted Subsidiary or becoming a Restricted Subsidiary; provided, that Indebtedness of such other Person that is redeemed, defeased, retired or otherwise repaid at the time, or immediately upon consummation, of the transaction by which such other Person is merged with or into the Company or a Restricted Subsidiary or becomes a Restricted Subsidiary shall not be Acquired Debt. "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 purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, will mean (i) the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; (ii) in the case of a corporation, beneficial ownership of 10% or more of any class of Capital Stock of such Person; and (iii) in the case of an individual (A) members of such Person's immediate family (as defined in Instruction 2 of Item 404(a) of Regulation S-K under the Securities Act) and (B) trusts, any trustee or beneficiaries of which are such Person or members of such Person's immediate family. Notwithstanding the foregoing, neither the Initial Purchaser nor any of its Affiliates will be deemed to be Affiliates of the Company. Notwithstanding the foregoing, neither the Initial Purchaser nor any of its Affiliates will be deemed to be Affiliates of the Company. "Asset Sale" means any (i) transfer, other than in the ordinary course of business, of any assets of the Company or any Restricted Subsidiary; or (ii) direct or indirect issuance of any Capital Stock of any Restricted Subsidiary, in each case to any Person (other than the Company or a Restricted Subsidiary and other than directors' qualifying shares). For purposes of this definition, (a) any series of transfers that are part of a common plan shall be deemed a single Asset Sale and (b) the term "Asset Sale" shall not include any disposition of all or substantially all of the assets of the Company that is governed under and complies with the terms of the covenant described under "-- Merger, Consolidation or Sale of Assets." "Capital Lease Obligation" means, as to any Person, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP, and the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. "Capital Stock" means (i) with respect to any Person that is a corporation, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; and (ii) with respect to any other Person, any and all partnership or other equity interests of such Person. "Cash Equivalent" means (i) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof); (ii) time deposits and certificates of deposit and commercial paper issued by the parent corporation of any domestic commercial bank of recognized 71 standing having capital and surplus in excess of $250,000,000 and commercial paper issued by others rated at least A-2 or the equivalent thereof by Standard & Poor's Corporation or at least P-2 or the equivalent thereof by Moody's Investors Service, Inc. and in each case maturing within one year after the date of acquisition; and (iii) investments in money market funds substantially all of whose assets comprise securities of the types described in clauses (i) and (ii) above. "Closing Date" or "Issue Date" means February 4, 1997. "Consolidated EBITDA" means, with respect to any Person (the referent Person) for any period, consolidated income (loss) from operations of such Person and its subsidiaries for such period, determined in accordance with GAAP, plus (to the extent such amounts are deducted in calculating such income (loss) from operations of such Person for such period, and without duplication) amortization, depreciation and other non-cash charges (including, without limitation, amortization of goodwill, deferred financing fees and other intangibles but excluding non-cash charges incurred after the date of the Indenture that require an accrual of or a reserve for cash charges for any future period); provided, that (i) the income from operations of any Person (including, without limitation, any Unrestricted Subsidiary) that is not a 90% Owned Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or distributions paid during such period to the referent Person or a 90% Owned Subsidiary of the referent Person; and (ii) the income from operations of any Restricted Subsidiary will not be included to the extent that declarations of dividends or similar distributions by that Restricted Subsidiary are not at the time permitted, directly or indirectly, by operation of the terms of its organization documents or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its owners. "Consolidated Interest Expense" means, with respect to any Person for any period, the consolidated interest expense (net of interest income) of such Person and its subsidiaries for such period, whether paid or accrued (including amortization of original issue discount, noncash interest payment, and the interest component of Capital Lease Obligations), to the extent such expense was deducted in computing Consolidated Net Income of such Person for such period. "Consolidated Net Income" means, with respect to any Person (the referent Person) for any period, the aggregate of the Net Income of such Person and its subsidiaries for such period, determined on a consolidated basis in accordance with GAAP: provided, that (i) the Net Income of any Person (including, without limitation, any Unrestricted Subsidiary) that is not a Wholly Owned Subsidiary or that is accounted for by the equity method of accounting will be included in calculating the referent Person's Consolidated Net Income only to the extent of the amount of dividends or distributions paid during such period to the referent Person or a Wholly Owned Subsidiary of the referent Person; (ii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition will be excluded and (iii) the Net Income of any Subsidiary will be excluded, to the extent that declarations of dividends or similar distributions by that Subsidiary of such Net Income are not at the time permitted, directly or indirectly, by operation of the terms of its organization documents or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its owners. "Consolidated Net Worth" means, with respect to any Person, the total stockholders' equity of such Person determined on a consolidated basis in accordance with GAAP, adjusted to exclude (to the extent included in calculating such equity) (i) the amount of any such stockholders' equity attributable to Disqualified Capital Stock of such Person and its consolidated subsidiaries; (ii) all upward revaluations and other write-ups in the book value of any asset of such person or a consolidated subsidiary of such person subsequent to the Closing Date; and (iii) all Investments in persons that are not consolidated Restricted Subsidiaries. "Default" means any event that is, or after notice or the passage of time or both would be, an Event of Default. 72 "Disqualified Stock" means any Equity Interests that (i) either by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) is or upon the happening of an event would be required to be redeemed or repurchased prior to the final stated maturity of the Notes or is redeemable at the option of the holder thereof at any time prior to such final stated maturity; or (ii) is convertible into or exchangeable at the option of the issuer thereof or any other Person for debt securities. "Equity Interests" means Capital Stock or warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession, and in the rules and regulations of the Commission, that are in effect on the Issue Date. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Indebtedness" of any Person means (without duplication) (1) all liabilities and obligations, contingent or otherwise, of such Person (a) in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (b) evidenced by bonds, debentures, notes or other similar instruments, (c) representing the deferred purchase price of property or services (other than liabilities incurred in the ordinary course of business which are not more than 90 days past due), (d) created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) as lessee under capitalized leases, (f) under bankers' acceptance and letter of credit facilities, (g) to purchase, redeem, retire, defease or otherwise acquire for value any Disqualified Stock, or (h) in respect of Hedging Obligations, (2) all liabilities and obligations of others of the type described in clause (1), above, that are Guaranteed by such Person, and (3) all liabilities and obligations of others of the type described in clause (1), above, that are secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person; provided, that the amount of such Indebtedness shall (to the extent such Person has not assumed or become liable for the payment of such Indebtedness in full) be the lesser of (x) the fair market value of such property at the time of determination and (y) the amount of such Indebtedness. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date. "Interest Coverage Ratio" means, for any period, the ratio of (i) Consolidated EBITDA of the Company for such period, to (ii) Consolidated Interest Expense of the Company for such period. In calculating the Interest Coverage Ratio for any period, pro forma effect shall be given to (a) the incurrence, assumption, guarantee, repayment, repurchase, redemption or retirement by the Company or any of its Subsidiaries of any Indebtedness (other than under the Revolving Credit Facility) subsequent to the commencement of the period for which the Interest Coverage Ratio is being calculated but on or prior to the date on which the event for which the calculation is being made, as if the same had occurred at the beginning of the applicable period; and (b) the occurrence of any Asset Sale during such period by reducing Consolidated EBITDA for such period by an amount equal to the Consolidated EBITDA (if positive) directly attributable to the assets sold and by reducing Consolidated Interest Expense by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness assumed by third parties or repaid with the proceeds of such Asset Sale, in each case as if the same had occurred at the beginning of the applicable period. For purposes of making the computation referred to above, acquisitions that have been made by the Company or any of its Restricted Subsidiaries, and Transportation 73 Contracts that have been entered into or terminated, subsequent to the commencement of such period but on or prior to the date on which the event for which the calculation is being made shall be given effect on a pro forma basis, assuming that all such acquisitions and terminations and the effectiveness of all such contracts had occurred on the first day of such period, in a manner consistent with the calculations described in note 1 of the "Summary Historical and Pro Forma Financial Information" contained elsewhere in this Offering Circular. Without limiting the foregoing, the financial information of the Company with respect to any portion of such four fiscal quarters that falls before the Closing Date shall be adjusted to give pro forma effect to the issuance of the Notes and the application of the proceeds therefrom as if they had occurred at the beginning of such four fiscal quarters. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of loans, Guarantees, advances or capital contributions (excluding (i) commission, travel and similar advances to officers and employees of such Person made in the ordinary course of business; and (ii) bona fide accounts receivable arising from the sale of goods or services in the ordinary course of business consistent with past practice), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, and any other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. "Lien" means any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Material Subsidiary" means any Subsidiary (a) that is a "Significant Subsidiary" of the Company as defined in Rule 1-02 of Regulation S-X promulgated by the Commission or (b) is otherwise material to the business of the Company. "Net Income" means, with respect to any Person for any period, the net income (loss) of such Person for such period, determined in accordance with GAAP, excluding any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with any Asset Sales and dispositions pursuant to sale and leaseback transactions, and excluding any extraordinary gain (but not loss), together with any related provision for taxes on such gain (but not loss). "Net Proceeds" means the aggregate proceeds received in the form of cash or Cash Equivalents in respect of any Asset Sale (including payments in respect of deferred payment obligations when received), net of (a) the reasonable and customary direct out-of-pocket costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales commissions), other than any such costs payable to an Affiliate of the Company, (b) taxes actually payable directly as a result of such Asset Sale (after taking into account any available tax credits or deductions and any tax sharing arrangements), (c) amounts required to be applied to the permanent repayment of Indebtedness in connection with such Asset Sale, and (d) appropriate amounts provided as a reserve by the Company or any Restricted Subsidiary, in accordance with GAAP, against any liabilities associated with such Asset Sale and retained by the Company or such Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations arising from such Asset Sale. "90% Owned Subsidiary" means a Restricted Subsidiary at least 90% of each class of the Capital Stock of which is owned by the Company or one or more Wholly Owned Subsidiaries. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other obligations and liabilities of the Company or any of the Guarantors under the Indenture, the Collateral Agreements, the Notes or the Guarantees of the Notes. 74 "Permitted Affiliate Transactions" means (i) employment agreements entered into by the Company or any Restricted Subsidiary in the ordinary course of business with the approval of a majority of the disinterested members of the Company's Board of Directors; (ii) transactions between or among the Company and/or its 90% Owned Subsidiaries; (iii) reasonable and customary fees and compensation paid to and indemnity provided on behalf of, officers, directors, employees or consultants of the Company or any Restricted Subsidiary as determined in good faith by a majority of the disinterested directors of the Company's Board of Directors or, if none, unanimously by such Board of Directors; (iv) the "Park & Ride Lease" between Showplace Bowling Center Inc., as lessor, and Atlantic Express Coachways Inc., as lessee, and the lease between Dom Rich Associates, Inc., as lessor, and Staten Island Bus, as lessee, in each case in effect as of the Closing Date; and (v) annual premiums paid to Atlantic North, in the ordinary course of business, for insurance; provided, that such premiums do not exceed the annual aggregate deductibles on the Company's insurance policies then in effect. "Permitted Amount" during any fiscal year means the sum of (a) the Management Fees required to be paid by AETG under the Stockholders' Agreement during such fiscal year and (b) the Permitted Expense Amount. "Permitted Expense Amount" means (i) for fiscal year 1996, $100,000; and (ii) for each fiscal year thereafter, 1.05 times the Permitted Expense Amount for the immediately preceding fiscal year. "Permitted Investments" means (i) Investments in the Company, any Guarantor or any Wholly Owned Subsidiary (including without limitation, Guarantees of Indebtedness of any such Person); (ii) Investments in an aggregate amount not to exceed $1 million in Restricted Subsidiaries other than Wholly Owned Subsidiaries; (iii) Investments in Cash Equivalents; (iv) Investments in a Person, if as a result of such Investment (a) such Person becomes a Wholly Owned Subsidiary, or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Wholly Owned Subsidiary; (v) Hedging Obligations; (vi) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers; (vii) Investments as a result of consideration received in connection with an Asset Sale made in compliance with the covenant described under the caption "Limitation on Asset Sales;" (viii) investments in Atlantic North, but only to the extent necessary under applicable law or reasonably required by certain administrative agencies, to permit Atlantic North to provide insurance policies to the Company and its Restricted Subsidiaries in the ordinary course of business as contemplated under clause (v) of the definition of "Permitted Affiliate Transactions;" and (ix) Investments existing on the Issue Date. "Permitted Liens" means (i) Liens in favor of the Company and/or its Restricted Subsidiaries other than with respect to intercompany Indebtedness; (ii) Liens on property of a Person existing at the time such Person is acquired by, merged into or consolidated with the Company or any Restricted Subsidiary, provided, that such Liens were not created in contemplation of such acquisition and do not extend to assets other than those subject to such Liens immediately prior to such acquisition; (iii) Liens on property existing at the time of acquisition thereof by the Company or any Restricted Subsidiary, provided, that such Liens were not created in contemplation of such acquisition and do not extend to assets other than those subject to such Liens immediately prior to such acquisition; (iv) Liens incurred in the ordinary course of business in respect of Hedging Obligations; (v) Liens incurred in the ordinary course of business to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations (exclusive of obligations constituting Indebtedness) of a like nature, including, without limitation, cash retainages; (vi) Liens existing or created on the Issue Date; (vii) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested or remedied in good faith by appropriate proceedings promptly instituted and diligently concluded, provided, that any reserve or other appropriate provision as may be required in conformity with GAAP has been made therefor; (viii) Liens arising by reason of any judgment, decree or order of any court with respect to which the Company or any of its Restricted Subsidiaries is then in good faith prosecuting an appeal or other proceedings for review, the existence of which judgment, order or decree is not an Event of Default under 75 the Indenture; (ix) encumbrances consisting of zoning restrictions, survey exceptions, utility easements, licenses, rights of way, easements of ingress or egress over property of the Company or any of its Restricted Subsidiaries, rights or restrictions of record on the use of real property, minor defects in title, landlord's and lessor's liens under leases on property located on the premises rented, mechanics' liens, warehouseman's liens, supplier's liens, repairman's liens, vendors' liens, and similar encumbrances, rights or restrictions on personal or real property, in each case not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; (x) Liens incidental to the conduct of business or the ownership of properties incurred in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, bids, and government contracts and leases and subleases; (xi) Liens for any interest or title of a lessor under any Capitalized Lease Obligation permitted to be incurred under the Indenture; provided, that such Liens do not extend to any property or asset that is not leased property subject to such Capitalized Lease Obligation; (xii) any extension, renewal, or replacement (or successive extensions, renewals or replacements), in whole or in part, of Liens described in clauses (i) through (xi) above; (xiii) Liens securing the Notes; and (xiv) Liens in addition to the foregoing, which in the aggregate, are secured by assets with a fair market value not in excess of $100,000 at any time. "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization, government or any agency or political subdivision thereof, or any other entity. "Public Equity Offering" means a bona fide underwritten public offering of Qualified Capital Stock of the Company, pursuant to a registration statement filed with and declared effective by the Commission in accordance with the Securities Act. "Purchase Money Liens" means Liens to secure or securing Purchase Money Obligations permitted to be incurred under the Indenture. "Purchase Money Obligations" means Indebtedness representing, or incurred to finance, the cost (i) of acquiring or improving any assets; and (ii) of construction or build-out of manufacturing, distribution or administrative facilities (including Purchase Money Obligations of any other Person at the time such other Person is merged with or into or is otherwise acquired by the Company), provided, that (a) the principal amount of such Indebtedness does not exceed 100% of such cost, including construction charges, (b) any Lien securing such Indebtedness does not extend to or cover any other asset or property other than the asset or property being so acquired or improved and (c) such Indebtedness is incurred, and any Liens with respect thereto are granted, within 180 days of the acquisition or improvement of such property or asset. "Qualified Capital Stock" means, with respect to any Person, Capital Stock of such Person other than Disqualified Capital Stock. "Restricted Investment" means any Investment other than a Permitted Investment. The aggregate amount of each Investment constituting a Restricted Payment since the date of the Indenture shall be reduced by the aggregate after-tax amount of all payments made to the Company and its Restricted Subsidiaries with respect to such Investments; provided, that (a) the maximum amount of such payments so excluded shall not exceed the original amount of such Investment and (b) such payments shall also be excluded from the calculations contemplated by clauses (c)(1) through (4) under the caption "Limitation on Restricted Payments." "Restricted Subsidiary" means a Subsidiary other than an Unrestricted Subsidiary. "Revolving Credit Facility" means the Revolving Credit Facility, entered into on the Issue Date between the Company and the lenders named therein as the same may be amended, modified, renewed, refunded, replaced or refinanced from time to time, including (i) any related notes, letters of credit, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in 76 each case as amended, modified, renewed, refunded, replaced or refinanced from time to time; and (ii) any notes, guarantees, collateral documents, instruments and agreements executed in connection with such amendment, modification, renewal, refunding, replacement or refinancing. "subsidiary" means, with respect to any Person (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Voting Stock thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other subsidiaries of that Person or a combination thereof; and (ii) any partnership in which such Person or any of its subsidiaries is a general partner. "Subsidiary" means any subsidiary of the Company. "transfer" means any direct or indirect sale, assignment, transfer, lease, conveyance, or other disposition (including, without limitation, by way of merger or consolidation). "Transportation Contract" means a written contract entered into by the Company and/or its Restricted Subsidiaries pursuant to which services for school bus transportation, paratransit, coach transportation or Pre-K/Medicaid transportation and related services are provided by the Company and/or any of its Restricted Subsidiaries to a governmental entity or agency. "Unrestricted Subsidiary" means (a) Atlantic North and (b) any other Subsidiary that has been designated by the Company (by written notice to the Trustee as provided below) as an Unrestricted Subsidiary; provided, that a Subsidiary may not be designated as an "Unrestricted Subsidiary" unless (i) such Subsidiary does not own any Capital Stock of, or own or hold any Lien on any property of, the Company or any Restricted Subsidiary (other than such Subsidiary), (ii) neither immediately prior thereto nor after giving pro forma effect to such designation, would there exist a Default or Event of Default, (iii) immediately after giving effect to such designation on a pro forma basis, the Company could incur at least $1.00 of Indebtedness pursuant to the Interest Coverage Ratio test set forth in the covenant described under "-- Limitation on Incurrence of Indebtedness" and (iv) the creditors of such Subsidiary have no direct or indirect recourse (including, without limitation, recourse with respect to the payment of principal or interest on Indebtedness of such Subsidiary) to the assets of the Company or of a Restricted Subsidiary (other than such Subsidiary). The Board of Directors of the Company may designate any Unrestricted Subsidiary (other than Atlantic North) to be a Restricted Subsidiary only if (i) no Default or Event of Default is existing or will occur as a consequence thereof; and (ii) immediately after giving effect to such designation, on a pro forma basis, the Company could incur at least $1.00 of Indebtedness pursuant to the Interest Coverage Ratio test set forth in the covenant described under "-- Limitation on Incurrence of Indebtedness." Each such designation shall be evidenced by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions. The Company shall be deemed to make an Investment in each Subsidiary designated as an "Unrestricted Subsidiary" immediately following such designation in an amount equal to the Investment in such Subsidiary and its subsidiaries immediately prior to such designation; provided, that if such Subsidiary is subsequently redesignated as a Restricted Subsidiary, the amount of such Investment shall be deemed to be reduced (but not below zero) by the fair market value of the net consolidated assets of such Subsidiary on the date of such redesignation. "Voting Stock" means, with respect to any Person (i) one or more classes of the Capital Stock of such Person having general voting power to elect at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not at the time Capital Stock of any other class or classes have or might have voting power by reason of the happening of any contingency); and (ii) any Capital Stock of such Person convertible or exchangeable without restriction at the option of the holder thereof into Capital Stock of such Person described in clause (i) above. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years (rounded to the nearest one-twelfth) obtained by dividing (i) the then outstanding 77 principal amount of such Indebtedness into (ii) the total of the products obtained by multiplying (x) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (y) the number of years (calculated to the nearest one twelfth) that will elapse between such date and the making of such payment. "Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or one or more Wholly Owned Subsidiaries. BOOK-ENTRY, DELIVERY AND FORM Except as set forth in the next paragraph, the New Notes to be sold as set forth herein will initially be issued in the form of one or more registered Global Notes (the "Global Notes"), each of which will be deposited on the date of the consummation of the Exchange Offer with, or on behalf of, the Depository and registered in the name of the Global Holder. The following are summaries of certain rules and operating procedures of the Depository which affect the Global Notes. The Notes that are (i) originally issued to or transferred to an institutional "accredited investor" (within the meaning of Rule 501 under the Securities Act) who are not a "qualified institutional buyer" (within the meaning of Rule 144A (a "QIB")) or to any other persons who are not QIBs (the "Non-Global Purchasers"); or (ii) issued as described under "Certificated Securities," will be issued in registered form (the "Certificated Securities"). Upon the transfer to a QIB of Certificated Securities initially issued to a Non-Global Purchaser, such Certificated Securities will, unless the Global Note has previously been exchanged for Certificated Securities, be exchanged for an interest in the Global Note representing the principal amount of Notes being transferred. The Depository has advised the Company that it is a limited-purpose trust company that was created to hold securities for its participating organizations (collectively, the "Participants" or the "Depository's Participants") and to facilitate the clearance and settlement of transactions in such securities between Participants through electronic book-entry changes in accounts of its Participants. The Depository's Participants include securities brokers and dealers (including the Initial Purchaser), banks and trust companies, clearing corporations and certain other organizations. Access to the Depository's system is also available to other entities such as banks, brokers, dealers and trust companies (collectively, the "Indirect Participants" or the "Depository's Indirect Participants") that clear through or maintain a custodial relationship with a Participant, either directly or indirectly. Persons who are not Participants may beneficially own securities held by or on behalf of the Depositary only through the Depository's Participants or the Depository's Indirect Participants. The Company expects that pursuant to procedures established by the Depository (i) upon deposit of the Global Notes, the Depository will credit the accounts of Participants with an interest in the Global Notes; and (ii) ownership of the Notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by the Depository (with respect to the interests of the Depository's Participants), the Depository's Participants and the Depository's Indirect Participants. The laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer Notes will be limited to such extent. So long as the Global Holder is the registered owner of any Notes, the Global Holder will be considered the sole owner of such Notes outstanding under the Indenture. Except as provided below, owners of beneficial interests in a Global Note will not be entitled to have Notes represented by such Global Note registered in their names, will not receive or be entitled to receive physical delivery of Certificated Securities, and will not be considered the owners or Holders thereof under the Indenture for any purpose. As a result, the ability of a person having a beneficial interest in Notes represented by a Global Note to pledge such interest to persons or entities that do not participate in the Depository's system or to otherwise take actions in respect of such interest, may be affected by the lack of a physical certificate evidencing such interest. Accordingly, each QIB owning a beneficial interest in a Global Note must rely on 78 the procedures of the Depository and, if such QIB is not a Participant or an Indirect Participant, on the procedures of the Participant through which such QIB owns its interest, to exercise any rights of a holder under such Global Note or the Indenture. 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 the Depository, or for maintaining, supervising or reviewing any records of the Depository relating to such Notes. Payments in respect of the principal of, premium, if any, and interest on any Notes registered in the name of a Global Holder on the applicable record date will be payable by the Trustee to or at the direction of such Global Holder in its capacity as the registered holder under the Indenture. Under the terms of the Indenture, the Company and the Trustee may treat the persons in whose names the Notes, including the Global Notes, are registered as the owners thereof for the purpose of receiving such payments and for any and all other purposes whatsoever. Consequently, neither the Company nor the Trustee has or will have any responsibility or liability for the payment of such amounts to beneficial owners of Notes (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 interests in the Global Notes in principal amount of beneficial interests in the relevant security as shown on the records of the Depository. Payments by the Depository's Participants and the Depository's Indirect Participants to the beneficial owners of Notes will be governed by standing instructions and customary practice and will be the responsibility of the Depository's Participants or the Depository's Indirect Participants. CERTIFICATED SECURITIES If (i) the Company notifies the Trustee in writing that the Depository is no longer willing or able to act as a depository and the Company is unable to locate a qualified successor within 90 days; or (ii) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of the Notes in definitive form under the Indenture then, upon surrender by the relevant Global Holder of its Global Note, Notes in such form will be issued to each person that such Global Holder and the Depository identifies as the beneficial owner of the related Notes. In addition, subject to certain conditions, any person having a beneficial interest in the Global Note may, upon request to the Trustee, exchange such beneficial interest for Certificated Securities. Upon any such issuance, the Trustee is required to register such Notes in the name of, and cause the same to be delivered to, such person or persons (or the nominee of any thereof). Such Notes would be issued in fully registered form. 79 DESCRIPTION OF CAPITAL STOCK The Company's authorized capital stock consists of 200 shares of common stock with no par value. At March 31, 1997, 100 shares of the Company's capital stock were issued and outstanding. Holders of outstanding shares of the Company's capital stock are entitled, for each share held, to one vote upon each matter submitted to a vote at a meeting of shareholders of the Company. The Board of Directors of the Company may authorize the issuance of fractions of shares represented by a certificate or uncertificated, which shall entitle the holder to exercise voting rights, received dividends and participate in liquidating distributions, in proportion to the fractional holdings; or it may authorize the payment in cash of the fair value of fractions of a shares of the time when those entitled to receive such fractions are determined; or in lieu of fractional shares it may authorize the issuance, as permitted by law, of scrip exchangeable as therein provided for full shares, but such scrip shall not entitle the holder to any rights of a shareholder, except as therein provided. CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS Holders of Old Notes contemplating acceptance of the Exchange Offer should consult their own tax advisers with respect to their particular circumstances and with respect to the effects of state, local or foreign tax laws to which they may be subject. The following summary describes the material U.S. federal income tax consequences to Holders who are subject to U.S. net income tax with respect to the Notes ("U.S. persons") and who hold the Notes as capital assets. There can be no assurance that the U.S. Internal Revenue Service (the "IRS") will take a similar view of the purchase, ownership or disposition of the Notes, and no ruling from the IRS has been or will be sought. This discussion is based upon the provisions of the Internal Revenue Code of 1986, as amended, U.S. Treasury regulations, rulings and judicial decisions now in effect, all of which are subject to change. It does not include any description of the tax laws of any state, local or foreign governments or any estate or gift tax considerations that may be applicable to the Notes or Holders thereof. It does not discuss all aspects of U.S. federal income taxation that may be relevant to a particular investor in light of such investor's particular investment circumstances or to certain types of investors subject to special treatment under the U.S. federal income tax laws (for example, dealers in securities or currencies, S corporations, life insurance companies, tax-exempt organizations, taxpayers subject to the alternative minimum tax and non-U.S. persons) and also does not discuss Notes held as a hedge against currency risks or as part of a straddle with other investments or part of a "synthetic security" or other integrated investment (including a "conversion transaction") comprised of a Note and one or more other investments, or situations in which the functional currency of the Holder is not the U.S. dollar. The exchange of an Old Note by a Holder for a New Note will not constitute a taxable exchange. The exchange will not result in income, gain or loss to Holders who participate in the Exchange Offer, or the Company. Such Holders will have the same adjusted basis and holding period in New Notes immediately after the exchange as the Holders had in Old Notes immediately prior to the exchange. 80 PLAN OF DISTRIBUTION Each broker-dealer that participates in the Exchange Offer ("Participating 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 Participating Broker-Dealer in connection with the resale of New Notes received in exchange for Old Notes where such Old Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that for a period of 180 days after the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any Participating 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 Participating Broker-Dealers. New Notes received by Participating 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 Participating Broker-Dealer and/or the purchasers of any such New Notes. Any Participating Broker-Dealer that resells New Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such New Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of New Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a Prospectus, a Participating 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 Expiration Date, the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any Participating Broker-Dealer that reasonably requests such documents in the Letter of Transmittal. This Prospectus has been prepared for use in connection with the Exchange Offer and may be used by the Initial Purchaser in connection with the offers and sales related to market-making transactions in the Notes. The Initial Purchaser may act as principal or agent in such transactions. Such sales will be made at prices related to prevailing market prices at the time of sale. The Company will not receive any of the proceeds of such sales. The Initial Purchaser has no obligation to make a market in the Notes and may discontinue its market-making activities at any time without notice, at its sole discretion. The Company has agreed to indemnify each Participating Broker-Dealer against certain liabilities, including liabilities under the Securities Act, and to contribute to payments which each Participating Broker-Dealer might be required to make in respect thereof. The Initial Purchaser acted as the initial purchaser in connection with the offering of the Old Notes. The Initial Purchaser was paid customary fees and expenses in connection with a loan which it and another institutional investor made to AETG. Such loan was repaid with a portion of the net proceeds of the offering of the Old Notes. The Company has agreed to offer to retain the Initial Purchaser as its exclusive financial advisor, underwriter, placement agent, lender or loan purchaser, as applicable, if the Company proposes to engage in any financing transaction on or before June 23, 1999. 81 VALIDITY OF SECURITIES The validity of the Notes and certain other legal matters will be passed upon for the Company by Jones, Day, Reavis & Pogue, New York, New York and Silverman, Collura, Chernis & Balzano, P.C., New York, New York. EXPERTS The financial statements on pages F-1 through F-19 included in this Prospectus have been audited by BDO Seidman, LLP, independent certified public accountants (except for the information as of December 31, 1996 and for the six months ended December 31, 1996 and 1995), to the extent and for the periods set forth in their report appearing elsewhere herein and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting. AVAILABLE INFORMATION The Company has filed with Commission in Washington, D.C. a Registration Statement under the Securities Act on Form S-1 (File No. 333- ) (the "Registration Statement") with respect to the New Notes offered hereby. As used herein, the term "Registration Statement" means the initial Registration Statement and any and all amendments thereto. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company, the Notes and the Exchange Offer, reference is hereby made to such Registration Statement and the exhibits and schedules thereto. Statements contained in this Prospectus as to the contents of any contract or other document are not necessarily complete and in each instance, reference is made to the copy of such contract or documents filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. The Registration Statement, including the exhibits and schedules thereto, may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at certain regional offices of the Commission located at 7 World Trade Center, Suite 1300, New York, New York 10048 and Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission maintains a website on the internet at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants filed electronically with the Commission. 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 reports with the Commission. The Company intends to furnish to Holders annual reports containing audited financial statements of the Company audited by its independent accounts and quarterly reports containing unaudited condensed financial statements for each of the first three quarters of each fiscal year. 82 ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Page ----- Report of Independent Certified Public Accountants................................... F-2 Consolidated Balance Sheets.......................................................... F-3 Consolidated Statements of Operations................................................ F-4 Consolidated Statements of Stockholder's Equity...................................... F-5 Consolidated Statements of Cash Flows................................................ F-6 Notes to Consolidated Financial Statements........................................... F-8 Unaudited Pro Forma Consolidated Financial Information............................... P-1 Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1996............... P-2 Notes to Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1996...... P-3 Unaudited Pro Forma Statement of Operations for the year ended June 30, 1996......... P-4 Unaudited Pro Forma Statement of Operations for the six months ended December 31, 1996............................................................................... P-5
F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Stockholder of Atlantic Express Transportation Corp. We have audited the accompanying consolidated balance sheets of Atlantic Express Transportation Corp. (see Note 1)and subsidiaries as of June 30, 1996 and 1995, and the related consolidated statements of operations, stockholder's equity, and cash flows for each of the three years in the period ended June 30, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Atlantic Express Transportation Corp. and subsidiaries as of June 30, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 1996 in conformity with generally accepted accounting principles. BDO SEIDMAN, LLP New York, New York November 8, 1996 (except for Note 1 as to which the date is January 30, 1997) F-2 ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JUNE 30, --------------------------- DECEMBER 31, 1995 1996 1996 ------------ ------------- ------------- (UNAUDITED) ASSETS (NOTE 8) Current: Cash and cash equivalents (Notes 6 and 15)......................... $ 3,700,128 $ 1,211,258 $ 1,503,646 Accounts receivable (Notes 5 and 15)............................... 16,268,582 25,687,921 25,947,891 Replacement parts and other inventory.............................. 685,243 994,412 1,179,312 Notes receivable (Note 13)......................................... 827,102 180,760 167,581 Prepaid expenses and other current assets.......................... 3,450,739 5,120,364 4,908,042 ------------ ------------- ------------- Total current assets........................................... 24,931,794 33,194,715 33,706,472 ------------ ------------- ------------- Property, plant and equipment, less accumulated depreciation (Note 7)................................................................. 46,457,870 58,193,715 66,940,880 ------------ ------------- ------------- Other assets: Restricted cash and cash equivalents (Note 6)...................... -- 1,870,000 1,120,000 Retainage (Note 5)................................................. 4,862,134 513,556 513,556 Investments........................................................ 229,000 229,000 229,000 Deferred lease expense............................................. 139,832 655,008 656,208 Transportation contract rights, net................................ 579,240 3,391,718 2,991,038 Deferred financing and organization costs, net..................... 536,493 704,781 1,177,417 Due from affiliates (Note 11)...................................... 4,035,734 4,468,974 4,557,189 Notes receivable (Note 13)......................................... 456,305 293,664 213,286 Deposits and other noncurrent assets............................... 814,842 858,482 891,982 ------------ ------------- ------------- Total other assets............................................. 11,653,580 12,985,183 12,349,676 ------------ ------------- ------------- $ 83,043,244 $ 104,373,613 $ 112,997,028 ------------ ------------- ------------- ------------ ------------- ------------- LIABILITIES AND STOCKHOLDER'S EQUITY Current: Current portion of long-term debt (Note 8)......................... $ 9,030,932 $ 11,328,497 $ 18,858,761 Accounts payable................................................... 2,117,893 1,760,426 4,479,877 Accrued compensation............................................... 2,578,779 3,116,893 5,371,503 Accrued workmen's compensation..................................... 1,543,244 60,000 1,271,109 Current portion of insurance reserve............................... 356,250 1,447,000 2,549,498 Other accrued expenses and current liabilities..................... 1,190,805 4,301,210 521,997 Payable to creditors under the plan of reorganization (Note 9)..... 1,196,550 331,815 138,790 ------------ ------------- ------------- Total current liabilities...................................... 18,014,453 22,345,841 33,191,535 ------------ ------------- ------------- Long-term debt, net of current portion (Note 8)...................... 33,313,896 48,326,701 49,300,233 ------------ ------------- ------------- Payable to creditors -- noncurrent (Note 9).......................... 336,855 39,975 -- ------------ ------------- ------------- Other long-term liabilities.......................................... 1,300,000 2,285,619 2,732,773 ------------ ------------- ------------- Deferred income taxes (Note 10)...................................... 1,994,000 1,890,000 400,000 ------------ ------------- ------------- Commitments and contingencies (Notes 12 and 14) Stockholder's equity: Common Stock -- authorized 200 shares, issued and outstanding 100 shares:.......................................................... 250,000 250,000 250,000 Additional paid-in capital......................................... 13,188,926 13,188,926 13,188,926 Retained earnings.................................................. 14,645,114 16,046,551 13,933,561 ------------ ------------- ------------- Total stockholder's equity..................................... 28,084,040 29,485,477 27,372,487 ------------ ------------- ------------- ------------ ------------- ------------- $ 83,043,244 $ 104,373,613 $ 112,997,028 ------------ ------------- ------------- ------------ ------------- -------------
See accompanying notes to consolidated financial statements. F-3 ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ------------------------------------------- -------------------------- 1994 1995 1996 1995 1996 ------------- ------------- ------------- ------------ ------------ (UNAUDITED) Revenues (Note 15)...................... $ 101,546,597 $ 114,005,547 $ 142,551,559 $ 59,561,436 $ 70,166,561 ------------- ------------- ------------- ------------ ------------ Costs and expenses: Cost of operations.................... 81,362,791 91,428,364 115,108,380 48,485,469 59,655,970 General and administrative............ 8,028,535 9,162,140 10,448,420 5,090,495 5,552,949 Depreciation and amortization......... 6,588,491 7,627,575 9,735,982 4,885,885 5,354,750 ------------- ------------- ------------- ------------ ------------ 95,979,817 108,218,079 135,292,782 58,461,849 70,563,669 ------------- ------------- ------------- ------------ ------------ Income (loss) from operations..... 5,566,780 5,787,468 7,258,777 1,099,587 (397,108) Interest (Note 3)....................... 2,667,565 3,057,545 5,098,443 2,289,963 3,148,634 Income (loss) before nonrecurring items, reorganization items, provision (benefit) for income taxes and extraordinary item.............. 2,899,215 2,729,923 2,160,334 (1,190,376) (3,545,742 ------------- ------------- ------------- ------------ ------------ Nonrecurring items: Litigation settlement................. 80,000 -- -- -- -- Payroll related to school closure (Note 16)........................... 545,068 -- -- -- -- Gain from sale of bus route and buses (Note 13)........................... (1,150,115) -- -- -- -- Settlement of employee benefit claims.............................. 375,000 -- -- -- -- Cancellation of leases................ -- 185,760 -- -- -- ------------- ------------- ------------- ------------ ------------ (150,047) 185,760 -- -- -- ------------- ------------- ------------- ------------ ------------ Income (loss) before reorganization items, provision (benefit) for income taxes and extraordinary item................................ 3,049,262 2,544,163 2,160,334 (1,190,376) (3,545,742) Reorganization items (Note 3): Professional fees..................... 430,194 33,595 -- -- -- ------------- ------------- ------------- ------------ ------------ Income (loss) before provision (benefit) for income taxes and extraordinary item.................. 2,619,068 2,510,568 2,160,334 (1,190,376) (3,545,742) Provision (benefit) for income taxes (Note 10)........................... 693,059 978,632 758,897 (461,242) (1,432,752) ------------- ------------- ------------- ------------ ------------ Income (loss) before extraordinary item................................ 1,926,009 1,531,936 1,401,437 (729,134) (2,112,990) Extraordinary item: Forgiveness of debt, net of taxes of $1,590,000 and $-0- in 1994 and 1995 (Note 3)............................ 10,410,988 1,054,134 -- -- -- ------------- ------------- ------------- ------------ ------------ Net income (loss)....................... $ 12,336,997 $ 2,586,070 $ 1,401,437 $ (729,134) $ (2,112,990) ------------- ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------
See accompanying notes to consolidated financial statements. F-4 ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
COMMON STOCK ADDITIONAL RETAINED ------------ PAID-IN EARNINGS NO PAR VALUE CAPITAL (DEFICIT) TOTAL ------------ ------------- ------------- ------------- BALANCE, JULY 1, 1993....................................... $ 250,000 $ 2,517,681 $ (277,953) $ 2,489,728 Capital contribution........................................ -- 10,704,995 -- 10,704,995 Net income.................................................. -- -- 12,336,997 12,336,997 ------------ ------------- ------------- ------------- BALANCE, JUNE 30, 1994...................................... 250,000 13,222,676 12,059,044 25,531,720 Return of capital........................................... -- (33,750) -- (33,750) Net income.................................................. -- -- 2,586,070 2,586,070 ------------ ------------- ------------- ------------- BALANCE, JUNE 30, 1995...................................... 250,000 13,188,926 14,645,114 28,084,040 Net income.................................................. -- -- 1,401,437 1,401,437 ------------ ------------- ------------- ------------- BALANCE, JUNE 30, 1996...................................... 250,000 13,188,926 16,046,551 29,485,477 Net loss (unaudited)........................................ -- -- (2,112,990) (2,112,990) ------------ ------------- ------------- ------------- BALANCE, DECEMBER 31, 1996 (UNAUDITED)...................... $ 250,000 $ 13,188,926 $ 13,933,561 27,372,487 ------------ ------------- ------------- ------------- ------------ ------------- ------------- -------------
See accompanying notes to consolidated financial statements. F-5 ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ----------------------------------------- -------------------------- 1994 1995 1996 1995 1996 ------------- ------------ ------------ ----------- ------------- (UNAUDITED) Cash flows from operating activities: Net income (loss)...................... $ 12,336,997 $ 2,586,070 $ 1,401,437 $ (729,134) $ (2,112,990) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Extraordinary item................... (12,000,988) (1,054,134) -- Deferred income taxes................ 1,700,000 294,000 (104,000) (520,000) (1,490,000) Depreciation......................... 6,343,952 7,317,828 8,876,163 4,552,814 4,804,123 Amortization......................... 163,770 309,747 859,819 333,071 550,627 Write-off of doubtful accounts receivable......................... 126,458 200,000 569,000 -- -- Gain on sale of buses and route...... (350,115) -- -- -- -- Gain on sale of property and equipment.......................... -- (250,937) -- -- -- Transfer to restricted cash.......... -- -- (1,870,000) -- -- Other................................ (236,012) -- -- Decrease (increase) in: Accounts receivable and retainage........................ (3,018,330) (7,203,507) (5,639,761) (2,867,161) (259,970) Inventory.......................... (12,752) (64,150) (309,169) (133,789) (184,900) Prepaid expenses and other current assets........................... (925,415) (988,766) (1,669,625) (558,679) 212,322 Deferred lease expense............. (715,595) 237,910 (515,176) 39,632 (1,200) Deposits and other noncurrent assets........................... (221,023) 71,470 (43,640) (7,164) (33,500) Increase (decrease) in: Accounts payable................... (149,742) 1,212,488 (357,467) (675,448) 2,719,451 Accrued expenses and other current liabilities...................... 1,660,311 397,373 3,256,025 2,218,315 789,004 Other long-term liabilities........ -- 1,300,000 735,619 19,151 447,154 ------------- ------------ ------------ ----------- ------------- Net cash provided by (used in) operating activities............. 4,937,528 4,365,392 4,953,213 1,671,608 5,440,121 ------------- ------------ ------------ ----------- -------------
See accompanying notes to consolidated financial statements. F-6 ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ------------------------------------------- ---------------------------- 1994 1995 1996 1995 1996 ------------- ------------- ------------- ------------- ------------- (UNAUDITED) Cash flows from investing activities: Additions to property, plant and equipment...... $ (1,313,522) $ (2,515,843) $ (3,195,750) $ (2,238,068) $ (1,663,746) Purchase of transportation contract rights...... -- (595,300) (688,833) (356,189) -- Due from affiliates............................. (53,730) 141,651 (100,596) (114,960) (88,214) Proceeds from disposition of property, plant and equipment..................................... 573,818 1,226,713 -- -- -- Notes receivable................................ 46,210 150,383 808,983 744,932 93,557 Investments..................................... (16,019) -- -- -- -- ------------- ------------- ------------- ------------- ------------- Net cash used in investing activities....... (763,243) (1,592,396) (3,176,196) (1,964,285) (1,658,403) ------------- ------------- ------------- ------------- ------------- Cash flows from financing activities: Proceeds of additional borrowings............... 850,000 10,754,203 8,143,521 5,910,971 5,291,589 Principal payments on borrowings................ (8,666,456) (12,789,637) (10,919,409) (4,008,863) (7,925,335) Deferred financing and organization costs....... -- (641,978) (328,384) (166,999) (622,584) Capital contribution............................ 10,704,995 -- -- -- -- Return of capital............................... -- (33,750) -- -- -- Payments to creditors under the plan of reorganization................................ (1,103,162) (3,988,434) (1,161,615) (960,237) (233,000) ------------- ------------- ------------- ------------- ------------- Net cash provided by (used in) financing activities................................ 1,785,377 (6,699,596) (4,265,887) 774,872 (3,489,330) ------------- ------------- ------------- ------------- ------------- Net increase (decrease) in cash and cash equivalents..................................... 5,959,662 (3,926,600) (2,488,870) 482,195 292,388 Cash and cash equivalents, beginning of period.... 1,667,066 $ 7,626,728 3,700,128 3,700,128 1,211,258 ------------- ------------- ------------- ------------- ------------- Cash and cash equivalents, end of period.......... $ 7,626,728 $ 3,700,128 $ 1,211,258 $ 4,182,323 $ 1,503,646 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Supplemental disclosures of cash flow information: Cash paid during the period for: Interest...................................... $ 2,792,147 $ 4,077,852 $ 5,436,240 $ 2,522,800 $ 3,260,367 Income taxes.................................. 366,000 430,000 305,000 68,000 80,000 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Supplemental schedule of noncash investing and financing activities: Loans incurred for purchase of property, plant and equipment................................. $ 450,916 $ 15,501,260 $ 17,416,258 $ 15,393,753 $ 11,887,542 Loans incurred for purchase of contract rights........................................ -- -- 2,670,000 2,670,000 -- Deferral of payment for contract rights......... -- -- 250,000 250,000 -- Note received from purchaser in exchange for bus routes and buses.............................. 800,000 680,000 -- -- -- Use of restricted cash to pay down debt......... -- -- -- -- 750,000 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
See accompanying notes to consolidated financial statements. F-7 ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED) 1. COMPANY STRUCTURE Prior to August 23, 1993 Atlantic Express Inc. ("AE") and subsidiaries operated in two industries: transportation and entertainment. On August 23, 1993, as part of the reorganization proceeding described in Note 3 below, AE transferred all of its assets and liabilities to the newly formed Atlantic Express Transportation Group Inc. ("AETG") which became the new parent company. On January 30, 1997 AETG transferred all operating assets and liabilities pertaining to the transportation operations to a newly formed company called Atlantic Express Transportation Corp. ("AETC") which became the new parent company of the companies operating in the transportation industry. The accompanying financial statements give effect to the January 30, 1997 restructuring as if it had happened prior to July 1, 1993 and therefore present the financial position and results of operations of the transportation companies for all periods presented. 2. BUSINESS AETC is primarily engaged in providing school bus transportation services for various municipalities in New York City, Nassau County, Suffolk County, Westchester County, Connecticut, Pennsylvania, Missouri and New Jersey. AETC also provides services to public transit systems for physically or mentally challenged passengers, express commuter line and charter and tour bus services, and transportation for pre-kindergarten children and Medicaid recipients. 3. REORGANIZATION PROCEEDING On March 2, 1992 (the "Filing Date"), AE and six of its subsidiaries operating in the transportation industry (as a group, the "Filed Group") filed petitions under Chapter 11 of the U.S. Bankruptcy Code ("Chapter 11"). In fiscal 1993, the Filed Group operated as a debtor-in-possession subject to the jurisdiction of the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). Since a substantial portion of its pre-petition debt was undersecured, the Filed Group discontinued accruing interest on these obligations. If interest had continued to accrue from the Filing Date through August 23, 1993, the date of emergence from bankruptcy, it would have amounted to approximately an additional $690,000 in contractual interest for the year ended June 30, 1994. On August 23, 1993, the Bankruptcy Court confirmed the plan of reorganization (the "Plan"). AE transferred all of its assets and liabilities to AETG, which became the new parent company. The above-described settlement resulted in income from the transportation companies' allocable share of forgiveness of debt of approximately $12,000,000 which is reflected net of estimated taxes of $1,590,000 as an extraordinary item in the fiscal 1994 income statement, and a further $1,054,000, net of $0 tax effect, in fiscal 1995 upon resolution of the federal claims. F-8 ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED) 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of AETC and its subsidiaries. All material intercompany transactions and balances have been eliminated. UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements as of December 31, 1996 and for the six months ended December 31, 1995 and 1996 are unaudited, and have been prepared on the same basis as the audited financial statements included herein. In the opinion of management, such unaudited financial statements include all adjustments consisting of normal recurring accruals necessary to present fairly the information set forth therein. Results for interim periods are not indicative of results to be expected for an entire year. REVENUES Revenues are recognized when services are performed. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost and depreciated utilizing primarily the straight-line method over the lives of the related assets. The useful lives of property, plant and equipment for purposes of computing depreciation are as follows:
YEARS --------- Building and improvements........................................................... 15-31.5 Transportation equipment............................................................ 5-15 Furniture and fixtures.............................................................. 5-7 Machinery and equipment............................................................. 5
Maintenance and repairs are charged to operations when incurred. CASH EQUIVALENTS Cash equivalents consist of short-term, highly liquid investments which are readily convertible into cash. INVENTORY Inventory consists of fuel, parts and supplies. TRANSPORTATION CONTRACT RIGHTS AETC has acquired certain transportation contract rights with respect to revenue contracts and travel routes. Such costs are amortized utilizing the straight-line method over five years. Accumulated amortization at June 30, 1995 and 1996 and December 31, 1996 was $3,849,167, $4,312,877 and $4,718,057, respectively. F-9 ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED) 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) DEFERRED FINANCING AND OTHER COSTS Deferred financing costs are amortized on a straight-line basis over the life of the related debt. Other costs are amortized on a straight-line basis over five years. Accumulated amortization at June 30, 1995 and 1996 and December 31, 1996 was $168,080, $345,334 and $490,780, respectively. INCOME TAXES AETC follows the liability method under Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes". The primary objectives of accounting for taxes under SFAS 109 are to (a) recognize the amount of tax payable for the current year and (b) recognize the amount of deferred tax liability or asset for the future tax consequences of events that have been reflected in AETG's financial statements or tax returns. AETC files consolidated federal and state income tax returns with its parent and fellow subsidiaries. The income tax charge allocated to AETC is based upon the proportion of AETC's income to that of the consolidated group, which approximates the charge which would be incurred by AETC on a stand-alone basis. 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 and disclosures of certain assets and liabilities. Actual results could differ from those estimates. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of financial instruments including cash and cash equivalents, restricted cash, accounts receivable including retainage, notes receivable, accounts payable, accounts payable to creditors and long-term debt approximated fair value as of June 30, 1995 and 1996 and December 31, 1996 due to either short maturity or terms similar to those available to similar companies in the open market. EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS LONG-LIVED ASSETS Long-lived assets, such as property and equipment, are evaluated for impairment when events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable through the estimated undiscounted future cash flows from the use of these assets. When any such impairment exists, the related assets will be written down to their fair value. This policy is in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of", which is effective for fiscal years beginning after December 15, 1995. No write-downs have been necessary through December 31, 1996. F-10 ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED) 5. RETAINAGE Pursuant to certain municipal school bus contracts, certain contractual amounts (retainage) are withheld from billings as a guarantee of performance by AETC. At June 30, 1995, retainage withheld by municipalities (primarily New York City) of $4,862,134 (out of a total of $5,241,049) was classified as noncurrent, since it was the Company's intention to roll over that retainage until the contract termination date. At June 30, 1996, the majority of retainage ($6,272,177 out of $6,785,733) is classified as current since AETC elected to replace its retainage with a performance security bond and, accordingly, in October 1996, approximately $5,800,000 was returned to AETC. As of December 31, 1996, the majority of retainage ($2,477,255 out of $2,990,811) is classified as current. All current retainage is included in accounts receivable in the accompanying consolidated balance sheets. 6. RESTRICTED CASH AND CASH EQUIVALENTS Restricted cash and cash equivalents at June 30, 1996 and December 31, 1996 consist of a $1,120,000 U.S. Treasury Note used as collateral for a letter of credit issued in connection with AETC's workmen's compensation, self insurance deductible reimbursement plan and at June 30, 1996 a $750,000 segregated money market account issued as collateral in connection with AETC's banking facility with Fleet Capital Corporation (see Note 8(a)). Included in cash and cash equivalents is $1,751,207, $1,564,211 and $1,410,625 at June 30, 1995 and 1996 and December 31, 1996, respectively which represent cash and cash equivalents of a captive insurance company subsidiary which are only available for use by that subsidiary. 7. PROPERTY, PLANT AND EQUIPMENT Property plant and equipment consists of the following:
JUNE 30, JUNE 30, DECEMBER 31, 1995 1996 1996 ------------- ------------- ------------- Land................................................................ $ 5,351,041 $ 5,684,372 $ 5,684,373 Building and improvements........................................... 10,513,994 12,013,276 11,878,182 Construction-in-progress............................................ 759,621 2,249,815 3,395,934 Transportation equipment............................................ 78,304,395 93,879,673 105,788,577 Machinery and equipment............................................. 5,040,873 6,533,367 7,081,432 Furniture and fixtures.............................................. 904,356 1,114,322 1,197,616 ------------- ------------- ------------- 100,874,280 121,474,825 135,026,114 Less: Accumulated depreciation...................................... 54,416,410 63,281,110 68,085,234 ------------- ------------- ------------- $ 46,457,870 $ 58,193,715 $ 66,940,880 ------------- ------------- ------------- ------------- ------------- -------------
F-11 ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED) 8. DEBT The following represents the debt outstanding at June 30, 1995 and 1996 and December 31, 1996:
JUNE 30, JUNE 30, DECEMBER 31, 1995 1996 1996 ------------- ------------- ------------- 8% to 11.88% notes payable in connection with transportation equipment, payable in monthly installments, including principal and interest, aggregating approximately $6,750,000 in fiscal 1997, due in various years to 2002(f)................................... $ 20,123,855 $ 28,633,277 $ 37,011,597 9.5% mortgage on real estate located in Bronx, New York, with monthly payments of $20,000 including principal and interest through August 1997, with a balloon payment of approximately $945,000 due at maturity.......................................... 1,227,801 1,098,926 1,029,769 9.5% mortgage on real estate, located in Oceanside, New York, with monthly payments of approximately $10,000 including principal and interest through October 1997, with a balloon payment of $926,000 due at maturity................................................... 996,817 967,211 951,325 10% mortgage on real estate located in Staten Island, New York, payable in monthly installments of $8,000 including principal and interest through October 1999, with a balloon payment of approximately $768,000 due at maturity............................ 845,173 829,767 821,469 9% mortgage on real estate located in Setauket, New York, payable in monthly installments (b).......................................... 397,678 381,130 372,290 8% notes payable outstanding, payable in monthly installments (b)... 746,534 530,810 416,325 8.75% note payable outstanding, payable in monthly installments of $17,000 including principal and interest through September 1997, with a balloon payment of approximately $140,000 due at maturity.......................................................... -- 290,400 230,400 9.5% mortgage on real estate located in Queens, New York, payable in monthly installments of approximately $19,500 including principal and interest through January 2006 (d)............................. -- 1,468,980 1,420,471 7% note payable issued in connection with acquisition of subsidiaries, payable in monthly installments aggregating approximately $564,000 per year including principal and interest through October 2000 (e).......................................... -- 1,997,137 1,839,679 9.75% mortgage on real estate located in St. Louis, Missouri, payable in monthly installments of approximately $12,500 including principal and interest through September 1998, with a balloon payment of approximately $417,000 due at maturity (c)............. -- 643,925 599,420
F-12 ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED) 8. DEBT (CONTINUED)
JUNE 30, JUNE 30, DECEMBER 31, 1995 1996 1996 ------------- ------------- ------------- 9.0% mortgage on real estate located in St. Louis, Missouri, with monthly payments of approximately $7,000 per year including principal and interest through September 1998, with a balloon payment of approximately $35,000 at maturity (c).................. -- 43,335 41,837 Prime plus 2% construction loan for buildings being constructed in Staten Island, New York. The entire amount is current and the Company has the option to make this a 15-year mortgage upon completion of the construction.................................... -- 392,879 684,463 Senior secured increasing rate note due December 15, 1997........... -- -- 5,000,000 Term loan (a)....................................................... 10,253,402 8,743,663 7,487,641 Revolving line of credit (a)........................................ 7,484,432 13,505,039 10,146,618 Other............................................................... 269,136 128,719 105,690 ------------- ------------- ------------- 42,344,828 59,655,198 68,158,994 Less: Current portion............................................... 9,030,932 11,328,497 18,858,761 ------------- ------------- ------------- $ 33,313,896 $ 48,326,701 $ 49,300,233 ------------- ------------- ------------- ------------- ------------- -------------
- ------------------------ (a) At June 30, 1996, a bank facility included term and vehicle loans of approximately $9,000,000 and a $28,000,000 revolving line of credit (including a $12,000,000 letter of credit sub-limit). The term loan and vehicle loan bear interest at prime plus 1.25% and are amortized over seven and one-half years and seven years, respectively, with level annual principal payments of $1,509,738 plus interest. The original terms expire on December 31, 2000 and are automatically renewable for one- year periods. The revolving line of credit bears interest at prime plus 1%. In September 1996 AETC and such lender agreed to reduce the term loan by approximately $750,000 using cash held in a segregated account (see Note 6). In October 1996, the facility was amended by reducing the $12,000,000 letter of credit sub-limit to $2,500,000 and the overall revolving line of credit to $23,500,000. The loan and security agreements, as amended, contain financial covenants pertaining to fixed charge coverage, net worth and working capital, along with various others normal to a facility of this nature. Certain covenants were in violation at June 30, 1996. Subsequent amendments waived all violations existing at June 30 and, subsequent to December 31, 1996, this debt was repaid (see Note 18). The loans are collateralized by liens on accounts receivable and various other assets, plus second mortgages on certain of AETC's facilities. In June 1995, a similar facility was in effect. (b) In July 1993, the agreement with this creditor was modified. However, AETC has continued to make payments in accordance with the original agreement which calls for monthly installments of approximately $4,000 including principal and interest through August 2008 (with respect to the 9% real estate F-13 ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED) 8. DEBT (CONTINUED) mortgage) and monthly installments of approximately $22,000 including principal and interest through August 1998 (with respect to the 8% note). Although AETC intends to negotiate, if necessary, the repayment terms currently being made, the total remaining debt is classified as current for financial statement purposes in terms of the modified agreement. (c) In September and October 1995, AETC purchased two contiguous pieces of property in St. Louis, Missouri (to be used in connection with newly awarded school bus contracts) for an aggregate purchase price of $1,098,000. Down payments of $353,000 were made and mortgages were obtained for the balance of the purchase prices. The stockholders/officers and their wives guarantee the larger of the mortgages. (d) In December 1995, AETC borrowed $1,500,000, the repayment of which is secured by a first mortgage on its premises located in Queens, New York. This loan, which is personally guaranteed by the stockholders/officers, is payable in equal monthly installments of $19,409 towards principal and interest. The note matures on January 1, 2006. Commencing January 2001, the interest rate is subject to adjustment based upon the average yield of U.S. Treasury securities (5 years) plus 3.5%. The note provides for a floor and ceiling of 9.5% and 13%, respectively. (e) As security for this note, the seller received a letter of credit for the amount of the note less principal payments due in the following twelve months. On each anniversary date, the letter of credit will be further reduced by similar principal amounts. (f) Includes capitalized leases of $2,465,267, $7,565,726 and $6,968,439 at June 30, 1995 and 1996 and December 31, 1996, respectively, relative to vehicles with net book values of $1,378,740, $7,532,724 and $ 6,814,830, respectively, as of the same dates. In addition to the collateral described above, substantially all of AETC's property, plant and equipment collateralizes AETC's other indebtedness. Aggregate yearly maturities of long-term debt for the years ended June 30 are as follows:
TOTAL ------------- 1997............................................................................................... $ 11,328,497 1998............................................................................................... 25,592,694 1999............................................................................................... 7,265,823 2000............................................................................................... 7,131,814 2001............................................................................................... 6,379,336 Thereafter......................................................................................... 1,957,034 ------------- Total...................................................................................... $ 59,655,198 ------------- -------------
F-14 ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED) 9. PAYABLE TO CREDITORS The following amounts are payable to creditors as of June 30, 1995 and 1996 and December 31, 1996 in terms of the 1993 plan of reorganization (see Note 3).
JUNE 30, 1995 CURRENT NONCURRENT TOTAL - ------------------------------------------------------------------------ ------------ ------------ ------------ Payroll taxes........................................................... $ 336,722 $ 186,855 $ 523,577 Other taxes............................................................. 120,000 150,000 270,000 Unsecured creditors..................................................... 739,828 -- 739,828 ------------ ------------ ------------ $ 1,196,550 $ 336,855 $ 1,533,405 ------------ ------------ ------------ ------------ ------------ ------------
JUNE 30, 1996 CURRENT NONCURRENT TOTAL - ------------------------------------------------------------------------ ------------ ------------ ------------ Payroll taxes........................................................... $ 176,882 $ 9,975 $ 186,857 Other taxes............................................................. 150,000 30,000 180,000 Unsecured creditors..................................................... 4,933 -- 4,933 ------------ ------------ ------------ $ 331,815 $ 39,975 $ 371,790 ------------ ------------ ------------ ------------ ------------ ------------
DECEMBER 31, 1996 CURRENT NONCURRENT TOTAL - ------------------------------------------------------------------------ ------------ ------------ ------------ Payroll taxes........................................................... $ 18,790 $ -- $ 18,790 Other taxes............................................................. 120,000 -- 120,000 Unsecured creditors..................................................... -- -- -- ------------ ------------ ------------ $ 138,790 $ -- $ 138,790 ------------ ------------ ------------ ------------ ------------ ------------
10. INCOME TAXES The provision (benefit) for income taxes consists of the following:
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ------------------------------------ -------------------------- 1994 1995 1996 1995 1996 ------------ ---------- ---------- ----------- ------------- Current: Federal........................................ $ 388,000 $ 483,000 $ 687,000 $ -- $ -- State and local................................ 195,000 202,000 176,000 59,000 57,000 ------------ ---------- ---------- ----------- ------------- 583,000 685,000 863,000 59,000 57,000 Deferred taxes................................. 1,700,000 294,000 (104,000) (520,000) (1,490,000) ------------ ---------- ---------- ----------- ------------- $ 2,283,000 $ 979,000 $ 759,000 $ (461,000) $ (1,433,000) ------------ ---------- ---------- ----------- ------------- ------------ ---------- ---------- ----------- -------------
F-15 ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED) 10. INCOME TAXES (CONTINUED) Deferred tax liabilities are comprised of the following:
JUNE 30, JUNE 30, DECEMBER 31, 1995 1996 1996 ----------- ----------- ------------ Deferred tax liabilities: Depreciation............................................................ 4,832,000 6,794,000 9,174,000 ----------- ----------- ------------ 4,832,000 6,794,000 9,174,000 ----------- ----------- ------------ Deferred tax assets: Capital leases.......................................................... (320,000) (219,000) (119,000) Loss and tax credit carryforwards....................................... (2,518,000) (4,685,000) (8,655,000) ----------- ----------- ------------ (2,838,000) (4,904,000) (8,774,000) ----------- ----------- ------------ Deferred tax liabilities (net).......................................... $ 1,994,000 $ 1,890,000 $ 400,000 ----------- ----------- ------------ ----------- ----------- ------------ The actual tax expense (benefit) differs from the tax expense computed by applying the U.S. corporate rate of 34% as follows:
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ---------------------------------- -------------------------- 1994 1995 1996 1995 1996 ---------- ---------- ---------- ----------- ------------- Tax expense (benefit) at statutory rate.......... $ 890,000 $ 853,000 $ 734,000 $ (405,000) $ (1,206,000) Adjustments to tax contingency reserve related to bankruptcy issues.............................. -- (70,000) (136,000) -- -- Utilization of previously unrecognized net operating losses............................... (365,000) -- -- -- -- State and local tax expense (benefit)............ 195,000 202,000 176,000 (55,000) (212,000) Other............................................ (27,000) (6,000) (15,000) (1,000) (15,000) ---------- ---------- ---------- ----------- ------------- Actual tax expense (benefit)..................... $ 693,000 $ 979,000 $ 759,000 $ (461,000) $ (1,433,000) ---------- ---------- ---------- ----------- ------------- ---------- ---------- ---------- ----------- -------------
At June 30, 1996, AETC had the following carryforwards available:
TAX REPORTING EXPIRATION DATE PURPOSES THROUGH ------------ --------------- Investment tax credits available to offset certain future taxes.................... $ 967,000 2001 Net operating loss carryforwards................................................... 3,949,040 2011 Alternative minimum tax credits available to offset certain future taxes........... 2,267,000 None ------------ ----- ------------ -----
11. RELATED PARTY TRANSACTIONS AETC had amounts payable to the parent company of $504,206, $171,562 and $82,932 at June 30, 1995 and 1996 and December 31, 1996, respectively. AETC had notes receivable from affliated companies F-16 ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED) 11. RELATED PARTY TRANSACTIONS (CONTINUED) of $4,539,940, $4,640,536 and $4,640,536 at June 30, 1995 and 1996 and December 31, 1996, respectively. In connection with an amendment to the notes dated January 1, 1997, the notes bear interest at 6.8% and are due on July 1, 2004. No interest was received during the years ended June 30, 1994, 1995 and 1996 and the six months ended December 31, 1995 and 1996. During the year ended June 30, 1996, AETC received management fee income from affiliated companies of $255,000. No management fees were charged to or received from related parties during the other periods presented. 12. COMMITMENTS AND CONTINGENCIES LEASES Minimum rental commitments as of June 30, 1996 for noncancellable equipment and real property operating leases are as follows:
TRANSPORTATION YEAR ENDING JUNE 30, REAL PROPERTY EQUIPMENT TOTAL - ------------------------------------------------------------------- ------------- -------------- ------------- 1997............................................................... $ 1,956,498 $ 3,783,702 $ 5,740,200 1998............................................................... 1,887,538 3,451,783 5,339,321 1999............................................................... 1,739,191 3,014,698 4,753,889 2000............................................................... 1,435,849 2,450,946 3,886,795 2001............................................................... 1,403,551 1,425,192 2,828,743 Thereafter......................................................... 7,577,330 858,355 8,435,685 ------------- -------------- ------------- $ 15,999,957 $ 14,984,676 $ 30,984,633 ------------- -------------- ------------- ------------- -------------- -------------
During the six months ended December 31, 1996, as part of its normal course of business, AETC entered into various rental and purchase agreements for replacement vehicles and additional vehicles to satisfy new transportation contracts. Rental charges included in cost of operations were $3,287,875, $3,358,818 and $4,539,202 for the years ended June 30, 1994, 1995 and 1996, respectively, and $1,992,180 and $2,931,390 for the six months ended December 31, 1995 and 1996, respectively. LITIGATION AETC is a defendant with respect to various claims involving accidents and other issues arising in the normal conduct of its business. Management and counsel believe the ultimate resolution of these claims will not have a material impact on the financial statements of AETC. EMPLOYMENT AND CONSULTING AGREEMENTS AETC is obligated under various employment and consulting agreements with certain officers, including the chief financial officer, which provide for base annual compensation aggregating $1,382,666 subject to increase by a percentage equal to the percentage increase in the Regional Consumer Price Index with a maximum of 5% of base salary. With the exception of the agreement with the chief financial officer, F-17 ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED) 12. COMMITMENTS AND CONTINGENCIES (CONTINUED) the agreements extend through February 28, 1999, subject to an extension by the Board of Directors for up to three more years. Six months of severance pay is payable in the event of nonrenewal of the agreements. The agreement with the chief financial officer extends through January 1998. OUTSTANDING LETTERS OF CREDIT Letters of credit totaling approximately $1,928,000 and $3,527,000 were outstanding as of June 30, 1995 and 1996, respectively, and $3,059,000 at December 31, 1996. The letters of credit serve primarily as security in connection with financial obligations. 13. SALE OF BUS ROUTE AND BUSES In January 1994, AETC, through its wholly-owned subsidiary, Atlantic Express Coachways, Inc. ("Coachways"), sold commuter bus routes that operated from Staten Island to New York City in exchange for a promissory note in the amount of $800,000, bearing interest at a rate of 6% per annum through December 1998. The entire amount of the note was recorded as a gain on sale as the book value of the routes was zero at the date of sale. In January 1994, AETC also sold certain buses and recognized a gain on sale of $350,115. In 1995, a note of $680,000 was received in connection with the sale of buses. The note bears interest at 11% per annum and payment was received in October 1995. 14. EMPLOYEE SAVINGS PLAN AETC offers an Employee Savings Investment Plan under which eligible participants can invest up to 15% of base earnings subject to a specified maximum among several investment alternatives. An employer matching contribution up to a maximum of 2.5% of the employee's compensation is also invested. AETC's contribution was approximately $75,000, $69,000 and $69,000 for the years ended June 30, 1994, 1995 and 1996, respectively, and $40,500 for the six months ended December 31, 1996. 15. MAJOR CUSTOMER AND CONCENTRATION OF CREDIT RISK For the years ended June 30, 1994, 1995 and 1996 and the six months ended December 31, 1995 and 1996, revenues derived from the Board of Education of the City of New York were approximately 63%, 57%, 50%, 50% and 46% of total revenues, respectively. As of June 30, 1995 and 1996 and December 31, 1996, AETC had accounts receivable including retainage from customer of $13,929,000, $13,068,868 and $7,217,051, respectively. During fiscal 1995, contracts with this customer were extended through the year 2000. At June 30, 1996 and December 31, 1996, substantially all cash and cash equivalents were on deposit with one major financial institution. 16. SCHOOL CLOSURE In September 1993, opening of the New York City schools was delayed for nine days due to asbestos contamination of school buildings. Although revenue was not received from the Board of Education for F-18 ATLANTIC EXPRESS TRANSPORTATION CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED) 16. SCHOOL CLOSURE (CONTINUED) these days, AETC incurred the cost of payroll related to this period. AETC is in the process of legal proceedings against the Board to recover the compensation. 17. ACQUISITIONS During the years ended June 30, 1994, 1995 and 1996, AETC acquired the operations of several companies. Such investments included the purchase of contract rights and vehicles. The acquisitions were not material to the consolidated financial statements. 18. SUBSEQUENT EVENTS On February 4, 1997, AETC issued $110,000,000 of 10 3/4% Senior Secured Notes due 2004. The net proceeds from the sale of such notes was used to repay its existing indebtedness and for certain other corporate purposes. Such notes contain certain covenants, including limitations on payments of dividends. F-19 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The following unaudited pro forma consolidated financial information (the "Unaudited Pro Forma Consolidated Financial Information") has been derived from the application of pro forma adjustments to AETC's consolidated historical financial statements included elsewhere herein. The Unaudited Pro Forma Consolidated Financial Information gives effect to the financing transaction as if such occurred on December 31, 1996 for purposes of the unaudited pro forma consolidated balance sheet and on July 1, 1995 for purposes of the unaudited pro forma consolidated statements of operations for the year ended June 30, 1996 and the six months ended December 31, 1996, respectively. The pro forma adjustments are described in the accompanying notes. The Unaudited Pro Forma Consolidated Financial Information is presented for informational purposes only and does not purport to represent what AETC's financial position or results of operations would actually have been if the aforementioned event had occurred on the dates specified or to project AETC's financial position or results of operations at any future date or for any future periods. The Unaudited Pro Forma Consolidated Financial Information should be read in conjunction with AETC's consolidated historical financial statements, and the notes thereto, included elsewhere herein. P-1 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET DECEMBER 31, 1996
FINANCING HISTORICAL ADJUSTMENTS PRO FORMA ------------- ------------- ------------- ASSETS Current: Cash and cash equivalents...................................... $ 1,503,646 $ 104,600,000(1) $ 31,258,002 (67,465,644 (2) (5,930,000 (3) (1,450,000 (4) Accounts receivable............................................ 25,947,891 -- 25,947,891 Replacement parts and other inventory.......................... 1,179,312 -- 1,179,312 Notes receivable............................................... 167,581 -- 167,581 Prepaid expenses and other assets.............................. 4,908,042 -- 4,908,042 ------------- ------------- ------------- Total current assets......................................... 33,706,472 29,754,356 63,460,828 ------------- ------------- ------------- Property, plant and equipment, less accumulated depreciation..... 66,940,880 5,930,000(3) 74,070,880 1,200,000(4) ------------- ------------- ------------- Other assets: Restricted cash and cash equivalents........................... 1,120,000 -- 1,120,000 Retainage...................................................... 513,556 -- 513,556 Investments in unconsolidated affiliates....................... 229,000 -- 229,000 Deferred lease expense......................................... 656,208 -- 656,208 Transportation contract rights................................. 2,991,038 250,000(4) 3,241,038 Deferred financing and organization costs...................... 1,177,417 5,400,000(1) 5,677,417 (900,000 (5) Notes receivable............................................... 213,286 -- 213,286 Deposits and other noncurrent assets........................... 891,982 -- 891,982 Due from affiliates............................................ 4,557,189 -- 4,557,189 ------------- ------------- ------------- Total other assets........................................... 12,349,676 4,750,000 17,099,676 ------------- ------------- ------------- $ 112,997,028 $ 41,634,356 $ 154,631,384 ------------- ------------- ------------- ------------- ------------- ------------- LIABILITIES AND STOCKHOLDER'S EQUITY Current: Current portion of long-term debt.............................. $ 18,858,761 $ (18,725,304 (2) $ 133,457 Accounts payable............................................... 4,479,877 -- 4,479,122 Accrued compensation........................................... 5,371,503 -- 5,371,503 Accrued workmen's compensation................................. 1,271,109 -- 1,271,109 Current portion of insurance reserve........................... 2,549,498 -- 2,549,498 Other accrued expenses and current liabilities................. 521,997 -- 522,725 Payable to creditors under the plan of reorganization.......... 138,790 -- 138,790 ------------- ------------- ------------- Total current liabilities.................................... 33,191,535 (18,725,304) 14,466,204 ------------- ------------- ------------- Long-term debt, net of current portion........................... 49,300,233 (48,740,340 (2) 559,893 ------------- ------------- ------------- Senior Secured Notes............................................. -- 110,000,000(1) 110,000,000 ------------- ------------- ------------- Other long-term liabilities...................................... 2,732,773 -- 2,732,773 ------------- ------------- ------------- Deferred income taxes............................................ 400,000 -- 400,000 ------------- ------------- ------------- Stockholder's equity: Common Stock................................................... 250,000 -- 250,000 Additional paid-in capital..................................... 13,188,926 -- 13,188,926 Retained earnings.............................................. 13,933,561 (900,000 (5) 13,033,561 ------------- ------------- ------------- Total stockholder's equity................................... 27,372,487 (900,000) 26,472,487 ------------- ------------- ------------- $ 112,997,028 $ 41,634,356 $ 154,631,384 ------------- ------------- ------------- ------------- ------------- -------------
P-2 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET DECEMBER 31, 1996 - ------------------------ (1) Represents the issuance of $110,000,000 aggregate principal amount of 10 3/4% Senior Secured Notes due 2004 (the "Notes"), net of debt issuance costs of $5,400,000 (to be amortized over 7 years). (2) Represents the use of net proceeds from the sale of the Notes to repay approximately $67.5 million of existing indebtedness. (3) Represents the use of net proceeds from the sale of the Notes to terminate certain operating leases and purchase vehicles and other assets leased thereunder. (4) Reflects the acquisition of a Medicaid business, which commenced operations in January 1997 under an initial four-year contract, and the purchase of 26 additional vehicles to perform the Company's obligations thereunder for an aggregate consideration of approximately $1.5 million. (5) Reflects the write-off of previously capitalized financing costs on existing indebtedness. P-3 UNAUDITED PRO FORMA STATEMENT OF OPERATIONS YEAR ENDED JUNE 30, 1996 (1)
FINANCING HISTORICAL ADJUSTMENTS PRO FORMA ------------- ------------- ------------- Revenues.......................................................... $ 142,551,559 $ 2,050,000(2) $ 144,601,559 ------------- ------------- ------------- Costs and expenses: Cost of operations................................................ 115,108,380 (1,644,000 (3) 114,904,380 1,440,000(2) General and administrative........................................ 10,448,420 75,000(2) 10,523,420 Depreciation and amortization..................................... 9,735,982 150,000(2) 10,821,982 936,000(3) ------------- ------------- ------------- 135,292,782 957,000 136,249,782 ------------- ------------- ------------- Income from operations............................................ 7,258,777 1,093,000 8,351,777 Net interest income (expense)..................................... (5,098,443) (771,429 (4) (12,271,630) 5,423,242(5) (11,825,000 (6) ------------- ------------- ------------- Income (loss) before (provision for) benefit from income taxes.... 2,160,334 (6,080,187) (3,919,853) (Provision for) benefit from income taxes......................... (758,897) 2,522,831(7) 1,763,934 ------------- ------------- ------------- Net income (loss) before extraordinary items...................... $ 1,401,437 $ (3,557,356) $ (2,155,919) ------------- ------------- ------------- ------------- ------------- -------------
- ------------------------ (1) The above pro forma information does not reflect expected penalties from early extinguishment of debt of approximately $0.9 million and a further $0.9 million write-off of remaining unamortized deferred finance costs relative to existing indebtedness which would be recorded net of their related tax effects as extraordinary items. (2) Reflects the acquisition of a Medicaid business. (3) Reflects removal of certain historical lease expense and replacement with increased depreciation resulting from the termination of certain operating leases and the purchase of vehicles and other assets leased thereunder. (4) Represents the amortization of debt issuance costs for the Notes over their 7-year term. (5) Reflects the elimination of historical interest expense with respect to approximately $67.5 million of existing indebtedness being repaid as a use of proceeds from the Offering. (6) Reflects the interest expense relating to the Notes. (7) Reflects the adjustment to income taxes as a result of the above adjustments using an effective tax rate of 45%. P-4 UNAUDITED PRO FORMA STATEMENT OF OPERATIONS SIX MONTHS ENDED DECEMBER 31, 1996
FINANCING HISTORICAL ADJUSTMENTS PRO FORMA ------------- --------------- ------------- Revenues......................................................... $ 70,166,561 $ 1,025,000(1) $ 71,191,561 ------------- --------------- ------------- Costs and expenses: Cost of operations............................................... 59,655,970 (822,000 (2) 59,553,970 720,000(3) General and administrative....................................... 5,552,949 37,500(3) 5,590,449 Depreciation and amortization.................................... 5,354,750 468,000(2) 5,897,750 75,000(1) ------------- --------------- ------------- 70,563,669 478,500 71,042,169 ------------- --------------- ------------- Income (Loss) from operations.................................... (397,108) 546,500 149,392 Net interest income (expense).................................... (3,148,634) (385,714 (3) (6,207,626) 3,239,222(4) (5,912,500 (5) ------------- --------------- ------------- Loss before (provision for) benefit from income taxes............ (3,545,742) (2,512,492) (6,058,234) (Provision for) benefit from income taxes........................ 1,432,752 1,293,453(6) 2,726,205 ------------- --------------- ------------- Net loss......................................................... $ (2,112,990) $ (1,219,039) $ (3,332,029) ------------- --------------- ------------- ------------- --------------- -------------
- ------------------------ (1) Reflects the acquisition of a Medicaid business. (2) Reflects the removal of certain historical lease expense and replacement with increased depreciation resulting from the termination of certain operating leases and the purchase of vehicles and other assets leased thereunder. (3) Represents the amortization of debt issuance costs for the Notes over their 7-year term. (4) Reflects the elimination of historical interest expense with respect to approximately $67.5 million of existing indebtedness being repaid as a use of proceeds from the Offering. (5) Reflects the interest expense relating to the Notes. (6) Reflects the adjustment to income taxes as a result of the above adjustments using an effective tax rate of 45%. P-5 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE NOTES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE. ------------------------ TABLE OF CONTENTS
PAGE ----- Prospectus Summary............................. 3 Risk Factors................................... 13 The Exchange Offer............................. 20 The Old Notes Offering......................... 28 Capitalization................................. 28 Selected Historical Financial Information...... 29 Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 30 Business....................................... 37 Management..................................... 49 Ownership of the Company....................... 53 Certain Transactions........................... 56 Description of Revolving Credit Facility....... 57 Description of Notes........................... 58 Description of Capital Stock................... 80 Certain U.S. Federal Income Tax Considerations............................... 80 Plan of Distribution........................... 81 Validity of Securities......................... 82 Experts........................................ 82 Available Information.......................... 82 Index to Consolidated Financial Statements and Pro Forma Consolidated Financial Information.................................. F-1
UNTIL , 1997, (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT 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. $110,000,000 [LOGO] 10 3/4% SENIOR SECURED NOTES DUE 2004 --------------------- PROSPECTUS --------------------- , 1997 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following is a list of the estimated expenses to be incurred by the Registrant (the "Company") in connection with the offering of the 10 3/4% Senior Secured Notes due 2004 (the "New Notes"). All amounts shown are estimates (except the Securities and Exchange Commission registration fee).
EXPENSE AMOUNT - ----------------------------------------------------------------------------------- --------- Securities and Exchange Commission registration fee................................ $ 33,334 Printing and engraving expenses.................................................... * Legal fees (not including expenses)................................................ * Accounting fees and expenses....................................................... * Exchange agent fees................................................................ * Miscellaneous expenses............................................................. * --------- Total.............................................................................. $ * --------- ---------
- ------------------------ * to be filed by amendment ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS. Under the New York Business Corporation Law ("NYBCL"), a corporation may indemnify any person made, or threatened to be made, a party to any action or proceeding, except for shareholder derivative suits, by reason of the fact that he or she was a director or officer of the corporation, provided such director or officer acted in good faith for a purpose which he or she reasonably believed to be in the best interests of the corporation and, in criminal proceedings, in addition, had no reasonable cause to believe his or her conduct was unlawful. In the case of shareholder derivative suits, the corporation may indemnify any person by reason of the fact that he or she was a director or officer of the corporation if he or she acted in good faith for a purpose which he or she reasonably believed to be in the best interests of the corporation, except that no indemnification may be made in respect of (i) a threatened action, or a pending action which is settled or otherwise disposed of; or (ii) any claim, issue or matter as to which such person has been adjudged to be liable to the corporation, unless and only to the extent that the court on which the action was brought, or, if no action was brought, any court of competent jurisdiction, determines upon application that, in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for that portion of the settlement amount and expenses as the court deems proper. The indemnification described above under the NYBCL is not exclusive of other indemnification rights to which a director or officer may be entitled, whether contained in the certificate of incorporation of by-laws, or when authorized by (i) such certificate of incorporation or by-laws; (ii) a resolution of shareholders; (iii) a resolution of directors; or (iv) an agreement providing for such indemnification, provided that no indemnification may be made to or on behalf of any director or officer if a judgment or other final adjudication adverse to the director or officer establishes that his or her acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated, or that he or she personally gained in fact a financial profit or other advantage to which he or she was not legally entitled. The Restated Certificate of the Company eliminates the personal liability of all of the Company's directors to the fullest extend allowed as provided by the NYBCL. The Restated Certificate of Incorporation of the Company provides that the Company shall indemnify any director or officer of the Company made, or threatened to be made, a party to an action or proceeding if such director or officer acted, in II-1 good faith, for a purpose which he reasonably believed to be in, or, in the case of service for any other enterprise, not opposed to, the best interests of the Company and, in criminal actions or proceedings, in addition, had no reasonable cause to believe that his conduct was unlawful. No indemnification shall be made for an action or proceeding by or in the right of the Company to procure a judgment in its favor in respect of (1) a threatened action, or a pending action which is settled or otherwise disposed of, or (2) any claim issue or matter as to which such director or officer shall have been adjudged to be liable to the Company, unless and only to the extent a court determines the person is fairly and reasonably entitled to indemnity for such portion of the settlement amount and expenses as the court deems proper. In addition, the Restated Certificate of Incorporation of the Company provides that a director's liability to the Company for breach of duty to the Company or its stockholders shall be limited to the fullest extent permitted by New York law. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. On February 4, 1997, the Company sold $110,000,000 aggregate principal amount of its 10 3/4% Senior Secured Notes due 2004 (the "Old Notes") to Jefferies & Company, Inc. (the "Initial Purchaser"). The Company believes this offering was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"). The Initial Purchaser has informed the Company that it resold $110,000,000 million aggregate principal amount of Old Notes to persons it reasonably believes to be "qualified institutional buyers" (within the meaning of Rule 144A under the Securities Act ("Rule 144A")) in transactions meeting the requirements of Rule 144A and to a limited number of institutional "accredited investors" (within the meaning of Rule 501 (a) (1), (2), (3) or (7) under the Securities Act) in transactions not involving a public offering. II-2 ITEM 16. EXHIBITS. (a) Exhibits.
EXHIBIT NUMBER DESCRIPTION - ----------- --------------------------------------------------------------------------------------------------------- 3.1 Restated Certificate of Incorporation of the Company 3.2 By-laws of the Company 4.1 Indenture dated as of February 4, 1997, including form of Note, between the Company, the Guarantors (as defined therein) and the Bank of New York, as trustee 4.2 Guarantee dated February 4, 1997 by certain subsidiaries of the Company and the Company (borrower guarantee) 4.3 Guarantee dated February 4, 1997 by certain other subsidiaries of the Company and the Company (non-borrower guarantee) 4.4 Security and Pledge Agreement dated as of February 4, 1997 among AETG, the Company and the Restricted Subsidiaries (as defined therein) 4.5 Collateral Assignment of Trademarks (Security Agreement) dated as of February 4, 1997 between the Company and The Bank of New York 5.1* Opinion of Jones, Day, Reavis & Pogue 10.1 Registration Rights Agreement dated February 4, 1997 between the Company, the Guarantors (as defined therein) and the Initial Purchaser 10.2 Loan and Security Agreement dated February 4, 1997 by and between Congress Financial Corporation, certain subsidiaries of the Company as borrowers and the Company as guarantor 10.3 General Security Agreement dated February 4, 1997 by and among the Company and the Guarantors (as defined therein) in favor of Congress Financial Corporation 10.4 Collateral Assignment of Trademarks (Security Agreement) dated as of February 4, 1997 between the Company and Congress Financial Corporation 10.5 Employment Agreement dated as of January 21, 1997 between the Company and Domenic Gatto 10.6 Employment Agreement dated as of January 21, 1997 between the Company and Michael Gatto 10.7 Employment Agreement dated as of January 21, 1997 between the Company and Patrick Gatto 10.8 Employment Agreement dated as of January 21, 1997 between the Company and Nathan Schlenker 10.9 Lease dated August 5, 1986 between Bonnie Heights Realty Corp. and Amboy Bus Co., Inc. and Notices of Option to Renew dated December 26, 1989 and May 10, 1996, respectively, by Amboy Bus Co., Inc. for the facility at 1752 Shore Parkway, Brooklyn, New York 10.10 Lease dated June 30, 1993 by and between Rockhill Limited Partnership and Mayflower Contract Services, Inc. and Sublease dated May 28, 1996 by and between Mayflower Contract Services, Inc. and Atlantic Express of Missouri Inc. for the facility at 6810 Prescott Street, St. Louis, Missouri 10.11 Lease dated August 1, 1995 between Stamar Realty Corp. and 180 Jamaica Corp. for the facility at 107-10 180th Street, Jamaica, New York 10.12 The Board of Education of the City of New York, serial no. 0070, dated July 19, 1979 10.13 The Board of Education of the City of New York, serial no. 8108 10.14 Extension and Eighth Amendment of Contract for Special Education Pupil Transportation Services, dated June 19, 1996 by and between The Board of Education of the City of New York, Amboy Bus Co., Inc. and Staten Island Bus Co. 10.15 The Board of Education of the City of New York, serial no. 9888 10.16 Extension and Sixth Amendment of Contract for Regular Education Pupil Transportation Services, dated January 2, 1996 by and between The Board of Education of the City of New
II-3
EXHIBIT NUMBER DESCRIPTION - ----------- --------------------------------------------------------------------------------------------------------- York and Amboy Bus Co., Inc. 10.17 New York City Transit Authority Contract #94E5461B, Five Borough Paratransit Carrier Service: Part I Contract Terms and Conditions and Attachment I: Price Schedule 21 Subsidiaries of the Company 23.1 Consent of BDO Seidman, LLP 23.2* Consent of Jones, Day, Reavis & Pogue 23.3* Consent of Silverman, Collura, Chernis & Balzano, P.C. 24 Power of Attorney (included in the signature page hereof) 25 Statement of Eligibility of Trustee on Form T-1 99.1 Letter of Transmittal
- ------------------------ * to be filed by amendment (B) FINANCIAL STATEMENT SCHEDULES No schedules for which provision is made in the applicable accounting regulations of the Commission are required under the applicable instructions or are inapplicable and therefore have been omitted. ITEM 17. UNDERTAKINGS. Insofar as indemnification for liabilities arising out of the Securities Act may be permitted to directors, officers or controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the 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 registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense in any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant 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. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York on April 18, 1997. ATLANTIC EXPRESS TRANSPORTATION CORP. BY: /S/ DOMENIC GATTO ----------------------------------------- Domenic Gatto CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Domenic Gatto, Nathan Schlenker and Peter R. Silverman, and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with exhibits and schedules thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming all that each said attorney-in-fact, or his substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. NAME TITLE DATE Chairman of the Board, President and Chief Executive Officer April 18, 1997 (PRINCIPAL EXECUTIVE OFFICER) /s/ DOMENIC GATTO - ------------------------------ Domenic Gatto Chief Financial Officer (PRINCIPAL FINANCIAL OFFICER April 18, 1997 AND PRINCIPAL ACCOUNTING OFFICER) /s/ NATHAN SCHLENKER - ------------------------------ Nathan Schlenker Executive Vice President, Secretary, April 18, 1997 Treasurer and Director /s/ MICHAEL GATTO - ------------------------------ Michael Gatto /s/ PATRICK GATTO - ------------------------------ Executive Vice President April 18, 1997 Patrick Gatto and Director /s/ JOHN SHEA - ------------------------------ Director April 18, 1997 John Shea /s/ PETER PETRILLO - ------------------------------ Director April 18, 1997 Peter Petrillo II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, Amboy Bus Co., Inc., Staten Island Bus, Inc., Raybern Capital Corp., Metropolitan Escort Service, Inc., Merit Transportation Corp., Temporary Transit Service, Inc., Atlantic-Hudson, Inc., Courtesy Bus Co., Inc., K. Corr, Inc., Raybern Equity Corp., Metro Affiliates, Inc., Midway Leasing Inc., Brookfield Transit Inc., Atlantic Paratrans, Inc., 180 Jamaica Corp., Atlantic Express Coachways, Inc., Atlantic Express of Pennsylvania, Inc., Atlantic Paratrans of Kentucky Inc., Raybern Bus Service, Inc., G.V.D. Leasing Co., Inc., Block 7932, Inc., Atlantic-Conn. Transit, Inc., and Atlantic Express of Missouri Inc. have each duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York on April 18, 1997. AMBOY BUS CO., INC. BROOKFIELD TRANSIT INC. STATEN ISLAND BUS, INC. ATLANTIC PARATRANS, INC. RAYBERN CAPITAL CORP. 180 JAMAICA CORP. METROPOLITAN ESCORT SERVICE, INC. ATLANTIC EXPRESS COACHWAYS, INC. MERIT TRANSPORTATION CORP. ATLANTIC EXPRESS OF PENNSYLVANIA, INC. TEMPORARY TRANSIT SERVICE, INC. ATLANTIC PARATRANS OF KENTUCKY INC. ATLANTIC-HUDSON, INC. RAYBERN BUS SERVICE, INC. COURTESY BUS CO., INC. G.V.D. LEASING CO., INC. K. CORR, INC. BLOCK 7932, INC. RAYBERN EQUITY CORP. ATLANTIC-CONN. TRANSIT, INC. METRO AFFILIATES, INC. ATLANTIC EXPRESS OF MISSOURI INC. MIDWAY LEASING INC.
By: /s/ DOMENIC GATTO ------------------------------------------ Domenic Gatto Chairman of the Board, President and Chief Executive Officer
POWER OF ATTORNEY Each person who is an officer and/or director of Amboy Bus Co., Inc., Staten Island Bus, Inc., Raybern Capital Corp., Metropolitan Escort Service, Inc., Merit Transportation Corp., Temporary Transit Service, Inc., Atlantic-Hudson, Inc., Courtesy Bus Co., Inc., K. Corr, Inc., Raybern Equity Corp., Metro Affiliates, Inc., Midway Leasing Inc., Brookfield Transit Inc., Atlantic Paratrans, Inc., 180 Jamaica Corp., Atlantic Express Coachways, Inc., Atlantic Express of Pennsylvania, Inc., Atlantic Paratrans of Kentucky Inc., Raybern Bus Service, Inc., G.V.D. Leasing Co., Inc., Block 7932, Inc., Atlantic-Conn. Transit, Inc., and Atlantic Express of Missouri Inc. whose signature appears below constitutes and appoints Domenic Gatto, Nathan Schlenker and Peter R. Silverman, and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with exhibits and schedules thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, thereby ratifying and confirming all that each said attorney-in-fact, or his substitute, may lawfully do or cause to be done by virtue hereof. II-6 Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
NAME TITLE DATE /s/ DOMENIC GATTO Chairman of the Board, President and ------------------------------ Chief Executive Officer Domenic Gatto (PRINCIPAL EXECUTIVE OFFICER) April 18, 1997 /s/ NATHAN SCHLENKER Chief Financial Officer ------------------------------ (PRINCIPAL FINANCIAL OFFICER AND Nathan Schlenker PRINCIPAL ACCOUNTING OFFICER) April 18, 1997 /s/ MICHAEL GATTO Executive Vice President, Secretary, ------------------------------ Treasurer and Director Michael Gatto April 18, 1997 /s/ PATRICK GATTO Executive Vice President and Director ------------------------------ Patrick Gatto April 18, 1997
II-7 EX-3.1 2 RESTATED CERT. OF INCORP OF THE COMPANY Exhibit 3.1 RESTATED CERTIFICATE OF INCORPORATION OF ATLANTIC EXPRESS TRANSPORTATION CORP. Under Section 807 of the Business Corporation Law ATLANTIC EXPRESS TRANSPORTATION CORP., a corporation organized and existing under the laws of the State of New York, does hereby certify as follows: FIRST: That the name of the Corporation is ATLANTIC EXPRESS TRANSPORTATION CORP. The date of filing of its original Certificate of Incorporation with the Secretary of State of the State of New York was December 20, 1996. SECOND: That this Restated Certificate of Incorporation amends and restates the Certificate of Incorporation of this Corporation as follows: 1. By adding Section headings; 2. By adding a new Article VI with respect to the power of the Board of Directors and the number and qualifications of Directors; 3. By amending former Article VI concerning indemnification of directors, officers and others and renumbering such article as a new Article VII; 4. By amending former Article VII concerning personal liability of directors with a new Article VIII entitled "Director Liability to the Corporation". 5. By adding new Article IX and X and by renumbering former Article VIII as a new Article XI. THIRD: That the text of the Certificate of Incorporation of Atlantic Express Transportation Corp. is hereby amended and restated, to read in full as follows: ARTICLE I NAME The name of this Corporation is ATLANTIC EXPRESS TRANSPORTATION CORP. ARTICLE II CORPORATE PURPOSES The purposes for which this corporation is formed are as follows: To engage in any lawful act or activity for which corporations may be formed under the Business Corporation Law. This Corporation is not formed to engage in any act or activity for which approval by any state department, official, board, agency or other body is required without first being obtained. The corporation, in furtherance of its corporate purposes above set forth, shall have all of the powers enumerated in Section 202 of the Business Corporation Law, subject to any limitations provided in the Business Corporation Law or any other statute of the State of New York. ARTICLE III REGISTERED OFFICE The office of the Corporation is to be located in the County of Richmond, State of New York. ARTICLE IV CAPITAL STOCK (1) Shares; Class and Series Authorized. The aggregate number of shares of capital stock which the Corporation shall have authority to issue is two hundred (200) shares with no par value. ARTICLE V AGENT FOR SERVICE The Secretary of State is designated as agent of the Corporation upon whom the process of any action or proceeding against it may be served. The postal address to which the Secretary of State shall mail a copy of the process against the Corporation served upon 2 him is c/o Silverman, Collura & Chernis, P.C., 381 Park Avenue South, New York, New York 10016. ARTICLE VI DIRECTORS (1) Power of the Board of Directors. The property and business of the Corporation shall be controlled and managed by or under the direction of its Board of Directors. In furtherance, and not in limitation of the powers conferred by the laws of the State of New York, the Board of Directors is expressly authorized: (a) To make, alter, amend or repeal the By-Laws of the Corporation; provided that no By-Laws hereafter adopted shall invalidate any prior act of the Directors that would have been valid if such By-Laws had not been adopted; (b) To determine the rights, powers, duties, rules and procedures that affect the power of the Board of Directors to manage and direct the property, business and affairs of the Corporation, including the power to elect, appoint and empower the officers and other agents of the Corporation, and to determine the time and place of, and the notice requirements for Board meetings, as well as the manner of taking Board action; and (c) To exercise all such powers and do all such acts as may be exercised by the Corporation, subject to the provisions of the laws of the State of New York, this Restated Certificate of Incorporation, and the By-Laws of the Corporation. (2) Number and Qualifications of Directors. The number of directors constituting the entire Board of Directors shall be fixed from time to time by resolution of the Board of Directors but shall not be less than three. Directors shall be elected to hold office for a term of one year. As used in this Restated Certificate of Incorporation, the term "entire Board of Directors" means the total number of Directors fixed in the manner provided in this Article VI Section (2) and in the By-Laws. ARTICLE VII INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS 3 (1) Action Not By or on Behalf of the Corporation. The Corporation shall indemnify any person, made, or threatened to be made, a party to an action or proceeding other than one by or in the right of the Corporation to procure a judgment in its favor, whether civil or criminal, including an action by or in the right of any other Corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, which any director or officer of the Corporation served in any capacity at the request of the Corporation, by reason of the fact that he, his testator or intestate, was a director or officer of the Corporation, or served such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity, against judgments, fines, amounts paid in settlement and reasonable expenses, including attorney's fees actually and necessarily incurred as a result of such action or proceeding, or any appeal therein, if such director or officer acted, in good faith, for a purpose which he reasonably believed to be in, or, in the case of service for any other Corporation or any partnership, joint venture, trust employee benefit plan or other enterprise, not opposed to, the best interests of the Corporation and, in criminal actions or proceedings, in addition, had no reasonable cause to believe that his conduct was unlawful. (2) Termination of any Action Does Not Create Presumption. The termination of any such civil or criminal action or proceeding by judgment, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not in itself create a presumption that any such director or officer did not act, in good faith, for a purpose which he reasonably believed to be in, or, in the case of service for any other Corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise, not opposed to, the best interests of the Corporation or that he had reasonable cause to believe that his conduct was unlawful. (3) Action By or on Behalf of the Corporation. The Corporation shall indemnify any person made, or threatened to be made, a party to an action by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he, his testator or intestate, is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of any other Corporation of any type or kind, domestic or foreign, of any partnership, joint venture, trust, employee benefit plan or other enterprise, against amounts paid in settlement and reasonable expenses, including attorneys' fees, actually and necessarily incurred by him in connection with the defense or settlement of such action, or in connection with an appeal therein if such director or officer acted, in good faith, for a purpose which he reasonably believed to be in, or, in the case of service for any other Corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise, not opposed to, the best interests of the Corporation, except that no indemnification under this Article VII, Section (3) shall be made in respect of (1) a 4 threatened action, or a pending action which is settled or otherwise disposed of, or (2) any claim issue or matter as to which such person shall have been adjudged to be liable to the Corporation, unless and only to the extent that the court on which the action was brought, or, if no action was brought, any court of competent jurisdiction, determines upon application that, in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such portion of the settlement amount and expenses as the court deems proper. (4) Service to an Employee Benefit Plan. For the purpose of this Article VII, the Corporation shall be deemed to have requested a person to serve an employee benefit plan where the performance by such person of his duties to the Corporation also imposes duties on, or otherwise involves services by, such person to the plan or participants or beneficiaries of the plan; excise taxes assessed on a person with respect to an employee benefit plan pursuant to applicable law shall be considered fines; and action taken or omitted by a person with respect to an employee benefit plan in the performance of such person's duties for a purpose reasonably believed by such person to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interests of the Corporation. ARTICLE VIII DIRECTOR LIABILITY TO THE CORPORATION (a) A Director's liability to the Corporation for breach of duty to the Corporation or its stockholders shall be limited to the fullest extent permitted by New York law as now in effect or hereafter amended. In particular, no Director of the Corporation shall be liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (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) under Section 719 of the New York Business Corporation Law, as the same exists or hereafter may be amended, or (iv) for any transaction from which the Director derived an improper personal benefit. (b) Any repeal or modification of the foregoing paragraph (a) by the stockholders of the Corporation entitled to vote thereon shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. (c) If the Business Corporation Law of the State of New York is amended to authorize corporate action further eliminating or limiting the liability of directors, then a director of the Corporation, in addition to the circumstances in which he is not now 5 liable, shall be free of liability to the fullest extent permitted by the Business Corporation Law of the State of New York, as so amended. ARTICLE IX RESERVATION OF RIGHT TO AMEND CERTIFICATE OF INCORPORATION The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation in the manner now or hereafter prescribed by law, and all the provisions of this Restated Certificate of Incorporation and all rights and powers conferred in this Restated Certificate of Incorporation on stockholders, directors and officers are subject to this reserved power. ARTICLE X TRANSACTIONS WITH DIRECTORS AND OFFICERS No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose if (a) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors, and the Board of Directors in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum, or (b) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of such stockholders, or (c) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors or the stockholders entitled to vote thereon. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors which authorizes the contract or transaction. 6 ARTICLE XI PERIOD OF DURATION The period of duration of the Corporation shall be perpetual. FOURTH: That the capital of the Corporation will not be reduced under or by reason of any amendment in this Restated Certificate of Incorporation. FIFTH: That this Restated Certificate of Incorporation has been duly authorized by a vote of the Board of Directors of the Corporation followed by the vote of the shareholders of the Corporation entitled to vote therefor. IN WITNESS WHEREOF, Atlantic Express Transportation Corp.. has caused its corporate seal to be hereunto affixed and this certificate to be signed by Domenic Gatto, its President, Chief Executive Officer and Chairman of the Board and by Michael Gatto, its Secretary this 30th day of January, 1997. ATLANTIC EXPRESS TRANSPORTATION CORP. By:_______________________________________ Domenic Gatto President, Chief Executive Officer and Chairman of the Board By:_______________________________________ Michael Gatto, Secretary 7 VERIFICATION STATE OF NEW YORK ) ) ss: COUNTY OF NEW YORK ) I Domenic Gatto, being duly sworn, depose and state that I am the President, Chief Executive Officer and Chairman of the Board of Atlantic Express Transportation Corp., the corporation named in and described in the foregoing certificate and that I have read the foregoing certificate and know the contents thereof to be true, except as to the matters therein stated to be alleged upon information and belief, and as to those matters, I believe them to be true. _______________________________________ DOMENIC GATTO Sworn to before me this day of January, 1997 ________________________________ NOTARY PUBLIC Restated Certificate of Incorporation of ATLANTIC EXPRESS TRANSPORTATION CORP. pursuant to Section 805 of the Business Corporation Law Filed By: Silverman, Collura & Chernis, P.C. 381 Park Avenue South Suite 1601 New York, New York 10016 EX-3.2 3 BY LAWS OF THE COMPANY Exhibit 3.2 BY-LAWS OF ATLANTIC EXPRESS TRANSPORTATION CORP. ARTICLE I - OFFICES The office of the Corporation shall be located in New York State in the County designated in the Certificate of Incorporation. The Corporation may have other offices within or without the State of New York as the Board of Directors may designate or as the business of the Corporation may require. ARTICLE II - MEETING OF SHAREHOLDERS Section 1 - Annual Meetings: The annual meeting of the shareholders of the Corporation shall be held within five months after the close of the fiscal year of the Corporation, for the purpose of electing directors, and for the transaction of such other business as may come before the meeting. Section 2 - Special Meetings: Special meetings of the shareholders for any purpose(s) may be called by the Board of Directors or by the President, and by the President or the Secretary at the written request of the holders of not less than ten percent (10%) of all outstanding shares entitled to vote thereat, or as otherwise required under the provisions of the Business Corporation Law. Section 3 - Place of Meetings: All meetings of shareholders shall be held at the principal office of the Corporation, or at such other places within or without the State of New York as shall be designated by the Board of Directors, or by written request of all shareholders entitled to vote at such meeting. Section 4 - Notice of Meetings: (a) Written notice of each annual or special meeting of shareholders stating the place, day and hour of the meeting shall be given, personally or by mail, not less than ten (10) nor more than fifty (50) days before the date of the meeting, to each shareholder of record entitled to vote at such meeting, and to any other shareholder to whom the giving of notice may be required by law. Notice of a special meeting shall also state the purpose(s) for which the meeting is called, and shall indicate by whom the meeting was called. If, at any meeting, action is proposed to be taken that would entitle shareholders to receive payment for their shares pursuant to the Business Corporation Law, the notice of such meeting shall include a statement of that purpose. If mailed, such notice shall be directed to each such shareholder at his address, as it appears on the records of the shareholders of the Corporation, unless he has previously filed with the Secretary of the Corporation a written request that notices intended for him be mailed to some other address, in which case, it shall be mailed to the requested address. (b) Notice of any meeting need not be given to any person who may become a shareholder of record after the mailing of notice and prior to the meeting, or to any shareholder who attends the meeting, in person or by proxy, or to any shareholder who, in person or by proxy submits a signed waiver of notice before or after the meeting. Notice of an adjourned meeting need not be given, unless otherwise required by statute. Section 5 - Quorum: Except as otherwise provided herein, or by statute, or in the Certificate of Incorporation or amendments thereto (hereinafter collectively referred to as the "Certificate of Incorporation"), at all meetings of shareholders of the Corporation, the presence at the commencement of such meetings in person or by proxy of shareholders holding of record a majority of the outstanding shares of the Corporation entitled to vote shall constitute a quorum for the transaction of any business. The withdrawal of any shareholder after the commencement of a meeting shall have no effect on the existence of a quorum, after a quorum has been established at such meeting. If less than a majority of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting. At an adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally noticed. Section 6 - Voting: (a) Except as otherwise provided by statute or by the Certificate of Incorporation, any corporate action, other than the election of directors, to be taken by vote of the shareholders shall be authorized by a majority of votes cast at a meeting of shareholders by the holders of shares entitled to vote thereon. (b) Except as otherwise provided by statute or by the Certificate of Incorporation, each outstanding share entitled to vote shall be entitled to one vote upon each matter submitted to a vote at a meeting of shareholders. (c) Each shareholder entitled to vote or to express consent or dissent without a meeting may do so by proxy executed in writing by the shareholder or by his duly authorized attorney in fact. No proxy shall be valid after the expiration of eleven months from the date of its execution, unless the person executing it shall have specified therein the length of time it is to continue in force. Such instrument shall be filed with the Secretary at the meeting and included with the records of the Corporation. (d) Any resolution in writing, signed by all of the shareholders entitled to vote thereon, shall constitute action by such shareholders as therein expressed, with the same force and effect as if the resolution had been passed by unanimous vote at a called meeting of shareholders and such resolution shall be inserted in the Minute Book of the Corporation under its proper date. ARTICLE III - DIRECTORS Section 1 - Number, Election and Term of Office: (a) The number of the directors of the Corporation shall not be less than three. (b) Except as may otherwise be provided herein or in the Certificate of Incorporation, the members of the Board of Directors of the Corporation, who need not be shareholders, shall be elected by a majority of the votes cast at a meeting of shareholders, by the holders of shares entitled to vote in the election. 2 (c) Each director shall hold office until the next annual meeting of the shareholders, and until his successor is elected and qualified, or until his prior death, resignation or removal. Section 2 - Duties and Powers: The Board of Directors shall be responsible for the management of the business affairs of the Corporation, and may exercise all powers of the Corporation, except those powers expressly conferred upon or reserved to the shareholders by the Certificate of Incorporation or by statute. Section 3 - Annual and Regular Meetings: Notice: (a) A regular annual meeting of the Board of Directors shall be held immediately following the annual meeting of shareholders, at the place of such annual meeting of shareholders. (b) The Board of Directors may provide by resolution for the holding of other regular meetings of the Board of Directors, and may fix the time and place thereof. (c) Notice of any regular meeting of the Board of Directors shall not be required to be given and, if given, need not specify the purpose of the meeting; provided, however, that in case the Board of Directors shall fix or change the time or place of any regular meeting, notice of such action shall be given to each director who shall not have been present at the meeting at which such action was taken within the time limited, and in the manner set forth in paragraph (b) of Section 4 of this Article III, with respect to special meetings, unless such notice shall be waived in the manner set forth in paragraph (c) of such Section 4. Section 4 - Special Meetings; Notice: (a) Special meetings of the Board of Directors shall be held whenever called by the President or by one of the directors, at such time and place as may be specified in the respective notices or waivers of notice thereof. (b) Notice of special meetings shall be delivered by mail, telegram, radio or cable to each director at his residence or business address at least two (2) days before the day on which the meeting is to be held, or shall be delivered to him personally or given to him orally, not later than the day before the day on which the meeting is to be held. A notice, or waiver of notice, except as required by these By-Laws need not specify the purpose of the meeting. (c) Notice of any special meeting shall not be required to be given to any director who shall attend such meeting for the express purpose of protesting the lack of notice to him, or who submits a signed waiver of notice, whether before or after the meeting. Notice of any adjourned meeting shall not be required to be given. Section 5 - Chairman: The Chairman of the Board shall preside at all meetings of the Board of Directors. If there is no Chairman, or if he is absent, then the President shall preside, and in his absence, a Chairman chosen by the directors shall Preside. Section 6 - Quorum and Adjournments: (a) At all meetings of the Board of Directors, the presence of a majority of the entire Board shall be necessary to constitute a quorum for the transaction of business. Participation of any one or more members of the Board by means of a conference telephone or similar communications equipment, allowing all persons participating 3 in the meeting to hear each other at the same time, shall constitute presence in person at any such meeting. (b) A majority of the directors present at the time and place of any regular or special meeting, although less than a quorum, may adjourn the meeting without notice, until a quorum shall be present. Section 7 - Manner of Acting: (a) At all meetings of the Board of Directors, each director present shall have one vote, irrespective of the number of shares of stock, if any, which he may hold. (b) Except as otherwise provided by statute, by the Certificate of Incorporation, or by these By-Laws, the action of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Any action authorized, in writing, by all of the directors entitled to vote thereon and filed with the minutes of the Corporation shall be the act of the Board of Directors with the same effect as if the action had been passed by unanimous vote at a meeting of the Board. Section 8 - Vacancies: Any vacancy in the Board of Directors (unless a vacancy created by the removal of a director by the shareholders, which shall be filled by the shareholders at the meeting at which the removal was effected) shall be filled by a majority vote of the remaining directors, though less than a quorum, at any regular meeting or special meeting of the Board of Directors called for that purpose. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. Section 9 - Resignation: Any director may resign at any time by giving written notice to the Board of Directors, the President or the Secretary of the Corporation. Unless otherwise specified in such written notice, such resignation shall take effect upon receipt thereof by the Board of Directors or such officer, and the acceptance of such resignation shall not be necessary to make it effective. Section 10 - Removal: A director may be removed with or without cause at any time by the shareholders, at a special meeting of the shareholders called for that purpose. A director, elected by vote of the holders of shares of any class or series, or holders of bonds voting as a class entitled to elect one or more directors may be removed only by applicable vote of said holders of shares or bonds. Section 11 - Salary: No stated salary shall be paid to directors for their services, but, by resolution of the Board of Directors, a fixed sum and expenses of attendance may be allowed for attendance at each regular or special meeting of the Board. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Section 12 - Contracts: (a) No contract or other transaction between this Corporation and any other corporation shall be impaired, affected or invalidated nor shall any director be liable in any way by reason of the fact that any one or more of the directors of this Corporation is or 4 are interested in, or is a director or officer of such other corporation, provided that such facts are disclosed or made known to the Board of Directors: (b) Any director, personally and individually, may be a party to or may be interested in any contract or transaction of this Corporation, and no director shall be liable in any way by reason of such interest, provided that the fact or such interest be disclosed or made known to the Board of Directors, and provided that the Board of Directors shall authorize, approve or ratify such contract or transaction by the vote (not counting the vote of any such director) of a majority of a quorum, notwithstanding the presence of any such director at the meeting at which such action is taken. Such director or directors may be counted in determining the presence of a quorum at such meeting. This Section shall not be construed to impair or invalidate or in any way affect any contract or other transaction which would otherwise be valid under the law applicable thereto. ARTICLE IV - OFFICERS Section 1 - Number, Qualifications, Election and Term of Office: (a) The officers of the Corporation shall consist of a President, a Secretary, a Treasurer, and such other officers including a Chairman of the Board of Directors, and one or more Vice Presidents, as the Board of Directors may deem advisable. Any officer other than the Chairman of the Board of Directors may be, but is not required to be, a director of the Corporation. Any two or more offices may be held by the same person, except the offices of President and Secretary, unless all the shares of stock of the Corporation are owned by one person. (b) The officers of the Corporation shall be elected by the Board of Directors at the regular annual meeting of the Board following the annual meeting of shareholders. (c) Each officer shall hold office until the annual meeting of the Board of Directors next succeeding his election or as provided for in such officer's contract with the Corporation, and until his successor shall have been elected and qualified, or until his death, resignation or removal. Section 2 - Resignation: An officer may resign at any time by giving written notice of resignation to the Board of Directors, or to the President or the Secretary of the Corporation. Unless otherwise specified in such written notice, such resignation shall take effect upon receipt thereof by the Board of Directors or by such officer, and the acceptance of the resignation shall not be necessary to make it effective. Section 3 - Removal: An officer elected or appointed by the Board may be removed, either with or without cause, and a successor elected by the Board at any time. Section 4 - Vacancies: A vacancy in an office by any reason may at any time be filled for the unexpired term by the Board of Directors. Section 5 - Duties of Officers: Officers of the Corporation shall, unless otherwise provided by the Board of Directors, each have such powers and duties as generally pertain to 5 their respective offices as well as such powers and duties as may be set forth in these By-Laws. The President shall be the chief executive officer of the Corporation. Section 6 - Sureties and Bonds: In case the Board of Directors shall so require, any officer (except officers who own 5% or more of the outstanding equity securities of the Corporation), employee or agent of the Corporation shall execute to the Corporation a bond in such sum, and with such surety or sureties as the Board of Directors may direct, conditioned upon the faithful performance of his duties to the Corporation, including responsibility for negligence and for the accounting for all property, funds or securities of the Corporation which may come into his hands. Section 7 - Shares of Other Corporations: Whenever the Corporation is the holder of shares of any other corporation, any right or power of the Corporation as such shareholder (including the attendance, acting and voting at shareholders' meetings and execution of waivers, consents, proxies or other instruments) may be exercised on behalf of the Corporation by the President, any Vice President, or such other person as the Board of Directors may authorize. ARTICLE V - SHARES OF STOCK Section 1 - Certificate of Stock: (a) The certificates representing shares of the Corporation shall be in such form as shall be adopted by the Board of Directors, and shall be numbered and registered in the order issued. They shall bear the holder's name and the number of shares, and shall be signed by (1) the Chairman or Vice Chairman of the Board or by the President or a Vice President, and (2) the Secretary or Treasurer, or any Assistant Secretary or Assistant Treasurer, and may bear the corporate seal. (b) No certificate representing shares shall be issued until the full amount of consideration therefor has been paid, except as otherwise permitted by law. (c) The Board of Directors may authorize the issuance of fractions of shares represented by a certificate or uncertificated, which shall entitle the holder to exercise voting rights, receive dividends and participate in liquidating distributions, in proportion to the fractional holdings; or it may authorize the payment in cash of the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined; or in lieu of fractional shares it may authorize the issuance, as permitted by law, of scrip exchangeable as therein provided for full shares, but such scrip shall not entitle the holder to any rights of a shareholder, except as therein provided. Section 2 - Lost or Destroyed Certificates: The holder of any certificate representing shares of the Corporation shall immediately notify the Corporation of any loss or destruction of the certificate representing the same. The Corporation may issue a new certificate in the place of any certificate previously issued by it, alleged to have been lost or destroyed. On production of such evidence of loss or destruction as the Board of Directors may require, the Board of Directors may require the owner of the lost or destroyed certificate, or his legal representatives, to give the Corporation a bond in such sum as the Board may direct, and with such surety or 6 sureties as may be satisfactory to the Board, to indemnify the Corporation against any claims, loss, liability or damage it may suffer on account of the issuance of the new certificate. A new certificate may be issued without requiring any such evidence or bond when, in the judgment of the Board of Directors, it is proper so to do. Section 3 - Transfers of Shares: (a) Transfers of shares of the Corporation shall be made on the share records of the Corporation only by the holder of record, or by his duly authorized attorney, upon surrender for cancellation of the certificate(s) representing such shares, with an assignment of power of transfer endorsed thereon or delivered therewith, duly executed, with such proof of the authenticity of the signature and of authority to transfer and of payment of transfer taxes as the Corporation or its agents may require. (b) The Corporation shall be entitled to treat the holder of record of any share or shares as the absolute owner thereof for all purposes and, accordingly, shall not be bound to recognize any claim to, or interest in, such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by law. Section 4 - Record Date: In lieu of closing the share records of the Corporation, the Board of Directors may fix, in advance, a date not exceeding fifty days nor less than ten days before the date of a meeting, as the record date for the determination of shareholders entitled to receive notice of, or to vote at, any meeting of shareholders, or to consent to any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividends, or allotment of any rights, or for the purpose of any other action. ARTICLE VI - DIVIDENDS Subject to applicable law, dividends may be declared and paid out of surplus funds available therefor, as often, in such amounts, and at such time as the Board may determine. ARTICLE VII - FISCAL YEAR The fiscal year of the Corporation shall be fixed by the Board of Directors, subject to applicable law. ARTICLE VIII - CORPORATE SEAL The corporate seal shall be in such form as shall be approved by the Board of Directors. ARTICLE IX - AMENDMENTS Section 1 - By Shareholders: All By-Laws of the Corporation may be amended, repealed, or adopted by a two-thirds vote of the shareholders entitled to vote therefor Section 2 - By Directors: By a two-thirds vote, the Board of Directors shall have power to amend, repeal, and adopt By-Laws of the Corporation; provided, however, that the shareholders entitled to vote with respect thereto as in this Article IX above-provided may alter, 7 amend or repeal By-Laws made by the Board of Directors. The Board of Directors shall have no power to change the quorum for meetings of shareholders or of the Board of Directors, or to change any provisions of the By-Laws with respect to the removal of directors or the filling of vacancies in the Board resulting from the removal by the shareholders. If any By-Law regulating an impending election of directors is adopted, amended or repealed by the Board of Directors, there shall be set forth in the notice of the next meeting of shareholders for the election of directors, the By-Law so adopted, amended or repealed, together with a concise statement of the changes made. THE UNDERSIGNED certifies that the Corporation has adopted the foregoing By-Laws as the Restated By-Laws of the Corporation, in accordance with the requirements of the Business Corporation Law of New York. Dated: ______________________________________ [Name] [Title] 8 EX-4.1 4 INDENTURE 2/4/97 OF NOTE, CO/GUARANTORS/B OF NY Exhibit 4.1 ATLANTIC EXPRESS TRANSPORTATION CORP. as obligor and the Guarantors referred to herein $110,000,000 10-3/4% Senior Notes due 2004 ------------------------------------ INDENTURE Dated as of February 4, 1997 ------------------------------------ THE BANK OF NEW YORK, Trustee TABLE OF CONTENTS Page ---- ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1 Definitions ............................................... 1 Section 1.2 Other Definitions ......................................... 19 Section 1.3 Incorporation by Reference of Trust Indenture Act ......... 19 Section 1.4 Rules of Construction ..................................... 20 ARTICLE 2 THE NOTES Section 2.1 Form and Dating ........................................... 20 Section 2.2 Execution and Authentication .............................. 21 Section 2.3 Registrar, Paying Agent and Depository .................... 22 Section 2.4 Paying Agent to Hold Money in Trust ....................... 22 Section 2.5 Holder Lists .............................................. 23 Section 2.6 Transfer and Exchange ..................................... 23 Section 2.7 Replacement Notes ......................................... 28 Section 2.8 Outstanding Notes ......................................... 28 Section 2.9 Treasury Notes ............................................ 29 Section 2.10 Temporary Notes ........................................... 29 Section 2.11 Cancellation .............................................. 30 Section 2.12 Defaulted Interest ........................................ 30 Section 2.13 Legends ................................................... 30 ARTICLE 3 REDEMPTION Section 3.1 Notices to Trustee ........................................ 31 Section 3.2 Selection of Notes to Be Redeemed ......................... 32 Section 3.3 Notice of Redemption ...................................... 32 Section 3.4 Effect of Notice of Redemption ............................ 33 Section 3.5 Deposit of Redemption Price ............................... 33 Section 3.6 Notes Redeemed in Part .................................... 34 Section 3.7 Optional Redemption ....................................... 34 i Page ---- ARTICLE 4 COVENANTS Section 4.1 Payment of Notes .......................................... 35 Section 4.2 Maintenance of Office or Agency ........................... 35 Section 4.3 Reports ................................................... 36 Section 4.4 Compliance Certificate .................................... 37 Section 4.5 Taxes ..................................................... 38 Section 4.6 Stay, Extension and Usury Laws ............................ 38 Section 4.7 Limitation on Restricted Payments ......................... 38 Section 4.8 Limitation on Restrictions on Subsidiary Dividends ........ 41 Section 4.9 Limitation on Incurrence of Indebtedness .................. 42 Section 4.10 Limitation on Asset Sales ................................. 45 Section 4.11 Limitation on Transactions With Affiliates ................ 48 Section 4.12 Limitation on Liens ....................................... 48 Section 4.13 Corporate Existence ....................................... 49 Section 4.14 Repurchase Upon a Change of Control ....................... 49 Section 4.15 Maintenance of Properties ................................. 51 Section 4.16 Maintenance of Insurance .................................. 52 Section 4.17 Restrictions on Sale and Issuance of Subsidiary Stock ..... 52 Section 4.18 Line of Business .......................................... 52 ARTICLE 5 SUCCESSORS Section 5.1 When the Company May Merge, etc ........................... 53 Section 5.2 Successor Substituted ..................................... 54 ARTICLE 6 DEFAULTS AND REMEDIES Section 6.1 Events of Default ......................................... 54 Section 6.2 Acceleration .............................................. 57 Section 6.3 Other Remedies ............................................ 58 Section 6.4 Waiver of Past Defaults ................................... 58 Section 6.5 Control by Majority ....................................... 58 Section 6.6 Limitation on Suits ....................................... 59 Section 6.7 Rights of Holders to Receive Payment ...................... 59 Section 6.8 Collection Suit by Trustee ................................ 60 Section 6.9 Trustee May File Proofs of Claim .......................... 60 Section 6.10 Priorities ................................................ 61 ii Page ---- Section 6.11 Undertaking for Costs ..................................... 61 ARTICLE 7 TRUSTEE Section 7.1 Duties of Trustee ......................................... 62 Section 7.2 Rights of Trustee ......................................... 63 Section 7.3 Individual Rights of Trustee .............................. 64 Section 7.4 Trustee's Disclaimer ...................................... 64 Section 7.5 Notice of Defaults ........................................ 65 Section 7.6 Reports by Trustee to Holders ............................. 65 Section 7.7 Compensation and Indemnity ................................ 65 Section 7.8 Replacement of Trustee .................................... 66 Section 7.9 Successor Trustee by Merger, etc .......................... 68 Section 7.10 Eligibility; Disqualification ............................. 68 Section 7.11 Preferential Collection of Claims Against Company ......... 68 ARTICLE 8 DISCHARGE OF INDENTURE Section 8.1 Termination of Company's Obligations ...................... 69 Section 8.2 Application of Trust Money ................................ 71 Section 8.3 Repayment to the Company .................................. 71 Section 8.4 Reinstatement ............................................. 71 ARTICLE 9 AMENDMENTS Section 9.1 Without Consent of Holders ................................ 72 Section 9.2 With Consent of Holders ................................... 73 Section 9.3 Compliance with Trust Indenture Act 74 Section 9.4 Revocation and Effect of Consents ......................... 75 Section 9.5 Notation on or Exchange of Notes .......................... 75 Section 9.6 Trustee to Sign Amendments, etc ........................... 75 ARTICLE 10 COLLATERAL AND SECURITY AND GUARANTY Section 10.1 Collateral Documents ...................................... 76 Section 10.2 Opinions .................................................. 76 Section 10.3 Release of Collateral ..................................... 77 iii Page ---- Section 10.4 Certificates of the Company ............................... 77 Section 10.5 Authorization of Actions to be Taken by the Trustee Under the Security Documents .............................. 78 Section 10.6 Authorization of Receipt of Funds by the Trustee Under the Security Documents .................................... 78 Section 10.7 Guaranty .................................................. 78 Section 10.8 Execution and Delivery of Guaranty ........................ 80 Section 10.9 Limitation on Guarantor's Liability ....................... 81 Section 10.10 Rights under the Guaranty ................................. 81 Section 10.11 Primary Obligations ....................................... 82 Section 10.12 Guarantee by Subsidiary ................................... 82 Section 10.13 Release of Guarantors ..................................... 83 ARTICLE 11 MISCELLANEOUS Section 11.1 Trust Indenture Act Controls .............................. 83 Section 11.2 Notices ................................................... 83 Section 11.3 Communication by Holders with Other Holders ............... 85 Section 11.4 Certificate and Opinion as to Conditions Precedent ........ 85 Section 11.5 Statements Required in Certificate or Opinion ............. 85 Section 11.6 Rules by Trustee and Agents ............................... 86 Section 11.7 Legal Holidays ............................................ 86 Section 11.8 No Recourse Against Others ................................ 86 Section 11.9 Governing Law ............................................. 86 Section 11.10 No Adverse Interpretation of Other Agreements ............. 87 Section 11.11 Successors ................................................ 87 Section 11.12 Severability .............................................. 88 Section 11.13 Counterpart Originals ..................................... 88 Section 11.14 Table of Contents, Headings, etc .......................... 88 SIGNATURES EXHIBIT A- FORM OF NOTE .............................................. A-1 EXHIBIT B- CERTIFICATE OF TRANSFEROR ................................. B-1 EXHIBIT C- FORM OF GUARANTY .......................................... C-1 iv INDENTURE, dated as of February 4, 1997, among Atlantic Express Transportation Corp., a New York corporation (the "Company"), the Guarantors named herein and The Bank of New York, a New York banking corporation, as trustee (the "Trustee"). The Company and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the Company's 10-3/4% Senior Secured Notes due 2004. ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1. Definitions. "AETG" means Atlantic Express Transportation Group Inc., a New York corporation.. "Acquired Debt" means Indebtedness of a Person existing at the time such Person is merged with or into the Company or a Restricted Subsidiary or becomes a Restricted Subsidiary, other than Indebtedness incurred in connection with, or in contemplation of, such Person merging with or into the Company or a Restricted Subsidiary or becoming a Restricted Subsidiary, provided, that Indebtedness of such other Person that is redeemed, defeased, retired or otherwise repaid at the time, or immediately upon consummation of the transaction by which such other Person is merged with or into the Company or a Restricted Subsidiary or becomes a Restricted Subsidiary shall not be Acquired Debt. "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 purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean (i) the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; (ii) in the case of a corporation, beneficial ownership of 10% or more of any class of Capital Stock of such Person; and (iii) in the case of an individual (A) members of such Person's immediate family (as defined in Instruction 2 of Item 404(a) of Regulation S-K under the Securities Act) and (B) trusts, any trustee or beneficiaries of which are such Person or members of such Person's immediate family. Notwithstanding the foregoing, neither the Initial Purchaser nor any of its Affiliates will be deemed to be Affiliates of the Company. Notwithstanding the foregoing, neither the Initial Purchaser nor any of its respective Affiliates will be deemed to be Affiliates of the Company. "Agent" means any Registrar, Paying Agent or co-registrar. "Asset Sale" means any (i) transfer (as hereinafter defined), other than in the ordinary course of business, of any assets of the Company or any Restricted Subsidiary or (ii) direct or indirect issuance of any Capital Stock of any Restricted Subsidiary, in each case to any Person (other than the Company or a Restricted Subsidiary and other than directors' qualifying shares). For purposes of this definition, (a) any series of transfers that are part of a common plan shall be deemed a single Asset Sale and (b) the term "Asset Sale" shall not include any disposition of all or substantially all of the assets of the Company that is governed under and complies with Article 5 of this Indenture. "Bankruptcy Law" means title 11, U.S. Code or any similar Federal, state or foreign law for the relief of debtors. "Board of Directors" means the board of directors or any duly constituted committee of any corporation or of a corporate general partner of a partnership and any similar body empowered to direct the affairs of any other entity. "Business Day" means any day other than a Legal Holiday. "Capital Lease Obligation" means, as to any Person, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP, and the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. "Capital Stock" means (i) with respect to any Person that is a corporation, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, and (ii) with respect to any other Person, any and all partnership or other equity interests of such Person. "Cash Equivalent" means (i) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof), (ii) time deposits and certificates of deposit and commercial paper issued by the parent corporation of any domestic commercial bank of recognized standing having capital and surplus in excess of $250,000,000 and commercial paper issued by others rated at least A-2 or the equivalent thereof by Standard & Poor's Corporation or at least P-2 or the equivalent thereof by Moody's Investors Service, Inc. and in each case maturing within one year after the date of acquisition and (iii) investments in money market funds substantially all of 2 whose assets comprise securities of the types described in clauses (i) and (ii) above. "Change of Control" means (i) the transfer (in one transaction or a series of transactions) of all or substantially all of the Company's assets to any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act) other than to one or more Existing Holders, (ii) the liquidation or dissolution of the Company or the adoption of a plan by the stockholders of the Company relating to the dissolution or liquidation of the Company, (iii) the acquisition by any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act), except for one or more Existing Holders, of beneficial ownership, directly or indirectly, of more than 50% of the aggregate ordinary voting power of the total outstanding Voting Stock of AETG, (iv) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company or AETG (together with any new directors who are designated pursuant to the Stockholders' Agreement or approved by a vote of at least 662/3% of the directors 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 or AETG, as the case may be, then still in office or (v) the failure by AETG to own 51% of the voting power of the total outstanding Voting Stock of the Company. "Closing Date" means the date upon which the Series A Notes are first issued. "Collateral" means any assets of the Company or any of its Subsidiaries defined as "Collateral" in any of the Security Documents and assets from time to time in which a Lien exists as security for any of the Obligations. "Collateral Agent" shall mean the Secured Party as defined in the Security Agreement. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the TIA, then the body performing such duties at such time. "Company" means the party named as such above, until a successor replaces such Person in accordance with the terms of this Indenture, and thereafter means such successor. "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, President or Senior Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary and delivered to the Trustee. 3 "Consolidated EBITDA" means, with respect to any Person (the referent Person) for any period, consolidated income (loss) from operations of such Person and its subsidiaries for such period, determined in accordance with GAAP, plus (to the extent such amounts are deducted in calculating such income (loss) from operations of such Person for such period, and without duplication) amortization, depreciation and other non-cash charges (including, without limitation, amortization of goodwill, deferred financing fees and other intangibles but excluding non-cash charges incurred after the date of this Indenture that require an accrual of or a reserve for cash charges for any future period); provided, that (i) the income from operations of any Person (including, without limitation, any Unrestricted Subsidiary) that is not a 90% Owned Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or distributions paid during such period to the referent Person or a 90% Owned Subsidiary of the referent Person, and (ii) the income from operations of any Restricted Subsidiary will not be included to the extent that declarations of dividends or similar distributions by that Restricted Subsidiary are not at the time permitted, directly or indirectly, by operation of the terms of its organization documents or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its owners. "Consolidated Interest Expense" means, with respect to any Person for any period, the consolidated interest expense (net of interest income) of such Person and its subsidiaries for such period, whether paid or accrued (including amortization of original issue discount, noncash interest payment, and the interest component of Capital Lease Obligations), to the extent such expense was deducted in computing Consolidated Net Income of such Person for such period. "Consolidated Net Income" means, with respect to any Person (the referent Person) for any period, the aggregate of the Net Income of such Person and its subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; provided, that (i) the Net Income of any Person (including, without limitation, any Unrestricted Subsidiary) that is not a Wholly Owned Subsidiary or that is accounted for by the equity method of accounting will be included in calculating the referent Person's Consolidated Net Income only to the extent of the amount of dividends or distributions paid during such period to the referent Person or a Wholly Owned Subsidiary of the referent Person, (ii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition will be excluded, and (iii) the Net Income of any Subsidiary will be excluded to the extent that declarations of dividends or similar distributions by that Subsidiary of such Net Income are not at the time permitted, directly or indirectly, by operation of the terms of its organization documents or any agreement, instrument, judgment, decree, order, statute, rule or 4 governmental regulation applicable to that Subsidiary or its owners. "Consolidated Net Worth" means, with respect to any Person, the total stockholders' equity of such Person determined on a consolidated basis in accordance with GAAP, adjusted to exclude (to the extent included in calculating such equity), (i) the amount of any such stockholders' equity attributable to Disqualified Capital Stock of such Person and its consolidated subsidiaries, and (ii) all upward revaluations and other write-ups in the book value of any asset of such person or a consolidated subsidiary of such person subsequent to the Closing Date, and (iii) all Investments in persons that are not consolidated Restricted Subsidiaries. "Corporate Trust Office" shall be at the address of the Trustee specified in Section 11.2 or such other address as the Trustee may specify by notice to the Company. "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. "Default" means any event that is, or after notice or the passage of time or both would be, an Event of Default. "Definitive Notes" means Notes that are in the form of the Notes attached hereto as Exhibit A, that do not include the information called for by footnotes 1 and 2 thereof. "Depository" means the Person specified in Section 2.3 hereof as the Depository with respect to the Notes issuable in global form, until a successor shall have been appointed and become such pursuant to the applicable provision of this Indenture, and, thereafter, "Depository" shall mean or include such successor. "Disqualified Stock" means any Equity Interest that (i) either by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) is or upon the happening of an event would be required to be redeemed or repurchased prior to the final stated maturity of the Notes or is redeemable at the option of the holder thereof at any time prior to such final stated maturity or (ii) is convertible into or exchangeable at the option of the issuer thereof or any other Person for debt securities. "DTC" means The Depository Trust Company. "Equity Interests" means Capital Stock or warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). 5 "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Offer" means the offer that may be made by the Company pursuant to the Registration Rights Agreement to exchange Series B Notes for Series A Notes. "Existing Holders" shall mean the Majority Stockholders and the Preferred Stockholder. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession, and in the rules and regulations of the Commission, that are in effect on the date of this Indenture. "Global Note" means a Note that contains the paragraph referred to in footnote 1 and the additional schedule referred to in footnote 2 in the form of the Note attached hereto as Exhibit A. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Guarantors" means all direct or indirect current and future Restricted Subsidiaries. "Holder" means a Person in whose name a Note is registered. "Indebtedness" of any Person means (without duplication) (1) all liabilities and obligations, contingent or otherwise, of such Person (i) in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (ii) evidenced by bonds, debentures, notes or other similar instruments, (iii) representing the deferred purchase price of property or services (other than liabilities incurred in the ordinary course of business which are not more than 90 days past due), (iv) created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (v) as lessee under capitalized leases, (vi) under bankers' acceptance and letter of credit facilities, (vii) to purchase, redeem, retire, defease or otherwise acquire for value any Disqualified Stock, or (viii) in 6 respect of Hedging Obligations, (2) all liabilities and obligations of others of the type described in clause (1), above, that are Guaranteed by such Person, and (3) all liabilities and obligations of others of the type described in clause (1), above, that are secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person; provided, that the amount of such Indebtedness shall (to the extent such Person has not assumed or become liable for the payment of such Indebtedness in full) be the lesser of (x) the fair market value of such property at the time of determination and (y) the amount of such Indebtedness. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date. "Indenture" means this Indenture as amended or supplemented from time to time. "Initial Purchaser" means Jefferies & Company, Inc. "Intercreditor Agreement" means any intercreditor agreement between the lenders under the Revolving Credit Facility and the Collateral Agent, dated the Closing Date, substantially in the form of that certain Intercreditor Agreement between Congress Financial Corporation and the Collateral Agent. "Interest Coverage Ratio" means, for any period, the ratio of (i) Consolidated EBITDA of the Company for such period, to (ii) Consolidated Interest Expense of the Company for such period. In calculating the Interest Coverage Ratio for any period, pro forma effect shall be given to: (a) the incurrence, assumption, guarantee, repayment, repurchase, redemption or retirement by the Company or any of its Subsidiaries of any Indebtedness (other than under the Revolving Credit Facility) subsequent to the commencement of the period for which the Interest Coverage Ratio is being calculated but on or prior to the date on which the event for which the calculation is being made, as if the same had occurred at the beginning of the applicable period; and (b) the occurrence of any Asset Sale during such period by reducing Consolidated EBITDA for such period by an amount equal to the Consolidated EBITDA (if positive) directly attributable to the assets sold and by reducing Consolidated Interest Expense by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness assumed by third parties or repaid with the proceeds of such Asset Sale, in each case as if the same had occurred at the beginning of the applicable period. For purposes of making the computation referred to above, acquisitions that have been made by the Company or any of its Restricted Subsidiaries, and Transportation Contracts that have been entered into or terminated, subsequent to the commencement of such period but on 7 or prior to the date on which the event for which the calculation is being made shall be given effect on a pro forma basis, assuming that all such acquisitions and terminations and the effectiveness of all such contracts had occurred on the first day of such period. Without limiting the foregoing, the financial information of the Company with respect to any portion of such four fiscal quarters that falls before the Closing Date shall be adjusted to give pro forma effect to the issuance of the Notes and the application of the proceeds therefrom as if they had occurred at the beginning of such four fiscal quarters. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of loans, Guarantees, advances or capital contributions (excluding (i) commission, travel and similar advances to officers and employees of such Person made in the ordinary course of business and (ii) bona fide accounts receivable arising from the sale of goods or services in the ordinary course of business consistent with past practice), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, and any other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in The City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. "Lien" means any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Liquidated Damages" has the meaning set out in the Registration Rights Agreement. "Majority Stockholders" means Domenic Gatto, Michael Gatto and Patrick Gatto. "Material Subsidiary" means any Subsidiary (a) that is a "Significant Subsidiary" of the Company as defined in Rule 1-02 of Regulation S-X promulgated by the Commission or (b) is otherwise material to the business of the Company. "Net Income" means, with respect to any Person for any period, the net income (loss) of such Person for such period, determined in accordance with GAAP, excluding any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with any Asset Sales and 8 dispositions pursuant to sale and leaseback transactions, and excluding any extraordinary gain (but not loss), together with any related provision for taxes on such gain (but not loss). "Net Proceeds" means the aggregate proceeds received in the form of cash or Cash Equivalents in respect of any Asset Sale (including payments in respect of deferred payment obligations when received), net of (i) the reasonable and customary direct out-of-pocket costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales commissions), other than any such costs payable to an Affiliate of the Company, (ii) taxes actually payable directly as a result of such Asset Sale (after taking into account any available tax credits or deductions and any tax sharing arrangements), (iii) amounts required to be applied to the permanent repayment of Indebtedness in connection with such Asset Sale, and (iv) appropriate amounts provided as a reserve by the Company or any Restricted Subsidiary, in accordance with GAAP, against any liabilities associated with such Asset Sale and retained by the Company or such Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations arising from such Asset Sale. "90% Owned Subsidiary" means a Restricted Subsidiary at least 90% of each class of the Capital Stock of which is owned by the Company or one or more Wholly Owned Subsidiaries. "Notes" means, collectively, the Series A Notes and the Series B Notes. "Obligations" means any principal, interest, premium, penalties, fees, indemnifications, reimbursements, damages and other obligations and liabilities of the Company or any of the Guarantors under this Indenture, the Security Documents, the Notes or the Guarantees of the Notes. "Officers" means the Chairman of the Board, the President, the Chief Financial Officer, Chief Operating Officer, the Treasurer, any Assistant Treasurer, Controller, Secretary, any Assistant Secretary or any Senior Vice President of the Company. "Officers' Certificate" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the President, Chief Financial Officer, Treasurer, Controller or a Senior Vice President of the Company. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee. Such counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee. 9 "Permitted Affiliate Transactions" means (i) employment agreements entered into by the Company or any Restricted Subsidiary in the ordinary course of business with the approval of a majority of the disinterested members of the Company's Board of Directors; (ii) transactions between or among the Company and its 90% Owned Subsidiaries; (iii) reasonable and customary fees and compensation paid to and indemnity provided on behalf of, officers, directors, employees or consultants of the Company or any Restricted Subsidiary as determined in good faith by a majority of the disinterested directors of the Company's Board of Directors or, if none, unanimously by such Board of Directors; (iv) the "Park & Ride Lease" between Showplace Bowling Center Inc., as lessor, and Atlantic Express Coachways Inc., as lessee, and the lease between Dom-Rich Associates, Inc., as lessor, and Staten Island Bus, Inc., as lessee, in each case in effect as of the Closing Date; and (v) annual premiums paid to Atlantic North Casualty Company, in the ordinary course of business, for insurance; provided, that such premiums do not exceed the annual aggregate deductibles on the Company's insurance policies then in effect. "Permitted Amount" during any fiscal year means the sum of (i) the management fees required to be paid by AETG under Section 5.02 of the Stockholders' Agreement during such fiscal year and (ii) the Permitted Expense Amount. "Permitted Expense Amount" means (a) for fiscal year 1996, $100,000; and (b) for each fiscal year thereafter, 1.05 times the Permitted Expense Amount for the immediately preceding fiscal year. "Permitted Investments" means (i) Investments in the Company, any Guarantor or any Wholly Owned Subsidiary (including without limitation, Guarantees of Indebtedness of any such Person), (ii) Investments in an aggregate amount not to exceed $1 million in Restricted Subsidiaries other than Wholly Owned Subsidiaries, (iii) Investments in Cash Equivalents, (iv) Investments in a Person, if as a result of such Investment (a) such Person becomes a Wholly Owned Subsidiary or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Wholly Owned Subsidiary, (v) Hedging Obligations, (vi) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers, (vii) Investments as a result of consideration received in connection with an Asset Sale made in compliance with Section 4.10 of this Indenture, (viii) Investments in Atlantic North Casualty Company, but only to the extent necessary under applicable law or reasonably required by the Commissioner of the Vermont Department of Banking, Insurance, Securities and Health Care Administration, to permit Atlantic North Casualty Company to provide insurance policies to the Company and its Restricted Subsidiaries in the ordinary course of 10 business as contemplated under clause (v) of the definition of "Permitted Affiliate Transactions," and (ix) Investments existing on the Closing Date. "Permitted Liens" means (i) Liens in favor of the Company or its Restricted Subsidiaries other than with respect to intercompany Indebtedness, (ii) Liens on property of a Person existing at the time such Person is acquired by, merged into or consolidated with the Company or any Restricted Subsidiary, provided, that such Liens were not created in contemplation of such acquisition and do not extend to assets other than those subject to such Liens immediately prior to such acquisition, (iii) Liens on property existing at the time of acquisition thereof by the Company or any Restricted Subsidiary, provided, that such Liens were not created in contemplation of such acquisition and do not extend to assets other than those subject to such Liens immediately prior to such acquisition, (iv) Liens incurred in the ordinary course of business in respect of Hedging Obligations, (v) Liens incurred in the ordinary course of business to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations (exclusive of obligations constituting Indebtedness) of a like nature including, without limitation, cash retainages, (vi) Liens existing or created on the date of this Indenture, (vii) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested or remedied in good faith by appropriate proceedings promptly instituted and diligently concluded, provided, that any reserve or other appropriate provision as may be required in conformity with GAAP has been made therefor, (viii) Liens arising by reason of any judgment, decree or order of any court with respect to which the Company or any of its Restricted Subsidiaries is then in good faith prosecuting an appeal or other proceedings for review, the existence of which judgment, order or decree is not an Event of Default under this Indenture, (ix) encumbrances consisting of zoning restrictions, survey exceptions, utility easements, licenses, rights of way, easements of ingress or egress over property of the Company or any of its Restricted Subsidiaries, rights or restrictions of record on the use of real property, minor defects in title, landlord's and lessor's liens under leases on property located on the premises rented, mechanics' liens, warehouseman's liens, supplier's liens, repairman's liens, vendors' liens, and similar encumbrances, rights or restrictions on personal or real property, in each case not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries, (x) Liens incidental to the conduct of business or the ownership of properties incurred in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, bids, and government contracts and leases and subleases, (xi) Liens for any interest or title of a lessor under any Capitalized Lease Obligation permitted to be incurred under this Indenture; provided, that such Liens do not extend to any property or asset that 11 is not leased property subject to such Capitalized Lease Obligation, (xii) any extension, renewal, or replacement (or successive extensions, renewals or replacements), in whole or in part, of Liens described in clauses (i) through (xi) above, (xiii) Liens securing the Notes, and (xiv) Liens in addition to the foregoing, which in the aggregate, are secured by assets with a fair market value not in excess of $100,000 at any time. "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization, government or any agency or political subdivision thereof, or any other entity. "Preferred Stockholder" means the legal owner of Series A convertible preferred stock, par value $0.01 per share of AETG, on the Closing Date. "Public Equity Offering" means a bona fide underwritten public offering of Qualified Capital Stock of the Company, pursuant to a registration statement filed with and declared effective by the Commission in accordance with the Securities Act. "Purchase Money Liens" means Liens to secure or securing Purchase Money Obligations permitted to be incurred under this Indenture. "Purchase Money Obligations" means Indebtedness representing, or incurred to finance, the cost (i) of acquiring or improving any assets and (ii) of construction or build-out of manufacturing, distribution or administrative facilities (including Purchase Money Obligations of any other Person at the time such other Person is merged with or into or is otherwise acquired by the Company), provided, that (a) the principal amount of such Indebtedness does not exceed 100% of such cost, including construction charges, (b) any Lien securing such Indebtedness does not extend to or cover any other asset or property other than the asset or property being so acquired or improved and (c) such Indebtedness is incurred, and any Liens with respect thereto are granted, within 180 days of the acquisition or improvement of such property or asset. "QIB" shall mean "qualified institutional buyer" as defined in Rule 144A. "Qualified Capital Stock" means, with respect to any Person, Capital Stock of such Person other than Disqualified Capital Stock. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of the Closing Date, by and among the Company, the Guarantors and the Initial Purchaser as such agreement may be amended, modified or supplemented from time to time. 12 "Responsible Officer" when used with respect to the Trustee, means any officer within the corporate trust department of the Trustee located at the Corporate Trust Office (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the designated officers, and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Investment" means any Investment other than a Permitted Investment. The aggregate amount of each Investment constituting a Restricted Payment since the date of this Indenture shall be reduced by the aggregate after-tax amount of all payments made to the Company and its Restricted Subsidiaries with respect to such Investments; provided, that (i) the maximum amount of such payments so excluded shall not exceed the original amount of such Investment and (ii) such payments shall also be excluded from the calculations contemplated by clauses (x) through (z) under Section 4.7(a)(3) of this Indenture. "Restricted Securities" means Notes that bear or are required to bear the legends set forth in Exhibit A hereto. "Restricted Subsidiary" means a Subsidiary other than an Unrestricted Subsidiary. "Revolving Credit Facility" means the Loan and Security Agreement, entered into on the Closing Date between Congress Financial Corporation, as lender, and the Restricted Subsidiaries, as borrowers, and the Company, as Guarantor, as the same may be amended, modified, renewed, refunded, replaced or refinanced from time to time, including (i) any related notes, letters of credit, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time, and (ii) any notes, guarantees, collateral documents, instruments and agreements executed in connection with such amendment, modification, renewal, refunding, replacement or refinancing. "Rule 144A" means Rule 144A under the Securities Act, as such Rule may be amended from time to time, or under any similar rule or regulation hereafter adopted by the Commission. "Securities Act" means the Securities Act of 1933, as amended. "Security Agreement" means the Security and Pledge Agreement, dated as of the date hereof, by and between AETG, the Company and the Restricted Subsidiaries, on the one hand, and the Collateral Agent on the other, as amended or supplemented from time to time. 13 "Security Documents" means, collectively, the Security Agreement, the Intercreditor Agreement, the Trademark Security Agreement and any other document, instrument or agreement executed or delivered by the Company or any of its Subsidiaries from time to time pursuant to which the Company or any such Subsidiary shall grant a Lien on any of their respective properties, assets or revenues to secure payment of the Obligations hereunder and under the Notes or relating to intercreditor matters. "Series A Notes" means the Company's 10-3/4% Series A Senior Notes due 2004, as authenticated and issued under this Indenture. "Series B Notes" means the Company's 10-3/4% Series B Senior Notes due 2004, as authenticated and issued under this Indenture. "Stockholders' Agreement" means the Stockholders Agreement, dated February 28, 1994, by and among AETG and the stockholders of AETG that are party thereto, as such agreement is amended and in effect on the Closing Date. "subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Voting Stock thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other subsidiaries of that Person or a combination thereof and (ii) any partnership in which such Person or any of its subsidiaries is a general partner. "Subsidiary" means any subsidiary of the Company. "Tax Sharing Agreement" means the Tax Sharing Agreement, dated as of the Closing Date, by and between the Company and AETG as in effect on the date hereof. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb), as amended, as in effect on the date hereof until such time as this Indenture is qualified under the TIA, and thereafter as in effect on the date on which this Indenture is qualified under the TIA. "Trademark Security Agreement" means the Collateral Assignment of Trademarks (Security Agreement), dated as of the Closing Date, between the Company and The Bank of New York, as amended or supplemented from time to time. "transfer" means any direct or indirect sale, assignment, transfer, lease, conveyance, or other disposition (including, without limitation, by way of merger or consolidation). 14 "Transportation Contract" means a written contract entered into by the Company or its Restricted Subsidiaries pursuant to which services for school bus transportation, paratransit, coach transportation or Pre-K/Medicaid transportation and related services are provided by the Company or any of its Restricted Subsidiaries to a governmental entity or agency. "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Unrestricted Subsidiary" means (a) Atlantic North Casualty Company and (b) any other Subsidiary that has been designated by the Company (by written notice to the Trustee as provided below) as an Unrestricted Subsidiary; provided, that a Subsidiary may not be designated as an "Unrestricted Subsidiary" unless (i) such Subsidiary does not own any Capital Stock of, or own or hold any Lien on any property of, the Company or any Restricted Subsidiary (other than such Subsidiary), (ii) neither immediately prior thereto nor after giving pro forma effect to such designation, would there exist a Default or Event of Default, (iii) immediately after giving effect to such designation on a pro forma basis, the Company could incur at least $1.00 of Indebtedness pursuant to Section 4.9(a) of this Indenture and (iv) the creditors of such Subsidiary have no direct or indirect recourse (including, without limitation, recourse with respect to the payment of principal or interest on Indebtedness of such Subsidiary) to the assets of the Company or of a Restricted Subsidiary (other than such Subsidiary). The Board of Directors of the Company may designate any Unrestricted Subsidiary (other than Atlantic North Casualty Company) to be a Restricted Subsidiary only if (a) no Default or Event of Default is existing or will occur as a consequence thereof and (b) immediately after giving effect to such designation, on a pro forma basis, the Company could incur at least $1.00 of Indebtedness pursuant to Section 4.9(a) of this Indenture. Each such designation shall be evidenced by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions. The Company shall be deemed to make an Investment in each Subsidiary designated as an "Unrestricted Subsidiary" immediately following such designation in an amount equal to the Investment in such Subsidiary and its subsidiaries immediately prior to such designation; provided, that if such Subsidiary is subsequently redesignated as a Restricted Subsidiary, the amount of such Investment shall be deemed to be reduced (but not below zero) by the fair market value of the net consolidated assets of such Subsidiary on the date of such redesignation. "U.S. Government Obligations" means direct obligations of the United States of America, or any agency or instrumentality 15 thereof for the payment of which the full faith and credit of the United States of America is pledged. "Voting Stock" means, with respect to any Person, (i) one or more classes of the Capital Stock of such Person having general voting power to elect at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not at the time Capital Stock of any other class or classes have or might have voting power by reason of the happening of any contingency) and (ii) any Capital Stock of such Person convertible or exchangeable without restriction at the option of the holder thereof into Capital Stock of such Person described in clause (i) above. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years (rounded to the nearest one-twelfth) obtained by dividing (i) the then outstanding principal amount of such Indebtedness into (ii) the total of the products obtained by multiplying (x) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (y) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment. "Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or one or more Wholly Owned Subsidiaries. Section 1.2. Other Definitions. Defined in Term Section ------------------------------------------------------ "Affiliate Transaction".................... 4.11 "Change of Control Offer".................. 4.14 "Change of Control Payment"................ 4.14 "Change of Control Payment Date"........... 4.14 "Definitive Notes"......................... 2.1 "Event of Default"......................... 6.1 "Excess Proceeds".......................... 4.10 "Excess Proceeds Offer".................... 4.10 "Excess Proceeds Offer Period"............. 4.10 "Excess Proceeds Payment Date"............. 4.10 "Global Note".............................. 2.1 "Guaranty"................................. 10.7 "Hedging Obligations"...................... 4.9(b) "Paying Agent"............................. 2.3 "Purchase Amount".......................... 4.10 "Purchase Money Indebtedness".............. 4.9(b) "Refinance"................................ 4.9(b) "Refinancing Indebtedness"................. 4.9(b) "Registrar"................................ 2.3 16 "Restricted Payments"...................... 4.7 Section 1.3. Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture security holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; "obligor" on the Notes means the Company, the Guarantors and any successor obligor upon the Notes. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rule under the TIA have the meanings so assigned to them. Section 1.4. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; and (5) provisions apply to successive events and transactions. ARTICLE 2 THE NOTES Section 2.1. Form and Dating. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A attached hereto, the terms of which are incorporated in and made a part of this Indenture. Each Note shall include the Guaranty 17 executed by each of the Guarantors in the form of Exhibit C attached hereto, the terms of which are incorporated and made a part of this Indenture. The Notes may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Company is subject or usage. Each Note shall be dated the date of its authentication. The Notes shall be issued in denominations of $1,000 and integral multiples thereof. The Notes will be issued (i) in global form (the "Global Note"), substantially in the form of Exhibit A attached hereto (including the text referred to in footnotes 1 and 2 thereto) and (ii) in definitive form (the "Definitive Notes"), substantially in the form of Exhibit A attached hereto (excluding the text referred to in footnotes 1 and 2 thereto). The Global Note shall represent the aggregate amount of outstanding Notes from time to time endorsed thereon; provided, that the aggregate amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of the Global Note to reflect the amount of any increase or decrease in the amount of outstanding Notes represented thereby shall be made by the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.6 hereof. Section 2.2. Execution and Authentication. Two Officers shall sign the Notes for the Company by manual or facsimile signature. If an Officer whose signature is on a Note no longer holds that office at the time the Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature of the Trustee shall be conclusive evidence that the Note has been authenticated under this Indenture. The form of Trustee's certificate of authentication to be borne by the Notes shall be substantially as set forth in Exhibit A attached hereto. The Trustee shall, upon a Company Order, authenticate for original issue up to $110,000,000 aggregate principal amount of the Notes. The aggregate principal amount of Notes outstanding at any time may not exceed $110,000,000 except as provided in Section 2.7 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. Unless limited by the terms of such appointment, an authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authenticating by the Trustee includes authenticating by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company. 18 The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name any Note is registered as the owner of such Note for the purpose of receiving payment of principal of and (subject to the provisions of this Indenture and the Notes with respect to record dates) interest on such Note and for all other purposes whatsoever, whether or not such Note is overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. Section 2.3. Registrar, Paying Agent and Depository. The Company shall maintain (i) an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and (ii) an office or agency where Notes may be presented for payment ("Paying Agent"). The Company initially appoints the Trustee as Registrar and Paying Agent. The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar, except that for purposes of Articles Three and Eight and Sections 4.1, 4.10 and 4.14 neither the Company nor any of its Subsidiaries shall act as Paying Agent. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which shall incorporate the provisions of the TIA. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company initially appoints DTC to act as Depository with respect to the Global Notes. The Trustee shall act as custodian for the Depository with respect to the Global Notes. Section 2.4. Paying Agent to Hold Money in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all money held by the Paying Agent for the payment of principal, premium, if any, or interest on the Notes and shall notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if 19 other than the Company or a Subsidiary of the Company) shall have no further liability for the money delivered to the Trustee. If the Company or a Subsidiary of the Company acts as Paying Agent (subject to Section 2.3), it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Section 2.5. Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders, including the aggregate principal amount thereof, and the Company shall otherwise comply with TIA ss. 312(a). Section 2.6. Transfer and Exchange. (a) Transfer and Exchange of Definitive Notes. When Definitive Notes are presented by a Holder to the Registrar with a request (1) to register the transfer of the Definitive Notes or (2) to exchange such Definitive Notes for an equal principal amount of Definitive Notes of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its requirements for such transactions are met; provided, that the Definitive Notes so presented (A) have been duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by his attorney, duly authorized in writing; and (B) in the case of a Restricted Security, such request shall be accompanied by the following additional documents: (i) if such Restricted Security is being delivered to the Registrar by a Holder for registration in the name of such Holder, without transfer, a certification to that effect (in substantially the form of Exhibit B attached hereto); or (ii) if such Restricted Security is being transferred to a QIB in accordance with Rule 144A or pursuant to an effective registration statement under the Securities Act, a 20 certification to that effect (in substantially the form of Exhibit B attached hereto); or (iii) if such Restricted Security is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect (in substantially the form of Exhibit B attached hereto) and an opinion of counsel reasonably acceptable to the Company and the Registrar to the effect that such transfer is in compliance with the Securities Act. (b) Transfer of a Definitive Note for a Beneficial Interest in a Global Note. A Definitive Note may be exchanged for a beneficial interest in a Global Note only upon receipt by the Trustee of a Definitive Note, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Trustee, together with: (i) written instructions directing the Trustee to make an endorsement on the Global Note to reflect an increase in the aggregate principal amount of the Notes represented by the Global Note, and (ii) if such Definitive Note is a Restricted Security, a certification (in substantially the form of Exhibit B attached hereto) to the effect that such Definitive Note is being transferred to a QIB in accordance with Rule 144A; in which case the Trustee shall cancel such Definitive Note and cause the aggregate principal amount of Notes represented by the Global Note to be increased accordingly. If no Global Note is then outstanding, the Company shall issue and the Trustee shall authenticate a new Global Note in the appropriate principal amount. (c) Transfer and Exchange of Global Notes. The transfer and exchange of Global Notes or beneficial interests therein shall be effected through the Depository in accordance with this Indenture and the procedures of the Depository therefor, which shall include restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. (d) Transfer of a Beneficial Interest in a Global Note for a Definitive Note. Upon receipt by the Trustee of written 21 transfer instructions (or such other form of instructions as is customary for the Depository), from the Depository (or its nominee) on behalf of any Person having a beneficial interest in a Global Note, the Trustee shall, in accordance with the standing instructions and procedures existing between the Depository and the Trustee, cause the aggregate principal amount of Global Notes to be reduced accordingly and, following such reduction, the Company shall execute and the Trustee shall authenticate and make available for delivery to the transferee a Definitive Note in the appropriate principal amount; provided, that in the case of a Restricted Security, such instructions shall be accompanied by the following additional documents: (i) if such beneficial interest is being transferred to the Person designated by the Depository as being the beneficial owner, a certification to that effect (in substantially the form of Exhibit B attached hereto); or (ii) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A or pursuant to an effective registration statement under the Securities Act, a certification to that effect (in substantially the form of Exhibit B attached hereto); or (iii) if such beneficial interest is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect (in substantially the form of Exhibit B attached hereto) and, if the Trustee deems it appropriate, an opinion of counsel reasonably acceptable to the Company and to the Registrar to the effect that such transfer is in compliance with the Securities Act. Definitive Notes issued in exchange for a beneficial interest in a Global Note shall be registered in such names and in such authorized denominations as the Depository shall instruct the Trustee. (e) Transfer and Exchange of Global Notes. Notwithstanding any other provision of this Indenture, the Global Note may not be transferred as a whole except by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository; provided, that if: 22 (i) the Depository notifies the Company that the Depository is unwilling or unable to continue as Depository and a successor Depository is not appointed by the Company within 90 days after delivery of such notice; or (ii) the Company, at its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of Definitive Notes under this Indenture, then the Company shall execute and the Trustee shall authenticate and make available for delivery, Definitive Notes in an aggregate principal amount equal to the aggregate principal amount of the Global Note in exchange for such Global Note. (f) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in the Global Note have either been exchanged for Definitive Notes, redeemed, repurchased or cancelled, the Global Note shall be returned to or retained and cancelled by the Trustee. At any time prior to such cancellation, if any beneficial interest in the Global Note is exchanged for Definitive Notes, redeemed, repurchased or cancelled, the aggregate principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee to reflect such reduction. (g) General Provisions Relating to Transfers and Exchanges. To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Definitive Notes and Global Notes at the Registrar's request. All Definitive Notes and Global Notes issued upon any registration of transfer or exchange of Definitive Notes or Global Notes shall be legal, valid and binding obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Definitive Notes or Global Notes surrendered upon such registration of transfer or exchange. No service charge shall be made to a Holder for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange (without transfer to another person) pursuant to Sections 2.10, 3.7, 4.10, 4.14 and 9.5 of this Indenture). 23 The Company shall not be required to (i) issue, register the transfer of or exchange Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.2 hereof and ending at the close of business on the day of selection; or (ii) register the transfer of or exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part; or (iii) register the transfer of or exchange a Note between a record date and the next succeeding interest payment date. Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for all purposes, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. (h) Exchange of Series A Notes for Series B Notes. The Series A Notes may be exchanged for Series B Notes pursuant to the terms of the Exchange Offer. The Trustee and Registrar shall make the exchange as follows: The Company shall present the Trustee with an Officers' Certificate certifying the following: (A) upon issuance of the Series B Notes, the transactions contemplated by the Exchange Offer have been consummated; and (B) the principal amount of Series A Notes properly tendered in the Exchange Offer that are represented by a Global Note and the principal amount of Series A Notes properly tendered in the Exchange Offer that are represented by Definitive Notes, the name of each Holder of such Definitive Notes, the principal amount at maturity properly tendered in the Exchange Offer by each such Holder and the name and address to which Definitive Notes for Series B Notes shall be registered and sent for each such Holder. The Trustee, upon receipt of (i) such Officers' Certificate, (ii) an Opinion of Counsel (x) to the effect that the Series B Notes have been registered under Section 5 of the Securities Act and this Indenture has been qualified under the 24 TIA and (y) with respect to the matters set forth in Section 6(p) of the Registration Rights Agreement and (iii) a Company Order, shall authenticate (A) a Global Note for Series B Notes in an aggregate principal amount equal to the aggregate principal amount of Series A Notes represented by a Global Note indicated in such Officers' Certificate as having been properly tendered and (B) Definitive Notes representing Series B Notes registered in the names of, and in the principal amounts indicated in such Officers' Certificate. If the principal amount at maturity of the Global Note for the Series B Notes is less than the principal amount at maturity of the Global Note for the Series A Notes, the Trustee shall make an endorsement on such Global Note for Series A Notes indicating a reduction in the principal amount at maturity represented thereby. The Trustee shall deliver such Definitive Notes for Series B Notes to the Holders thereof as indicated in such Officers' Certificate. Section 2.7. Replacement Notes. If any mutilated Note is surrendered to the Trustee, or the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee shall authenticate a replacement Note if the Trustee's requirements for replacements of Notes are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent or any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company or the Trustee may charge for its expenses in replacing a Note. Every replacement Note is an obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. Section 2.8. Outstanding Notes. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance 25 with the provisions hereof, and those described in this Section as not outstanding. If a Note is replaced pursuant to Section 2.7 hereof, the replaced Note ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. If the principal amount of any Note is considered paid under Section 4.1 hereof, it ceases to be outstanding and interest on it ceases to accrue. Subject to Section 2.9 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note. Section 2.9. Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company or any Affiliate of the Company shall be considered as though not outstanding, except that for purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that a Trustee knows to be so owned shall be considered as not outstanding. Section 2.10. Temporary Notes. Pending the preparation of definitive Notes, the Company (and the Guarantors) may execute, and upon Company Order the Trustee shall authenticate and make available for delivery, temporary Notes that are printed, lithographed, typewritten, mimeographed or otherwise reproduced, in any authorized denomination, substantially of the tenor of the definitive Notes in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Notes may determine, as conclusively evidenced by their execution of such Notes. If temporary Notes are issued, the Company (and the Guarantors) shall cause definitive Notes to be prepared without unreasonable delay. The definitive Notes shall be printed, lithographed or engraved, or provided by any combination thereof, or in any other manner permitted by the rules and regulations of any principal national securities exchange, if any, on which the 26 Notes are listed, all as determined by the Officers executing such definitive Notes. After the preparation of definitive Notes, the temporary Notes shall be exchangeable for definitive Notes upon surrender of the temporary Notes at the office or agency maintained by the Company for such purpose pursuant to Section 4.2 hereof, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Notes, the Company (and the Guarantors) shall execute, and the Trustee shall authenticate and make available for delivery, in exchange therefor the same aggregate principal amount of definitive Notes of authorized denominations. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits under this Indenture as definitive Notes. Section 2.11. Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall retain or destroy cancelled Notes in accordance with its normal practices (subject to the record retention requirement of the Exchange Act) unless the Company directs them to be returned to it. The Company may not issue new Notes to replace Notes that have been redeemed or paid or that have been delivered to the Trustee for cancellation. All cancelled Notes held by the Trustee shall be returned to the Company. Section 2.12. Defaulted Interest. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, which date shall be at the earliest practicable date but in all events at least five Business Days prior to the payment date, in each case at the rate provided in the Notes and in Section 4.1 hereof. The Company shall, with the consent of the Trustee, fix or cause to be fixed each such special record date and payment date. At least 15 days before the special record date, the Company (or the Trustee, in the name of and at the expense of the Company) shall mail to the Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. 27 Section 2.13. Legends. (a) Except as permitted by subsections (b) or (c) hereof, each Note shall bear legends relating to restrictions on transfer pursuant to the securities laws in substantially the form set forth on Exhibit A attached hereto. (b) Upon any sale or transfer of a Restricted Security (including any Restricted Security represented by a Global Note) pursuant to Rule 144 under the Securities Act or pursuant to an effective registration statement under the Securities Act: (i) in the case of any Restricted Security that is a Definitive Note, the Registrar shall permit the Holder thereof to exchange such Restricted Security for a Definitive Note that does not bear the legends required by subsection (a) above; and (ii) in the case of any Restricted Security represented by a Global Note, such Restricted Security shall not be required to bear the legends required by subsection (a) above, but shall continue to be subject to the provisions of Section 2.6(c) hereof; provided, that with respect to any request for an exchange of a Restricted Security that is represented by a Global Note for a Definitive Note that does not bear the legends required by subsection (a) above, which request is made in reliance upon Rule 144, the Holder thereof shall certify in writing to the Registrar that such request is being made pursuant to Rule 144. (c) The Company (and the Guarantors) shall issue and the Trustee shall authenticate Series B Notes in exchange for Series A Notes accepted for exchange in the Exchange Offer. The Series B Notes shall not bear the legends required by subsection (a) above unless the Holder of such Series A Notes is either (A) a broker-dealer who purchased such Series A Notes directly from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act, (B) a Person participating in the distribution of the Series A Notes or (C) a Person who is an affiliate (as defined in Rule 144A) of the Company. 28 ARTICLE 3 REDEMPTION Section 3.1. Notices to Trustee. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.7 hereof, it shall furnish to the Trustee, at least 45 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the clause of Section 3.7 pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption price. Section 3.2. Selection of Notes to Be Redeemed. If less than all the Notes are to be redeemed, the Trustee shall select the Notes to be redeemed in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed, or, if the Notes are not so listed, pro rata, by lot or by such method as the Trustee deems to be fair and reasonable. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes and portions of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000. Provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. Section 3.3. Notice of Redemption. At least 30 days but not more than 60 days before a redemption date, the Company shall mail a notice of redemption by first class mail to each Holder whose Notes are to be redeemed at such Holder's registered address. The notice shall identify the Notes to be redeemed and shall state: (1) the redemption date; (2) the redemption price; (3) if any Note is being redeemed in part only, the portion of the principal amount of such Note to be 29 redeemed and that, after the redemption date, upon cancellation of the original Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued; (4) the name and address of the Paying Agent; (5) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (6) that, unless the Company defaults in making such redemption payment, interest on Notes or portions of Notes called for redemption ceases to accrue on and after the redemption date; (7) the paragraph of the Notes and/or the section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (8) the CUSIP number of the Notes to be redeemed. At the Company's request, the Trustee shall give the notice of redemption in the name of the Company and at its expense; provided that the Company shall deliver to the Trustee, at least 45 days (unless a shorter period is acceptable to the Trustee) prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. Section 3.4. Effect of Notice of Redemption. Once notice of redemption has been mailed to the Holders in accordance with Section 3.3 herein, Notes called for redemption become due and payable on the redemption date at the redemption price. At any time prior to the mailing of a notice of redemption to the Holders pursuant to Section 3.3, the Company may withdraw, revoke or rescind any notice of redemption delivered to the Trustee without any continuing obligation to redeem the Notes as contemplated by such notice of redemption. 30 Section 3.5. Deposit of Redemption Price. On or before the redemption date, the Company shall deposit with the Trustee (to the extent not already held by the Trustee) or with the Paying Agent money in immediately available funds sufficient to pay the redemption price of and accrued interest on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Notes to be redeemed. Interest on the Notes to be redeemed shall cease to accrue on the applicable redemption date, whether or not such Notes are presented for payment, if the Company makes or deposits the redemption payment in accordance with this Section 3.5. If any Note called for redemption shall not be paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes. Section 3.6. Notes Redeemed in Part. Upon surrender of a Note that is redeemed in part, the Company shall issue and the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed portion of the Note surrendered. Section 3.7. Optional Redemption. (a) Except as set forth in Section 3.7(b), the Notes are not redeemable at the Company's option prior to February 1, 2001. Thereafter, the Notes will be subject to redemption at the option of the Company, in whole or in part, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to the applicable redemption date, if redeemed during the 12-month period beginning on February 1 of the years indicated below: 31 Year Percentage ---- ------------------------- 2001 105.375% 2002 102.688% 2003 and thereafter 100.000% (b) Notwithstanding the foregoing, at any time or from time to time prior to February 1, 2000, the Company may, at its option, redeem up to one-third of the original principal amount of the Notes, at a redemption price of 110.75% of the principal amount thereof, plus accrued and unpaid interest, if any, to the applicable redemption date, with the net cash proceeds of one or more Public Equity Offerings; provided, that (a) such redemption shall occur within 90 days of the date of closing of such public offering and (b) at least $73.3 million aggregate principal amount of Notes remains outstanding immediately after giving effect to each such redemption. ARTICLE 4 COVENANTS Section 4.1. Payment of Notes. The Company shall pay the principal and premium, if any, of, and interest on, the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, other than the Company or a Subsidiary of the Company, holds on or before that date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. Such Paying Agent shall return to the Company, no later than three Business Days following the date of payment, any money that exceeds such amount of principal, premium, if any, and interest then due and payable on the Notes. The Company shall pay any and all amounts, including without limitation Liquidated Damages, if any, on the dates and in the manner required under the Registration Rights Agreement. The Company shall pay interest (including post-petition interest) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful. 32 Section 4.2. Maintenance of Office or Agency. The Company shall maintain an office or agency (which may be an office of the Trustee, Registrar or co-registrar) in the Borough of Manhattan, The City of New York where Notes may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.3. Section 4.3. Reports. (a) The Company shall file with the Trustee, within 15 days after the time of filing with the Commission, copies of the reports, information and other documents (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) that the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. If the Company is not subject to the requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file with the Commission and the Trustee all such reports, information and other documents as it would be required to file if it were subject to the requirements of Section 13 or 15(d) of the Exchange Act; provided, that the Company shall not be in default of the provisions of this Section 4.3 for any failure to file reports with the Commission solely by refusal by the Commission to accept the same for filing. The Company shall deliver (or 33 cause the Trustee to deliver) copies of all reports, information and documents required to be filed with the Trustee pursuant to this Section 4.3 to the Holders at their addresses appearing in the register of Notes maintained by the Registrar. The Company shall also comply with the provisions of TIA ss. 314(a). (b) If the Company is required to furnish annual, quarterly or current reports to its stockholders pursuant to the Exchange Act, the Company shall cause any annual, quarterly, current or other financial report furnished by it generally to its stockholders to be filed with the Trustee and mailed to the Holders at their addresses appearing in the register of Notes maintained by the Registrar. If the Company is not required to furnish annual, quarterly or current reports to its stockholders pursuant to the Exchange Act, the Company shall cause the financial statements of the Company and its consolidated Subsidiaries (and similar financial statements for all unconsolidated Subsidiaries, if any), including any notes thereto (and, with respect to annual reports, an auditors' report by an accounting firm of established national reputation), and a "Management's Discussion and Analysis of Financial Condition and Results of Operations," comparable to that which would have been required to appear in annual or quarterly reports filed under Section 13 or 15(d) of the Exchange Act to be so filed with the Trustee and mailed to the Holders promptly, but in any event, within 90 days after the end of each of the fiscal years of the Company and within 45 days after the end of each of the first three quarters of each such fiscal year. (c) So long as is required for an offer or sale of the Notes to qualify for an exemption under Rule 144A, the Company (and the Guarantors) shall, upon request, provide the information required by clause (d)(4) thereunder to each Holder and to each beneficial owner and prospective purchaser of Notes identified by any Holder of Restricted Securities. Section 4.4. Compliance Certificate. (a) The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year, an Officers' Certificate (provided, that one of the signatories to such Officers' Certificate shall be the Company's principal executive officer, principal financial officer or principal accounting officer) stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to 34 determine whether each has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that each of the Company and its Subsidiaries has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions hereof or thereof (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he may have knowledge and what action each is taking or proposes to take with respect thereto). (b) The year-end financial statements delivered pursuant to Section 4.3 above shall be accompanied by a written statement of the independent public accountants of the Company (which shall be a firm of established national reputation reasonably satisfactory to the Trustee) that in making the examination necessary for certification of such financial statements nothing has come to their attention which would lead them to believe that either the Company or any of its Subsidiaries has violated any provisions of this Indenture or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) So long as any of the Notes are outstanding, the Company shall deliver to the Trustee forthwith upon any Officer becoming aware of (i) any Default or Event of Default or (ii) any event of default under any mortgage, indenture or instrument referred to in Section 6.1(5) hereof, an Officers' Certificate specifying such Default, Event of Default or other event of default and what action the Company is taking or proposes to take with respect thereto. Section 4.5. Taxes. The Company shall, and shall cause its Subsidiaries to, file all tax returns required to be filed and to pay prior to delinquency all material taxes, assessments and governmental levies except as contested in good faith and by appropriate proceedings and for which reserves have been established in accordance with GAAP. 35 Section 4.6. Stay, Extension and Usury Laws. The Company (and each Guarantor) covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company and each Guarantor (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee but shall suffer and permit the execution of every such power as though no such law has been enacted. Section 4.7. Limitation on Restricted Payments. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any distribution on account of any Equity Interests of the Company or any of its Subsidiaries (other than (x) dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or (y) dividends or distributions payable to the Company or any 90% Owned Subsidiary), (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interest of the Company, any Subsidiary or any other Affiliate of the Company (other than any such Equity Interest owned by the Company or any Wholly Owned Subsidiary), (iii) make any principal payment on, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness of the Company or any Guarantor that is subordinated in right of payment to the Notes or such Guarantor's Guarantee thereof, as the case may be, prior to any scheduled principal payment, sinking fund payment or other payment at the stated maturity thereof, (iv) make any Restricted Investment, or 36 (v) make any payment or transfer any assets to, or on behalf of, AETG or any of its Affiliates (all such payments and other actions set forth in clauses (i) through (v) above being collectively referred to as "Restricted Payments") unless, at the time of such Restricted Payment: (1) no Default or Event of Default has occurred and is continuing or would occur as a consequence thereof, (2) immediately after giving effect thereto on a pro forma basis, the Company could incur at least $1.00 of additional Indebtedness under Section 4.9(a) hereof, and (3) such Restricted Payment (the value of any such payment, if other than cash, being determined in good faith by the Board of Directors and evidenced by a resolution set forth in an Officers' Certificate delivered to the Trustee), together with the aggregate of all other Restricted Payments made after the date of this Indenture (including Restricted Payments permitted by clauses (i) and (ii) of Section 4.7(b) and excluding Restricted Payments permitted by the other clauses therein), is less than the sum of (x) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first quarter commencing immediately after the Closing Date to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, 100% of such deficit), plus (y) 100% of the aggregate net cash proceeds (or of the net cash proceeds received upon the conversion of non-cash proceeds into cash) received by the Company from the issuance or sale, other than to a Subsidiary, of Equity Interests of the Company (other than Disqualified Stock) after the date of this Indenture and on or prior to 37 the time of such Restricted Payment, plus (z) 100% of the aggregate net cash proceeds (or of the net cash proceeds received upon the conversion of non-cash proceeds into cash) received by the Company from the issuance or sale, other than to a Subsidiary, of any convertible or exchangeable debt security of the Company that has been converted or exchanged into Equity Interests of the Company (other than Disqualified Stock) pursuant to the terms thereof after the date of this Indenture and on or prior to the time of such Restricted Payment (including any additional net cash proceeds received by the Company upon such conversion or exchange). (b) The provisions of subsection (a) above shall not prohibit: (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would not have been prohibited by the provisions of this Indenture, (ii) the redemption, purchase, retirement or other acquisition of any Equity Interests of the Company or Indebtedness of the Company or any Restricted Subsidiary in exchange for Equity Interests of the Company (other than Disqualified Stock), (iii) the redemption, repurchase or payoff of any Indebtedness with proceeds of any Refinancing Indebtedness permitted to be incurred pursuant to the provisions of Section 4.9(b)(viii) hereof, (iv) payments by the Company to AETG pursuant to the Tax Sharing Agreement, (v) distributions, loans or advances to AETG in an aggregate amount not to exceed the Permitted Amount during any fiscal year; provided, that such amounts are used by AETG to pay ordinary operating expenses and Management Fees pursuant to Section 5.02 of the Stockholders' Agreement, (vi) Permitted Affiliate Transactions or (vii) other Restricted Payments in an aggregate amount not to exceed $1.0 million; provided, that with respect to clauses (v), (vi) and (vii) above, no Default or Event of Default shall have occurred and be continuing at the time, or shall occur as a consequence thereof. (c) Not later than the date of making each Restricted Payment (other than Restricted Payments contemplated by Section 4.7(b)), the Company shall deliver to the Trustee an Officers' 38 Certificate stating that such Restricted Payment is permitted, and setting forth the basis upon which the calculations required by this Section 4.7 were computed, which calculations may be based upon the Company's latest available financial statements. Section 4.8. Limitation on Restrictions on Subsidiary Dividends. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary (a) to (1) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (A) on such Restricted Subsidiary's Capital Stock or (B) with respect to any other interest or participation in, or measured by, such Restricted Subsidiary's profits or (2) pay any indebtedness owed to the Company or any of its Restricted Subsidiaries, or (b) to make loans or advances to the Company or any of its Restricted Subsidiaries, or (c) to transfer any of its assets to the Company or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reason of: (i) the Revolving Credit Facility, as in effect on the Closing Date, or any refinancings, amendments, modifications or supplements thereof containing dividend or other payment restrictions that are not materially more restrictive than those contained in the Revolving Credit Facility on the Closing Date, (ii) this Indenture, the Security Documents and the Notes, (iii) applicable law, (iv) restrictions with respect to a Subsidiary that was not a Subsidiary on the Closing Date in existence at the time such Person becomes a Subsidiary (but not created as a result of or in anticipation of such Person 39 becoming a Subsidiary); provided, that such restrictions are not applicable to any other Person or the properties or assets of any other Person, (v) customary non-assignment and net worth provisions of any contract or lease entered into in the ordinary course of business, (vi) customary restrictions on the transfer of assets subject to a Lien permitted under this Indenture imposed by the holder of such Lien, (vii) restrictions imposed by any agreement to sell assets or Capital Stock to any Person pending the closing of such sale, and (viii) permitted Refinancing Indebtedness (including Indebtedness Refinancing Acquired Debt), provided, that such restrictions contained in any agreement governing such Refinancing Indebtedness are not materially more restrictive than those contained in any agreements governing the Indebtedness being Refinanced. Section 4.9. Limitation on Incurrence of Indebtedness. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, (1) create, incur, issue, assume, guaranty or otherwise become directly or indirectly liable with respect to, contingently or otherwise (collectively, "incur"), any Indebtedness (including Acquired Debt) or (2) issue any Disqualified Stock; provided, that the Company may incur Indebtedness (including Acquired Debt or Indebtedness incurred under the Revolving Credit Facility) or issue shares of Disqualified Stock and any Restricted Subsidiary may incur Acquired Debt or Indebtedness incurred under the Revolving Credit Facility, in each case if (x) no Default or Event of Default shall have occurred and be continuing at the time of, or would occur after giving effect on a pro forma basis to such incurrence or issuance, and (y) the Interest Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least equal to the ratio set forth below opposite the period in which such incurrence or issuance occurs, determined on a pro forma basis (including a pro forma 40 application of the net proceeds therefrom), as if the additional Indebtedness (including Acquired Debt or Indebtedness incurred under the Revolving Credit Facility) had been incurred, or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period: Period Ending Ratio ------------- ----- February 1, 1998......................... 2.00 February 1, 1999 and thereafter.......... 2.25 ; provided, that in the case of Indebtedness (other than Purchase Money Indebtedness, Acquired Debt or Indebtedness incurred under the Revolving Credit Facility) the Weighted Average Life to Maturity and final stated maturity of such Indebtedness exceeds the Weighted Average Life to Maturity and final stated maturity of the Notes. (b) The limitations of Section 4.9(a) shall not prohibit the incurrence of: (i) Indebtedness under the Revolving Credit Facility, provided, that the aggregate principal amount of Indebtedness so incurred on any date, together with all other Indebtedness incurred pursuant to this clause (i) and outstanding on such date, shall not exceed $30.0 million, less any repayments thereunder pursuant to Section 4.10 hereof, (ii) performance bonds, appeal bonds, surety bonds, insurance obligations or bonds and other similar bonds or obligations incurred in the ordinary course of business, (iii) obligations incurred to fix the interest rate on any variable rate Indebtedness otherwise permitted by this Indenture ("Hedging Obligations"), (iv) Indebtedness arising out of Capital Lease Obligations or Purchase Money Obligations (collectively, "Purchase Money Indebtedness") in an aggregate amount not to exceed $10.0 million outstanding at any time, (v) Indebtedness owed by (1) a Restricted Subsidiary to the Company or to a Wholly Owned Subsidiary or (2) the Company to a Wholly Owned Subsidiary, 41 (vi) Indebtedness outstanding on the date of this Indenture, including the Notes, (vii) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, that such Indebtedness is extinguished within three Business Days of incurrence, and (viii) Indebtedness issued in exchange for, or the proceeds of which are contemporaneously used to extend, refinance, renew, replace, or refund (collectively, "Refinance") Indebtedness referred to in clause (vi) above or this clause (viii) or Indebtedness incurred pursuant to the Interest Coverage Ratio test set forth in Section 4.9(a) hereof ("Refinancing Indebtedness"); provided, that (A) the principal amount of such Refinancing Indebtedness does not exceed the principal amount of Indebtedness so Refinanced (plus the premiums required to be paid, and the out-of-pocket expenses (other than those payable to an Affiliate of the Company) reasonably incurred, in connection therewith), (B) the Refinancing Indebtedness has a final scheduled maturity that exceeds the final stated maturity, and a Weighted Average Life to Maturity that is equal to or greater than the Weighted Average Life to Maturity, of the Indebtedness being Refinanced, and (C) the Refinancing Indebtedness ranks, in right of payment, no more favorable to the Notes as the Indebtedness being Refinanced. Section 4.10. Limitation on Asset Sales. The Company shall not, and shall not permit any Restricted Subsidiary to, make any Asset Sale unless (i) the Company or such Restricted Subsidiary receives consideration at the time of such Asset Sale at least equal to the fair market value (as determined in good faith by the Board of Directors as evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets subject to such Asset Sale, (ii) at least 85% of the consideration for such Asset Sale is in the form of cash, Cash Equivalents or liabilities of the Company or any Restricted Subsidiary (other than liabilities that are by their terms subordinated to the Notes or any Guarantee of the Notes) that are assumed by the transferee of such assets (provided, that 42 following such Asset Sale there is no further recourse to the Company and its Restricted Subsidiaries with respect to such liabilities), and (iii) within 12 months of such Asset Sale, the Net Proceeds thereof are (a) invested in assets related to the business of the Company or its Restricted Subsidiaries or (b) to the extent not used as provided in clause (a), applied to make an offer to purchase Notes as described below (an "Excess Proceeds Offer"); provided, that if (x) the amount of Net Proceeds from any Asset Sale not invested pursuant to clause (a) above is less than $5.0 million or (y) the Net Proceeds from an Asset Sale of Collateral with respect to which the Lien thereon is subordinate to the Lien securing obligations under the Revolving Credit Facility are used to repay obligations under the Revolving Credit Facility, the Company shall not be required to make an offer pursuant to clause (b). Pending the final application of any such Net Proceeds, the Company or any Restricted Subsidiary may temporarily reduce Indebtedness under the Revolving Credit Facility or temporarily invest such Net Proceeds in Cash Equivalents. The amount of Net Proceeds not invested as set forth in the preceding clause (a) constitutes "Excess Proceeds." If the Company elects, or becomes obligated to make an Excess Proceeds Offer, the Company shall offer to purchase Notes having an aggregate principal amount equal to the Excess Proceeds (the "Purchase Amount"), at a purchase price equal to 100% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the purchase date. The Company must commence such Excess Proceeds Offer not later than 30 days after the expiration of the 12-month period following the Asset Sale that produced Excess Proceeds. If the aggregate purchase price for the Notes tendered pursuant to the Excess Proceeds Offer is less than the Excess Proceeds, the Company and its Restricted Subsidiaries may use the portion of the Excess Proceeds remaining after payment of such purchase price for general corporate purposes. Each Excess Proceeds Offer shall remain open for a period of 20 Business Days and no longer, unless a longer period is required by law (the "Excess Proceeds Offer Period"). Promptly after the termination of the Excess Proceeds Offer Period (the "Excess Proceeds Payment Date"), the Company shall purchase and mail or deliver payment for the Purchase Amount for the Notes or portions thereof tendered, pro rata or by such other method as may be required by law, or, if less than the Purchase Amount has been tendered, all Notes tendered pursuant to the 43 Excess Proceeds Offer. The principal amount of Notes to be purchased pursuant to an Excess Proceeds Offer may be reduced by the principal amount of Notes acquired by the Company through purchase or redemption (other than pursuant to a Change of Control Offer) subsequent to the date of the Asset Sale and surrendered to the Trustee for cancellation. Each Excess Proceeds Offer shall be conducted in compliance with all applicable laws, including without limitation, Regulation 14E of the Exchange Act and the rules thereunder and all other applicable Federal and state securities laws. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section 4.10, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.10 by virtue thereof. The Company shall not, and shall not permit any of its Subsidiaries to, create or suffer to exist or become effective any restriction that would impair the ability of the Company to make an Excess Proceeds Offer upon an Asset Sale or, if such Excess Proceeds Offer is made, to pay for the Notes tendered for purchase. The Company shall, no later than 30 days following the expiration of the 12-month period following the Asset Sale that produced Excess Proceeds, commence the Excess Proceeds Offer, if an Excess Proceeds Offer is required by the terms of this Indenture, by mailing to the Trustee and each Holder, at such Holder's last registered address, a notice, which shall govern the terms of the Excess Proceeds Offer, and shall state: (1) that the Excess Proceeds Offer is being made pursuant to this Section 4.10, the principal amount of Notes which shall be accepted for payment and that all Notes validly tendered shall be accepted for payment on a pro rata basis; (2) the purchase price and the date of purchase; (3) that any Notes not tendered or accepted for payment pursuant to the Excess Proceeds Offer shall continue to accrue interest; (4) that, unless the Company defaults in the payment of the purchase price with respect to any Notes tendered, Notes accepted for payment pursuant to the Excess 44 Proceeds Offer shall cease to accrue interest after the Excess Proceeds Payment Date; (5) that Holders electing to have Notes purchased pursuant to an Excess Proceeds Offer shall be required to surrender their Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Company prior to the close of business on the third Business Day immediately preceding the Excess Proceeds Payment Date; (6) that Holders shall be entitled to withdraw their election if the Company receives, not later than the close of business on the second Business Day preceding the Excess Proceeds Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Notes purchased; (7) that Holders whose Notes are purchased only in part shall be issued Notes representing the unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued shall be in principal amount of $1,000 or whole multiples thereof; and (8) the instructions that Holders must follow in order to tender their Notes. On or before the Excess Proceeds Payment Date, the Company shall (i) accept for payment on a pro rata basis the Notes or portions thereof tendered pursuant to the Excess Proceeds Offer, (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so accepted and (iii) deliver to the Trustee the Notes so accepted, together with an Officers' Certificate stating that the Notes or portions thereof tendered to the Company are accepted for payment. The Paying Agent shall promptly mail to each Holder of Notes so accepted payment in an amount equal to the purchase price of such Notes, and the Trustee shall promptly authenticate and mail to such Holders new Notes equal in principal amount to any unpurchased portion of the Note surrendered. The Company shall make a public announcement of the results of the Excess Proceeds Offer as soon as practicable after 45 the Excess Proceeds Payment Date. For the purposes of this Section 4.10, the Trustee shall act as the Paying Agent. Section 4.11. Limitation on Transactions With Affiliates. The Company shall not, and shall not permit any of the Restricted Subsidiaries to, directly or indirectly, sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), except for (i) Affiliate Transactions, which together with all Affiliate Transactions that are part of a common plan, have an aggregate value of not more than $1.0 million; provided, that such transactions are conducted in good faith and on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of the Company or such Restricted Subsidiary, (ii) Affiliate Transactions, which together with all Affiliate Transactions that are part of a common plan, have an aggregate value of not more than $5.0 million; provided, that a majority of the disinterested members of the Board of Directors of the Company determine that such transactions are conducted in good faith and on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of the Company or such Restricted Subsidiary, (iii) Affiliate Transactions for which the Company delivers to the Trustee an opinion as to the fairness to the Company or such Restricted Subsidiary from a financial point of view, issued by an investment banking firm of national standing and (iv) Permitted Affiliate Transactions and other Restricted Payments permitted by the provisions described in Section 4.7 hereof. Section 4.12. Limitation on Liens. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist (a) any Lien on any asset (including, without limitation, all real, tangible or intangible property) of the Company or any Restricted Subsidiary, whether now owned or hereafter acquired, or on any income or profits therefrom, or assign or convey any right to receive income therefrom, except 46 (i) Liens securing Indebtedness permitted to be incurred under the Revolving Credit Facility; provided, that the Notes are secured by a second priority security interest in the assets subject to such Liens, (ii) Purchase Money Liens, and (iii) Permitted Liens or (b) without limiting the foregoing, any consensual Lien on any vehicle owned or leased by the Company or any Restricted Subsidiary on the Closing Date (other than, in the case of any leased vehicles, the Lien of the lessor thereof as in effect on the Closing Date). Section 4.13. Corporate Existence. Subject to Article 5 of this Indenture, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of its respective Subsidiaries, in accordance with their respective organizational documents (as the same may be amended from time to time) and (ii) its (and its Subsidiaries) rights (charter and statutory), licenses and franchises; provided, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any Subsidiary, if the Board of Directors on behalf of the Company shall determine in good faith that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries taken as a whole and that the loss thereof is not adverse in any material respect to the Holders. Section 4.14. Repurchase Upon a Change of Control. Upon the occurrence of a Change of Control, the Company shall notify the Trustee in writing thereof and shall make an offer to purchase all of the Notes then outstanding as described below (the "Change of Control Offer") at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase (the "Change of Control Payment"). The Change of Control Offer shall be made in compliance with all applicable laws, including without limitation, Regulation 14E of the Exchange Act and the rules thereunder and all other applicable Federal and state securities laws. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section 4.14, the Company shall comply with the applicable securities laws and regulations 47 and shall not be deemed to have breached its obligations under this Section 4.14 by virtue thereof. Within 30 days following any Change of Control, the Company shall commence the Change of Control Offer by mailing to the Trustee and each Holder a notice, which shall govern the terms of the Change of Control Offer, and shall state that: (i) the Change of Control Offer is being made pursuant to this Section 4.14 and that all Notes tendered will be accepted for payment, (ii) the purchase price and the purchase date, which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"), (iii) that any Note not tendered for payment pursuant to the Change of Control Offer shall continue to accrue interest, (iv) that, unless the Company defaults in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest on the Change of Control Payment Date, (v) that any Holder electing to have Notes purchased pursuant to a Change of Control Offer shall be required to surrender such Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date, (vi) that any Holder shall be entitled to withdraw such election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes such Holder delivered for purchase, and a statement that such Holder is withdrawing his election to have such Notes purchased, 48 (vii) that a Holder whose Notes are being purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof, (viii) the instructions that Holders must follow in order to tender their Notes, and (ix) the circumstances and relevant facts regarding such Change of Control. On the Change of Control Payment Date, the Company shall, to the extent lawful, (i) accept for payment the Notes or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and not withdrawn, and (iii) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating that the Notes or portions thereof tendered to the Company are accepted for payment. The Paying Agent shall promptly mail to each Holder of Notes so accepted payment in an amount equal to the purchase price for such Notes, and the Trustee shall authenticate and mail to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any, provided, that each such new Note will be in principal amount of $1,000 or an integral multiple thereof. The Company shall make a public announcement of the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. For the purposes of this Section 4.14, the Trustee shall act as the Paying Agent. Section 4.15. Maintenance of Properties. The Company shall, and shall cause each of its Subsidiaries to, maintain their properties and assets in normal working order and condition as on the date of this Indenture (reasonable wear and tear excepted) and make all necessary repairs, renewals, replacements, additions, betterments and improvements thereto, as shall be reasonably necessary for the proper conduct of the business of the Company and its Subsidiaries taken as a whole; provided, that nothing herein shall prevent the Company or any of its Subsidiaries from discontinuing any 49 maintenance of any such properties if such discontinuance is desirable in the conduct of the business of the Company and its Subsidiaries taken as a whole. Section 4.16. Maintenance of Insurance. The Company shall, and shall cause each of its Subsidiaries to, maintain liability, casualty and other insurance (including self-insurance consistent with prior practice such as insurance by the Atlantic North Casualty Company that is a Permitted Affiliate Transaction) with responsible insurance companies in such amounts and against such risks as is in accordance with customary industry practice in the general areas in which the Company and its Subsidiaries operate. Section 4.17. Restrictions on Sale and Issuance of Subsidiary Stock. The Company shall not sell, and shall not permit any of its Restricted Subsidiaries to issue or sell, any shares of Capital Stock of any Restricted Subsidiary (other than directors' qualifying shares) to any Person other than the Company or a Wholly Owned Subsidiary; provided, that the Company and its Restricted Subsidiaries may sell all of the Capital Stock of a Restricted Subsidiary owned by the Company and its Restricted Subsidiaries if the Net Proceeds from such Asset Sale are used in accordance with the provisions of Section 4.10 of this Indenture. Section 4.18. Line of Business. The Company shall not, and shall not permit any Restricted Subsidiary to, engage in any business other than (a) the business conducted or proposed to be conducted by the Company and the Restricted Subsidiaries on the Closing Date and (b) any transportation business that is ancillary or complementary to any business described in clause (a) above. 50 ARTICLE 5 SUCCESSORS Section 5.1. When the Company May Merge, etc. The Company shall not consolidate or merge with or into (whether or not the Company is the surviving corporation), or transfer all or substantially all of its properties or assets (determined on a consolidated basis for the Company and its Restricted Subsidiaries) in one or more related transactions to, any other Person unless: (i) the Company is the surviving Person or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such transfer has been made is a corporation organized and existing under the laws of the United States, any state thereof or the District of Columbia, (ii) the Person formed by or surviving any such consolidation or merger (if other than the Company) or the Person to which such transfer has been made assumes all the Obligations of the Company, pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee, under the Notes, this Indenture, the Security Documents and the Registration Rights Agreement, (iii) immediately before and after such transaction, no Default or Event of Default exists, and (iv) the Company, or any Person formed by or surviving any such consolidation or merger, or to which such transfer has been made, (A) has a Consolidated Net Worth (immediately after the transaction but prior to any purchase accounting adjustments resulting from the transaction) not less than 90% of the Consolidated Net Worth of the Company immediately preceding the transaction and (B) shall be permitted, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, to incur at least $1.00 of additional Indebtedness pursuant to Section 4.9(a) hereof. The Company shall deliver to the Trustee prior to the consummation of any proposed transaction an Officers' Certificate to the foregoing effect, an Opinion of Counsel, stating all 51 conditions precedent to the proposed transaction provided for in this Indenture have been complied with and a written statement from a firm of independent public accountants of established national reputation reasonably satisfactory to the Trustee stating that the proposed transaction complies with clause (iv). For purposes of this Section 5.1, the transfer of all or substantially all of the properties and assets of one or more Subsidiaries of the Company, which properties and assets, if held by the Company instead of such Subsidiaries, would constitute all or substantially all of the properties and assets of the Company on a consolidated basis, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. Section 5.2. Successor Substituted. In the event of any transaction (other than a lease) contemplated by Section 5.1 hereof in which the Company is not the surviving Person, the successor formed by such consolidation or into or with which the Company is merged or to which such transfer is made, or formed by such reorganization, as the case may be, shall succeed to, and be substituted for, and may exercise every right and power of, the Company, and the Company shall be discharged from its Obligations under this Indenture, the Notes, the Security Documents and the Registration Rights Agreement with the same effect as if such successor Person had been named as the Company herein or therein. ARTICLE 6 DEFAULTS AND REMEDIES Section 6.1. Events of Default. An "Event of Default" occurs if: (1) the Company defaults in the payment of interest on any Note when the same becomes due and payable and the Default continues for a period of 30 days; (2) the Company defaults in the payment of the principal (or premium, if any) on any Note when the same becomes due and payable at maturity, upon redemption, by acceleration, in connection with an Excess Proceeds Offer, a Change of Control Offer or otherwise; 52 (3) the Company defaults in the performance of or breaches the provisions of Sections 4.7 or 4.9 hereof and the Default continues for 30 days; or the Company defaults in the performance of or breaches the provisions of Sections 4.10, 4.14 or Article 5 hereof; (4) the Company or any Guarantor fails to comply with any of its other agreements or covenants in, or provisions of, the Notes or this Indenture and the Default continues for 30 days after written notice thereof has been given to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the then outstanding Notes, such notice to state that it is a "Notice of Default;" (5) a default occurs under (after giving effect to any waivers, amendments, applicable grace periods or any extension of any maturity date) any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any Restricted Subsidiary (or the payment of which is guaranteed by the Company or any Restricted Subsidiary), whether such Indebtedness or guarantee now exists or is created after the date of this Indenture, if (a) either (i) such default results from the failure to pay principal on such Indebtedness or (ii) as a result of such default the maturity of such Indebtedness has been accelerated, and (b) the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness with respect to which such a payment default (after the expiration of any applicable grace period or any extension of the maturity date) has occurred, or the maturity of which has been so accelerated, exceeds $2.5 million in the aggregate; (6) a final non-appealable judgment or judgments for the payment of money (other than judgments as to which a reputable insurance company has accepted full liability) is or are entered by a court or courts of competent jurisdiction against the Company or any Restricted Subsidiary and such judgment or judgments remain undischarged, unbonded or unstayed for a period of 60 days after entry, provided that the aggregate of all such judgments exceeds $2.5 million; (7) there is a breach by the Company, AETG or any Guarantor of any provision of the Security Documents; 53 (8) written assertion is made by the Company, AETG or any of the Guarantors, of the unenforceability of their obligations under the Indenture, the Security Documents, the Notes, or the Guarantees to which they are a party; (9) the Company or any Material Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (a) commences a voluntary case, (b) consents to the entry of an order for relief against it in an involuntary case, (c) consents to the appointment of a Custodian of it or for all or substantially all of its property, (d) makes a general assignment for the benefit of its creditors, (e) admits in writing its inability to pay debts as the same become due; or (10) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for relief against the Company or any Material Subsidiary in an involuntary case, (b) appoints a Custodian of the Company or any Material Subsidiary or for all or substantially all of their property, (c) orders the liquidation of the Company, or any Material Subsidiary, and the order or decree remains unstayed and in effect for 60 days. The Company shall, upon becoming aware that a Default or Event of Default has occurred, deliver to the Trustee a statement specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. 54 Section 6.2. Acceleration. If an Event of Default (other than an Event of Default specified in clauses (9) and (10) of Section 6.1) occurs and is continuing, the Trustee by written notice to the Company, or the Holders of at least 25% in principal amount of the then outstanding Notes by written notice to the Company and the Trustee, may declare the unpaid principal of and any accrued interest on all the Notes to be due and payable. Upon such declaration the principal and interest shall be due and payable immediately. If an Event of Default specified in clause (9) or (10) of Section 6.1 with respect to the Company occurs, all outstanding Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. At any time after a declaration of acceleration, but before a judgment or decree for payment of the money due has been obtained by the Trustee, the Holders of a majority in aggregate principal amount of the Notes outstanding, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (a) the Company has paid or deposited with the Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, (ii) all overdue interest (including any interest accrued subsequent to an Event of Default specified in clauses (9) and (10) of Section 6.1) on all Notes, (iii) the principal of and premium, if any, on any Notes that have become due otherwise than by such declaration or occurrence of acceleration and interest thereon at the rate borne by the Notes, and (iv) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate borne by the Notes; (b) all Events of Default, other than the non-payment of principal of and interest on the Notes that have become due solely by such declaration or occurrence of acceleration, have been cured or waived; and (c) the rescission would not conflict with any judgment, order or decree of any court of competent jurisdiction. Section 6.3. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy (under this Indenture or otherwise) to collect the payment of principal or interest on the Notes to enforce the performance of any provision of the Notes, this Indenture or the Security Documents. 55 The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. Section 6.4. Waiver of Past Defaults. Holders of a majority of the aggregate principal amount of the then outstanding Notes by written notice to the Company and the Trustee may on behalf of the Holders of all of the Notes (a) waive any existing Default or Event of Default and its consequences under this Indenture except a continuing Default or Event of Default in the payment of the principal of, or interest on, any Note or a Default or an Event of Default with respect to any covenant or provision which cannot be modified or amended without the consent of the Holder of each outstanding Note affected, and/or (b) rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree if all existing Events of Default (except nonpayment of principal or interest that has become due solely because of the acceleration) have been cured or waived. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 6.5. Control by Majority. The Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of other Holders, or that may involve the Trustee in personal liability. 56 Section 6.6. Limitation on Suits. A Holder may pursue a remedy with respect to this Indenture or the Notes only if: (a) the Holder gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder or Holders offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder. Section 6.7. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal and interest on the Note, on or after the respective due dates expressed in the Note, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder. Section 6.8. Collection Suit by Trustee. If an Event of Default specified in Section 6.1(1) or (2) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal and interest remaining unpaid on the Notes and interest on overdue principal (and premium, if any) and, to the extent lawful, 57 interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.9. Trustee May File Proofs of Claim. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relative to the Company (or any other obligor under the Notes), their creditors or their property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders of the Notes may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 6.10. Priorities. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: 58 First: to the Trustee, its agents and attorneys for amounts due under Section 7.7, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders for amounts due and unpaid on the Notes for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal and interest, respectively; Third: without duplication, to Holders for any other Obligations owing to the Holders under the Notes or this Indenture; and Fourth: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders. Section 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.6, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE 7 TRUSTEE Section 7.1. Duties of Trustee. (1) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would 59 exercise or use under the circumstances in the conduct of his or her own affairs. (2) Except during the continuance of an Event of Default: (a) The duties of the Trustee shall be determined solely by the express provisions of this Indenture, and the Trustee need perform only those duties that are specifically set forth in this Indenture and the Security Documents, and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee. (b) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture and the Security Documents. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture and the Security Documents. (3) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (a) This paragraph does not limit the effect of paragraph (2) of this Section. (b) The Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (c) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.5. (4) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (1), (2) and (3) of this Section. 60 (5) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability or expense. (6) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (7) The Trustee is hereby authorized to act as Collateral Agent and, in connection therewith, to enter into the Intercreditor Agreement. Section 7.2. Rights of Trustee. (1) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (2) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (3) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (4) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers conferred upon it by this Indenture. (5) Unless otherwise specifically provided in this Indenture or the Security Documents, any demand, request, 61 direction or notice from the Company shall be sufficient if signed by an Officer of the Company, on behalf of the Company. (6) Except with respect to Section 4.1, the Trustee shall have no duty to inquire as to the performance of the Company's covenants in Article 4 hereof. In addition, the Trustee shall not be deemed to have knowledge of any Default or Event of Default except (i) any Event of Default occurring pursuant to Sections 6.1(1), 6.1(2) and 4.1, or (ii) any Default or Event of Default of which the Trustee shall have received written notification or obtained actual knowledge. Section 7.3. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or an Affiliate of the Company with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 7.10 and 7.11. Section 7.4. Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision hereof, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. Section 7.5. Notice of Defaults. If a Default or Event of Default occurs and is continuing and if the Trustee has knowledge thereof (within the meaning of Section 7.2(6)), the Trustee shall mail to the Holders a notice of the Default or Event of Default within 45 days after it occurs. 62 Section 7.6. Reports by Trustee to Holders. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, the Trustee shall mail to the Holders a brief report dated as of such reporting date that complies with TIA ss. 313(a) (but if no event described in TIA ss. 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA ss. 313(b). The Trustee shall also transmit by mail all reports as required by TIA ss. 313(c). Commencing at the time this Indenture is qualified under the TIA, a copy of each report at the time of its mailing to the Holders shall be filed with the Commission and each stock exchange on which the Notes are listed. The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange. Section 7.7. Compensation and Indemnity. The Company shall pay to the Trustee from time to time such compensation for its acceptance of this Indenture and services hereunder as the parties shall agree in writing from time to time (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust). The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel, except such disbursements, advances and expenses as may be attributable to its negligence or bad faith. The Company shall indemnify the Trustee against any and all losses, liabilities or expenses incurred by it without negligence or bad faith on its part arising out of or in connection with the acceptance or administration of its duties under this Indenture, except as set forth below. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense. In the event that a conflict of interest or conflicting defenses would arise in connection with the 63 representation of the Company and the Trustee by the same counsel, the Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The obligations of the Company under this Section 7.7 shall survive the satisfaction and discharge of this Indenture. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee through its own negligence or bad faith. To secure the Company's payment obligations in this Section, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal of (and premium, if any) and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(9) or (10) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. Section 7.8. Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; 64 (c) a Custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a succes- sor Trustee. If the Trustee after written request by any Holder who has been a Holder for at least six months fails to comply with Section 7.10, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to the Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided that all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.7. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the Company's obligations under Section 7.7 hereof shall continue for the benefit of the retiring Trustee, and the Company shall pay to any such replaced or removed Trustee all amounts owed under Section 7.7 upon such replacement or removal. 65 Section 7.9. Successor Trustee by Merger, etc. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. Section 7.10. Eligibility; Disqualification. There shall at all times be a Trustee hereunder that shall (a) be a corporation organized and doing business under the laws of the United States of America or of any state thereof or of the District of Columbia authorized under such laws to exercise corporate trustee power, (b) be subject to supervision or examination by Federal or state or the District of Columbia authority, and (c) have a combined capital and surplus of at least $100,000,000 as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA ss.ss. 310(a)(1), 310(a)(2) and 310(a)(5). The Trustee is subject to TIA ss. 310(b); provided, however, that there shall be excluded from the operations of TIA ss. 310(b)(1) any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding, if the requirements for such exclusion set forth in TIA ss. 310(b)(1) are met. Section 7.11. Preferential Collection of Claims Against Company. The Trustee is subject to TIA ss. 311(a), excluding any creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be subject to TIA ss. 311(a) to the extent indicated therein. The provisions of TIA ss. 311 shall apply to the Company, as obligor on the Notes. ARTICLE 8 DISCHARGE OF INDENTURE Section 8.1. Termination of Company's Obligations. This Indenture shall cease to be of further effect (except that Section 7.7, 8.3 and 8.4 shall survive) when all outstanding Notes theretofore authenticated and issued have been delivered (other than (i) destroyed, lost or stolen Notes that 66 have been replaced or paid and (ii) Notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the Company pursuant to Section 8.3(b) hereof) to the Trustee for cancellation and all sums payable by the Company hereunder have been paid. In addition, the Company may (A) if applicable, be discharged from any and all Obligations in respect of the Notes, other than the obligation to duly and punctually pay the principal of, and premium, if any, and interest on the Notes, in accordance herewith, or (B) if applicable, omit to comply with restrictive covenants, and such omission will not be deemed to be an Event of Default if: (1) with respect to clauses (A) and (B), the Company irrevocably deposits in trust with the Trustee or at the option of the Trustee, with a trustee reasonably satisfactory to the Trustee and the Company under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, money or U.S. Government Obligations sufficient (as certified by a nationally recognized accounting firm designated by the Company) to pay principal and interest and premium, if any, on the Notes to maturity or redemption and each installment of interest, if any, on the due dates thereof on the Notes, as the case may be, and to pay all other sums payable by it hereunder, and with respect to clause (B) the Obligations under this Indenture other than with respect to such covenants and Events of Default which will remain in full force and effect, provided that (i) the trustee of the irrevocable trust shall have been irrevocably instructed to pay such money or the proceeds of such U.S. Government Obligations to the Trustee and (ii) the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to the payment of said principal, premium, if any, and interest with respect to the Notes; (2) with respect to clause (A), the Company has received from, or there has been published by, the U.S. Internal Revenue Service a ruling or there has been a change in laws which in the opinion of independent counsel, which the Company shall deliver to the Trustee, provides that holders of the Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred and the Notes were 67 otherwise paid or redeemed in accordance with the provisions of this Indenture; (3) with respect to clause (B), the Company has delivered to the Trustee an opinion of independent counsel to the effect that the 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, in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred and the Notes were redeemed pursuant to Article 3 hereof without exercising the option of the Company pursuant to this Section 8.1; and (4) the Company delivers to the Trustee an Officers' Certificate stating that all conditions precedent to satisfaction and discharge of this Indenture have been complied with, and an Opinion of Counsel to the same effect. Then, this Indenture shall cease to be of further effect (except as provided in this paragraph), and the Trustee, on demand of the Company, shall execute proper instruments acknowledging confirmation of and discharge under this Indenture and the release of the Liens created under the Security Documents. However, the Company's Obligations in Sections 2.3, 2.4, 2.5, 2.6, 2.7, 4.1, 4.6, 7.7, 7.8, 8.3 and 8.4, the Guarantors' Obligations, and the Trustee's and Paying Agent's obligations in Section 8.3 shall survive until the Notes are no longer outstanding. Thereafter, only the Company's obligations in Section 7.7 and 8.4 and the Company's, Trustee's and Paying Agent's obligations in Section 8.3 shall survive. After such irrevocable deposit has been made pursuant to this Section 8.1 and satisfaction of the other conditions set forth herein, the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations under this Indenture except for those surviving obligations specified above. In order to have money available on a payment date to pay principal, premium, if any, or interest on the Notes, the U.S. Government Obligations shall be payable as to principal, premium, if any, or interest at least one Business Day before such payment date in such amounts as shall provide the necessary money. U.S. Government Obligations shall not be callable at the issuer's option. 68 Section 8.2. Application of Trust Money. The Trustee, or a trustee satisfactory to the Trustee and the Company, shall hold in trust, money or U.S. Government Obligations deposited with it pursuant to Section 8.1. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal, premium, if any, and interest on the Notes. Section 8.3. Repayment to the Company. (a) The Trustee and the Paying Agent shall promptly pay to the Company upon written request any excess money or securities (as certified by an independent public accountant reasonably acceptable to the Trustee) held by them at any time. (b) The Trustee and the Paying Agent shall pay to the Company upon written request any money held by them for the payment of principal, premium, if any, or interest that remains unclaimed for two years after the date upon which such payment shall have become due; provided that the Company shall have either caused notice of such payment to be mailed to each Holder entitled thereto no less than 30 days prior to such repayment or within such period shall have published such notice in a financial newspaper of widespread circulation published in The City of New York, including, without limitation, The Wall Street Journal. After payment to the Company, Holders entitled to the money must look to the Company for payment as general creditor unless an applicable abandoned property law designates another Person, and all liability of the Trustee and such Paying Agent with respect to such money shall cease. Section 8.4. Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with Section 8.2 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Obligations of the Company and the Guarantors under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.1 until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with Section 8.2; provided that if the Company has made any payment of inter- 69 est on or principal of any Notes because of the reinstatement of its Obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE 9 AMENDMENTS Section 9.1. Without Consent of Holders. The Company, the Guarantors and the Trustee may amend or supplement this Indenture and the Notes without the consent of any Holder: (1) to cure any ambiguity, defect or inconsistency; (2) to provide for uncertificated Notes in addition to or in place of certificated Notes; (3) to comply with Article 5 and Section 10.12 hereof; (4) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder or thereunder of any Holder; (5) to comply with requirements of the Commission in order to effect or maintain the qualification of this Indenture under the TIA; or (6) to release any Guarantee of the Notes permitted to be released under Section 10.7 hereof. Upon the request of the Company, accompanied by a resolution of the Board of Directors of the Company authorizing the execution of any such supplemental indenture or amendment, and upon receipt by the Trustee of the documents described in Section 9.6 hereof required or requested by the Trustee, the Trustee shall join with the Company in the execution of any supplemental indenture or amendment authorized or permitted by the terms of this Indenture and shall make any further appropriate agreements and stipulations which may be therein contained, 70 but the Trustee shall not be obligated to enter into such supplemental indenture or amendment that affects its own rights, duties or immunities under this Indenture or otherwise. Section 9.2. With Consent of Holders. Subject to Sections 6.4 and 6.7 hereof, the Company and the Trustee, as applicable, may amend, or waive any provision of, this Indenture or the Notes, with the written consent of the Holders of at least a majority of the principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for Notes). Upon the request of the Company, accompanied by a resolution of the Board of Directors of the Company authorizing the execution of any such supplemental indenture or amendment, and upon filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders as aforesaid, and upon receipt by the Trustee of the documents described in Section 9.6 hereof, the Trustee shall join with the Company in the execution of such supplemental indenture or amendment unless such supplemental indenture or amendment affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed supplemental indenture or amendment, but it shall be sufficient if such consent approves the substance thereof. After a supplemental indenture or amendment under this Section becomes effective, the Company shall mail to the Holders of each Note affected thereby a notice briefly describing the amendment or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture, amendment or waiver. Notwithstanding any other provision hereof, without the consent of each Holder affected, an amendment or waiver under this Section may not (with respect to any Notes held by a nonconsenting Holder): (1) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; 71 (2) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (3) reduce the principal of, or the premium on, or change the fixed maturity of any Note or alter Article 3 hereof or numbered paragraphs 5 or 6 of Exhibit A to this Indenture or the price at which the Company shall offer to purchase such Notes pursuant to Sections 4.10 or 4.14 hereof; (4) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on, or redemption payment with respect to, any Note (other than a Default in the payment of an amount due as a result of an acceleration if the Holder rescinds such acceleration pursuant to Section 6.2); (5) make any Note payable in money other than that stated in the Notes; (6) make any change in Section 6.4 or 6.7 hereof or in this Section 9.2; or (7) make any change adversely affecting the contractual ranking of the Obligations. Section 9.3. Compliance with Trust Indenture Act. If, at the time of an amendment to this Indenture or the Notes, this Indenture shall be qualified under the TIA, every amendment to this Indenture or the Notes shall be set forth in a supplemental indenture that complies with the TIA as then in effect. Section 9.4. Revocation and Effect of Consents. Until a supplemental indenture, an amendment or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. A supplemental indenture, amendment or waiver becomes effective in accordance with its terms and thereafter binds every Holder. 72 The Company may fix a record date for determining which Holders must consent to such supplemental indenture, amendment or waiver. If the Company fixes a record date, the record date shall be fixed at (i) the later of 30 days prior to the first solicitation of such consent or the date of the most recent list of Holders furnished to the Trustee prior to such solicitation pursuant to Section 2.5, or (ii) such other date as the Company shall designate. Section 9.5. Notation on or Exchange of Notes. The Trustee may place an appropriate notation about a supplemental indenture, amendment or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall authenticate new Notes that reflect the amendment or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment or waiver. Section 9.6. Trustee to Sign Amendments, etc. The Trustee shall sign any amendment or supplemental indenture authorized pursuant to this Article 9 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing or refusing to sign such amendment or supplemental indenture, the Trustee shall be entitled to receive, if requested, an indemnity reasonably satisfactory to it and to receive and, subject to Section 7.1, shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel as conclusive evidence that such amendment or supplemental indenture is authorized or permitted by this Indenture, that it is not inconsistent herewith, and that it shall be valid and binding upon the Company in accordance with its terms. The Company may not sign an amendment or supplemental indenture until the Board of Directors of the Company approves it. 73 ARTICLE 10 COLLATERAL AND SECURITY AND GUARANTY Section 10.1. Collateral Documents. The due and punctual payment of the principal and premium, if any, of, and interest on, the Notes when and as the same shall be due and payable, whether on an interest payment date, at maturity, by acceleration, repurchase, redemption or otherwise, interest on the overdue principal of and interest (to the extent permitted by law), if any, on the Notes and performance of all other Obligations, shall be secured as provided in the Security Documents. The Company shall, and shall cause each of its Restricted Subsidiaries to, do or cause to be done all such acts and things as may be necessary or proper, or as may be required by the provisions of the Security Documents, to assure and confirm to the Collateral Agent the security interest in the Collateral contemplated hereby and by the Security Documents, as from time to time constituted, so as to render the same available for the security and benefit of this Indenture and of the Notes secured hereby, according to the intent and purposes herein and therein expressed. The Company shall, and shall cause each of its Restricted Subsidiaries to, take, upon request of the Trustee or the Collateral Agent, any and all actions required to cause the Security Documents to create and maintain, as security for the Obligations, valid and enforceable, perfected (except as expressly provided herein or therein), Liens in and on all the Collateral, in favor of the Collateral Agent, superior to and prior to the rights of all third Persons, and subject to no other Liens, other than as provided herein and therein. Section 10.2. Opinions. The Company shall furnish to the Trustee within three months after each anniversary of the Closing Date, an Opinion of Counsel, dated as of such date, stating either that (i) in the opinion of such counsel, all action has been taken with respect to the recording, registering, filing, re-recording, re-registering and refiling of all supplemental indentures, financing statements, continuation statements or other instruments of further assurance as is necessary to maintain the Liens of the Security Documents and reciting the details of such action or (ii) in the opinion of such Counsel, no such action is necessary to maintain such Liens, which Opinion of Counsel also 74 shall state what actions it then believes are necessary to maintain the effectiveness of such liens during the next two years. Section 10.3. Release of Collateral. (a) Unless a Default or Event of Default shall have occurred and be continuing, Collateral shall be released from the Liens created by the Security Documents from time to time at the sole cost and expense of the Company: (i) upon payment in full of the Notes and all other Obligations then due and owing, or (ii) upon the sale or other disposition of such Collateral pursuant to an Asset Sale made in accordance with Section 4.10 hereof, ; provided, that the Trustee shall not release any Lien on any Collateral unless and until it shall have received an Officers' Certificate certifying that all conditions precedent hereunder have been met and such other documents required by Section 10.4 hereof. Upon compliance with the above provisions, the Trustee shall execute, deliver or acknowledge any necessary or proper instruments of termination, satisfaction or release to evidence the release of any Collateral permitted to be released pursuant to this Indenture or the Security Documents. (b) The disposition of Inventory or Accounts in the ordinary course of business may be made without delivery to the Trustee of certificates required by TIA ss. 314(d). (c) The release of any Collateral from the terms of the Security Documents shall not be deemed to impair the security under this Indenture in contravention of the provisions hereof and of the Security Documents if and to the extent the Collateral is released pursuant to the terms of this Indenture and the Security Documents. Section 10.4. Certificates of the Company. The Company shall furnish to the Trustee prior to each proposed release of Collateral other than by reason of transactions referred to in Section 10.3(b), all documents required by TIA ss. 314(d). The Trustee may, to the extent permitted by Sections 7.1 and 7.2 hereof, accept as conclusive evidence of compliance with the foregoing provisions the appropriate 75 statements contained in such instruments. Any certificate or opinion required by TIA ss. 314(d) may be made by an Officer of the Company except in cases where TIA ss. 314(d) requires that such certificate or opinion be made by an independent engineer, appraiser or other expert within the meaning of TIA ss. 314(d). Section 10.5. Authorization of Actions to be Taken by the Trustee Under the Security Documents. The Trustee may, in its sole discretion and without the consent of the Holders, on behalf of the Holders, take all actions it deems necessary or appropriate in order to (a) enforce any of the terms of the Security Documents and (b) collect and receive any and all amounts payable in respect of the Obligations of the Company and the Guarantors hereunder. The Trustee shall have the power to institute and to maintain such suits and proceedings as it may deem expedient to prevent any impairment of the Collateral by any acts that may be unlawful or in violation of the Security Documents or this Indenture, and such suits and proceedings as the Trustee may deem expedient to preserve or protect its interest and the interests of the Holders in the Collateral (including power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair the security interest hereunder or be prejudicial to the interests of the Holders or the Trustee). Section 10.6. Authorization of Receipt of Funds by the Trustee Under the Security Documents. The Trustee is authorized to receive any funds for the benefit of the Holders distributed under the Security Documents, and to make further distributions of such funds to the Holders according to the provisions of this Indenture and the Security Documents. Section 10.7. Guaranty. For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, subject to Section 10.9 hereof, each Guarantor, jointly and severally, hereby unconditionally guarantees (such guarantees, together with further guarantees granted from time to time pursuant to Section 10.12, being the "Guaranty") to each Holder, the Trustee and the 76 Collateral Agent, irrespective of the validity or enforceability of this Indenture, the Notes, the Security Documents or the Obligations hereunder or thereunder: (i) the due and punctual payment of the principal and premium, if any, of, and interest on, the Notes (including, without limitation, interest after the filing of a petition initiating any proceedings referred to in clause (9) or (10) of Section 6.1 hereof), whether at maturity or on an interest payment date, by acceleration, call for redemption or otherwise; (ii) the due and punctual payment of interest on the overdue principal and premium, if any, of, and interest on, the Notes, if lawful; (iii) the due and punctual payment and performance of all other Obligations, all in accordance with the terms set forth herein and in the Notes and the Security Documents; and (iv) in case of any extension of time of payment or renewal of any Notes or any of such other Obligations, the due and punctual payment or performance thereof in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due by the Company of any amount so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. Each Guarantor hereby agrees that (i) its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes, this Indenture, the Security Documents or the Obligations hereunder or thereunder, the absence of any action to enforce the same, any waiver or consent by any Holder with respect to any provisions hereof or thereof, any releases of Collateral, any amendment of the Indenture, the Notes or Security Documents, any delays in obtaining or realizing upon or failures to obtain or realize upon Collateral, the recovery of any judgment against the Company or any of its Subsidiaries, any action to enforce the same, or any other circumstance that might otherwise constitute a legal or equitable discharge or defense of a guarantor and (ii) this Guaranty will not be discharged except by complete performance of the Obligations. Each Guarantor hereby agrees that it shall not be entitled to and irrevocably waives (i) diligence, presentment, demand of payment, filing of claim with a court in the event of insolvency or bankruptcy of the Company, any Guarantor, any other Subsidiary of the Company or any other 77 obligor under the Notes, any right to require a proceeding first against the Company, any Guarantor, any other Subsidiary of the Company or any other obligor under this Indenture, the Notes or the Security Documents, protest, notice and all demands whatsoever, (ii) any right of subrogation, reimbursement, exoneration, contribution or indemnification in respect of any Obligations guaranteed hereby and (iii) any claim or other rights that it may now or hereafter acquire against the Company or any of its Subsidiaries that arise from the existence or performance of its Obligations under this Guaranty, including, without limitation, any right to participate in any claim or remedy of a Holder against the Company or any of its Subsidiaries or any Collateral that a Holder now has or hereafter acquires, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, by any payment made hereunder or otherwise, and including, without limitation, the right to take or receive from the Company or any of its Subsidiaries, directly or indirectly, in cash or other property, by setoff or in any other manner, payment or security on account of such claim or other rights. If any Holder or the Trustee is required by any court or otherwise to return to the Company, any Guarantor, any other Subsidiary of the Company or any other obligor under this Indenture, the Notes or the Security Documents, trustee, liquidator, or other similar official, any amount paid by the Company, any Guarantor, any other Subsidiary of the Company or any other obligor under this Indenture, the Notes or the Security Documents to the Trustee or such Holder, this Guaranty, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (i) the maturity of the Obligations guaranteed hereby may be accelerated as provided in Section 6.2 for the purposes of this Guaranty, notwithstanding any stay, injunction or other prohibition preventing such acceleration as to the Company of the Obligations guaranteed hereby, and (ii) in the event of any declaration of acceleration of those Obligations as provided in Section 6.2, those Obligations (whether or not due and payable) will forthwith become due and payable by each of the Guarantors for the purpose of this Guaranty. Section 10.8. Execution and Delivery of Guaranty. To evidence the Guaranty set forth in Section 10.7, the Company and each Guarantor hereby agrees that (a) a notation of such Guaranty substantially as set forth on Exhibit C hereto 78 shall be endorsed on each Note authenticated and delivered by the Trustee such endorsement shall be executed on behalf of each Guarantor by its Chairman of the Board, President, Chief Financial Officer, Chief Operating Officer, Treasurer, Secretary or any Vice President and (b) a counterpart signature page to this Indenture shall be executed on behalf of each Guarantor by its Chairman of the Board, President or one of its Vice Presidents and attested to by another officer acknowledging such Guarantor's agreement to be bound by the provisions hereof and thereof. Each Guarantor hereby agrees that its Guaranty set forth in Section 10.7 shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Guaranty. If an officer whose signature is on this Indenture no longer holds that office at the time the Trustee authenticates the Notes on which a Guaranty is endorsed, the Guaranty shall nevertheless be valid. The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Guaranty set forth in this Indenture on behalf of the Guarantor. Section 10.9. Limitation on Guarantor's Liability. Each Guarantor and by its acceptance hereof each Holder hereby confirms that it is the intention of all such parties that the guarantee by such Guarantor pursuant to its Guaranty not constitute a fraudulent transfer or conveyance for purposes of any Federal or state law. To effectuate the foregoing intention, the Holders and the Guarantors hereby irrevocably agree that the obligations of each Guarantor under its Guaranty shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guaranty, result in the Obligations of such Guarantor under the Guaranty not constituting a fraudulent conveyance or fraudulent transfer under Federal or state law. 79 Section 10.10. Rights under the Guaranty. (a) No payment by any Guarantor pursuant to the provisions hereof shall entitle such Guarantor to any payment out of any Collateral or give rise to any claim of the Guarantors against the Trustee or any Holder. (b) Each Guarantor waives notice of the issuance, sale and purchase of the Notes and notice from the Trustee or the Holders from time to time of any of the Notes of their acceptance and reliance on this Guaranty. (c) No set-off, counterclaim, reduction or diminution of any obligation or any defense of any kind or nature (other than performance by the Guarantors of their obligations hereunder) that any Guarantor may have or assert against the Trustee or any Holder shall be available hereunder to such Guarantor. (d) Each Guarantor shall pay all costs, expenses and fees, including all reasonable attorneys' fees, that may be incurred by the Trustee in enforcing or attempting to enforce the Guaranty or protecting the rights of the Trustee or the Holder, if any, in accordance with this Indenture. Section 10.11. Primary Obligations. The Obligations of each Guarantor hereunder shall constitute a guaranty of payment and not of collection. Each Guarantor agrees that it is directly liable to each Holder hereunder, that the Obligations of each Guarantor hereunder are independent of the Obligations of the Company or any other Guarantor, and that a separate action may be brought against each Guarantor, whether such action is brought against the Company or any other Guarantor or whether the Company or any other Guarantor is joined in such action. Each Guarantor agrees that its liability hereunder shall be immediate and shall not be contingent upon the exercise or enforcement by the Trustee or the Holders of whatever remedies they may have against the Company or any other Guarantor, or the enforcement of any lien or realization upon any security Trustee may at any time possess. Each Guarantor agrees that any release that may be given by the Trustee or the Holders to the Company or any other Guarantor shall not release such Guarantor. 80 Section 10.12. Guarantee by Subsidiary. (a) The Company shall cause each Restricted Subsidiary that is formed or acquired after the date hereof or that otherwise becomes a Restricted Subsidiary after the date hereof, in each case concurrently therewith, to (i) become a Guarantor hereunder and execute and deliver to the Trustee a Guaranty in the form of Exhibit C attached hereto and a supplemental indenture in form reasonably satisfactory to the Trustee pursuant to which such Restricted Subsidiary shall unconditionally guarantee all of the Company's Obligations as set forth in Section 10.7 of this Indenture; and (ii) execute a Security Agreement (substantially in the form of the Security Agreement entered into on the Closing Date) and other Security Documents necessary or reasonably requested by the Trustee to grant the Trustee a valid, enforceable, perfected Lien on the Collateral described therein, subject only to Liens permitted under Section 4.12; and (iii) cause such Restricted Subsidiary to deliver to the Trustee an Opinion of Counsel, in form reasonably satisfactory to the Trustee, that (i) such Security Agreement, supplemental indenture and Guaranty have been duly authorized, executed and delivered by such Restricted Subsidiary and (ii) such Security Agreement, this Indenture and such Guaranty constitute a legal, valid, binding and enforceable obligation of such Restricted Subsidiary, subject to customary exceptions for bankruptcy, fraudulent transfer and equitable principles. Each Note issued after the date of execution by any Guarantor of a Guaranty shall be endorsed with a form of Guaranty that has been executed by such Guarantor. However, the failure of any Note to have endorsed thereon a Guaranty executed by such Guarantor shall not affect the validity or enforceability of such Guaranty against such Guarantor. Section 10.13. Release of Guarantors. If all of the Capital Stock of any Guarantor is sold to a Person (other than the Company or any of its Restricted Subsidiaries) and the Net Proceeds from such Asset Sale are used in accordance with Section 4.10, then such Guarantor will be released and discharged from all of its obligations under its Guarantee of the Notes and this Indenture. 81 ARTICLE 11 MISCELLANEOUS Section 11.1. Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA ss. 318(c), the imposed duties shall control. Section 11.2. Notices. Any notice or communication by the Company or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first-class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' addresses: If to the Company: Atlantic Express Transportation Corp. 7 North Street Staten Island, New York 10302 Attention: Chief Executive Officer Telecopier No.: (718) 442-7000 If to the Trustee: The Bank of New York 101 Barclay Street -- 21W New York, New York 10286 Attention: Corporate Trust Administration Telecopier No.: (212) 815-5917 The Company or the Trustee by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; upon receipt, if deposited in the mail, postage prepaid; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. All 82 notices and communications to the Trustee shall be deemed to have been duly given only if actually received by the Trustee. Any notice or communication to a Holder shall be mailed by first-class mail, certified or registered, return receipt requested, to his address shown on the register kept by the Registrar. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. Section 11.3. Communication by Holders with Other Holders. Holders may communicate pursuant to TIA ss. 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and any other person shall have the protection of TIA ss. 312(c). Section 11.4. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 11.5) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been complied with; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 11.5) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been complied with. 83 Section 11.5. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA ss. 314(a)(4)) shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with, provided that with respect to matters of fact, an Opinion of Counsel may rely upon an Officers' Certificate or a certificate of a public official. Section 11.6. Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. Section 11.7. Legal Holidays. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. 84 Section 11.8. No Recourse Against Others. No director, officer, employee, incorporator, stockholder or controlling person of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the Notes, this Indenture or the Registration Rights Agreement or for any claim based on, in respect of, or by reason of such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release shall be part of the consideration for the issuance of the Notes and the Guarantees. Notwithstanding the foregoing, nothing in this provision shall be construed as a waiver or release of any claims under the Federal securities laws. Section 11.9. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED, INTERPRETED AND THE RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. THE COMPANY IRREVOCABLY CONSENTS, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY AT ITS ADDRESS SET FORTH HEREIN, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PURCHASER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION. 85 Section 11.10. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or any of its Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 11.11. Successors. All agreements of the Company and any Guarantors in this Indenture and the Notes shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successor. Section 11.12. Severability. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 11.13. Counterpart Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 11.14. Table of Contents, Headings, etc. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof. 86 SIGNATURES IN WITNESS WHEREOF, the parties hereto have executed and delivered this Indenture as of the date first written above. ATLANTIC EXPRESS TRANSPORTATION CORP. Attest: By: ________________________________ Name: Title: ________________________________ Name: Title: GUARANTORS AMBOY BUS CO., INC. COURTESY BUS CO., INC. By: By: ________________________________ ________________________________ Name: Name: ________________________________ ________________________________ Title: Title: ________________________________ ________________________________ STATEN ISLAND BUS, INC. K. CORR, INC. By: By: ________________________________ ________________________________ Name: Name: ________________________________ ________________________________ Title: Title: ________________________________ ________________________________ RAYBERN CAPITAL CORP. RAYBERN EQUITY CORP. By: By: ________________________________ ________________________________ Name: Name: ________________________________ ________________________________ Title: Title: ________________________________ ________________________________ METROPOLITAN ESCORT SERVICE, METRO AFFILIATES, INC. INC. By: By: ________________________________ ________________________________ Name: Name: ________________________________ ________________________________ Title: Title: ________________________________ ________________________________ MERIT TRANSPORTATION CORP. MIDWAY LEASING INC. By: By: ________________________________ ________________________________ Name: Name: ________________________________ ________________________________ Title: Title: ________________________________ ________________________________ TEMPORARY TRANSIT SERVICE, BROOKFIELD TRANSIT INC. INC. By: By: ________________________________ ________________________________ Name: Name: ________________________________ ________________________________ Title: Title: ________________________________ ________________________________ ATLANTIC-HUDSON, INC. ATLANTIC PARATRANS, INC. By: By: ________________________________ ________________________________ Name: Name: ________________________________ ________________________________ Title: Title: ________________________________ ________________________________ 180 JAMAICA CORP. BLOCK 7932, INC. By: By: ________________________________ ________________________________ Name: Name: ________________________________ ________________________________ Title: Title: ________________________________ ________________________________ ATLANTIC EXPRESS COACHWAYS, ATLANTIC-CONN. TRANSIT, INC. INC. By: By: ________________________________ ________________________________ Name: Name: ________________________________ ________________________________ Title: Title: ________________________________ ________________________________ ATLANTIC EXPRESS OF ATLANTIC EXPRESS OF MISSOURI PENNSYLVANIA, INC. INC. By: By: ________________________________ ________________________________ Name: Name: ________________________________ ________________________________ Title: Title: ________________________________ ________________________________ ATLANTIC PARATRANS OF RAYBERN BUS SERVICE, INC. KENTUCKY INC. By: By: ________________________________ ________________________________ Name: Name: ________________________________ ________________________________ Title: Title: ________________________________ ________________________________ G.V.D. LEASING CO., INC. By: ________________________________ Name: ________________________________ Title: ________________________________ THE BANK OF NEW YORK, as Trustee Attest: By:____________ Name: Title: ________________________________ Name: Title: EXHIBIT A (Face of Security) UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TRUST COMPANY (THE "DEPOSITORY") TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DEPOSITORY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DEPOSITORY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.(1) THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH NOTE, PRIOR TO THE DATE WHICH IS THREE YEARS (OR SUCH SHORTER PERIOD THAT MAY HEREAFTER BE PROVIDED UNDER RULE 144(K) AS PERMITTING RESALES BY NON-AFFILIATES OF RESTRICTED SECURITIES WITHOUT RESTRICTION) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF SUCH NOTE) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR IN OFFSHORE TRANSACTIONS AND WITHOUT DIRECTED SELLING EFFORTS WITHIN THE MEANINGS OF OF SUCH TERMS AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS PURCHASING THE NOTE FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS NOTE IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. - -------- (1) This paragraph should be included only if the Note is issued in global form. A-1 ATLANTIC EXPRESS TRANSPORTATION CORP. 10-3/4% SENIOR SECURED NOTE DUE 2004 No. $___________ CUSIP NO. Atlantic Express Transportation Corp., a New York corporation (the "Company"), as obligor, for value received promises to pay to ______________ or registered assigns, the principal sum of __________ Dollars on February 1, 2004. Interest Payment Dates: February 1 and August 1 and on the maturity date. Record Dates: January 15 and July 15 (whether or not a Business Day). Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its duly authorized officers. Dated: ATLANTIC EXPRESS TRANSPORTATION CORP. By: ____________________________________ Name: Title: By: ____________________________________ Name: Title: Trustee's Certificate of Authentication: This is one of the Notes referred to in the within-mentioned Indenture: THE BANK OF NEW YORK, as Trustee By:______________________________ Authorized Signature A-2 (Back of Security) 10-3/4% SENIOR SECURED NOTE DUE 2004 1. Interest. Atlantic Express Transportation Corp., a New York corporation (the "Company"), as obligor, promises to pay interest on the principal amount of this Note at the rate and in the manner specified below. The Company shall pay, in cash, interest on the principal amount of this Note, at the rate of 10-3/4% per annum. The Company shall pay interest semi-annually on February 1 and August 1 of each year, and on the maturity date, commencing on August 1, 1997, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest shall be computed on the basis of a 360-day year consisting of twelve 30-day months. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from February 4, 1997. To the extent lawful, the Company shall pay interest on overdue installments of interest (without regard to any applicable grace periods) at the same rate. 2. Method of Payment. The Company shall pay interest on the Notes (except defaulted interest) to the Persons who are registered Holders of Notes at the close of business on the record date next preceding the Interest Payment Date, even if such Notes are cancelled after such record date and on or before such Interest Payment Date. The Holder must surrender this Note to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. The Company, however, may pay principal and interest by check to a Holder's registered address. 3. Paying Agent and Registrar. Initially, the Trustee shall act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-registrar without notice to any Holder. Subject to certain exceptions, the Company or any of its Subsidiaries may act in any such capacity. 4. Indenture. The Company issued the Notes under an Indenture dated as of February 4, 1997 (the "Indenture") among the Company, the Guarantors named therein and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (the "TIA") (15 U.S. Code ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture until such time as the Indenture is qualified under the TIA and thereafter as in effect on the date the Indenture is so qualified. The Notes are subject to all such terms, and Holders are referred to the Indenture and such act for a statement of such terms. The terms of the Indenture shall govern any inconsistencies between the Indenture and the Notes. Terms not otherwise defined herein shall have the meanings assigned in the Indenture. The Notes are limited to $110,000,000 in aggregate principal amount. The Obligations under the Indenture, the Notes and the Guarantee thereof are secured by the Collateral described in the Security and Pledge Agreement (the "Security Agreement"), dated as of February 4, 1997, among Atlantic Express Transportation Group Inc., the Company, certain of its subsidiaries party thereto and The Bank of New York, as Trustee and A-3 Secured Party, subject to the provisions of such agreement. Holders are referred to the Security Agreement for a statement of such terms. 5. Optional Redemption. The Notes are not redeemable at the Company's option prior to February 1, 2001. Thereafter, the Notes will be subject to redemption at the option of the Company, in whole or in part, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to the applicable redemption date, if redeemed during the 12-month period beginning on November 15 of the years indicated below: Year Percentage ---- ---------- 2001....................... 105.375% 2002....................... 102.688% 2003 and thereafter........ 100.000% Notwithstanding the foregoing, at any time or from time to time prior to February 1, 2000, the Company may, at its option, redeem up to one-third of the original principal amount of the Notes, at a redemption price of 110.75% of the principal amount thereof, plus accrued and unpaid interest, if any, to the applicable redemption date, with the net cash proceeds of one or more Public Equity Offerings; provided, that (a) such redemption shall occur within 90 days of the date of closing of such public offering and (b) at least $73.3 million aggregate principal amount of Notes remains outstanding immediately after giving effect to each such redemption. 6. Mandatory Redemption. There shall be no mandatory redemption of the Notes. 7. Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Registrar and the Company need not exchange or register the transfer (i) of any Note or portion of a Note selected for redemption or (ii) of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 8. Persons Deemed Owners. The registered Holder of a Note may be treated as its owner for all purposes, subject to the provisions of the Indenture with respect to the record dates for the payment of interest. 9. Amendments and Waivers. Subject to certain exceptions, the Indenture or the Notes may be amended with the written consent of the Holders of at least a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for Notes), and any existing Default or Event of Default (except certain payment defaults) may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for Notes). Without the consent of any Holders, the Indenture and the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for assumption of the Company's obligations to the Holders in the case of a merger or consolidation, to A-4 provide for uncertificated Notes in addition to or in place of certificated Notes, to make any change that would provide any additional rights or benefits to the Holders of the Notes, or that does not adversely affect the legal rights under the Indenture of any Holder, to release any Guarantee of the Notes permitted to be released under the terms of the Indenture or to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the TIA. 10. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare by written notice to the Company and the Trustee all the Notes to be due and payable immediately, except that in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes become due and payable immediately without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Notes. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Company must furnish an annual compliance certificate to the Trustee. 11. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not Trustee. 12. No Recourse Against Others. No director, officer, employee, incorporator, stockholder or controlling person of the Company or Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the Notes, the Indenture or the Registration Rights Agreement or for any claim based on, in respect of, or by reason of such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes and the Guarantees. Notwithstanding the foregoing, nothing in this provision shall be construed as a waiver or release of any claims under the Federal securities laws. 13. Authentication. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 14. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 15. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon.(1) - -------- (1) This paragraph should be included only if the Note is issued in global form. A-5 16. Holders' Compliance with Registration Rights Agreement. Each Holder of a Note, by his acceptance thereof, acknowledges and agrees to the provisions of the Registration Rights Agreement, dated as of February 4, 1997, among the Company and the parties named on the signature page thereof (the "Registration Rights Agreement"), including but not limited to the obligations of the Holders with respect to a registration and the indemnification of the Company and the Purchasers (as defined therein) to the extent provided therein. The Company shall furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: Atlantic Express Transportation Corp., 7 North Street, Staten Island, New York 10302, Attention: Chief Executive Officer. A-6 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to _____________________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint______________________________ agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. _____________________________________________________________________ Date:____________________ Your Signature:____________________ (Sign exactly as your name appears on the face of this Note) Signature Guarantee* - ---------------- * NOTICE: The signature must be guaranteed by an institution which is a member of one of the following recog- nized signature guarantee programs: (1) The Securities Transfer Agent Medallian Pro- gram (STAMP); (2) The New York Stock Exchange Medallian Program (MSP); (3) The Stock Exchange Medallian Program (SEMP). A-7 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have all or any part of this Note purchased by the Company pursuant to Section 4.10 or Section 4.14 of the Indenture, as the case may be, state the amount you elect to have purchased (if all, write "ALL"): $______________ Date:__________________________ Your Signature:_________________________ (Sign exactly as your name appears on the face of this Note) Signature Guarantee* - -------------- * NOTICE: The signature must be guaranteed by an institution which is a member of one of the following recog- nized signature guarantee programs: (1) The Securities Transfer Agent Medallian Pro- gram (STAMP); (2) The New York Stock Exchange Medallian Program (MSP); (3) The Stock Exchange Medallian Program (SEMP). A-8 SCHEDULE OF EXCHANGES OF DEFINITIVE NOTES(2) The following exchanges of a part of this Global Note for Definitive Notes have been made:
Principal Amount of this Signature of autho- Amount of decrease in Amount of increase in Global Note following rized signatory of Trust- Principal Amount of this Principal Amount of this such decrease (or in- ee Date of Exchange Global Note Global Note crease) - -------------------------------------------------------------------------------------------------------------------------
- -------- (2) This should be included only if the Note is issued in global form. A-9 EXHIBIT B CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF NOTES Re: [Series A] [Series B] 10-3/4% Senior Notes due 2004 (the "Notes") of Atlantic Express Transportation Corp. This Certificate relates to $______ principal amount of Notes held in * |_| book-entry or * |_| definitive form by _______________________ (the "Transferor"). The Transferor, by written order, has requested the Trustee: |_| to deliver in exchange for its beneficial interest in the Global Note held by the depository, a Note or Notes in definitive, registered form of authorized denominations and an aggregate principal amount equal to its beneficial interest in such Global Note (or the portion thereof indicated above); or |_| to exchange or register the transfer of a Note or Notes. In connection with such request and in respect of each such Note, the Transferor does hereby certify that Transferor is familiar with the Indenture relating to the above captioned Notes and, the transfer of this Note does not require registration under the Securities Act of 1933, as amended (the "Securities Act") because such Note: |_| is being acquired for the Transferor's own account, without transfer; |_| is being transferred pursuant to an effective registration statement; |_| is being transferred to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act), in reliance on such Rule 144A; |_| is being transferred pursuant to an exemption from registration in accordance with Rule 904 under the Securities Act;** |_| is being transferred pursuant to Rule 144 under the Securities Act;** or |_| is being transferred pursuant to another exemption from the registration requirements of the Securities Act (explain: _____________________________ ____________________________________________________________________________).** ___________________________________ [INSERT NAME OF TRANSFEROR] By:_______________________________ Date:_____________________ * Check applicable box. ** If this box is checked, this certificate must be accompanied by an opinion of counsel to the effect that such transfer is in compliance with the Securities Act. B-1 EXHIBIT C [FORM OF GUARANTY] GUARANTY For good and valuable consideration received from the Company by the undersigned (hereinafter referred to as the "Guarantors," which term includes any successor or additional Guarantors), the receipt and sufficiency of which is hereby acknowledged, subject to Section 10.4 of the Indenture, each Guarantor, jointly and severally, hereby unconditionally guarantees, irrespective of the validity or enforceability of the Indenture, the Notes, the Security Documents or the Obligations, (a) the due and punctual payment of the principal and premium, if any, of and interest on the Notes (including, without limitation, interest after the filing of a petition initiating any proceedings referred to in Sections 6.1(9) or (10) of the Indenture), whether at maturity or on an interest payment date, by acceleration, call for redemption or otherwise, (b) the due and punctual payment of interest on the overdue principal and premium, if any, of and interest, if any, on the Notes, if lawful, (c) the due and punctual payment and performance of all other Obligations, all in accordance with the terms set forth in the Indenture, the Notes and the Security Documents, and (d) in case of any extension of time of payment or renewal of any Notes or any of such other Obligations, the due and punctual payment or performance thereof in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. No director, officer, employee, incorporator, stockholder or controlling person of the Guarantor, as such, shall have any liability under this Guaranty for any obligations of the Guarantor under the Notes, the Indenture or the Registration Rights Agreement or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. AMBOY BUS CO., INC. COURTESY BUS CO., INC. By: _____________________________ By: _____________________________ Name: ___________________________ Name: ___________________________ Title: __________________________ Title: __________________________ STATEN ISLAND BUS, INC. K. CORR, INC. By: _____________________________ By: _____________________________ Name: ___________________________ Name: ___________________________ Title: __________________________ Title: __________________________ RAYBERN CAPITAL CORP. RAYBERN EQUITY CORP. By: _____________________________ By: _____________________________ Name: ___________________________ Name: ___________________________ Title: __________________________ Title: __________________________ METROPOLITAN ESCORT SERVICE, INC. METRO AFFILIATES, INC. By: _____________________________ By: _____________________________ Name: ___________________________ Name: ___________________________ Title: __________________________ Title: __________________________ C-1 MERIT TRANSPORTATION CORP. MIDWAY LEASING INC. By: _____________________________ By: _____________________________ Name: ___________________________ Name: ___________________________ Title: __________________________ Title: __________________________ TEMPORARY TRANSIT SERVICE, INC. BROOKFIELD TRANSIT INC. By: _____________________________ By: _____________________________ Name: ___________________________ Name: ___________________________ Title: __________________________ Title: __________________________ ATLANTIC-HUDSON, INC. ATLANTIC PARATRANS, INC. By: _____________________________ By: _____________________________ Name: ___________________________ Name: ___________________________ Title: __________________________ Title: __________________________ 180 JAMAICA CORP. BLOCK 7932, INC. By: _____________________________ By: _____________________________ Name: ___________________________ Name: ___________________________ Title: __________________________ Title: __________________________ ATLANTIC EXPRESS COACHWAYS, INC. ATLANTIC-CONN. TRANSIT, INC. By: _____________________________ By: _____________________________ Name: ___________________________ Name: ___________________________ Title: __________________________ Title: __________________________ ATLANTIC EXPRESS OF ATLANTIC EXPRESS OF MISSOURI INC. PENNSYLVANIA, INC. By: _____________________________ By: _____________________________ Name: ___________________________ Name: ___________________________ Title: __________________________ Title: __________________________ ATLANTIC PARATRANS OF RAYBERN BUS SERVICE, INC. KENTUCKY INC. By: _____________________________ By: _____________________________ Name: ___________________________ Name: ___________________________ Title: __________________________ Title: __________________________ G.V.D. LEASING CO., INC. By: _____________________________ Name: ___________________________ Title: __________________________ C-2 CROSS-REFERENCE TABLE* Trust Indenture Act Section Indenture Section - --------------- ----------------- 310(a)(1)........................................................... 7.10 (a)(2)........................................................... 7.10 (a)(3)........................................................... N.A. (a)(4)........................................................... N.A. (a)(5)........................................................... 7.10 (b).............................................................. 7.8; 7.10 (c).............................................................. N.A. 311(a).............................................................. 7.11 (b).............................................................. 7.11 (c).............................................................. N.A. 312(a).............................................................. 2.5 (b).............................................................. 11.3 (c).............................................................. 11.3 313(a).............................................................. 7.6 (b)(1)........................................................... 7.6 (b)(2)........................................................... 7.6 (c).............................................................. 7.6 (d).............................................................. 7.6 314(a).............................................................. 4.3; 4.4 (b).............................................................. N.A (c)(1)........................................................... 11.4 (c)(2)........................................................... 11.4 (c)(3)........................................................... N.A. (d).............................................................. N.A. (e).............................................................. 11.5 (f).............................................................. N.A. 315(a).............................................................. 7.1(2) (b).............................................................. 7.5 (c).............................................................. 7.1(1) (d).............................................................. 7.1(3) (e).............................................................. 6.11 316(a)(last sentence)............................................... 2.9 (a)(1)(A)........................................................ 6.5 (a)(1)(B)........................................................ 6.4 (a)(2)........................................................... N.A. (b).............................................................. 9.2 (c).............................................................. 9.4 317(a)(1)........................................................... 6.8 (a)(2)........................................................... 6.9 (b).............................................................. 2.4 318(a).............................................................. 11.1 (b).............................................................. N.A. (c).............................................................. 11.1 N.A. means not applicable. *This Cross-Reference Table is not part of the Indenture. EX-4.2 5 GUARANTEE 2/4/97 COMPANY (BORROWER) Exhibit 4.2 EXECUTION COPY GUARANTEE (Borrowers) February 4, 1997 Congress Financial Corporation 1133 Avenue of the Americas New York, New York 10036 Re: The parties identified as "Borrowers" in the Loan Agreement (as defined hereinbelow) (collectively the "Borrowers") Gentlemen: Congress Financial Corporation ("Lender") and Borrowers have entered into certain financing arrangements pursuant to which Lender may make loans and advances and provide other financial accommodations to Borrowers as set forth in the Loan and Security Agreement, dated February 4, 1997, by and between Borrowers, Atlantic Express Transportation Corp. and Lender (as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, the "Loan Agreement"), and other agreements, documents and instruments referred to therein or at any time executed and/or delivered in connection therewith or related thereto, including, but not limited to, this Guarantee (all of the foregoing, together with the Loan Agreement, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, being collectively referred to herein as the "Financing Agreements"). Each and all of the undersigned (individually and collectively, "Guarantors") also constitute each and all of Borrowers under the Loan Agreement. In order to induce Lender to make loans and advances and provide other financial accommodations to one or more Borrowers under the Loan Agreement, each such Borrower has agreed to be a Guarantor hereunder and unconditionally guarantee, pursuant to the terms set forth herein, all of the liabilities and obligations of each of the other Borrowers. Due to the close business and financial relationships between each of the Borrowers and each and all of the Guarantors, in consideration of the benefits which will accrue to Guarantors and as an inducement for and in consideration of Lender making loans and advances and providing other financial accommodations to any one or more of Borrowers pursuant to the Loan Agreement and the other Financing Agreements, each of Guarantors hereby jointly and severally agrees in favor of Lender as follows: 1. Guarantee. (a) Each of Guarantors absolutely and unconditionally, jointly and severally, guarantees and agrees to be liable for the full and indefeasible payment and performance when due of the following (all of which are collectively referred to herein as the "Guaranteed Obligations"): (i) all obligations, liabilities and indebtedness of any kind, nature and description of any one or more of Borrowers to Lender and/or its affiliates, including principal, interest, charges, fees, costs and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, whether arising under the Loan Agreement, the other Financing Agreements or otherwise, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of the Loan Agreement or after the commencement of any case with respect to any Borrower under the United States Bankruptcy Code or any similar statute (including, without limitation, the payment of interest and other amounts, which would accrue and become due but for the commencement of such case and including loans, interest, fees, charges and expenses related thereto and all other obligations of any Borrower or its successors to Lender arising after the commencement of such case), whether direct or indirect, absolute or contingent, joint or several, primary or secondary, liquidated or unliquidated, secured or unsecured, and however acquired by Lender and (ii) all expenses (including, without limitation, attorneys' fees and legal expenses) incurred by Lender in connection with the preparation, execution, delivery, recording, administration, collection, liquidation, enforcement and defense of any one or more of Borrowers' obligations, liabilities and indebtedness as aforesaid to Lender, the rights of Lender in any collateral or under this Guarantee and all other Financing Agreements or in any way involving claims by or against Lender directly or indirectly arising out of or related to the relationships between any one or more of Borrower, any of Guarantors or any other Obligor (as hereinafter defined) and Lender, whether such expenses are incurred before, during or after the initial or any renewal term of the Loan Agreement and the other Financing Agreements or after the commencement of any case with respect to any Borrower or any of Guarantors under the United States Bankruptcy Code or any similar statute. (b) This Guarantee is a guaranty of payment and not of collection. Each of Guarantors agrees that Lender need not attempt to collect any Guaranteed Obligations from any Borrower, any one of Guarantors or any other Obligor or to realize upon any collateral, but may require any one of Guarantors to make immediate payment of all of the Guaranteed Obligations to Lender when due, whether by maturity, acceleration or otherwise, or at any time thereafter. Lender may apply any amounts received in respect of the Guaranteed Obligations to any of the Guaranteed Obligations, in whole or in part (including attorneys' fees and legal expenses incurred by Lender with respect thereto or otherwise chargeable to a Borrower or Guarantors) and in such order as Lender may elect. (c) Payment by Guarantors shall be made to Lender at the office of Lender from time to time on demand as Guaranteed Obligations become due. Guarantors shall make all payments to Lender on the Guaranteed Obligations free and clear of, and without deduction or withholding for or on account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts, fees, deductions, withholding, restrictions or conditions of any kind. One or more successive or concurrent actions may be brought hereon against any of - 2 - Guarantors either in the same action in which any one or more of Borrowers or any of the other Guarantors or any other Obligor is sued or in separate actions. In the event any claim or action, or action on any judgment, based on this Guarantee is brought against any of Guarantors, each of Guarantors agrees not to deduct, set-off, or seek any counterclaim for or recoup any amounts which are or may be owed by Lender to any of Guarantors. (d) Each Guarantor's obligations under this Guarantee constitute Obligations of such Guarantor under the Loan Agreement that are secured by all of the Collateral. 2. Waivers and Consents. (a) Notice of acceptance of this Guarantee, the making of loans and advances and providing other financial accommodations to any one or more of Borrowers and presentment, demand, protest, notice of protest, notice of nonpayment or default and all other notices to which any of Borrowers or any of Guarantors are entitled are hereby waived by each of Guarantors. Each of Guarantors also waives notice of and hereby consents to, (i) any amendment, modification, supplement, extension, renewal, or restatement of the Loan Agreement and any of the other Financing Agreements, including, without limitation, extensions of time of payment of or increase or decrease in the amount of any of the Guaranteed Obligations or any collateral, and the guarantee made herein shall apply to the Loan Agreement and the other Financing Agreements and the Guaranteed Obligations as so amended, modified, supplemented, renewed, restated or extended, increased or decreased, (ii) the taking, exchange, surrender and releasing of collateral or guarantees now or at any time held by or available to Lender for the obligations of any one or more of Borrowers or any other party at any time liable on or in respect of the Guaranteed Obligations or who is the owner of any property which is security for the Guaranteed Obligations (individually, an "Obligor" and collectively, the "Obligors"), including, without limitation, the surrender or release by Lender of any one of Guarantors hereunder, (iii) the exercise of, or refraining from the exercise of any rights against any of Borrowers, any of Guarantors or any other Obligor or any collateral, (iv) the settlement, compromise or release of, or the waiver of any default with respect to, any of the Guaranteed Obligations and (v) any financing by Lender of any one or more of Borrowers under Section 364 of the United States Bankruptcy Code or consent to the use of cash collateral by Lender under Section 363 of the United States Bankruptcy Code. Each of Guarantors agrees that the amount of the Guaranteed Obligations shall not be diminished and the liability of Guarantors hereunder shall not be otherwise impaired or affected by any of the foregoing. (b) No invalidity, irregularity or unenforceability of all or any part of the Guaranteed Obligations shall affect, impair or be a defense to this Guarantee, nor shall any other circumstance which might otherwise constitute a defense available to or legal or equitable discharge of any one or more of Borrowers in respect of any of the Guaranteed Obligations, or any one of Guarantors in respect of this Guarantee, affect, impair or be a defense to this Guarantee. Without limitation of the foregoing, the liability of Guarantors hereunder shall not be discharged or impaired in any respect by reason of any failure by Lender to perfect or continue perfection of any lien or security interest in any collateral or - 3 - any delay by Lender in perfecting any such lien or security interest. As to interest, fees and expenses, whether arising before or after the commencement of any case with respect to any Borrower under the United States Bankruptcy Code or any similar statute, Guarantors shall be liable therefor, even if such Borrower's liability for such amounts does not, or ceases to, exist by operation of law. (c) Each of Guarantors hereby irrevocably and unconditionally postpones and subordinates, to the prior payment in full of the Guaranteed Obligations, all statutory, contractual, common law, equitable and all other claims against each Borrower, any collateral for the Guaranteed Obligations or other assets of each Borrower or any other Obligor, for subrogation, reimbursement, exoneration, contribution, indemnification, setoff or other recourse in respect to sums paid or payable to Lender by each of Guarantors hereunder and each of Guarantors hereby further irrevocably and unconditionally postpones and subordinates, to the prior payment in full of the Guaranteed Obligations, any and all other benefits which Guarantors might otherwise directly or indirectly receive or be entitled to receive by reason of any amounts paid by or collected or due from Guarantors, any Borrower or any other Obligor upon the Guaranteed Obligations or realized from their property. 3. Subordination. Payment of all amounts now or hereafter owed to Guarantors by any Borrower or any other Obligor is hereby subordinated in right of payment to the indefeasible payment in full to Lender of the Guaranteed Obligations and all such amounts and any security and guarantees therefor are hereby assigned to Lender as security for the Guaranteed Obligations; provided, however, that when no Event of Default (as such term is defined in the Loan Agreement) shall have occurred and be continuing, Borrowers and other Obligors may make payments to Guarantors of such amounts in accordance with their terms and past practice. 4. Acceleration. Notwithstanding anything to the contrary contained herein or any of the terms of any of the other Financing Agreements, the liability of Guarantors for the entire Guaranteed Obligations shall mature and become immediately due and payable, even if the liability of any one or more of Borrowers or any other Obligor therefor does not, upon the occurrence of any act, condition or event which constitutes an Event of Default as such term is defined in the Loan Agreement. 5. Account Stated. The books and records of Lender showing the account between Lender and any one or more of Borrowers shall be admissible in evidence in any action or proceeding against or involving Guarantors as prima facie proof of the items therein set forth, and the monthly statements of Lender rendered to any Borrower, to the extent to which no written objection is made within thirty (30) days from the date of sending thereof to any Borrower, shall, absent manifest errors or omissions, be deemed conclusively correct and constitute an account stated between Lender and such Borrower and be binding on Guarantors. 6. Termination. This Guarantee is continuing, unlimited, absolute and unconditional. All Guaranteed Obligations shall be conclusively presumed to have been created in reliance - 4 - on this Guarantee. Each of Guarantors shall continue to be liable hereunder until one of Lender's officers actually receives a written termination notice from a Guarantor sent to Lender at is address set forth above by certified mail, return receipt requested and thereafter as set forth below. Such notice received by Lender from any one of Guarantors shall not constitute a revocation or termination of this Guarantee as to any of the other Guarantors. Revocation or termination hereof by any of Guarantors shall not affect, in any manner, the rights of Lender or any obligations or duties of any of Guarantors (including the Guarantor which may have sent such notice) under this Guarantee with respect to (a) Guaranteed Obligations which have been created, contracted, assumed or incurred prior to the receipt by Lender of such written notice of revocation or termination as provided herein, including, without limitation, (i) all amendments, extensions, renewals and modifications of such Guaranteed Obligations (whether or not evidenced by new or additional agreements, documents or instruments executed on or after such notice of revocation or termination), (ii) all interest, fees and similar charges accruing or due on and after revocation or termination, and (iii) all attorneys' fees and legal expenses, costs and other expenses paid or incurred on or after such notice of revocation or termination in attempting to collect or enforce any of the Guaranteed Obligations against any Borrower, Guarantors or any other Obligor (whether or not suit be brought), or (b) Guaranteed Obligations which have been created, contracted, assumed or incurred after the receipt by Lender of such written notice of revocation or termination as provided herein pursuant to any contract entered into by Lender prior to receipt of such notice. The sole effect of such revocation or termination by any of Guarantors shall be to exclude from this Guarantee the liability of such Guarantor for those Guaranteed Obligations arising after the date of receipt by Lender of such written notice which are unrelated to Guaranteed Obligations arising or transactions entered into prior to such date. Without limiting the foregoing, this Guarantee may not be terminated and shall continue so long as the Loan Agreement shall be in effect (whether during its original term or any renewal, substitution or extension thereof). 7. Reinstatement. If after receipt of any payment of, or proceeds of collateral applied to the payment of, any of the Guaranteed Obligations, Lender is required to surrender or return such payment or proceeds to any Person for any reason, then the Guaranteed Obligations intended to be satisfied by such payment or proceeds shall be reinstated and continue and this Guarantee shall continue in full force and effect as if such payment or proceeds had not been received by Lender. Each of Guarantors shall be liable to pay to Lender, and does indemnify and hold Lender harmless for the amount of any payments or proceeds surrendered or returned. This Section 7 shall remain effective notwithstanding any contrary action which may be taken by Lender in reliance upon such payment or proceeds. This Section 7 shall survive the termination or revocation of this Guarantee. 8. Amendments and Waivers. Neither this Guarantee nor any provision hereof shall be amended, modified, waived or discharged orally or by course of conduct, but only by a written agreement signed by an authorized officer of Lender. Lender shall not, by any act, delay, omission or otherwise be deemed to have expressly or impliedly waived any of its rights, powers and/or remedies unless such waiver shall in writing and signed by an authorized officer of Lender. Any such waiver shall be enforceable only to the extent - 5 - specifically set forth therein. A waiver by Lender of any right, power and/or remedy on any one occasion shall not be construed as a bar to or waiver of any such right, power and/or remedy which Lender would otherwise have on any future occasion, whether similar in kind or otherwise. 9. Corporate Existence, Power and Authority. Each of Guarantors is a corporation duly organized and in good standing under the laws of its state or other jurisdiction of incorporation and is duly qualified as a foreign corporation and in good standing in all states or other jurisdictions where the nature and extent of the business transacted by it or the ownership of assets makes such qualification necessary, except for those jurisdictions in which the failure to so qualify would not have a material adverse effect on the financial condition, results of operation or businesses of any of Guarantors or the rights of Lender hereunder or under any of the other Financing Agreements. The execution, delivery and performance of this Guarantee is within the corporate powers of each of Guarantors, have been duly authorized and is not in contravention of law or the terms of the certificates of incorporation, by-laws, or other organizational documentation of each of Guarantors, or any indenture, agreement or undertaking to which any of Guarantors is a party or by which any of Guarantors or its property are bound. This Guarantee constitutes the legal, valid and binding obligation of each of Guarantors enforceable in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors rights generally, and by general principles of equity (whether considered at law or in equity). Any one of Guarantors signing this Guarantee shall be bound hereby whether or not any of the other Guarantors or any other person signs this Guarantee at any time. 10. Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver. (a) The validity, interpretation and enforcement of this Guarantee and any dispute arising out of the relationship between any of Guarantors and Lender, whether in contract, tort, equity or otherwise, shall be governed by the internal laws of the State of New York (without giving effect to principles of conflicts of law). (b) Each of Guarantors hereby irrevocably consents and submits to the non-exclusive jurisdiction of the Supreme Court of the State of New York for New York County and the United States District Court for the Southern District of New York and waives any objection based on venue or forum non conveniens with respect to any action instituted therein arising under this Guarantee or any of the other Financing Agreements or in any way connected with or related or incidental to the dealings of any of Guarantors and Lender in respect of this Guarantee or any of the other Financing Agreements or the transactions related hereto or thereto, in each case whether now existing or hereafter arising and whether in contract, tort, equity or otherwise, and agrees that any dispute arising out of the relationship between any of Guarantors or any of Borrowers and Lender or the conduct of any such persons in connection with this Guarantee, the other Financing Agreements or otherwise shall be heard only in the courts described above (except that Lender shall have the right to bring any action or proceeding against any of Guarantors or its property in the courts of any other jurisdiction which Lender deems necessary or appropriate in order to realize on - 6 - collateral at any time granted by any of Borrowers or any of Guarantors to Lender or to otherwise enforce its rights against any of Guarantors or its property). (c) Each of Guarantors hereby waives personal service of any and all process upon it and consents that all such service of process may be made by certified mail (return receipt requested) directed to its address set forth on the signature pages hereof and service so made shall be deemed to be completed five (5) days after the same shall have been so deposited in the U.S. mails, or, at Lender's option, by service upon any of Guarantors in any other manner provided under the rules of any such courts. A copy of any service upon any of Guarantors shall be sent to Silverman, Collura & Chernis, P.C., 381 Park Avenue South, Suite 1601, New York, New York 10016, Attention: Peter R. Silverman, Esq., but the delivery of such copy shall not be a condition to the effectiveness of service upon any Guarantor. Within thirty (30) days after such service, any of Guarantors so served shall appear in answer to such process, failing which such Guarantors shall be deemed in default and judgment may be entered by Lender against Guarantors for the amount of the claim and other relief requested. (d) EACH OF GUARANTORS HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS GUARANTEE OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF ANY OF GUARANTORS AND LENDER IN RESPECT OF THIS GUARANTEE OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. EACH OF GUARANTORS HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY OF GUARANTORS OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF GUARANTORS AND LENDER TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. (e) Lender shall not have any liability to Guarantors (whether in tort, contract, equity or otherwise) for losses suffered by Guarantors in connection with, arising out of, or in any way related to the transactions or relationships contemplated by this Guarantee, or any act, omission or event occurring in connection herewith, unless it is determined by a final and non-appealable judgment or court order binding on Lender that the losses were the result of acts or omissions constituting gross negligence or willful misconduct. In any such litigation, Lender shall be entitled to the benefit of the rebuttable presumption that it acted in good faith and with the exercise of ordinary care in the performance by it of the terms of the Loan Agreement and the other Financing Agreements. 11. Notices. All notices, requests and demands hereunder shall be in writing and (a) made to Lender at its address set forth above and to each of Guarantors and to Atlantic Express Transportation Corp. (the "Parent") at its chief executive office set forth below, or - 7 - to such other address as a party may designate by written notice to the other in accordance with this provision, and (b) deemed to have been given or made: if delivered in person, immediately upon delivery; if by telex, telegram or facsimile transmission, immediately upon sending and upon confirmation of receipt; if by nationally recognized overnight courier service with instructions to deliver the next business day, one (1) business day after sending; and if by certified mail, return receipt requested, five (5) days after mailing. A copy of any notice given to a Guarantor shall be sent to Silverman, Collura & Chernis, P.C., 381 Park Avenue South, Suite 1601, New York, New York 10016, Attention: Peter R. Silverman, Esq. 12. Partial Invalidity. If any provision of this Guarantee is held to be invalid or unenforceable, such invalidity or unenforceability shall not invalidate this Guarantee as a whole, but this Guarantee shall be construed as though it did not contain the particular provision held to be invalid or unenforceable and the rights and obligations of the parties shall be construed and enforced only to such extent as shall be permitted by applicable law. 13. Entire Agreement. This Guarantee represents the entire agreement and understanding of this parties concerning the subject matter hereof, and supersedes all other prior agreements, understandings, negotiations and discussions, representations, warranties, commitments, proposals, offers and contracts concerning the subject matter hereof, whether oral or written. 14. Successors and Assigns. This Guarantee shall be binding upon Guarantors and their respective successors and assigns and shall inure to the benefit of Lender and its successors, endorsees, transferees and assigns. The liquidation, dissolution or termination of any of Guarantors shall not terminate this Guarantee as to such entity or as to any of the other Guarantors. 15. Construction. All references to the term "Guarantors" wherever used herein shall mean each and all of Guarantors and their respective successors and assigns, individually and collectively, jointly and severally (including, without limitation, any receiver, trustee or custodian for any of Guarantors or any of their respective assets or any of Guarantors in its capacity as debtor or debtor-in-possession under the United States Bankruptcy Code). All references to the term "Lender" wherever used herein shall mean Lender and its successors and assigns and all references to the term "Borrower" or "Borrowers" wherever used herein shall mean such Borrower or Borrowers, as the case may be, and their respective successors and assigns (including, without limitation, any receiver, trustee or custodian for a Borrower or any of its assets or a Borrower in its capacity as debtor or debtor-in-possession under the United States Bankruptcy Code). All references to the term "Person" or "person" wherever used herein shall mean any individual, sole proprietorship, partnership, corporation (including, without limitation, any corporation which elects subchapter S status under the Internal Revenue Code of 1986, as amended), business trust, unincorporated association, joint stock corporation, trust, joint venture or other entity or any government or any agency or instrumentality of political subdivision thereof. All references to the plural shall also mean the singular and to the singular shall also mean the plural. - 8 - 16. Guarantors' Representative. Each of the Guarantors hereby appoints the Parent as its agent and representative for the purposes of all communications and authorizations between such Guarantor and Lender in connection with this Guarantee or any of the other Financing Agreements, including, without limitation, giving notices to Lender and receiving notices from Lender and giving any direction or instruction to Lender contemplated by this Guarantee. Each of the Guarantors hereby authorizes and directs Lender to act in accordance with any and every authorization, request, notice, instruction, or direction received on such Guarantor's behalf from the Parent without requiring Lender to confirm such Guarantor's authorization therefor, and each Guarantor hereby releases Lender from and indemnifies Lender and holds Lender harmless against any liability, claim, loss, damages, cost, or expense arising from or relating in any way to Lender's acting upon such authorization, request, notice, instruction, or direction. Notwithstanding the foregoing, Lender may require a Guarantor to confirm such request, notice, instruction, or direction, or to execute personally any agreement or instrument between such Guarantor and Lender, whenever Lender in its sole discretion deems it necessary or desirable to do so. - 9 - IN WITNESS WHEREOF, each of Guarantors has executed and delivered this Guarantee as of the day and year first above written. AMBOY BUS CO., INC. By: ______________________________ Title: ___________________________ Chief Executive Office 7 North Street Staten Island, New York 10302 ATLANTIC-CONN. TRANSIT, INC. By: ______________________________ Title: ___________________________ Chief Executive Office 7 North Street Staten Island, New York 10302 ATLANTIC-HUDSON, INC. By: ______________________________ Title: ___________________________ Chief Executive Office 7 North Street Staten Island, New York 10302 ATLANTIC PARATRANS, INC. By: ______________________________ Title: ___________________________ Chief Executive Office 7 North Street Staten Island, New York 10302 ATLANTIC PARATRANS OF KENTUCKY INC. By: ______________________________ Title: ___________________________ Chief Executive Office 7 North Street Staten Island, New York 10302 ATLANTIC EXPRESS COACHWAYS, INC. By: ______________________________ Title: ___________________________ Chief Executive Office 7 North Street Staten Island, New York 10302 ATLANTIC EXPRESS OF MISSOURI INC. By: ______________________________ Title: ___________________________ Chief Executive Office 7 North Street Staten Island, New York 10302 ATLANTIC EXPRESS OF PENNSYLVANIA, INC. By: ______________________________ Title: ___________________________ Chief Executive Office 7 North Street Staten Island, New York 10302 BROOKFIELD TRANSIT, INC. By: ______________________________ Title: ___________________________ Chief Executive Office 7 North Street Staten Island, New York 10302 COURTESY BUS CO., INC. By: ______________________________ Title: ___________________________ Chief Executive Office 7 North Street Staten Island, New York 10302 K. CORR, INC. By: ______________________________ Title: ___________________________ Chief Executive Office 7 North Street Staten Island, New York 10302 MERIT TRANSPORTATION CORP. By: ______________________________ Title: ___________________________ Chief Executive Office 7 North Street Staten Island, New York 10302 METROPOLITAN ESCORT SERVICE, INC. By: ______________________________ Title: ___________________________ Chief Executive Office 7 North Street Staten Island, New York 10302 RAYBERN BUS SERVICE, INC. By: ______________________________ Title: ___________________________ Chief Executive Office 7 North Street Staten Island, New York 10302 RAYBERN CAPITAL CORP. By: ______________________________ Title: ___________________________ Chief Executive Office 7 North Street Staten Island, New York 10302 RAYBERN EQUITY CORP. By: ______________________________ Title: ___________________________ Chief Executive Office 7 North Street Staten Island, New York 10302 STATEN ISLAND BUS, INC. By: ______________________________ Title: ___________________________ Chief Executive Office 7 North Street Staten Island, New York 10302 - The undersigned irrevocably agrees to the terms set forth in Sections 11 and 16 above - ATLANTIC EXPRESS TRANSPORTATION CORP. By: ______________________________ Title: ___________________________ Chief Executive Office 7 North Street Staten Island, New York 10302 STATE OF ) ) ss.: COUNTY OF ) On this ____ day of February __, 1997, before me personally came _____________________, to me known, who stated that he is the ____________________ of Amboy Bus Co., Inc., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. _______________________________ Notary Public STATE OF ) ) ss.: COUNTY OF ) On this ____ day of February __, 1997, before me personally came _____________________, to me known, who stated that he is the ____________________ of Atlantic-Conn. Transit, Inc., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. _______________________________ Notary Public STATE OF ) ) ss.: COUNTY OF ) On this ____ day of February __, 1997, before me personally came _____________________, to me known, who stated that he is the ____________________ of Atlantic-Hudson, Inc., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. _______________________________ Notary Public STATE OF ) ) ss.: COUNTY OF ) On this ____ day of February __, 1997, before me personally came _____________________, to me known, who stated that he is the ____________________ of Atlantic Paratrans, Inc., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. _______________________________ Notary Public STATE OF ) ) ss.: COUNTY OF ) On this ____ day of February __, 1997, before me personally came _____________________, to me known, who stated that he is the ____________________ of Atlantic Paratrans of Kentucky Inc., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. _______________________________ Notary Public STATE OF ) ) ss.: COUNTY OF ) On this ____ day of February __, 1997, before me personally came _____________________, to me known, who stated that he is the ____________________ of Atlantic Express Coachways, Inc., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. _______________________________ Notary Public STATE OF ) ) ss.: COUNTY OF ) On this ____ day of February __, 1997, before me personally came _____________________, to me known, who stated that he is the ____________________ of Atlantic Express of Missouri Inc., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. _______________________________ Notary Public STATE OF ) ) ss.: COUNTY OF ) On this ____ day of February __, 1997, before me personally came _____________________, to me known, who stated that he is the ____________________ of Atlantic Express of Pennsylvania, Inc., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. _______________________________ Notary Public STATE OF ) ) ss.: COUNTY OF ) On this ____ day of February __, 1997, before me personally came _____________________, to me known, who stated that he is the ____________________ of Brookfield Transit, Inc., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. _______________________________ Notary Public STATE OF ) ) ss.: COUNTY OF ) On this ____ day of February __, 1997, before me personally came _____________________, to me known, who stated that he is the ____________________ of Courtesy Bus Co., Inc., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. _______________________________ Notary Public STATE OF ) ) ss.: COUNTY OF ) On this ____ day of February __, 1997, before me personally came _____________________, to me known, who stated that he is the ____________________ of K. Corr, Inc., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. _______________________________ Notary Public STATE OF ) ) ss.: COUNTY OF ) On this ____ day of February __, 1997, before me personally came _____________________, to me known, who stated that he is the ____________________ of Merit Transportation Corp., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. _______________________________ Notary Public STATE OF ) ) ss.: COUNTY OF ) On this ____ day of February __, 1997, before me personally came _____________________, to me known, who stated that he is the ____________________ of Metropolitan Escort Service, Inc., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. _______________________________ Notary Public STATE OF ) ) ss.: COUNTY OF ) On this ____ day of February __, 1997, before me personally came _____________________, to me known, who stated that he is the ____________________ of Raybern Bus Service, Inc., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. _______________________________ Notary Public STATE OF ) ) ss.: COUNTY OF ) On this ____ day of February __, 1997, before me personally came _____________________, to me known, who stated that he is the ____________________ of Raybern Capital Corp., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. _______________________________ Notary Public STATE OF ) ) ss.: COUNTY OF ) On this ____ day of February __, 1997, before me personally came _____________________, to me known, who stated that he is the ____________________ of Raybern Equity Corp., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. _______________________________ Notary Public STATE OF ) ) ss.: COUNTY OF ) On this ____ day of February __, 1997, before me personally came _____________________, to me known, who stated that he is the ____________________ of Staten Island Bus, Inc., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. _______________________________ Notary Public STATE OF ) ) ss.: COUNTY OF ) On this ____ day of February __, 1997, before me personally came _____________________, to me known, who stated that he is the ____________________ of Atlantic Express Transportation Corp., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. _______________________________ Notary Public EX-4.3 6 GUARANTEE 2/4/97 COMPANY (NON-BORROWER) Exhibit 4.3 EXECUTION COPY GUARANTEE February 4, 1997 Congress Financial Corporation 1133 Avenue of the Americas New York, New York 10036 Re: The parties identified as "Borrowers" in the Loan Agreement (as defined hereinbelow) (collectively the "Borrowers") Gentlemen: Congress Financial Corporation ("Lender") and Borrowers have entered into certain financing arrangements pursuant to which Lender may make loans and advances and provide other financial accommodations to Borrowers as set forth in the Loan and Security Agreement, dated February 4, 1997, by and between Borrowers, Atlantic Express Transportation Corp. and Lender (as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, the "Loan Agreement"), and other agreements, documents and instruments referred to therein or at any time executed and/or delivered in connection therewith or related thereto, including, but not limited to, this Guarantee (all of the foregoing, together with the Loan Agreement, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, being collectively referred to herein as the "Financing Agreements"). Due to the close business and financial relationships between each of the Borrowers and each and all of the undersigned (individually and collectively, "Guarantors"), in consideration of the benefits which will accrue to Guarantors and as an inducement for and in consideration of Lender making loans and advances and providing other financial accommodations to any one or more of Borrowers pursuant to the Loan Agreement and the other Financing Agreements, each of Guarantors hereby jointly and severally agrees in favor of Lender as follows: 1. Guarantee. a. Each of Guarantors absolutely and unconditionally, jointly and severally, guarantees and agrees to be liable for the full and indefeasible payment and performance when due of the following (all of which are collectively referred to herein as the "Guaranteed Obligations"): (1) all obligations, liabilities and indebtedness of any kind, nature and description of any one or more of Borrowers to Lender and/or its affiliates, including principal, interest, charges, fees, costs and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, whether arising under the Loan Agreement, the other Financing Agreements or otherwise, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of the Loan Agreement or after the commencement of any case with respect to any Borrower under the United States Bankruptcy Code or any similar statute (including, without limitation, the payment of interest and other amounts, which would accrue and become due but for the commencement of such case and including loans, interest, fees, charges and expenses related thereto and all other obligations of any Borrower or its successors to Lender arising after the commencement of such case), whether direct or indirect, absolute or contingent, joint or several, primary or secondary, liquidated or unliquidated, secured or unsecured, and however acquired by Lender and (2) all expenses (including, without limitation, attorneys' fees and legal expenses) incurred by Lender in connection with the preparation, execution, delivery, recording, administration, collection, liquidation, enforcement and defense of any one or more of Borrowers' obligations, liabilities and indebtedness as aforesaid to Lender, the rights of Lender in any collateral or under this Guarantee and all other Financing Agreements or in any way involving claims by or against Lender directly or indirectly arising out of or related to the relationships between any one or more of Borrower, any of Guarantors or any other Obligor (as hereinafter defined) and Lender, whether such expenses are incurred before, during or after the initial or any renewal term of the Loan Agreement and the other Financing Agreements or after the commencement of any case with respect to any Borrower or any of Guarantors under the United States Bankruptcy Code or any similar statute. b. This Guarantee is a guaranty of payment and not of collection. Each of Guarantors agrees that Lender need not attempt to collect any Guaranteed Obligations from any Borrower, any one of Guarantors or any other Obligor or to realize upon any collateral, but may require any one of Guarantors to make immediate payment of all of the Guaranteed Obligations to Lender when due, whether by maturity, acceleration or otherwise, or at any time thereafter. Lender may apply any amounts received in respect of the Guaranteed Obligations to any of the Guaranteed Obligations, in whole or in part (including attorneys' fees and legal expenses incurred by Lender with respect thereto or otherwise chargeable to a Borrower or Guarantors) and in such order as Lender may elect. c. Payment by Guarantors shall be made to Lender at the office of Lender from time to time on demand as Guaranteed Obligations become due. Guarantors shall make all payments to Lender on the Guaranteed Obligations free and clear of, and without deduction or withholding for or on account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts, fees, deductions, withholding, restrictions or conditions of any kind. One or more successive or concurrent actions may be brought hereon against any of Guarantors either in the same action in which any one or more of Borrowers or any of the other Guarantors or any other Obligor is sued or in separate actions. In the event any claim or action, or action on any judgment, based on this Guarantee is brought against any of Guarantors, each of Guarantors agrees not to deduct, set-off, or seek any counterclaim for or recoup any amounts which are or may be owed by Lender to any of Guarantors. 2 2. Waivers and Consents. a. Notice of acceptance of this Guarantee, the making of loans and advances and providing other financial accommodations to any one or more of Borrowers and presentment, demand, protest, notice of protest, notice of nonpayment or default and all other notices to which any of Borrowers or any of Guarantors are entitled are hereby waived by each of Guarantors. Each of Guarantors also waives notice of and hereby consents to, (1) any amendment, modification, supplement, extension, renewal, or restatement of the Loan Agreement and any of the other Financing Agreements, including, without limitation, extensions of time of payment of or increase or decrease in the amount of any of the Guaranteed Obligations or any collateral, and the guarantee made herein shall apply to the Loan Agreement and the other Financing Agreements and the Guaranteed Obligations as so amended, modified, supplemented, renewed, restated or extended, increased or decreased, (2) the taking, exchange, surrender and releasing of collateral or guarantees now or at any time held by or available to Lender for the obligations of any one or more of Borrowers or any other party at any time liable on or in respect of the Guaranteed Obligations or who is the owner of any property which is security for the Guaranteed Obligations (individually, an "Obligor" and collectively, the "Obligors"), including, without limitation, the surrender or release by Lender of any one of Guarantors hereunder, (3) the exercise of, or refraining from the exercise of any rights against any of Borrowers, any of Guarantors or any other Obligor or any collateral, (4) the settlement, compromise or release of, or the waiver of any default with respect to, any of the Guaranteed Obligations and (5) any financing by Lender of any one or more of Borrowers under Section 364 of the United States Bankruptcy Code or consent to the use of cash collateral by Lender under Section 363 of the United States Bankruptcy Code. Each of Guarantors agrees that the amount of the Guaranteed Obligations shall not be diminished and the liability of Guarantors hereunder shall not be otherwise impaired or affected by any of the foregoing. b. No invalidity, irregularity or unenforceability of all or any part of the Guaranteed Obligations shall affect, impair or be a defense to this Guarantee, nor shall any other circumstance which might otherwise constitute a defense available to or legal or equitable discharge of any one or more of Borrowers in respect of any of the Guaranteed Obligations, or any one of Guarantors in respect of this Guarantee, affect, impair or be a defense to this Guarantee. Without limitation of the foregoing, the liability of Guarantors hereunder shall not be discharged or impaired in any respect by reason of any failure by Lender to perfect or continue perfection of any lien or security interest in any collateral or any delay by Lender in perfecting any such lien or security interest. As to interest, fees and expenses, whether arising before or after the commencement of any case with respect to any Borrower under the United States Bankruptcy Code or any similar statute, Guarantors shall be liable therefor, even if such Borrower's liability for such amounts does not, or ceases to, exist by operation of law. c. Each of Guarantors hereby irrevocably and unconditionally postpones and subordinates, to the prior payment in full of the Guaranteed Obligations, all statutory, contractual, common law, equitable and all other claims against each Borrower, any collateral for the Guaranteed Obligations or other assets of each Borrower or any other 3 Obligor, for subrogation, reimbursement, exoneration, contribution, indemnification, setoff or other recourse in respect to sums paid or payable to Lender by each of Guarantors hereunder and each of Guarantors hereby further irrevocably and unconditionally postpones and subordinates, to the prior payment in full of the Guaranteed Obligations, any and all other benefits which Guarantors might otherwise directly or indirectly receive or be entitled to receive by reason of any amounts paid by or collected or due from Guarantors, any Borrower or any other Obligor upon the Guaranteed Obligations or realized from their property. 3. Subordination. Payment of all amounts now or hereafter owed to Guarantors by any Borrower or any other Obligor is hereby subordinated in right of payment to the indefeasible payment in full to Lender of the Guaranteed Obligations and all such amounts and any security and guarantees therefor are hereby assigned to Lender as security for the Guaranteed Obligations; provided, however, that when no Event of Default (as such term is defined in the Loan Agreement) shall have occurred and be continuing, Borrowers and other Obligors may make payments to Guarantors of such amounts in accordance with their terms and past practice. 4. Acceleration. Notwithstanding anything to the contrary contained herein or any of the terms of any of the other Financing Agreements, the liability of Guarantors for the entire Guaranteed Obligations shall mature and become immediately due and payable, even if the liability of any one or more of Borrowers or any other Obligor therefor does not, upon the occurrence of any act, condition or event which constitutes an Event of Default as such term is defined in the Loan Agreement. 5. Account Stated. The books and records of Lender showing the account between Lender and any one or more of Borrowers shall be admissible in evidence in any action or proceeding against or involving Guarantors as prima facie proof of the items therein set forth, and the monthly statements of Lender rendered to any Borrower, to the extent to which no written objection is made within thirty (30) days from the date of sending thereof to any Borrower, shall, absent manifest errors or omissions, be deemed conclusively correct and constitute an account stated between Lender and such Borrower and be binding on Guarantors. 6. Termination. This Guarantee is continuing, unlimited, absolute and unconditional. All Guaranteed Obligations shall be conclusively presumed to have been created in reliance on this Guarantee. Each of Guarantors shall continue to be liable hereunder until one of Lender's officers actually receives a written termination notice from a Guarantor sent to Lender at is address set forth above by certified mail, return receipt requested and thereafter as set forth below. Such notice received by Lender from any one of Guarantors shall not constitute a revocation or termination of this Guarantee as to any of the other Guarantors. Revocation or termination hereof by any of Guarantors shall not affect, in any manner, the rights of Lender or any obligations or duties of any of Guarantors (including the Guarantor which may have sent such notice) under this Guarantee with respect to a. Guaranteed Obligations which have been created, contracted, assumed or incurred prior to the receipt by Lender of such written notice of revocation or termination as provided herein, including, 4 without limitation, (1) all amendments, extensions, renewals and modifications of such Guaranteed Obligations (whether or not evidenced by new or additional agreements, documents or instruments executed on or after such notice of revocation or termination), (2) all interest, fees and similar charges accruing or due on and after revocation or termination, and (iii) all attorneys' fees and legal expenses, costs and other expenses paid or incurred on or after such notice of revocation or termination in attempting to collect or enforce any of the Guaranteed Obligations against any Borrower, Guarantors or any other Obligor (whether or not suit be brought), or b. Guaranteed Obligations which have been created, contracted, assumed or incurred after the receipt by Lender of such written notice of revocation or termination as provided herein pursuant to any contract entered into by Lender prior to receipt of such notice. The sole effect of such revocation or termination by any of Guarantors shall be to exclude from this Guarantee the liability of such Guarantor for those Guaranteed Obligations arising after the date of receipt by Lender of such written notice which are unrelated to Guaranteed Obligations arising or transactions entered into prior to such date. Without limiting the foregoing, this Guarantee may not be terminated and shall continue so long as the Loan Agreement shall be in effect (whether during its original term or any renewal, substitution or extension thereof). 7. Reinstatement. If after receipt of any payment of, or proceeds of collateral applied to the payment of, any of the Guaranteed Obligations, Lender is required to surrender or return such payment or proceeds to any Person for any reason, then the Guaranteed Obligations intended to be satisfied by such payment or proceeds shall be reinstated and continue and this Guarantee shall continue in full force and effect as if such payment or proceeds had not been received by Lender. Each of Guarantors shall be liable to pay to Lender, and does indemnify and hold Lender harmless for the amount of any payments or proceeds surrendered or returned. This Section 7 shall remain effective notwithstanding any contrary action which may be taken by Lender in reliance upon such payment or proceeds. This Section 7 shall survive the termination or revocation of this Guarantee. 8. Amendments and Waivers. Neither this Guarantee nor any provision hereof shall be amended, modified, waived or discharged orally or by course of conduct, but only by a written agreement signed by an authorized officer of Lender. Lender shall not, by any act, delay, omission or otherwise be deemed to have expressly or impliedly waived any of its rights, powers and/or remedies unless such waiver shall in writing and signed by an authorized officer of Lender. Any such waiver shall be enforceable only to the extent specifically set forth therein. A waiver by Lender of any right, power and/or remedy on any one occasion shall not be construed as a bar to or waiver of any such right, power and/or remedy which Lender would otherwise have on any future occasion, whether similar in kind or otherwise. 9. Corporate Existence, Power and Authority. Each of Guarantors is a corporation duly organized and in good standing under the laws of its state or other jurisdiction of incorporation and is duly qualified as a foreign corporation and in good standing in all states or other jurisdictions where the nature and extent of the business transacted by it or the ownership of assets makes such qualification necessary, except for those jurisdictions in 5 which the failure to so qualify would not have a material adverse effect on the financial condition, results of operation or businesses of any of Guarantors or the rights of Lender hereunder or under any of the other Financing Agreements. The execution, delivery and performance of this Guarantee is within the corporate powers of each of Guarantors, have been duly authorized and is not in contravention of law or the terms of the certificates of incorporation, by-laws, or other organizational documentation of each of Guarantors, or any indenture, agreement or undertaking to which any of Guarantors is a party or by which any of Guarantors or its property are bound. This Guarantee constitutes the legal, valid and binding obligation of each of Guarantors enforceable in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors rights generally, and by general principles of equity (whether considered at law or in equity). Any one of Guarantors signing this Guarantee shall be bound hereby whether or not any of the other Guarantors or any other person signs this Guarantee at any time. 10. Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver. a. The validity, interpretation and enforcement of this Guarantee and any dispute arising out of the relationship between any of Guarantors and Lender, whether in contract, tort, equity or otherwise, shall be governed by the internal laws of the State of New York (without giving effect to principles of conflicts of law). b. Each of Guarantors hereby irrevocably consents and submits to the non-exclusive jurisdiction of the Supreme Court of the State of New York for New York County and the United States District Court for the Southern District of New York and waives any objection based on venue or forum non conveniens with respect to any action instituted therein arising under this Guarantee or any of the other Financing Agreements or in any way connected with or related or incidental to the dealings of any of Guarantors and Lender in respect of this Guarantee or any of the other Financing Agreements or the transactions related hereto or thereto, in each case whether now existing or hereafter arising and whether in contract, tort, equity or otherwise, and agrees that any dispute arising out of the relationship between any of Guarantors or any of Borrowers and Lender or the conduct of any such persons in connection with this Guarantee, the other Financing Agreements or otherwise shall be heard only in the courts described above (except that Lender shall have the right to bring any action or proceeding against any of Guarantors or its property in the courts of any other jurisdiction which Lender deems necessary or appropriate in order to realize on collateral at any time granted by any of Borrowers or any of Guarantors to Lender or to otherwise enforce its rights against any of Guarantors or its property). c. Each of Guarantors hereby waives personal service of any and all process upon it and consents that all such service of process may be made by certified mail (return receipt requested) directed to its address set forth on the signature pages hereof and service so made shall be deemed to be completed five (5) days after the same shall have been so deposited in the U.S. mails, or, at Lender's option, by service upon any of Guarantors in any other manner provided under the rules of any such courts. A copy of any service upon any of Guarantors shall be sent to Silverman, Collura & Chernis, P.C., 381 Park Avenue South, 6 Suite 1601, New York, New York 10016, Attention: Peter R. Silverman, Esq., but the delivery of such copy shall not be a condition to the effectiveness of service upon any Guarantor. Within thirty (30) days after such service, any of Guarantors so served shall appear in answer to such process, failing which such Guarantors shall be deemed in default and judgment may be entered by Lender against Guarantors for the amount of the claim and other relief requested. d. EACH OF GUARANTORS HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING UNDER THIS GUARANTEE OR ANY OF THE OTHER FINANCING AGREEMENTS OR (2) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF ANY OF GUARANTORS AND LENDER IN RESPECT OF THIS GUARANTEE OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. EACH OF GUARANTORS HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY OF GUARANTORS OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF GUARANTORS AND LENDER TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. e. Lender shall not have any liability to Guarantors (whether in tort, contract, equity or otherwise) for losses suffered by Guarantors in connection with, arising out of, or in any way related to the transactions or relationships contemplated by this Guarantee, or any act, omission or event occurring in connection herewith, unless it is determined by a final and non-appealable judgment or court order binding on Lender that the losses were the result of acts or omissions constituting gross negligence or willful misconduct. In any such litigation, Lender shall be entitled to the benefit of the rebuttable presumption that it acted in good faith and with the exercise of ordinary care in the performance by it of the terms of the Loan Agreement and the other Financing Agreements. 11. Notices. All notices, requests and demands hereunder shall be in writing and (a) made to Lender at its address set forth above and to each of Guarantors at its chief executive office set forth below, or to such other address as a party may designate by written notice to the other in accordance with this provision, and (b) deemed to have been given or made: if delivered in person, immediately upon delivery; if by telex, telegram or facsimile transmission, immediately upon sending and upon confirmation of receipt; if by nationally recognized overnight courier service with instructions to deliver the next business day, one (1) business day after sending; and if by certified mail, return receipt requested, five (5) days after mailing. A copy of any notice given to a Guarantor shall be sent to Silverman, Collura & Chernis, P.C., 381 Park Avenue South, Suite 1601, New York, New York 10016, Attention: Peter R. Silverman, Esq. 7 12. Partial Invalidity. If any provision of this Guarantee is held to be invalid or unenforceable, such invalidity or unenforceability shall not invalidate this Guarantee as a whole, but this Guarantee shall be construed as though it did not contain the particular provision held to be invalid or unenforceable and the rights and obligations of the parties shall be construed and enforced only to such extent as shall be permitted by applicable law. 13. Entire Agreement. This Guarantee represents the entire agreement and understanding of this parties concerning the subject matter hereof, and supersedes all other prior agreements, understandings, negotiations and discussions, representations, warranties, commitments, proposals, offers and contracts concerning the subject matter hereof, whether oral or written. 14. Successors and Assigns. This Guarantee shall be binding upon Guarantors and their respective successors and assigns and shall inure to the benefit of Lender and its successors, endorsees, transferees and assigns. The liquidation, dissolution or termination of any of Guarantors shall not terminate this Guarantee as to such entity or as to any of the other Guarantors. 15. Construction. All references to the term "Guarantors" wherever used herein shall mean each and all of Guarantors and their respective successors and assigns, individually and collectively, jointly and severally (including, without limitation, any receiver, trustee or custodian for any of Guarantors or any of their respective assets or any of Guarantors in its capacity as debtor or debtor-in-possession under the United States Bankruptcy Code). All references to the term "Lender" wherever used herein shall mean Lender and its successors and assigns and all references to the term "Borrower" or "Borrowers" wherever used herein shall mean such Borrower or Borrowers, as the case may be, and their respective successors and assigns (including, without limitation, any receiver, trustee or custodian for a Borrower or any of its assets or a Borrower in its capacity as debtor or debtor-in-possession under the United States Bankruptcy Code). All references to the term "Person" or "person" wherever used herein shall mean any individual, sole proprietorship, partnership, corporation (including, without limitation, any corporation which elects subchapter S status under the Internal Revenue Code of 1986, as amended), business trust, unincorporated association, joint stock corporation, trust, joint venture or other entity or any government or any agency or instrumentality of political subdivision thereof. All references to the plural shall also mean the singular and to the singular shall also mean the plural. 8 16. Guarantors' Representative. Each of the Guarantors hereby appoints Atlantic Express Transportation Corp. (the "Parent") as its agent and representative for the purposes of all communications and authorizations between such Guarantor and Lender in connection with this Guarantee or any of the other Financing Agreements, including, without limitation, giving notices to Lender and receiving notices from Lender and giving any direction or instruction to Lender contemplated by this Guarantee. Each of the Guarantors hereby authorizes and directs Lender to act in accordance with any and every authorization, request, notice, instruction, or direction received on such Guarantor's behalf from the Parent without requiring Lender to confirm such Guarantor's authorization therefor, and each Guarantor hereby releases Lender from and indemnifies Lender and holds Lender harmless against any liability, claim, loss, damages, cost, or expense arising from or relating in any way to Lender's acting upon such authorization, request, notice, instruction, or direction. Notwithstanding the foregoing, Lender may require a Guarantor to confirm such request, notice, instruction, or direction, or to execute personally any agreement or instrument between such Guarantor and Lender, whenever Lender in its sole discretion deems it necessary or desirable to do so. [THIS SPACE INTENTIONALLY LEFT BLANK] 9 IN WITNESS WHEREOF, each of Guarantors has executed and delivered this Guarantee as of the day and year first above written. GUARANTOR ATLANTIC EXPRESS TRANSPORTATION CORP. By:_______________________________ Title:____________________________ CHIEF EXECUTIVE OFFICE: 7 North Street Staten Island, New York 10302 GUARANTOR BLOCK 7932, INC. By:_______________________________ Title:____________________________ CHIEF EXECUTIVE OFFICE: 7 North Street Staten Island, New York 10302 GUARANTOR G.V.D. LEASING CO., INC. By:_______________________________ Title:____________________________ CHIEF EXECUTIVE OFFICE: 7 North Street Staten Island, New York 10302 GUARANTOR 180 JAMAICA CORP. By:_______________________________ Title:____________________________ CHIEF EXECUTIVE OFFICE: 7 North Street Staten Island, New York 10302 GUARANTOR METRO AFFILIATES, INC. By:_______________________________ Title:____________________________ CHIEF EXECUTIVE OFFICE: 7 North Street Staten Island, New York 10302 GUARANTOR MIDWAY LEASING INC. By:_______________________________ Title:____________________________ CHIEF EXECUTIVE OFFICE: 7 North Street Staten Island, New York 10302 GUARANTOR TEMPORARY TRANSIT SERVICE, INC. By:_______________________________ Title:____________________________ CHIEF EXECUTIVE OFFICE: 7 North Street Staten Island, New York 10302 STATE OF ) ) ss.: COUNTY OF ) On this ____ day of February __, 1997, before me personally came _____________________, to me known, who stated that he is the ____________________ of Atlantic Express Transportation Corp., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. __________________________ Notary Public STATE OF ) ) ss.: COUNTY OF ) On this ____ day of February __, 1997, before me personally came _____________________, to me known, who stated that he is the ____________________ of Block 7932, Inc., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. __________________________ Notary Public STATE OF ) ) ss.: COUNTY OF ) On this ____ day of February __, 1997, before me personally came _____________________, to me known, who stated that he is the ____________________ of G.V.D. Leasing Co., Inc., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. __________________________ Notary Public STATE OF ) ) ss.: COUNTY OF ) On this ____ day of February __, 1997, before me personally came _____________________, to me known, who stated that he is the ____________________ of 180 Jamaica Corp., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. __________________________ Notary Public STATE OF ) ) ss.: COUNTY OF ) On this ____ day of February __, 1997, before me personally came _____________________, to me known, who stated that he is the ____________________ of Metro Affiliates, Inc., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. __________________________ Notary Public STATE OF ) ) ss.: COUNTY OF ) On this ____ day of February __, 1997, before me personally came _____________________, to me known, who stated that he is the ____________________ of Midway Leasing Inc., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. __________________________ Notary Public STATE OF ) ) ss.: COUNTY OF ) On this ____ day of February __, 1997, before me personally came _____________________, to me known, who stated that he is the ____________________ of Temporary Transit Service, Inc., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. __________________________ Notary Public EX-4.4 7 SECUITY AND PLEDGE AGREEMENT 2/4/97 Exhibit 4.4 ------------------------------------------------ SECURITY AND PLEDGE AGREEMENT among ATLANTIC EXPRESS TRANSPORTATION GROUP INC., ATLANTIC EXPRESS TRANSPORTATION CORP., CERTAIN OF ITS SUBSIDIARIES PARTY HERETO and THE BANK OF NEW YORK, as Trustee and Secured Party Dated as of February 4, 1997. ------------------------------------------------ SECURITY AND PLEDGE AGREEMENT THIS SECURITY AND PLEDGE AGREEMENT, dated as of February 4, 1997 (the "Security Agreement"), is entered into among ATLANTIC EXPRESS TRANSPORTATION GROUP INC. (together with its successors and assigns, "AETG"), ATLANTIC EXPRESS TRANSPORTATION CORP., a New York corporation and a subsidiary of AETG (together with its successors and assigns, the "Company"), the subsidiaries of the Company that are party hereto (collectively, together with their permitted successors and assigns, the "Restricted Subsidiaries"), and THE BANK OF NEW YORK, as the trustee under the Indenture (defined below) for the benefit of the holders of the Notes (defined below) (together with its successors and assigns, "Secured Party"). NOW, THEREFORE, in consideration of the premises and the covenants set forth herein and in the Indenture, the parties hereto agree as follows. ARTICLE I DEFINITIONS 1.1 Defined Terms. As used herein, capitalized terms defined in the Indenture and not otherwise defined herein are used herein as so defined. All terms defined in the UCC (defined below) and not otherwise defined herein or in the Indenture shall have the meanings assigned to them in the UCC. "Accounts" shall mean all present and future rights of the Company and each Restricted Subsidiary to payment for goods sold or leased or for services rendered, which are not evidenced by instruments or chattel paper, and whether or not earned by performance. "Affiliate" of any specified Person shall mean any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with") shall mean, with respect to any Person: (i) the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; (ii) in the case of a corporation, beneficial ownership of 10% or more of any class of Capital Stock of such Person; and (iii) in the case of an individual, (A) members of such Person's immediate family (as defined in Instruction 2 of Item 404(a) of Regulation S-K promulgated under the Securities Act of 1933, as amended, as in effect on the date hereof), and (B) trusts, any trustee or beneficiary of which is such Person or members of such Person's immediate family. Notwithstanding the foregoing definitions, none of Jefferies & Company, Inc. and its Affiliates shall be considered Affiliates of the Company or any of its Subsidiaries. "Capital Stock" shall mean (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interest (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Collateral" shall have the meaning assigned to it in Article II hereof. "Indenture" shall mean the Indenture, dated February 4, 1997, among the Company, the Restricted Subsidiaries and the Secured Party. "Intercreditor Agreement" shall mean the Intercreditor Agreement, dated February 4, 1997, between the Lender and the Secured Party. "Inventory" shall mean all of the Company's and each Restricted Subsidiary's now owned and hereafter existing or acquired inventory consisting of fuel and oil and other supplies used or useful in the business of the Company and each Restricted Subsidiary and spare parts for vehicles, wherever located. "Lender" shall mean Congress Financial Corporation, as lender under the Loan Agreement. "Loan Agreement" shall mean the Loan and Security Agreement, dated February 4, 1997, among the Lender, certain subsidiaries of the Company, as borrowers, and the Company, as guarantor. "Majority Holders" shall mean the Holder or Holders of a majority in aggregate principal amount of the outstanding Notes. "Notes" shall mean the 10 3/4% Senior Secured Notes due 2004 of the Company, in the aggregate principal amount of $110,000,000. "Person" or "person" shall mean and include any individual, sole proprietorship, partnership, corporation (including, without limitation, any corporation which elects subchapter S status under the Internal Revenue Code of 1986, as amended) limited liability company, business trust, unincorporated association, joint stock corporation, trust, joint 2 venture or other entity or any government or any agency or instrumentality or political subdivision thereof. "Purchase Agreement" shall mean the Purchase Agreement, dated January 30, 1997, among the Company, AETG, Jefferies & Company, Inc., as the purchaser, and each Restricted Subsidiary. "Records" shall mean all of the present and future books of account of every kind or nature of the Company and each Restricted Subsidiary, purchase and sale agreements, invoices, ledger cards, bills of lading and other shipping evidence, statements, correspondence, memoranda, credit files and other data relating to the Collateral or any account debtor, together with the tapes, disks, diskettes and other data and software storage media and devices, file cabinets or containers in or on which the foregoing are stored (including any rights of the Company or any Restricted Subsidiary with respect to the foregoing maintained with or by any other person). "Secured Parties" shall mean the collective reference to the Secured Party and each Holder of the Notes. "Securities" shall have the meaning assigned to it in Article II hereof. "Stockholders' Agreement" shall mean the Stockholders' Agreement, dated as of February 28, 1994, by and among AETG and each of the parties signatory thereto, as amended by the First Amendment to the Stockholders' Agreement, dated as of January 30, 1997, among AETG and each of the parties signatory thereto. "Subsidiary" shall mean with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Voting Stock is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of such Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such person or (b) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof); provided, however, that for the purposes of this Security Agreement, Atlantic North Casualty Company shall not be considered a Subsidiary of the Company except as otherwise expressly provided herein. "UCC" shall mean the Uniform Commercial Code as in effect from time to time in the State of New York. "Voting Stock" shall mean, with respect to any Person: (a) one or more classes of the Capital Stock of such Person having general voting power to elect at least a majority of the board of directors, managers, or trustees of such Person (irrespective of whether or not at the time Capital Stock of any 3 other class or classes has or might have voting power by reason of the happening of any contingency); and (b) any Capital Stock of such Person convertible or exchangeable without restriction at the option of the holder thereof into Capital Stock of such Person described in clause (a) of this definition. ARTICLE II GRANT OF SECURITY INTERESTS 2.1 Security Interest. As security for the prompt and complete payment and performance in full of all the Obligations, the Company and the Restricted Subsidiaries hereby grants to the Secured Party, for the benefit of itself and the Holders, a security interest in and continuing lien on, all of their right, title and interest in, to and under the following, in each case, whether now owned or existing or hereafter acquired or arising, and wherever located (all of which being the "Non-Security Collateral"): (i) Accounts; (ii) subject to the final paragraph of this Section 2.1, all present and future contract rights (including, without limitation, all rights under service contracts pursuant to which the Company or any Restricted Subsidiary renders its services to its customers, which rights shall include any and all rights to all retainages which may arise thereunder), general intangibles (including, but not limited to, tax and duty refunds, patents, trade secrets, trademarks, service marks, copyrights, trade names, applications and registrations for the foregoing, goodwill, processes, drawings, blueprints, customer lists, licenses, whether as licensor or licensee, choses in action and other claims), chattel paper, documents, instruments, letters of credit, bankers' acceptances and guaranties; (iii) all present and future monies, securities, credit balances, deposits, deposit accounts and other property of the Company or any Restricted Subsidiary now or hereafter held or received by or in transit to Lender or its Affiliates or at any other depository or other institution from or for the account of the Company or any Restricted Subsidiary, whether for safekeeping, pledge, custody, transmission, collection or otherwise, and all present and future liens, security interests, rights, remedies, title and interest in, to and in respect of Accounts and other Non-Security Collateral, including, without limitation, (a) rights and remedies under or relating to guaranties, contracts of suretyship, letters of credit and credit and other insurance related to the Non-Security Collateral, (b) rights of stoppage in transit, replevin, repossession, reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, (c) goods described in invoices, documents, contracts or 4 instruments with respect to, or otherwise representing or evidencing, Accounts or other Non-Security Collateral, including, without limitation, returned, repossessed and reclaimed goods, and (d) deposits by and property of account debtors or other persons securing the obligations of account debtors; (iv) Inventory; (v) Records; and (vi) all products and proceeds of the foregoing, in any form, including without limitation, insurance proceeds and all claims against third parties for loss or damage to or destruction of any or all of the foregoing. In no event shall the Secured Party's security interest in a contract or agreement of the Company or any Restricted Subsidiary be deemed to be a present assignment, transfer, cponveyance, subletting or other disposition (an "Assignment") of such contract or agreement to the Secured Party within the meaning of any provision in such contract or agreement prohibiting, or requiring any consent or establishing any other conditions for, an assignment thereof by the Company or any Restricted Subsidiary. The Secured Party acknowledges that any sale, transfer or Assignment of any such contract or agreement upon the enforcement of the Secured Party's security interest therein would be subject to the terms of such contract or agreement governing Assignment, except as otherwise provided in Section 9-318 of the UCC. The Secured Party's security interest in each contract or agreement of the Company or any Restricted Subsidiary shall attach from the date hereof to all of the following, whether now existing or hereafter arising or acquired: (i) all of the Company's and each Restricted Subsidiary's Accounts and general intangibles for money due or to become due arising under such contract or agreement; (ii) all proceeds paid or payable to the Company or any Restricted Subsidiary from any sale, transfer or assignment of such contract or agreement and all rights to receive such proceeds; and (iii) all other rights and interests of the Company or any Restricted Subsidiary in, to and under such contract or agreement to the fullest extent that attachment thereto would not be a violation of such contract or agreement directly or indirectly entitling a party thereto (other than the Company or any Restricted Subsidiary or Affiliate thereof) to a legally enforceable right to terminate such contract or agreement. 2.2 Pledge. As security for the prompt and complete payment and performance in full of all the Obligations, each of AETG, the Company and each Restricted Subsidiary hereby pledges, assigns, transfers, sets over and delivers unto the Secured Party, for the benefit of itself and the Holders, and hereby grants to the Secured Party, for the benefit of itself and the Holders, a continuing security interest in all of the right, title and interest of AETG, the Company or any Restricted 5 Subsidiary in, to and under any and all of the following described property, rights and interests, whether now owned or hereafter acquired: (i) the issued and outstanding shares of capital stock of the Company and the Subsidiaries identified on Schedule I hereto as owned by AETG and the Company, respectively, on the date hereof and all shares of capital stock of the Company and the Subsidiaries acquired by AETG, the Company or any Restricted Subsidiary after the date hereof (collectively, the "Pledged Stock") and all certificate(s) representing such capital stock; and 2.3 all proceeds and products of the Pledged Stock and such other additional property, including without limitation dividends, distributions, cash, instruments and other property or securities, now or hereafter at any time or from time to time received or receivable or otherwise distributed or distributable in respect of or in exchange for any or all of the Pledged Stock and such other additional property (together with the Pledged Stock, the "Securities" and, the Securities together with the Non-Security Collateral, the "Collateral"); TO HAVE AND TO HOLD the Securities, together with all rights, titles, interests, powers, privileges and preferences pertaining or incidental thereto, unto the Secured Party and their respective successors and assigns. ARTICLE III REPRESENTATIONS AND WARRANTIES Each of AETG, the Company and each Restricted Subsidiary hereby jointly and severally represents and warrants to the Secured Party, which representations and warranties shall survive execution and delivery of this Security Agreement, as follows: 3.1 Validity, Perfection and Priority. (a) The security interests in the Collateral granted to the Secured Party hereunder constitute valid and continuing security interests in the Collateral. (b) The security interests in the Collateral granted to the Secured Party hereunder will constitute perfected security interests therein, to the extent that such security interests may be perfected by the actions described in subsection (i), (ii) and (iii), superior and prior to all Liens and rights or claims of all other Persons, subject only to the terms of the Intercreditor Agreement upon (i) the filing of financing statements naming the Company or any Restricted Subsidiary as "debtor" and the Secured Party as "secured party" and describing the Non-Security Collateral in the filing offices set forth on Schedule 6 II hereto, (ii) to the extent not subject to Article 9 of the Uniform Commercial Code in any applicable jurisdiction, the recordation of the security interests granted hereunder in patents, trademarks and copyrights in the applicable patent, trademark and copyright registries and the registration of all copyrights, and (iii) the delivery of certificates and instruments evidencing all of the Securities identified on Schedule I hereto to the Secured Party, indorsed in blank or accompanied by undated stock powers duly executed in blank, as the case may be, with respect thereto. 3.2 No Liens; Other Financing Statements. (a) Except for the Lien granted to the Secured Party hereunder and the Lien granted to the Lender under the Loan Agreement, the Company and each Restricted Subsidiary owns and, as to all Collateral whether now existing or hereafter acquired will continue to own, each item of the Collateral free and clear of all Liens, rights and claims, and the Company and each Restricted Subsidiary shall defend the Collateral against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to the Secured Party on the Collateral entitled to priority therein under applicable law. (b) No financing statement or other evidence of Lien covering or purporting to cover any of the Collateral is on file and is effective in any public office other than (i) financing statements filed or to be filed in connection with the security interests granted to the Secured Party hereunder, (ii) financing statements filed in connection with the Loan Agreement, and (iii) financing statements for which proper, executed termination statements have been delivered to the Secured Party for filing. 3.3 Chief Executive Office. The chief executive office of the Company and each Restricted Subsidiary is 7 North Street, Staten Island, New York 10302. The originals of the Records are located at such chief executive office of the Company. All Records are maintained at, and controlled and directed (including, without limitation, for general accounting purposes) from the chief executive office or other offices identified on Schedule III as such. 3.4 Location of Inventory. All Inventory is kept only at (or shall be in transit to) the locations listed on Schedule III hereto. None of such Inventory is in the possession of an issuer of a negotiable document (as defined in Section 7-104 of the UCC) therefor or otherwise in the possession of a bailee or other Person. 3.5 Tradenames; Prior Names. The only names under which the Company or any Restricted Subsidiary has conducted business during the last five years are as set forth on Schedule IV hereto. 7 3.6 Pledged Securities. (a) AETG and the Company are the legal, record and beneficial owners of, and have good title to, the Securities listed on Schedule I hereto and such Securities are not subject to any put, call, option or other right in favor of any other Person whatsoever, (b) except for the capital stock of the Subsidiaries of AETG that are not engaged in the transportation business, the Securities listed on Schedule I hereto constitute all of the capital stock or other ownership or equity interests owned legally or beneficially by AETG, the Company or any Restricted Subsidiary and all other instruments in which AETG, the Company or any Restricted Subsidiary has a legal or beneficial ownership interest on the date hereof, (c) neither AETG, the Company, nor any Restricted Subsidiary has options or other rights to acquire any capital stock or other ownership or equity interests of any other Person, (d) neither AETG, the Company nor any Restricted Subsidiary is a party to or bound by any agreement with any other Person (including, without limitation, any Subsidiary or any other stockholder of any Subsidiary) that restricts the ability of AETG, the Company or any Restricted Subsidiary to vote, transfer or dispose of any capital stock or any of the other Securities, except for such restrictions on AETG under the Stockholders' Agreement, (e) other than the consent of the Commissioner of the Vermont Department of Banking, Insurance, Securities and Health Care Administration (the "Vermont Department") for the pledge, voting, and the exercise of other corporate rights by the Secured Party, whether in connection with the exercise of remedies pursuant to this Security Agreement or otherwise, with respect to the shares of capital stock of Atlantic North Casualty Company pledged hereunder, which consent for the pledge of Securities hereunder has already been obtained, no consent of any other Person is required to be obtained in connection with the pledge of any of the Securities or the consummation of the other transactions contemplated hereby, including, without limitation, the exercise by the Secured Party of the voting or other rights provided for in this Security Agreement with respect to the Securities or the remedies in respect of the Securities provided pursuant to this Security Agreement, and (f) all of the Securities listed on Schedule I have been duly and validly issued, and are fully paid and nonassessable. 3.7 Receivables. (a) Each Account arises from the actual and bonafide sale and delivery of goods by the Company or a Restricted Subsidiary or rendition of services by the Company or a Restricted Subsidiary in the ordinary course of its business which transactions are completed in all material respects with those terms and provisions contained in any document related thereto. (b) The representations and warranties contained in this Section shall be deemed to be repeated by the Company and each Restricted Subsidiary as of the time when each Account arises. 8 3.8 Intellectual Property. (a) Schedule IV sets forth (i) all United States, state and foreign registrations of and applications for patents, trademarks, servicemarks and copyrights of the Company and each Restricted Subsidiary and (ii) all patent licenses, trademark and servicemark licenses and copyright licenses material to the business of the Company and the Restricted Subsidiaries; and (b) the Company and each Restricted Subsidiary owns, or has valid rights to use, all patents, trademarks, trade secrets, copyrights, and similar intellectual property rights material to the business of the Company and the Restricted Subsidiaries and used in the conduct of the Company's or any Restricted Subsidiary's business. 3.9 Basic Representations and Warranties. Each of AETG, the Company and each Restricted Subsidiary (a) is duly organized and validly existing in good standing (except in the case of the Restricted Subsidiaries identified on Schedule 3.9 hereto, where the failure to be in good standing would not, in the aggregate, have a Material Adverse Effect (as defined in the Purchase Agreement)) under the laws of the jurisdiction of its formation or other jurisdiction in which it is qualified to do business; (b) has the power and authority to execute, deliver and carry out the terms and provisions of this Security Agreement and consummate the transactions contemplated hereby; (c) has taken all necessary action to authorize the execution, delivery and performance of this Security Agreement and the consummation of the transactions contemplated hereby; and (d) has duly executed and delivered this Security Agreement. This Security Agreement constitutes each such party's legal, valid and binding obligation, enforceable against each such party in accordance with its terms. ARTICLE IV COVENANTS Each of AETG, the Company and each Restricted Subsidiary jointly and severally, covenants and agrees with the Secured Party that from and after the date of this Security Agreement: 4.1 Further Assurances. Each of AETG, the Company and each Restricted Subsidiary will from time to time at its own expense, promptly execute, deliver, file and record all further instruments, indorsements and other documents, and take such further action as the Secured Party may deem necessary or desirable in obtaining the full benefits of this Security Agreement and of the rights, remedies and powers herein granted, including, without limitation, the following: 9 (i) the filing of any financing statements, in form acceptable to the Secured Party under the Uniform Commercial Code in effect in any jurisdiction with respect to the liens and security interests granted hereby (and each of AETG, the Company and each Restricted Subsidiary hereby (x) authorizes the Secured Party to file any such financing statement without its respective signature to the extent permitted by applicable law and (y) agrees that a photocopy or other reproduction of this Security Agreement shall be sufficient as a financing statement and may be filed in lieu of the original to the extent permitted by applicable law); and (ii) furnish to the Secured Party from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Secured Party may request, all in reasonable detail and in form satisfactory to the Secured Party. 4.2 Change of Name, Identity, Corporate Structure, Chief Executive Office, or Location of Inventory. Neither the Company nor any Restricted Subsidiary will change its name, identity, corporate structure or the location of its chief executive office or location of its Inventory without (i) giving the Secured Party at least thirty (30) days' prior written notice clearly describing such new name, identity, corporate structure or new location and providing such other information in connection therewith as the Secured Party may reasonably request, and (ii) taking all action reasonably satisfactory to the Secured Party as the Secured Party may reasonably request to maintain the security interest of the Secured Party in the Collateral intended to be granted hereby at all times fully perfected with the same or better priority and in full force and effect. All Accounts and Records of the Company and each Restricted Subsidiary will continue to be maintained at, and controlled and directed (including, without limitation, for general accounting purposes) from, such chief executive office or a location identified as a location at which Accounts or Records are maintained, controlled and directed on Schedule III, or such new locations as the Company or any Restricted Subsidiary may establish in accordance with this Section 4.2. 4.3 Maintain Records. The Company and each Restricted Subsidiary will keep and maintain at its own cost and expense satisfactory and complete records of the Collateral, including, but not limited to, the originals of all documentation with respect to all Accounts and records of all payments received and all credits granted on the Accounts, and all other dealings therewith. 4.4 Right of Inspection. The Secured Party shall at all times have full and free access during normal business hours 10 and upon reasonable notice to all the books, correspondence and records of AETG, the Company and each Restricted Subsidiary, and the Secured Party and its representatives may examine the same, take extracts therefrom and make photocopies thereof, and each of AETG, the Company and each Restricted Subsidiary agrees to render the Secured Party at the cost and expense of AETG, the Company and the Restricted Subsidiaries, such clerical and other assistance as may be reasonable requested with regard thereto. 4.5 Payment of Obligations. AETG, the Company and each Restricted Subsidiary will pay promptly when due all taxes, assessments and governmental charges or levies imposed upon the Collateral, as well as all claims of any kind (including, without limitation, claims for labor, materials, supplies and services) against or with respect to the Collateral, except that no such charge need be paid if (i) the validity thereof is being contested in good faith by appropriate proceedings, (ii) such proceedings do not involve, in the sole opinion of the Secured Party, any material danger for the sale, forfeiture or loss of any of the Collateral or any interest therein and (iii) such charge is adequately reserved against on the books of AETG, the Company or the applicable Restricted Subsidiary, as the case may be, in accordance with GAAP. 4.6 Negative Pledge. None of AETG, the Company nor any Restricted Subsidiary will create, incur or permit to exist, and each of them will defend the Collateral against, and will take such other action as is necessary to remove, any Lien or claim on or to the Collateral, other than the Liens created hereby, Liens in favor of the Lender under the Loan Agreement and Permitted Liens. 4.7 Limitations on Dispositions of Collateral. None of AETG, the Company nor any Restricted Subsidiary will sell, transfer, lease or otherwise dispose of any of the Collateral, or attempt, offer or contract to do so except as permitted in the Indenture. 4.8 Subsequently Acquired Securities, etc. If at any time or from time to time after the date hereof, AETG, the Company or any Restricted Subsidiary shall acquire any additional Securities (by purchase, stock dividend, in lieu of interest or otherwise), AETG, the Company or such Restricted Subsidiary, as the case may be, will forthwith pledge and deposit such Securities with the Secured Party and deliver to the Secured Party certificates or instruments therefor, indorsed in blank or accompanied by undated stock powers duly executed in blank, and such other documentation required by the Secured Party to perfect its first-priority Lien therein. 4.9 Performance by the Secured Party of the Obligations of AETG, the Company or any Restricted Subsidiary; Reimbursement. If AETG, the Company or any Restricted Subsidiary fails to perform or comply with any of its agreements contained 11 herein, the Secured Party may, without consent by AETG, the Company or any Restricted Subsidiary, but upon notice to the Company reasonably given, perform or comply or cause performance or compliance therewith, and the expenses of the Secured Party incurred in connection with such performance or compliance, together with interest thereon at a rate per annum borne by the Notes, shall be payable by AETG, the Company and the Restricted Subsidiaries to the Secured Party on demand and such reimbursement obligation shall be secured hereby. 4.10 No Impairment. Except as expressly permitted herein or in the Indenture, neither AETG, the Company nor any Restricted Subsidiary will take or knowingly permit to be taken any action which could impair the Secured Party's rights in the Collateral. 4.11 Insurance. Except as otherwise permitted by the terms of the Indenture, (a) AETG, the Company and each Restricted Subsidiary will maintain, with financially sound and reputable insurers acceptable to the Secured Party and licensed to do business in each state in which any of the Collateral covered by any policy is located, insurance with respect to the Collateral and its use, against loss or damage of the kinds customarily insured against by reputable companies in the same or similar businesses, similarly situated, such insurance to be of such types and in such amounts (with such deductible amounts) as is customary for such companies under the same or similar circumstances, similarly situated. All policies of insurance shall (i) name the Secured Party as additional insured (with respect to liability insurance policies) or loss payees with a lender's loss payable endorsement, in each case as their respective interests may appear, (ii) include waivers by the insurer of all claims for insurance premiums against the Secured Party, (iii) provide that any losses shall be payable to the Secured Party notwithstanding (A) any act, failure to act or negligence of or violation of warranties, declarations or conditions contained in such policy by AETG, the Company, or the Secured Party, (B) any foreclosure or other proceedings or notice of sale relating to any Collateral insured thereunder, or (C) any change in the title to or ownership of any Collateral insured thereunder, and (iv) provide that no cancellation, termination or lapse in coverage thereof shall be effective until at least 30 days after receipt by the Secured Party of written notice thereof. 12 ARTICLE V POWER OF ATTORNEY AETG, the Company and each Restricted Subsidiary hereby irrevocably constitute and appoint the Secured Party and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of AETG, the Company and each Restricted Subsidiary and in the name of AETG, the Company and each Restricted Subsidiary, from time to time in the Secured Party's discretion, for the purpose of carrying out the terms of this Security Agreement, to take any and all appropriate action, and to execute in any appropriate manner any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Security Agreement. AETG, the Company and each Restricted Subsidiary hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable. ARTICLE VI REMEDIES; RIGHTS UPON DEFAULT 6.1 Voting, etc. (a) Unless and until an Event of Default shall have occurred and be continuing under the Indenture, AETG, the Company and the Restricted Subsidiaries shall be entitled to (i) receive all cash dividends, interest and other payments made upon or with respect to the Securities and (ii) vote any and all of the Securities and to give consents, waivers or ratifications in respect thereof; provided, that no vote shall be cast or any consent, waiver or ratification given or any action taken that would violate or be inconsistent with any of the terms of this Security Agreement, the Purchase Agreement or the Indenture or any other instrument or agreement relating to the Obligations, or that would have the effect of impairing the position or interests of the Secured Party hereunder or thereunder or that would authorize or effect actions prohibited under the terms of this Security Agreement, the Purchase Agreement, the Indenture or any instrument or agreement relating to the Obligations. Upon the occurrence and during the continuance of any Event of Default, all such rights to vote and to give consents, waivers and ratifications shall cease upon notice from the Secured Party. AETG, the Company and each Restricted Subsidiary hereby grants to the Secured Party an irrevocable proxy to vote the Securities, which proxy shall be effective immediately upon the occurrence and during the continuance of an Event of Default. After the occurrence and during the continuance of an Event of Default and upon request of the Secured Party, AETG, the Company and each Restricted Subsidiary agree to 13 deliver to the Secured Party such further evidence of such irrevocable proxy or such further irrevocable proxies to vote the Securities as the Secured Party may request. (b) If an Event of Default shall occur and be continuing under the Indenture, the Secured Party shall be entitled to (i) on notice to the Company, receive all cash dividends, interest and other payments made upon or with respect to the Securities; (ii) exercise all voting, corporate and other rights pertaining to all or any portion of the Securities at any meeting of the shareholders of the issuer thereof or otherwise pursuant to the irrevocable proxy granted to it by the Company or any Subsidiary herein and (iii) the Secured Party may register all or any portion of the Securities in the name of the Secured Party or its nominee, and the Secured Party or its nominee may thereafter exercise all voting, corporate and other rights pertaining to such Securities at any meeting of shareholders of the issuer thereof or otherwise and any and all rights of conversion, exchange, subscription and any other rights, privileges or options pertaining to such Securities as if it were the absolute owner thereof (including, without limitation, the right to exchange at its discretion any and all of such Securities upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the corporate structure of the issuer thereof, or upon the exercise by the Company, its Subsidiaries or the Secured Party of any right, privilege or option pertaining to such Securities, and in connection therewith, the right to deposit and deliver any and all of such Securities with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as it may determine), all without liability except to account for property actually received by it, but the Secured Party shall have no duty to the Company and its Subsidiary to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing. The Secured Party hereby acknowledges that (i) the rights contained herein regarding voting, corporate and other rights pertaining to the capital stock of Atlantic North Casualty Company are subject in all cases to the prior approval of the Commissioner of the Vermont Department and (ii) such stock may not be registered. 6.2 Rights and Remedies Generally. (a) If an Event of Default shall occur and be continuing, then and in every such case, the Secured Party shall have all the rights of a secured party under the UCC, shall have all rights now or hereafter existing under all other applicable laws, and, subject to any mandatory requirements of applicable law then in effect, shall have all the rights set forth in this Security Agreement and all the rights set forth with respect to the Collateral or this Security Agreement in any other agreement between the parties. (b) If an Event of Default occurs and is continuing, the Secured Party may, and within three Business Days after instructions from the Majority Holders shall, commence the 14 taking of such actions toward collection or enforcement of this Security Agreement and the Collateral (or any portion thereof), including, without limitation, action toward foreclosure upon any Collateral, as the Secured Party deems in its discretion to be appropriate or as otherwise instructed by the Majority Holders. The Secured Party hereby acknowledges that taking any action toward collection or enforcement of its rights with respect to the capital stock of Atlantic North Casualty Company is subject to the supervision and approval of the Commissioner of the Vermont Department. 6.3 Assembly of Collateral. If an Event of Default shall occur and be continuing, upon five days notice to AETG, the Company and each Restricted Subsidiary, AETG, the Company or any such Restricted Subsidiary shall, at its own expense, assemble the Collateral (or from time to time any portion thereof) and make it available to the Secured Party at any place or places designated by the Secured Party which is reasonably convenient to both parties. 6.4 Disposition of Collateral. The Secured Party will determine the circumstances and manner in which the Collateral will be disposed of, including, but not limited to, the determination of whether to foreclose on the Collateral following an Event of Default. The Secured Party will give AETG, the Company and each Restricted Subsidiary reasonable notice of the time and place of any public sale of the Collateral or any part thereof or of the time after which any private sale or any other intended disposition thereof is to be made. AETG, the Company and each Restricted Subsidiary agrees that the requirements of reasonable notice to it shall be met if such notice is mailed, postage prepaid to its address specified in Section 7.3 of this Security Agreement (or such other address that AETG, the Company or any Restricted Subsidiary may provide to the Secured Party in writing) at least ten (10) days before the time of any public sale or after which any private sale may be made. 6.5 Proceeds. If an Event of Default shall occur and be continuing, (i) all proceeds and distributions on the Collateral received by AETG, the Company or any Restricted Subsidiaries shall be held in trust for the Secured Party, segregated from other funds of AETG, the Company and the Restricted Subsidiaries in a separate deposit account containing only such proceeds and distributions, and shall forthwith upon receipt thereof, be turned over to the Secured Party in the same form received (appropriately indorsed or assigned to the order of the Secured Party or in such other manner as shall be satisfactory to the Secured Party) and (ii) any and all such proceeds and distributions received by the Secured Party (whether from AETG, the Company or any Restricted Subsidiary or otherwise), or any part thereof, may, in the sole discretion of the Secured Party, be held by the Secured Party in a separate account as Collateral hereunder and/or then or at any time or from time to time thereafter, be applied by the Secured Party against the 15 Obligations (whether matured or unmatured) and related expenses, including attorney's fees as provided in Section 6.8 below. 6.6 Registration Rights; Private Sales. (a) If the Secured Party shall determine to exercise its rights to sell any or all of the Securities, and if in the opinion of the Secured Party it is necessary or advisable to have the Securities, or that portion thereof to be sold, registered under the provisions of the Securities Act of 1933, as amended (the "Securities Act"), each of AETG, the Company and each Restricted Subsidiary will use its reasonable best efforts to cause the issuer thereof to, (i) execute and deliver, and cause the directors and officers of the issuer thereof to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts as may be, in the reasonable opinion of the Secured Party, necessary to register the Securities, or that portion thereof to be sold, under the provisions of the Securities Act and, (ii) use its reasonable best efforts to cause the registration statement relating thereto to become effective and to remain effective for a period of three years from the date of the first public offering of the Securities, or that portion thereof to be sold, (iii) make all amendments thereto and/or to the related prospectus which, in the opinion of the Secured Party, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto, (iv) comply with the provisions of the securities or "Blue Sky" laws of any and all jurisdictions which the Secured Party shall designate and (v) make available to its security holders, as soon as practicable, an earnings statement (which need not be audited) which will satisfy the provisions of Section 11(a) of the Securities Act. (b) Each of AETG, the Company and each Restricted Subsidiary (i) recognizes that the Secured Party may be unable to effect a public sale of any or all the Securities, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers that will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof and (ii) acknowledges and agrees that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall not be deemed to have been made in a commercially unreasonable manner by virtue of such sale having been private. The Secured Party shall be under no obligation to delay a sale of any of the Securities for the period of time necessary to permit the issuer to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if the issuer thereof would agree to do so. 16 (c) Each of AETG, the Company and each Restricted Subsidiary further agrees (i) to use its reasonable best efforts to do or cause to be done all such other acts as may be necessary to make such sale or sales of all or any portion of the Securities pursuant to this Section 6.6 valid and binding and in compliance with any and all other applicable requirements of law and (ii) that a breach of any of the covenants contained in this Section 6.6 will cause irreparable injury to the Secured Party and the Holders, that the Secured Party and the Holders have no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section 6.6 shall be specifically enforceable against AETG, the Company, and the Restricted Subsidiaries and each such person hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no Event of Default has occurred. 6.7 Recourse. AETG, the Company and the Restricted Subsidiaries shall jointly and severally pay or remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to satisfy the Obligations. AETG, the Company and the Restricted Subsidiaries shall also be jointly and severally liable for all expenses of the Secured Party incurred in connection with collecting such deficiency, including, without limitation, the fees and disbursements of any attorneys employed by the Secured Party to collect such deficiency. 6.8 Expenses; Attorneys Fees. AETG, the Company and the Restricted Subsidiaries shall jointly and severally pay or reimburse the Secured Party for all its expenses in connection with the exercise of its rights hereunder, including, without limitation, (i) all reasonable attorneys' fees and legal expenses incurred by the Secured Party and (ii) all filing fees and related expenses contemplated by Section 4.1 hereof. Expenses of retaking, holding, preparing for sale, selling or the like shall include the reasonable attorneys' fees and legal expenses of the Secured Party. All such expenses shall be secured hereby. 6.9 Limitation on Duties Regarding Preservation of Collateral. (a) The Secured Party's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the UCC or otherwise, shall be to deal with it in the same manner as the Secured Party deals with similar property for its own account. (b) The Secured Party shall have no obligation to take any steps to preserve rights against prior parties to any Collateral. (c) Neither the Secured Party nor any of its directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so or shall be under any 17 obligation to sell or otherwise dispose of any Collateral upon the request of the Debtor or otherwise. ARTICLE VII MISCELLANEOUS 7.1 Indemnity. Each of AETG, the Company and each Restricted Subsidiary agrees jointly and severally to indemnify, reimburse and hold the Secured Party and its officers, directors, employees, representatives and agents ("Indemnitees") harmless from any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, suits, costs or expenses or disbursements (including reasonable attorneys' fees and expenses) for whatsoever kind or nature ("Losses") which may be imposed on, asserted against or incurred by any of the Indemnitees in any way relating to or arising out of this Security Agreement or the transactions contemplated hereby, except to the extent that such Losses are caused by the gross negligence or wilful misconduct of such Indemnitees. The obligations of AETG, the Company and each Restricted Subsidiary under this Section shall be secured hereby and shall survive payment and performance or discharge of the Obligations and the termination of this Security Agreement. 7.2 Governing Law. THIS SECURITY AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS). 7.3 Notices. Except as otherwise expressly provided herein, all notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy, telex, or cable communication), and shall be deemed to have been duly given or made when delivered by hand, or five days after being deposited in the United States mail, postage prepaid, or, in the case of telex notice, when sent, answer-back received, or in the case of telecopy notice, when sent, or in the case of a nationally recognized overnight courier service, one business day after delivery to such courier service, addressed, in the case of each party hereto as follows: c/o Atlantic Express Transportation Corp., 7 North Street, Staten Island, New York 10302-1205, telecopy number: (718)442-5105, or to such other address as may be designated by any party in a written notice to the other party hereto, with a copy to Silverman, Collura & Chernis, P.C., 381 Park Avenue South, Suite 1601, New York, New York 10016, telecopy number (212) 779-8858, Attention: Peter Silverman. 7.4 Successors and Assigns. This Security Agreement shall be binding upon and inure to the benefit of AETG, the Company and each Restricted Subsidiary, the Secured Party, all 18 future holders of the Obligations and their respective successors and assigns, except that AETG, the Company and each Restricted Subsidiary may not assign or transfer any of its rights or obligations under this Security Agreement without the prior written consent of the Secured Party. 7.5 Waivers and Amendments. None of the terms or provisions of this Security Agreement may be waived, amended, supplemented or otherwise modified except in accordance with the terms of Article IX of the Indenture. In the case of any waiver, AETG, the Company, each Restricted Subsidiary and the Secured Party shall be restored to their former position and rights hereunder and under the outstanding Obligations, and any Default or Event of Default waived shall be deemed to be cured and not continuing, but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 7.6 No Waiver; Remedies Cumulative. No failure or delay on the part of the Secured Party in exercising any right, power or privilege hereunder and no course of dealing among AETG, the Company, each Restricted Subsidiary and the Secured Party shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Secured Party of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Secured Party would otherwise have on any future occasion. The rights and remedies herein expressly provided are cumulative and may be exercised singly or concurrently and as often and in such order as the Secured Party deems expedient and are not exclusive of any rights or remedies which the Secured Party would otherwise have whether by security agreement or now or hereafter existing under applicable law. No notice to or demand on AETG, the Company and each Restricted Subsidiary in any case shall entitle AETG, the Company and each Restricted Subsidiary to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Secured Party to any other or future action in any circumstances without notice or demand. 7.7 Termination; Release. When the Obligations have been indefeasibly paid and performed in full this Security Agreement shall terminate, and the Secured Party, at the request and sole expense of AETG, the Company and each Restricted Subsidiary, will execute and deliver to AETG, the Company and each Restricted Subsidiary the proper instruments (including UCC termination statements) acknowledging the termination of this Security Agreement, and will duly assign, transfer and deliver to the AETG, the Company and each Restricted Subsidiary, without recourse, representation or warranty of any kind whatsoever, such of the Collateral and Securities as may be in possession of the 19 Secured Party and has not theretofore been disposed of, applied or released. 7.8 Headings Descriptive. The headings of the several sections and subsections of this Security Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Security Agreement. 7.9 Severability. In case any provision in or obligation under this Security Agreement or the Obligations shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 7.10 Additional Restricted Subsidiaries. Each new Restricted Subsidiary of the Company shall become a party to this Security Agreement for purposes of this Security Agreement upon execution and delivery by such Restricted Subsidiary of an addendum to this Security Agreement in the form of Annex 1 hereto. 7.11 Counterparts. This Security Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Security Agreement by signing any such counterpart. 20 IN WITNESS WHEREOF, the parties hereto have caused this Security and Pledge Agreement to be duly executed and delivered as of the date first above written. ATLANTIC EXPRESS TRANSPORTATION ATLANTIC EXPRESS TRANSPORTATION GROUP INC. CORP. By: ____________________________ By: ____________________________ Name: __________________________ Name: __________________________ Title: _________________________ Title: _________________________ AMBOY BUS CO., INC. COURTESY BUS CO., INC. By: ____________________________ By: ____________________________ Name: __________________________ Name: __________________________ Title: _________________________ Title: _________________________ STATEN ISLAND BUS, INC. K. CORR, INC. By: ____________________________ By: ____________________________ Name: __________________________ Name: __________________________ Title: _________________________ Title: _________________________ RAYBERN CAPITAL CORP. RAYBERN EQUITY CORP. By: ____________________________ By: ____________________________ Name: __________________________ Name: __________________________ Title: _________________________ Title: _________________________ 21 METROPOLITAN ESCORT SERVICE, INC. METRO AFFILIATES, INC. By: ____________________________ By: ____________________________ Name: __________________________ Name: __________________________ Title: _________________________ Title: _________________________ MERIT TRANSPORTATION CORP. MIDWAY LEASING INC. By: ____________________________ By: ____________________________ Name: __________________________ Name: __________________________ Title: _________________________ Title: _________________________ TEMPORARY TRANSIT SERVICE, INC. BROOKFIELD TRANSIT INC. By: ____________________________ By: ____________________________ Name: __________________________ Name: __________________________ Title: _________________________ Title: _________________________ ATLANTIC-HUDSON, INC. ATLANTIC PARATRANS, INC. By: ____________________________ By: ____________________________ Name: __________________________ Name: __________________________ Title: _________________________ Title: _________________________ 180 JAMAICA CORP. BLOCK 7932, INC. By: ____________________________ By: ____________________________ Name: __________________________ Name: __________________________ Title: _________________________ Title: _________________________ 22 ATLANTIC EXPRESS COACHWAYS, INC. ATLANTIC-CONN. TRANSIT, INC. By: ____________________________ By: ____________________________ Name: __________________________ Name: __________________________ Title: _________________________ Title: _________________________ ATLANTIC EXPRESS OF PENNSYLVANIA, INC. ATLANTIC EXPRESS OF MISSOURI INC. By: ____________________________ By: ____________________________ Name: __________________________ Name: __________________________ Title: _________________________ Title: _________________________ ATLANTIC PARATRANS OF KENTUCKY INC. G.V.D. LEASING CO., INC. By: ____________________________ By: ____________________________ Name: __________________________ Name: __________________________ Title: _________________________ Title: _________________________ RAYBERN BUS SERVICE, INC. THE BANK OF NEW YORK, as Trustee and Secured Party By: ____________________________ Name: __________________________ By: ____________________________ Title: _________________________ Name: __________________________ Title: _________________________ 23 Annex A ADDENDUM TO SECURITY AND PLEDGE AGREEMENT The undersigned, [INSERT NAME OF NEW RESTRICTED SUBSIDIARY], a corporation: (i) agrees to all of the provisions of the Security and Pledge Agreement, dated as of February 4, 1997 (as amended, supplemented or otherwise modified prior to the date hereof (the "Security Agreement"), made by AETG, the Company and the Restricted Subsidiaries (each as defined therein), in favor of The Bank of New York (the "Secured Party") pursuant to the Indenture, dated as of February 4, 1997 among the Company, the Restricted Subsidiaries and the Secured Party (the "Indenture"), and (ii) effective on the date hereof becomes a party to the Security Agreement, as a Restricted Subsidiary, with the same effect as if the undersigned were an original signatory to the Security Agreement (with the representations and warranties contained therein) being deemed to be made by the undersigned Restricted Subsidiary as of the date hereof. Terms defined in the Security Agreement and the Indenture shall have such defined meanings when used herein. By its acceptance hereof, each undersigned Restricted Subsidiary hereby ratifies and confirms its respective obligations under the Guaranty, as supplemented hereby. [NAME OF NEW SUBSIDIARY] By:___________________________________ Name:_________________________________ Title:________________________________ Date: __________, 199__ 24 SCHEDULE I Pledged Securities Owned By Atlantic Express Transportation Group Inc.
Percentage Stock Number of Stock Class of Certificate Par of Outstanding Issuer Stock Number Value Shares Shares* - ----------------- ---------- -------------- ------- --------- ----------------- Atlantic Express common 1 None 100 100% Transportation Corp.
Pledged Securities Owned By Atlantic Express Transportation Corp.
Percentage Stock Number of Stock Class of Certificate Par of Outstanding Issuer Stock Number Value Shares Shares - ------------------ ------------ --------------- -------- --------- ----------------- Raybern Capital common 4 None 10 100% Corp. Raybern Bus common 2 None 10 100% Service, Inc Atlantic-Hudson, common 4 None 100 100% Inc. Atlantic Express of common 4 None 100 100% Pennsylvania, Inc. Raybern Equity common 6 None 20 100% Corp. K. Corr, Inc. common 3 None 10 100% Courtesy Bus Co., common 10 None 100 100% Inc.
25
Percentage Stock Number of Stock Class of Certificate Par of Outstanding Issuer Stock Number Value Shares Shares - ------------------ ------------ --------------- -------- --------- ----------------- Staten Island Bus, common 29 None 247 100% Inc. Merit Transporta- common 3 None 100 100% tion Corp. Metropolitan Escort common 10 None 100 100% Service, Inc. Metro Affiliates, Inc. common 10 None 100.1 100% Brookfield Transit common 3 None 100 100% Inc. Atlantic Express common 5 None 100 100% Coachways, Inc. Temporary Transit common 9 None 99.9 100% Service, Inc. Amboy Bus Co., common 14A None 600 100% Inc. Atlantic-Conn. common 5 None 100 100% Transit, Inc. G.V.D. Leasing common 12 None 200 100% Co., Inc. Block 7932, Inc. common 2 None 10 100% 180 Jamaica Corp. common 2 None 10 100% Atlantic North common 2 None 10 100% Casualty Company Atlantic Paratrans common 2 None 10 100% of Kentucky Inc. Atlantic Express of common 2 None 10 100% Missouri Inc. Atlantic Paratrans, common 9 None 100 100% Inc. Midway Leasing common 9 None 99.9 100% Inc.
26 Schedule II Filing Offices 27 Schedule III Location of Collateral Atlantic Express Coachways, Inc. Amboy Bus Co., Inc. 7 North Street Gnarled Hollow Road Staten Island, New York Setauket Staten Island Bus, Inc. Amboy Bus Co., Inc. 52 Bayview Avenue 1575 Route 112 Staten Island, New York Port Jefferson Station, New York Atlantic Express Coachways, Inc. Courtesy Bus Co., Inc. 1401 East Service Road Lawson Blvd. West Shore Expressway Oceanside, New York Staten Island, New York Amboy Bus Co., Inc. K. Corr, Inc. Atlantic Paratrans, Inc. 1620 New Highway Merit Transportation Corp. Farmingdale, New York 46081 Metropolitan Avenue Ridgewood, New York Amboy Bus Co., Inc. Raybern Bus Service, Inc. 107-10 180th Street 91 Baiting Place Road Jamaica, New York Farmingdale, New York Amboy Bus Co., Inc. Atlantic Paratrans, Inc. 1752 Shore Parkway 2628 Fire Road Brooklyn Egg Harbor Township, New Jersey Amboy Bus Co., Inc. Atlantic Express of Pennsylvania, Inc. 1380-86 Ralph Avenue 3740 Thompson Street Brooklyn, New York Philadelphia, Pennsylvania Amboy Bus Co., Inc. Atlantic Express of Pennsylvania, Inc. Atlantic-Hudson, Inc. 6940 Norwitch Drive Exterior Street Philadelphia, Pennsylvania Bronx, New York Amboy Bus Co., Inc. Atlantic Express of Pennsylvania, Inc. c/o Somers Jr. High School 6971 Norwitch Drive Route 202 Somers, New York Philadelphia, Pennsylvania Atlantic Paratrans Inc. Atlantic-Conn Transit, Inc. 870 Nepperhan Ave. 57 South St. Yonkers, New York Ridgefield, Connecticut 28 Atlantic Paratrans of Kentucky Inc. 925 West Broadway Louisville, Kentucky Atlantic Express of Missouri Inc. 200 Sidney St. St. Louis, Missouri Atlantic Express of Missouri Inc. 5411 Brown Avenue St. Louis, Missouri Atlantic Express of Missouri Inc. 1808 So. 3rd St. St. Louis, Missouri Atlantic Express of Missouri Inc. 6810 Prescott St. St. Louis, Missouri 29 Schedule IV 1. Tradenames ATLANTIC EXPRESS 2. Registered Trademarks and Servicemarks and Application AE ATLANTIC EXPRESS U.S. Ser. No. Filed TRANSPORTATION GROUP and DESIGN ------------ ---------- 75-121,810 6/18/96 ATLANTIC EXPRESS U.S. Reg. No. Registered ------------ ---------- 1,964,915 4/2/96 AE (Stylized Letters) U.S. Reg. No. Registered ------------ ---------- 1,667,874 12/10/91 3. Patents and Patent Applications None 4. Copyright Registrations and Applications None 5. Material Licenses None 30 Schedule 3.9 Raybern Equity Corp. Metropolitan Escort Service, Inc. Midway Leasing Inc. Atlantic-Huson, Inc. G.V.D. Leasing Co., Inc. 31 EX-4.5 8 COLLATERAL ASSIGNMENT 2/4/97 Exhibit 4.5 EXECUTION COPY COLLATERAL ASSIGNMENT OF TRADEMARKS (SECURITY AGREEMENT) COLLATERAL ASSIGNMENT OF TRADEMARKS (SECURITY AGREEMENT) dated as of February 4, 1997, between ATLANTIC EXPRESS TRANSPORTATION CORP., a New York corporation with offices at 7 North Street, Staten Island, New York 10302 ("Assignor"), and CONGRESS FINANCIAL CORPORATION, a California corporation with an office at 1133 Avenue of the Americas, New York, New York 10036 ("Assignee"). Capitalized terms used in this Agreement which are defined in the Loan Agreement (as hereinafter defined) shall have the respective meanings given them in the Loan Agreement, unless otherwise defined herein. W I T N E S S E T H: WHEREAS, Amboy Bus Co., Inc., Atlantic-Conn. Transit, Inc., Atlantic Hudson, Inc., Atlantic Paratrans, Inc., Atlantic Paratrans of Kentucky Inc., Atlantic Express Coachways, Inc., Atlantic Express of Missouri Inc., Atlantic Express of Pennsylvania, Inc., Brookfield Transit Inc., Courtesy Bus Co., Inc., K. Corr, Inc., Merit Transportation Corp., Metropolitan Escort Service, Inc., Raybern Bus Service, Inc., Raybern Capital Corp., Raybern Equity Corp., Staten Island Bus, Inc. (each a "Borrower" and collectively, "Borrowers"), Assignor, and Assignee have entered into a Loan and Security Agreement dated the date hereof (together with all supplements and amendments thereto and all extensions, renewals, restatements and replacements thereof, the "Loan Agreement," and such Loan Agreement together with all agreements, instruments and documents now or hereafter entered into or delivered in connection therewith, collectively, the "Financing Agreements"), pursuant to which Assignee may make loans and advances and provide other financial arrangements to Borrower, subject to the terms and provisions of the Financing Agreements; WHEREAS, Assignor is the sole stockholder of each Borrower; WHEREAS, Assignor owns all right, title, and interest in and to, among other things, certain United States and foreign trademarks and service marks, trademark and service mark registrations, and trademark and service mark applications and trade names, including, but not limited to, those set forth on Exhibit 1 hereto (the "Trademarks"), which are used in the business of one or more of the Borrowers, along with the goodwill of the business symbolized thereby and the Licenses (as hereinafter defined); WHEREAS, in order to secure Borrowers' Obligations (as defined in the Loan Agreement) to Assignee, Assignor has agreed to grant to Assignee a security interest and continuing lien in, to and under the Trademarks, the goodwill and the Licenses and certain other assets with respect to the Trademarks, the goodwill and the Licenses, as further set forth herein, and Assignee has requested Assignor to enter into this Agreement to evidence such security interest. NOW THEREFORE, KNOW ALL MEN BY THESE PRESENTS, that for valuable consideration received and to be received, as security for the full payment and performance of the Obligations, and to induce Assignee to make loans and advances to Borrowers, Assignor hereby grants to Assignee a security interest in and continuing lien on Borrowers' right, title and interest in, to and under the following property of Assignor to the extent, and only to the extent, that the following property is part of, is related to, or arises in connection with or from any "Accounts" or "Inventory" of Assignor (as such terms are defined in the Loan Agreement): (a) the Trademarks; (b) all applications and registrations of the Trademarks in any state of the United States and any foreign countries and localities; (c) all trade names, trademarks and service marks and trademark and service mark applications and registrations hereafter adopted or acquired and used by Assignor or any Borrower in its business, including, but not limited to, those which are based upon or derived from the Trademarks or any variations thereof (the "Future Trademarks"); (d) all extensions, renewals, and continuations of the Trademarks and Future Trademarks and the registrations and applications referred to in clause (b) above; (e) all rights to sue for past, present and future infringements of the Trademarks and Future Trademarks, and any trademarks and service marks covered by any licenses of trademarks, trademark applications or registrations, or trade names used in the business of one or more of Borrowers and under which Assignor is licensee, to the extent that the assignment thereof will not result in Assignor's loss of the benefits thereof ("Licenses"); (f) all packaging, labeling, trade names, service marks, logos, and trade dress including or containing the Trademarks, Future Trademarks, and the trademarks and service marks covered by the Licenses, or a representation thereof, or any variation thereof; (g) all licenses and other agreements under which Assignor is licensor, and all fees, rents, royalties, proceeds or monies thereunder, relating to the Trademarks, Future Trademarks, and the trademarks and service marks covered by the Licenses, and the use thereof, to the extent that the -2- assignment thereof will not result in Assignor's loss of the benefits thereof; (h) all goodwill of Assignor's business connected with, symbolized by or in any way related to the items set forth in clauses (a) through (g) above; and (i) all proceeds of the foregoing, including without limitation, license royalties, income, payments, claims, damages and proceeds of suit. All of the foregoing items set forth in clauses (a) through (i) are hereinafter referred to collectively as the "Collateral." Assignor hereby covenants with Assignee as follows: 1. Assignor's Obligations. Assignor agrees that, notwithstanding this Agreement, it will perform and discharge and remain liable for all its covenants, duties, and obligations arising in connection with the Collateral and any licenses and agreements related thereto. Assignee shall have no obligation or liability in connection with the Collateral or any licenses or agreements relating thereto by reason of this Assignment or any payment received by Assignee relating to the Collateral and Assignee shall not be required to perform any covenant, duty or obligation of Assignor arising in connection with the Collateral or any license or agreement related thereto or to take any other action regarding the Collateral or any such licenses or agreement, except and only to the extent that Assignee has acquired absolute ownership of the Collateral upon an exercise of its remedies under Section 4 hereof. 2. Representations and Warranties. Assignor represents and warrants to Assignee that: (a) Assignor is the beneficial and record owner of the Collateral, and no adverse claims have been made with respect to its title to or the validity of the Collateral; (b) the Trademarks and the trademarks and service marks covered by the Licenses are the only trademarks, service marks, trademark and service mark registrations and applications therefor and trade names in which Assignor has any or all right, title and interest; (c) none of the Collateral is subject to any mortgage, pledge, lien, security interest, lease, charge, encumbrance, settlement or consent, covenant not to sue, non-assertion assurance, release or license (by Assignor as licensor), except as set forth on Exhibit 1; (d) Assignor has performed all acts and has paid all renewal, maintenance and other fees and taxes required to maintain each and every registration and application of the Collateral in full force and effect; (e) no claims have been made that the use of any of the Collateral violates the asserted rights of any third party; (f) to the best of Assignor's knowledge, no third party is infringing upon any of the Collateral; and (g) when this Agreement is filed in and recorded by the United States Patent and Trademark Office (the "Trademark Office") and the Assignee has taken the other actions contemplated by the Loan Agreement and in this Agreement, this Agreement will create a legal and valid perfected and continuing lien on and security interest in the Collateral in favor of Assignee, enforceable against Assignor and all third parties, subject to no other mortgage, lien, charge, encumbrance, or security or other interest except as expressly permitted by the Loan Agreement. -3- 3. Covenants. Assignor will maintain and renew all items of Collateral necessary for the conduct of its or any Borrower's business and all registrations of the Collateral necessary for the conduct of its or any Borrower's business and will defend the Collateral against the claims of all persons. Assignor will maintain, and will cause each Borrower or other person that uses the Collateral to maintain, the same standards of quality for the goods and services in connection with which the Trademarks and the trademarks covered by the Licenses are used as Assignor or such other persons maintained for such goods and services prior to entering into this Agreement. Assignee shall have the right to enter upon Assignor's premises at all reasonable times to monitor such quality standards. Assignor shall promptly notify Assignee if it knows or has reason to know that any of the Collateral may become subject to any adverse determination or development (including the institution of proceedings) in any action or proceeding in the United States Patent and Trademark Office or any court. In the event that any of the Collateral is infringed or diluted by a third party, promptly after the Assignor becomes aware of such infringement or dilution, Assignor shall take all reasonable actions to stop such infringement or dilution and protect its exclusive rights in such Collateral including, but not limited to, the initiation of a suit for injunctive relief and to recover damages. Without limiting the generality of the foregoing, Assignor shall not permit the expiration, termination or abandonment of any Trademark, Future Trademark or License used in or necessary for the conduct of its or any Borrower's business without the prior written consent of Assignee. If, before the Obligations have been satisfied in full, Assignor shall obtain rights to or be licensed to use any new trademark, or become entitled to the benefit of any trademark or service mark application or trademark or service mark registration not identified on Exhibit 1 hereto, the provisions of Section 1 hereof shall automatically apply thereto and Assignor shall give Assignee prompt notice thereof in writing. 4. Remedies Upon Default. Whenever any Event of Default shall occur and be continuing, Assignee shall have all the rights and remedies granted to it in such event by the Loan Agreement, which rights and remedies are specifically incorporated herein by reference and made a part hereof. Assignee in such event may collect directly any payments due to Assignor in respect of the Collateral and, subject to any limitations imposed under any license agreements constituting part of the Collateral, may sell, license, lease, assign, or otherwise dispose of the Collateral in the manner set forth in the Loan Agreement. Assignor agrees that, in the event of any disposition of the Collateral upon any such Event of Default, it will duly execute, acknowledge, and deliver all documents necessary or advisable to record title to the Collateral in any transferee or transferees thereof, including, without limitation, valid, recordable assignments of the Trademarks, Future Trademarks, and Licenses. In the event Assignor fails or refuses to execute and deliver such documents, Assignor hereby irrevocably appoints Assignee as its attorney-in-fact, with power of substitution, to execute, deliver, and record any such documents on Assignor's behalf. Notwithstanding any provision hereof to the contrary, during the continuance of an Event of Default, Assignor may sell, and permit Borrowers to sell, merchandise or services bearing the Trademarks, Future Trademarks, and trademarks covered by the Licenses in the ordinary course of their respective business and in a manner consistent with its past practices, until it receives written notice from Assignee of an intended sale or disposition of the Collateral. The preceding -4- sentence shall not limit any right or remedy granted to Assignee with respect to Assignor's inventory under the Loan Agreement or any other agreement now or hereinafter in effect. 5. Power of Attorney. Concurrently with the execution and delivery hereof, Assignor shall execute and delivery to the Assignee, in the form of Exhibit 2 hereto, five (5) originals of a Special Power of Attorney for the implementation of the assignment, sale, license, lease or other disposition of the Trademarks, Future Trademarks, and Licenses pursuant to Section 4. Assignor hereby releases Assignee from any claims, causes of action and demands at any time arising out of or with respect to any actions taken or omitted to be taken by Assignee in accordance with Section 4 under the powers of attorney granted therein, other than actions taken or omitted to be taken through the bad faith, willful misconduct or gross negligence of Assignee, as determined by a final, non-appealable order of a court of competent jurisdiction. 6. Cumulative Remedies. The rights and remedies provided herein are cumulative and not exclusive of any other rights or remedies provided by law. The security interest granted hereby is granted in conjunction with the security interest granted to Assignee under the Loan Agreement and the other Financing Agreements. The rights and remedies of Assignee with respect to the security interest granted hereby are in addition to those set forth in the Loan Agreement and the other Financing Agreements and those which are now or hereafter available to Assignee as a matter of law or equity. The exercise by Assignee of any one or more of the rights, powers or remedies provided for in this Agreement, in the Loan Agreement, in the other Financing Agreements or now or hereafter existing at law or in equity shall not preclude the simultaneous or later exercise by any person, including Assignee, of any or all other rights, powers or remedies. The rights and remedies provided herein are intended to be in addition to and not in substitution of the rights and remedies provided by the Loan Agreement. 7. Amendments and Waivers. This Agreement may not be modified, supplemented, or amended, or any of its provisions waived at the request of Assignor, without the prior written consent of Assignee. Assignor hereby authorizes Assignee to modify this Agreement by amending Exhibit 1 hereto to include any Future Trademarks or additional licenses. 8. Waiver of Rights. No course of dealing between the parties to this Agreement or any failure or delay on the part of any such party in exercising any rights or remedies hereunder shall operate as a waiver of any rights and remedies of such party or any other party, and no single or partial exercise of any rights or remedies by one party hereunder shall operate as a waiver or preclude the exercise of any other rights and remedies of such party or any other party. No waiver by Assignee of any breach or default by Assignor shall be deemed a waiver of any other previous breach or default or of any breach or default occurring thereafter. 9. Assignment. The provisions of this Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of the parties hereto; provided, however, that no interest herein or in or to the Collateral may be assigned by -5- Assignor without the prior written consent of Assignee; and, provided further, that the Assignee may assign the rights and benefits hereof to any party acquiring any interest in the Obligations or any part thereof. 10. Further Acts. Assignor shall have the duty to prosecute diligently any application for the Trademarks and Future Trademarks necessary for the conduct of its or any Borrower's business pending as of the date of this Agreement or thereafter, until the Obligations shall have been paid in full, and to make applications on material unregistered but registrable trademarks necessary for the conduct of its or any Borrower's business in any location where Assignor does business and to preserve and maintain all rights in the Trademarks and the other Collateral necessary for the conduct of its or any Borrower's business. Any expenses incurred in connection with such applications shall be borne by Assignor. Assignor shall not abandon any right to file a trademark or service mark application or registration for any trademark or service mark used in or necessary for the conduct of its business, or abandon any such pending trademark application or registration necessary for the conduct of its or any Borrower's business, without the consent of Assignee. 11. Enforcement. Upon Assignor's failure to do so after Assignee's demand, or upon an Event of Default, Assignee shall have the right but shall in no way be obligated to bring suit in its own name to enforce the Trademarks, Future Trademarks, Licenses, or the trademarks covered by the Licenses, and any license under any of the foregoing, in which event Assignor shall at the request of Assignee do any and all lawful acts and execute any and all proper documents that may be reasonably requested by Assignee in aid of such enforcement including, but not limited to, joining as a plaintiff in any such enforcement action and Assignor shall promptly, upon demand, reimburse and indemnify Assignee or its agents for all reasonable costs and expenses incurred by Assignee in the exercise of its rights under this Section 11. 12. Release and Re-Assignment. At such time as all of the Obligations have been satisfied, and the Financing Agreements have been terminated, other than upon enforcement of Assignee's remedies under the Financing Agreements after an Event of Default, Assignee will execute and deliver to Assignor all deeds, assignments and other instruments as may be necessary or proper to release Assignor's lien in the Collateral and reassign to Assignee any and all rights of Assignor therein which were granted to Assignor hereunder, subject to any dispositions thereof which may have been made by Assignee pursuant hereto. 13. Severability. If any clause or provision of this Agreement shall be held invalid or unenforceable, in whole or in part, in any jurisdiction, such invalidity or unenforceability shall attach only to such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect any other clause or provision in any other jurisdiction. 14. Notices. All notices, requests and demands to or upon Assignor or Assignee under this Agreement shall be given in the manner prescribed by the Loan Agreement. -6- 15. Governing Law. This Agreement shall be governed by and construed, applied, and enforced in accordance with the federal laws of the United States of America applicable to trademarks and the laws of the State of New York, except that no doctrine of choice of law shall be used to apply the laws of any other state or jurisdiction. 16. Financing Agreement. This Agreement is one of the Financing Agreements. 17. Counterparts. This Agreement may be signed in one or more counterparts, and by each party in separate counterparts, which, when taken together, shall constitute one and the same document. [THIS SPACE INTENTIONALLY LEFT BLANK] -7- IN WITNESS WHEREOF, the parties have entered into this Agreement as of the date first above written. ATLANTIC EXPRESS TRANSPORTATION CORP., Assignor By:______________________________ Name: Title: CONGRESS FINANCIAL CORPORATION, Assignee By:______________________________ Name: Title: STATE OF NEW YORK ) ) ss: COUNTY OF NEW YORK ) On the ____ day of February 1997 before me personally came ___________________, to me known, who being by me duly sworn, did depose and say that he is the __________________________ of ATLANTIC EXPRESS TRANSPORTATION CORP., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. ______________________________ Notary Public STATE OF NEW YORK ) ) ss: COUNTY OF NEW YORK ) On the _____ day of February 1997, before me personally came _________________, to me known, who being by me duly sworn, did depose and say that he is a ________________________ of CONGRESS FINANCIAL CORPORATION, the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. ______________________________ Notary Public EXHIBIT 1 LIST OF ASSIGNOR'S TRADEMARKS Registered Trademarks and Service Marks U.S. Registration No. Date Registered - ----------------- --------------------- --------------- ATLANTIC EXPRESS 1,964,915 4/2/96 AE 1,667,874 12/10/91 Applications for Registration Serial No. Date Filed - ---------------- ---------- ---------- AE ATLANTIC EXPRESS TRANSPORTATION GROUP 75-121,810 6/18/96 Trade Names - ----------- ATLANTIC EXPRESS EXHIBIT 2 SPECIAL POWER OF ATTORNEY STATE OF NEW YORK ) ): ss COUNTY OF NEW YORK ) KNOW ALL MEN BY THESE PRESENTS, THAT ATLANTIC EXPRESS TRANSPORTATION CORP., a New York corporation with its principal office at 7 North Street, Staten Island, New York 10302 (hereinafter called "Assignor"), hereby appoints and constitutes CONGRESS FINANCIAL CORPORATION, a California corporation (hereinafter called "Assignee"), its true and lawful attorney, with full power of substitution, and with full power and authority to perform the following acts on behalf of Assignor: 1. For the purpose of assigning, selling, licensing or otherwise disposing of all right, title and interest of Assignor in and to any trademarks and service marks, and all registrations, renewals, recordings and all pending applications therefor, and all licenses therefor, and for the purpose of the recording, registering and filing of, or accomplishing any other formality with respect to, the foregoing, to execute and deliver any and all agreements, documents, instruments of assignment or other papers necessary or advisable to effect such purpose; and 2. To execute any and all documents, statements, certificates or other papers necessary or advisable in order to obtain the purposes described above as Assignee may in its sole discretion determine. This power of attorney is made pursuant to a Collateral Assignment of Trademarks (Security Agreement) dated the date hereof, between Assignor and Assignee and takes effect solely for the purposes of Section 4 thereof and is subject to the conditions thereof and may not be revoked until the payment in full of all "Obligations" as defined in such Security Agreement. Dated: February ___, 1997 ATLANTIC EXPRESS TRANSPORTATION CORP. By:____________________________ Name: Title: STATE OF NEW YORK ) ) ss: COUNTY OF NEW YORK ) On the ____ day of February 1997 before me personally came _________________, to me known, who being by me duly sworn, did depose and say that he is the _________________ of Atlantic Express Transportation Corp., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. ______________________________ Notary Public EX-10.1 9 EXHIBIT 10.1 Exhibit 10.1 ATLANTIC EXPRESS TRANSPORTATION CORP. $110,000,000 103/4% Senior Secured Notes due 2004 REGISTRATION RIGHTS AGREEMENT February 4, 1997 JEFFERIES & COMPANY, INC. 11100 Santa Monica Boulevard 10th Floor Los Angeles, California 90025 Ladies and Gentlemen: ATLANTIC EXPRESS TRANSPORTATION CORP., a New York corporation (the "Company"), is issuing and selling to Jefferies & Company, Inc. (the "Purchaser"), upon the terms set forth in a purchase agreement, dated as of February 4, 1997 (the "Purchase Agreement"), $110,000,000 aggregate principal amount of its 103/4% Senior Secured Notes due 2004, Series A, including the guarantees endorsed thereon (the "Notes"). As an inducement to the Purchaser to enter into the Purchase Agreement, the Company and each of the guarantors (the "Guarantors") named in the Indenture (defined below) agrees with the Purchaser, for the benefit of the holders of the Securities (defined below) (including, without limitation, the Purchaser), as follows: 1. Definitions Capitalized terms used herein without definition shall have their respective meanings set forth in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: Advice: See Section 6. Agreement: This Registration Rights Agreement. Applicable Period: See Section 2(f). Business Days: Any day other than (i) Saturday or Sunday, or (ii) a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to be closed. Closing Date: February 4, 1997. Confidential Information: See Section 6(a). Effectiveness Date: The 150th day following the Closing Date. Effectiveness Period: See Section 3(a). Event Date: See Section 4(a). Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. Exchange Offer: See Section 2(a). Exchange Offer Registration Statement: See Section 2(a). Exchange Securities: 103/4% Senior Secured Notes due 2004, Series B, of the Company, including the guarantees endorsed thereon, identical in all material respects to the Notes, except for references to series and restrictive legends. Filing Date: The 90th day following the Closing Date. Holder: Each holder of Registrable Securities. 2 Indenture: The Indenture, dated the date hereof, between the Company and The Bank of New York, as trustee, pursuant to which the Notes are being issued, as amended or supplemented from time to time, in accordance with the terms thereof. Initial Shelf Registration: See Section 3(a). Losses: See Section 8(a). NASD: The National Association of Securities Dealers, Inc. Participating Broker-Dealer: See Section 2(f). Person: An individual, trustee, corporation, partnership, joint stock company, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof, union, business association, firm or other entity. Private Exchange: See Section 2(g). Private Exchange Securities: See Section 2(g). Prospectus: The prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Securities covered by such Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. Registrable Securities: (i) Notes, (ii) Private Exchange Securities and (iii) Exchange Securities received in the Exchange Offer that may not be sold without restriction under federal or state securities law. Registration Statement: Any registration statement of the Company that covers any of the Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. 3 Rule 144: Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the SEC. Rule 144A: Rule 144A under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144) or regulation hereafter adopted by the SEC. Rule 415: Rule 415 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. SEC: The Securities and Exchange Commission. Securities: The Notes, the Private Exchange Securities and the Exchange Securities, collectively. Securities Act: The Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. Shelf Notice: See Section 2(i). Shelf Registration: The Initial Shelf Registration and any Subsequent Shelf Registration. Special Counsel: Counsel chosen by the holders of a majority in aggregate principal amount of Securities. Subsequent Shelf Registration: See Section 3(b). TIA: The Trust Indenture Act of 1939, as amended. Trustee: The trustee under the Indenture and, if any, the trustee under any indenture governing the Exchange Securities or the Private Exchange Securities. Underwritten Registration or Underwritten Offering: A registration in which securities of the Company are sold to an underwriter for reoffering to the public. Weekly Liquidated Damages Amount: See Section 4(a). 4 2. Exchange Offer (a) The Company and the Guarantors shall (i) prepare and file with the SEC promptly after the date hereof, but in no event later than the Filing Date, a registration statement (the "Exchange Offer Registration Statement") on an appropriate form under the Securities Act with respect to a proposed offer (the "Exchange Offer") to the Holders to issue and deliver to such Holders, in exchange for the Notes, a like aggregate principal amount of Exchange Securities, (ii) use their best efforts to cause the Exchange Offer Registration Statement to become effective as promptly as practicable after the filing thereof, but in no event later than the Effectiveness Date, (iii) keep the Exchange Offer Registration Statement effective until the consummation of the Exchange Offer pursuant to its terms, and (iv) unless the Exchange Offer would not be permitted by a policy of the SEC, commence the Exchange Offer and use their best efforts to issue, on or prior to 30 business days after the date on which the Exchange Offer Registration Statement is declared effective, Exchange Securities in exchange for all Notes tendered prior thereto in the Exchange Offer. The Exchange Offer shall not be subject to any conditions, other than that the Exchange Offer does not violate applicable law or any applicable interpretation of the staff of the SEC. (b) The Exchange Securities shall be issued under, and entitled to the benefits of, the Indenture or a trust indenture that is identical to the Indenture (other than such changes as are necessary to comply with any requirements of the SEC to effect or maintain the qualification thereof under the TIA). (c) In connection with the Exchange Offer, the Company and the Guarantors shall: (i) mail to each Holder a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal that is an exhibit to the Exchange Offer Registration Statement and related documents; (ii) keep the Exchange Offer open for not less than 30 days after the date notice thereof is mailed to the Holders (or longer if required by applicable law); (iii) utilize the services of a depository for the Exchange Offer with an address in the Borough of Manhattan, The City of New York; (iv) permit Holders to withdraw tendered Notes at any time prior to the close of business, New York time, on the last Business Day on which the Exchange Offer shall remain open; and 5 (v) otherwise comply with all laws applicable to the Exchange Offer. (d) As soon as practicable after the close of the Exchange Offer, the Company and the Guarantors shall: (i) accept for exchange all Notes validly tendered and not validly withdrawn pursuant to the Exchange Offer; (ii) deliver to the Trustee for cancellation all Notes so accepted for exchange; and (iii) cause the Trustee promptly to authenticate and deliver to each Holder of Notes, Exchange Securities equal in aggregate principal amount to the Notes of such Holder so accepted for exchange. (e) Interest on each Exchange Security and Private Exchange Security will accrue from the last interest payment date on which interest was paid on the Notes surrendered in exchange therefor or, if no interest has been paid on the Notes, from the date of original issue of the Notes. Each Exchange Security and Private Exchange Security shall bear interest at the rate set forth thereon; provided, that interest with respect to the period prior to the issuance thereof shall accrue at the rate or rates borne by the Notes from time to time during such period. (f) The Company and the Guarantors shall include within the Prospectus contained in the Exchange Offer Registration Statement a section entitled "Plan of Distribution," containing a summary statement of the positions taken or policies made by the staff of the SEC with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Securities received by such broker-dealer in the Exchange Offer (a "Participating Broker-Dealer"). Such "Plan of Distribution" section shall also allow the use of the Prospectus by all Persons subject to the prospectus delivery requirements of the Securities Act, including (without limitation) all Participating Brokers-Dealers, and include a statement describing the means by which Participating Broker-Dealers may resell the Exchange Securities. The Company shall use its best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the Prospectus to be lawfully delivered by all Persons subject to the prospectus delivery requirement of the Securities Act for such period of time as such Persons must comply with such requirements in order to resell the Exchange Securities; provided that such period shall not exceed 180 days after consummation of the 6 Exchange Offer (as such period may be extended pursuant to the last paragraph of Section 6 hereof (the "Applicable Period")). (g) If, prior to consummation of the Exchange Offer, the Purchaser holds any Notes acquired by it and having the status as an unsold allotment in the initial distribution, the Company shall, upon the request of the Purchaser, simultaneously with the delivery of the Exchange Securities in the Exchange Offer, issue (pursuant to the same indenture as the Exchange Securities) and deliver to the Purchaser, in exchange for the Notes held by the Purchaser (the "Private Exchange"), a like principal amount of debt securities of the Company that are identical to the Exchange Securities (the "Private Exchange Securities"). The Private Exchange Securities shall bear the same CUSIP number as the Exchange Securities. (h) The Company may require each Holder participating in the Exchange Offer to represent to the Company that at the time of the consummation of the Exchange Offer (i) any Exchange Securities received by such Holder in the Exchange Offer will be acquired in the ordinary course of its business, (ii) such Holder will have no arrangement or understanding with any Person to participate in the distribution of the Exchange Securities within the meaning of the Securities Act or resale of the Exchange Securities in violation of the Securities Act, (iii) if such Holder is not a broker-dealer, that it is not engaged in and does not intend to engage in, the distribution of the Exchange Securities, (iv) if such Holder is a broker-dealer that will receive Exchange Securities for its own account in exchange for Notes that were acquired as a result of market-making or other trading activities and that it will deliver a prospectus, as required by law, in connection with any resale of such Exchange Securities, and (v) if such Holder is an affiliate of the Company, that it will comply with the registration and prospectus delivery requirements of the Securities Act applicable to it. (i) If (i) prior to the consummation of the Exchange Offer, either the Company or the Holders of a majority in aggregate principal amount of Registrable Securities determines in its or their reasonable judgment that (A) the Exchange Securities would not, upon receipt, be tradeable by the Holders thereof without restriction under the Securities Act and the Exchange Act and without material restrictions under applicable Blue Sky or state securities laws, or (B) the interests of the Holders under this Agreement, taken as a whole, would be materially adversely affected by the consummation of the Exchange Offer, (ii) applicable interpretations of the staff of the SEC would not permit the consummation of the Exchange Offer prior to the Effectiveness Date, (iii) subsequent to the consummation of the Private Exchange but within one year of the Closing Date, the Purchaser so requests, (iv) the Exchange Offer is not consummated within 240 days of the Closing Date for any reason or (v) in the case of any Holder not 7 permitted to participate in the Exchange Offer or of any Holder participating in the Exchange Offer that receives Exchange Securities that may not be sold without restriction under state and federal securities laws (other than due solely to the status of such Holder as an affiliate of the Company within the meaning of the Securities Act) and, in either case contemplated by this clause (v), such Holder notifies the Company within six months of consummation of the Exchange Offer, then the Company shall promptly deliver to the Holders (or in the case of any occurrence of the event described in clause (v) hereof, to any such Holder) and the Trustee notice thereof (the "Shelf Notice") and shall as promptly as possible thereafter file an Initial Shelf Registration pursuant to Section 3. 3. Shelf Registration If a Shelf Notice is required to be delivered pursuant to Section 2(i)(i), (ii), (iii) or (iv), then this Section 3 shall apply to all Registrable Securities. Otherwise, upon consummation of the Exchange Offer in accordance with Section 2, the provisions of this Section 3 shall apply solely with respect to (i) Notes held by any Holder thereof not permitted to participate in the Exchange Offer and (ii) Exchange Securities that are not freely tradeable as contemplated by Section 2(i)(v) hereof, provided in each case that the relevant Holder has duly notified the Company within six months of the Exchange Offer as required by Section 2(1)(v). (a) Initial Shelf Registration. The Company and the Guarantors shall prepare and file with the SEC a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Securities (the "Initial Shelf Registration"). If the Company and the Guarantors have not yet filed an Exchange Offer, the Company and the Guarantors shall file with the SEC the Initial Shelf Registration on or prior to the Filing Date. Otherwise, the Company and the Guarantors shall use their best efforts to file the Initial Shelf Registration within 20 days of the delivery of the Shelf Notice or as promptly as possible following the request of the Purchasers. The Initial Shelf Registration shall be on Form S-1 or another appropriate form permitting registration of such Registrable Securities for resale by such Holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings). The Company and the Guarantors shall (i) not permit any securities other than the Registrable Securities to be included in any Shelf Registration, and (ii) use their best efforts to cause the Initial Shelf Registration to be declared effective as promptly as practicable after the filing thereof and to keep the Initial Shelf Registration continuously effective until the date that is 36 months from the Effectiveness Date (subject to extension pursuant to the last paragraph of Section 6 hereof) (the "Effectiveness Period"), or such shorter period ending when (i) all Registrable Securities covered by the Initial Shelf 8 Registration have been sold or (ii) a Subsequent Shelf Registration covering all of the Registrable Securities has been declared effective under the Securities Act. (b) Subsequent Shelf Registrations. If any Shelf Registration ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the Registrable Securities registered thereunder), the Company and the Guarantors shall use their best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within 30 days of such cessation of effectiveness amend the Shelf Registration in a manner reasonably expected to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional "shelf" Registration Statement pursuant to Rule 415 covering all of the Registrable Securities (a "Subsequent Shelf Registration"). If a Subsequent Shelf Registration is filed, the Company and the Guarantors shall use their best efforts to cause the Subsequent Shelf Registration to be declared effective as soon as practicable after such filing and to keep such Subsequent Shelf Registration continuously effective for a period equal to the number of days in the Effectiveness Period less the aggregate number of days during which the Initial Shelf Registration, and any Subsequent Shelf Registration, was previously effective. (c) Notwithstanding the foregoing provisions of this Section 3 (but subject to Section 4 below), the Company shall not be required to amend or supplement a Registration Statement, any related Prospectus or any document incorporated therein by reference, for a period not to exceed an aggregate of 60 days in any calendar year if, (i) an event occurs and is continued as a result of which the Shelf Registration would, in the Issuer's good faith judgment, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (ii) the Issuer determines in its good faith judgment that the disclosure of such event at such time would have a material adverse effect on (a) the business, operations or prospects of the Issuer or (b) a pending material business transaction that has not yet been publicly disclosed. 4. Liquidated Damages. (a) The Company and the Guarantors acknowledge and agree that the holders of Registrable Securities will suffer damages, and that it would not be feasible to ascertain the extent of such damages with precision, if the Company and the Guarantors fail to fulfill their obligations hereunder. Accordingly, in the event of such failure, the Company and the Guarantors jointly and 9 severally agree to pay liquidated damages to each Holder under the circumstances and to the extent set forth below: (i) if neither the Exchange Offer Registration Statement nor the Initial Shelf Registration has been filed with the SEC on or prior to the Filing Date; or (ii) if neither the Exchange Offer Registration Statement nor the Initial Shelf Registration is declared effective by the SEC on or prior to the Effectiveness Date; or (iii) if the Company has not accepted for exchange Exchange Securities for all Notes validly tendered in accordance with the terms of the Exchange Offer within 30 days after the date on which an Exchange Offer Registration Statement is declared effective by the SEC; or (iv) if a Shelf Registration is filed and declared effective by the SEC but thereafter ceases to be effective without being succeeded within 30 days by a Subsequent Shelf Registration filed and declared effective; (each of the foregoing a "Registration Default," and the date on which the Registration Default occurs being referred to herein as an "Event Date"). Upon the occurrence of any Registration Default, the Company shall pay, or cause to be paid (and the Guarantors hereby guarantee the payment of), in addition to amounts otherwise due under the Indenture and the Registrable Securities, as liquidated damages, and not as a penalty, to each holder of a Registrable Security, an additional amount (the "Weekly Liquidated Damages Amount") equal to (A) for each weekly period beginning on the Event Date for the first 90-day period immediately following such Event Date, $.05 per week per $1,000 principal amount of Registrable Securities held by such holder, and (B) for each weekly period beginning with the first full week after the 90-day period set forth in the foregoing clause (A), $.10 per week per $1,000 principal amount of Registrable Securities held by such holder; provided that such liquidated damages will, in each case, cease to accrue (subject to the occurrence of another Registration Default) on the date on which all Registration Defaults have been cured. A Registration Default under clause (i) above shall be cured on the date that either the Exchange Offer Registration Statement or the Initial Shelf Registration is filed with the SEC; a Registration Default under clause (ii) above shall be cured on the date that either the Exchange Offer Registration Statement or the Initial Shelf Registration is declared effective by the SEC; a Registration Default under clause (iii) above shall be cured on the earlier of the date (A) the Exchange Offer is consummated with respect to all Notes validly tendered or (B) the 10 Company delivers a Shelf Notice to the Holders; and a Registration Default under clause (iv) above shall be cured on the earlier of (A) the date on which the applicable Shelf Registration is no longer subject to an order suspending the effectiveness thereof or proceedings relating thereto or (B) a Subsequent Shelf Registration is declared effective. (b) The Company shall notify the Trustee within five Business Days after each Event Date. The Company shall pay the liquidated damages due on the Registrable Securities by depositing with the Trustee, in trust, for the benefit of the Holders thereof, by 12:00 noon, New York City time, on or before the applicable semi-annual interest payment date for the Registrable Securities, immediately available funds in sums sufficient to pay the liquidated damages then due. The liquidated damages amount due shall be payable on each interest payment date to the Holder entitled to receive the interest payment to be made on such date as set forth in the Indenture. 5. Hold-Back Agreements The Company and the Guarantors agree, without the prior written consent of the Holders of a majority in the aggregate principal amount of the then outstanding Securities, not to effect any public or private sale or distribution (including a sale pursuant to Regulation D under the Securities Act) of any securities the same as or similar to those covered by a Registration Statement filed pursuant to Section 2 or 3 hereof, or any securities convertible into or exchangeable or exercisable for such securities, during the 10 days prior to, and during the 90-day period beginning on, (A) the effective date of any Registration Statement filed pursuant to Sections 2 and 3 hereof unless the Holders of a majority in the aggregate principal amount of the Registrable Securities to be included in such Registration Statement consent or (B) the commencement of an underwritten public distribution of Registrable Securities, where the managing underwriter so requests. 6. Registration Procedures In connection with the registration of any Securities pursuant to Sections 2 or 3 hereof, each of the Company and each Guarantor shall effect such registrations to permit the sale of such Securities in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Company and each Guarantor shall: (a) Prepare and file with the SEC, as soon as practicable after the date hereof but in any event on or prior to the Filing Date, a Registration Statement or Registration Statements as prescribed by Section 2 or 3, and use its 11 best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided, that, if (i) such filing is pursuant to Section 3 or (ii) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Company and the Guarantors shall, if requested, furnish to and afford the Holders of the Registrable Securities covered by such Registration Statement, their Special Counsel, each Participating Broker-Dealer, the managing underwriters, if any, and their counsel, a reasonable opportunity to review and make available for inspection by such Persons copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed, such financial and other information and books and records of the Company and the Guarantors, and cause the officers, directors and employees of the Company and the Guarantors, Company counsel and independent certified public accountants of the Company, to respond to such inquiries, as shall be necessary, in the opinion of respective counsel to such holders, Participating Broker-Dealer and underwriters, to conduct a reasonable investigation within the meaning of the Securities Act (it being understood that a period of five business days shall be deemed to afford such reasonable opportunity). The Company may require each Holder to agree to keep confidential any non-public information relating to the Company ("Confidential Information") received by such Holder and not disclose such Confidential Information (other than to an Affiliate or prospective purchaser who agrees to respect the confidentiality provisions of this Section 6(a)) until such information has been made generally available to the public, other than as a result of a disclosure by such Holder, its directors, officers, employees, agents or advisors or by any other person subject to a confidentiality agreement, unless the release of such Confidential Information is required by law or necessary to respond to inquiries of regulatory authorities (including the National Association of Insurance Commissioners, or similar organizations or their successors). The Company may also require each Holder to agree (i) to give the Company prompt notice of any request to disclose any Confidential Information received by such Holder so that the Company may seek appropriate protective orders, (ii) to consult with the Company with respect to the Company's taking steps to restrict or narrow the scope of such requests, and (iii) if the release of the Confidential Information is required by law or necessary to respond to inquiries of regulatory authorities, to give specific written notice to the Company describing the Confidential Information to be disclosed (as far in advance of its disclosure as is practicable) and to use its reasonable best efforts to obtain assurances from the recipient that confidential treatment will be accorded to the Confidential Information. Neither the Company nor any Guarantor shall file any Registration Statement or Prospectus or any amendments or supplements thereto in respect of which the Holders must 12 be afforded an opportunity to review prior to the filing of such document, if the Holders of a majority in aggregate principal amount of the Registrable Securities covered by such Registration Statement, their Special Counsel, any Participating Broker-Dealer or the managing underwriters, if any, or their counsel shall reasonably object. (b) Provide an indenture trustee for the Registrable Securities or the Exchange Securities, as the case may be, and cause the Indenture (or other indenture relating to the Registrable Securities) to be qualified under the TIA not later than the effective date of the first Registration Statement; and in connection therewith, to effect such changes to such indenture as may be required for such indenture to be so qualified in accordance with the terms of the TIA; and execute, and use its best efforts to cause such trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable such indenture to be so qualified in a timely manner. (c) Prepare and file with the SEC such amendments and post-effective amendments to the Registration Statement as may be necessary to keep such Registration Statement continuously effective for the time periods required hereby; cause the related Prospectus to be supplemented by any Prospectus supplement required by applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and comply in all material respects with the provisions of the Securities Act and the Exchange Act applicable thereto with respect to the disposition of all securities covered by such Registration Statement, as so amended, or in such Prospectus, as so supplemented, in accordance with the intended methods of distribution set forth in such Registration Statement or Prospectus as so amended. (d) Furnish to such selling Holders and Participating Broker-Dealers who so request (i) upon the Company's receipt, a copy of the order of the SEC declaring such Registration Statement and any post-effective amendment thereto effective and (ii) such reasonable number of copies of such Registration Statement and of each amendment and supplement thereto (in each case including any documents incorporated therein by reference and all exhibits), (iii) such reasonable number of copies of the Prospectus included in such Registration Statement (including each preliminary Prospectus), and such reasonable number of copies of the final Prospectus as filed by the Company pursuant to Rule 424(b) under the Securities Act, in conformity with the requirements of the Securities Act, and (iv) such other documents (including any amendments required to be filed pursuant to clause (c) of this Section), as any such Person may reasonably request. The Company and the Guarantors hereby consent to the use of the Prospectus by each of the selling Holders of Registrable Securities or each such Participating Broker-Dealer, as the case may be, and the underwriters or agents, 13 if any, and dealers (if any), in connection with the offering and sale of the Registrable Securities covered by, or the sale by Participating Broker-Dealers of the Exchange Securities pursuant to, such Prospectus and any amendment thereto. (e) If (A) a Shelf Registration is filed pursuant to Section 3 or (B) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, notify the selling Holders of Registrable Securities, their Special Counsel, each Participating Broker-Dealer and the managing underwriters, if any, promptly (but in any event within two Business Days), and confirm such notice in writing, (i) when a Prospectus has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective under the Securities Act, (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any Prospectus or the initiation of any proceedings for that purpose, (iii) if, at any time when a Prospectus is required by the Securities Act to be delivered in connection with sales of the Registrable Securities, the representations and warranties of the Company or of any Guarantor contained in any agreement (including any underwriting agreement) contemplated by Section 6(n) below cease to be true and correct in any material respect, (iv) of the receipt by the Company or any Guarantor of any notification with respect to the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Registrable Securities or the Exchange Securities to be sold by any Participating Broker-Dealer for offer or sale in any jurisdiction, or the contemplation, initiation or threatening of any proceeding for such purpose, (v) of the happening of any event that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in such Registration Statement, Prospectus or documents so that it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vi) of the Company's reasonable determination that a post-effective amendment to a Registration Statement would be appropriate. (f) Use its reasonable best efforts to register or qualify (to the extent required by applicable law), and, if applicable, to cooperate with the selling Holders of Registrable Securities, the underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of, Securities to be included in a Registration Statement for offer and sale under the securities or Blue Sky laws of 14 such jurisdictions within the United States as any selling Holder, Participating Broker-Dealer or the managing underwriters reasonably request in writing; and, if Securities are offered other than through an Underwritten Offering, the Company shall cause its counsel to perform Blue Sky investigations and file registrations and qualifications required to be filed pursuant to this Section 6(f) at the expense of the Company; keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Securities covered by the applicable Registration Statement, provided, however, that none of the Company nor the Guarantors shall be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified, (ii) to take action that would subject it to general service of process in any jurisdiction where it is not so subject or (iii) subject it to taxation in any such jurisdiction where it is not then subject. (g) Use its reasonable best efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Securities for sale in any jurisdiction, and, if any such order is issued, to use its reasonable best efforts to obtain the withdrawal of any such order at the earliest possible time. (h) If (A) a Shelf Registration is filed pursuant to Section 3 or (B) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, and if requested by the managing underwriters, if any, or the Holders of a majority in aggregate principal amount of the Registrable Securities, (i) promptly incorporate in a Prospectus or post-effective amendment such information as the managing underwriters, if any, or such Holders reasonably request to be included therein required to comply with any applicable law and (ii) make all required filings of such Prospectus or such post-effective amendment as soon as practicable after the Company has received notification of such matters required by Applicable Law to be incorporated in such Prospectus or post-effective amendment. (i) If (A) a Shelf Registration is filed pursuant to Section 3 or (B) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, cooperate with the selling Holders and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear 15 any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company ("DTC"); and enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriters, if any, or Holders may reasonably request. (j) If (i) a Shelf Registration is filed pursuant to Section 3 or (ii) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Securities during the Applicable Period, upon the occurrence of any event contemplated by paragraph 6(e)(v) or 6(e)(vi) above, as promptly as practicable prepare a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder or to the purchasers of the Exchange Securities to whom such Prospectus will be delivered by a Participating Broker-Dealer, such Registration Statement or Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (k) Use its reasonable best efforts to cause the Securities covered by a Registration Statement to be rated with the appropriate rating agencies, if appropriate, if so requested by the Holders of a majority in aggregate principal amount of Securities covered by such Registration Statement or the managing underwriters, if any. (l) Prior to the effective date of the first Registration Statement relating to the Securities, (i) provide the applicable trustee with printed certificates for the Securities in a form eligible for deposit with DTC and (ii) provide a CUSIP number for each of the Securities. (m) Use its best efforts to cause all Securities covered by such Registration Statement to be listed on each securities exchange, if any, on which similar debt securities issued by the Company are then listed. (n) If a Shelf Registration is filed pursuant to Section 3, enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in underwritten offerings of debt securities similar to the Notes, as may be appropriate in the circumstances) and take all such other actions in connection therewith (including those reasonably requested by the managing underwriters, if any, or the Holders of a majority in aggregate princi- 16 pal amount of the Registrable Securities being sold) in order to expedite or facilitate the registration or the disposition of such Registrable Securities, and in such connection, whether or not an underwriting agreement is entered into and whether or not the registration is an Underwritten Registration, (i) make such representations and warranties to the Holders and the underwriters, if any, with respect to the business of the Company and its subsidiaries, and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings of debt securities similar to the Notes, as may be appropriate in the circumstances, and confirm the same if and when reasonably requested; (ii) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, and the Holders of a majority in aggregate principal amount of the Registrable Securities being sold), addressed to each selling Holder and each of the underwriters, if any, covering the matters customarily covered in opinions of counsel to the Issuer requested in underwritten offerings of debt securities similar to the Notes, as may be appropriate in the circumstances; (iii) obtain "cold comfort" letters and updates thereof (which letters and updates (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters) from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each of the underwriters and each selling Holder, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings of debt securities similar to the Notes, as may be appropriate in the circumstances, and such other matters as reasonably requested by underwriters; and (iv) deliver such documents and certificates as may be reasonably requested by the Holders of a majority in principal amount of the Registrable Securities being sold and the managing underwriters, if any, to evidence the continued validity of the representations and warranties of the Company and its subsidiaries made pursuant to clause (i) above and to evidence compliance with any conditions contained in the underwriting agreement or other similar agreement entered into by the Company. Nothing contained in this clause (n) requires the Company or the Guarantors, their counsel or their accountants to make any representations or warranties, to render any legal opinion or to deliver any comfort letters that are not true. (o) Comply with all applicable rules and regulations of the SEC and make generally available to its security holders earnings statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after 17 the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing on the first day of the fiscal quarter following each fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of a Registration Statement, which statements shall cover said 12-month periods. (p) Upon consummation of an Exchange Offer or Private Exchange, obtain an opinion of counsel to the Company (in form, scope and substance reasonably satisfactory to the Purchaser), addressed to the Trustee for the benefit of all Holders participating in the Exchange Offer or Private Exchange, as the case may be, to the effect that (i) the Company and the Guarantors have duly authorized, executed and delivered the Exchange Securities or the Private Exchange Securities, as the case may be, and the Indenture, (ii) the Exchange Securities or the Private Exchange Securities, as the case may be, and the Indenture constitute legal, valid and binding obligations of the Company and the Guarantors, enforceable against the Company and the Guarantors in accordance with their respective terms, except as such enforcement may be subject to customary exceptions including, without limitation, (x) applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and (y) general principles of equity (regardless of whether such enforcement is sought in a proceeding in equity or at law), and (iii) all obligations of the Company and the Guarantors under the Exchange Securities or the Private Exchange Securities, as the case may be, and the Indenture are secured by Liens on the assets securing the obligations of the Company under the Notes. (q) If an Exchange Offer or Private Exchange is to be consummated, upon delivery of the Registrable Securities by such Holders to the Company (or to such other Person as directed by the Company) in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be, the Company shall mark, or caused to be marked, on such Registrable Securities that such Registrable Securities are being cancelled in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be, and in no event shall such Registrable Securities be marked as paid or otherwise satisfied. (r) Cooperate with each seller of Registrable Securities covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the NASD. 18 (s) Use its reasonable best efforts to take all other steps necessary to effect the registration of the Registrable Securities covered by a Registration Statement contemplated hereby. The Company may require each seller of Registrable Securities or Participating Broker-Dealer as to which any registration is being effected to furnish to the Company such reasonable information regarding such seller or Participating Broker-Dealer and the distribution of such Registrable Securities or Exchange Securities as the Company may, from time to time, reasonably request in writing. The Company may exclude from such registration the Registrable Securities of any seller or Exchange Securities of any Participating Broker-Dealer who fails to furnish such information. Each Holder and each Participating Broker-Dealer agrees by acquisition of such Registrable Securities or Exchange Securities of any Participating Broker-Dealer that, upon receipt of written notice from the Company of the happening of any event of the kind described in Section 6(e)(ii), 6(e)(iv), 6(e)(v) or 6(e)(vi), such Holder will forthwith discontinue disposition (in the jurisdictions specified in a notice of a 6(e)(iv) event, and elsewhere in a notice of a 6(e)(ii), 6(e)(v) or 6(e)(vi) event) of such Securities covered by such Registration Statement or Prospectus until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 6(j), or until it is advised in writing (the "Advice") by the Company that offers or sales in a particular jurisdiction may be resumed or that the use of the applicable Prospectus may be resumed, as the case may be, and has received copies of any amendments or supplements thereto. If the Company shall give such notice, each of the Effectiveness Period and the Applicable Period shall be extended by the number of days during such periods from and including the date of the giving of such notice to and including the date when each seller of such Securities covered by such Registration Statement shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 6(j) or (y) the Advice. 7. Registration Expenses (a) All fees and expenses incident to the performance of or compliance with this Agreement by the Company and the Guarantors shall be borne by the Company and the Guarantors whether or not the Exchange Offer or a Shelf Registration is filed or becomes effective, including, without limitation: (i) all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the NASD and (B) fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, reasonable fees and disburse- 19 ments of counsel in connection with Blue Sky qualifications of the Registrable Securities or Exchange Securities and determination of the eligibility of the Registrable Securities or Exchange Securities for investment under the laws of such jurisdictions (x) where the Holders are located, in the case of the Exchange Securities, or (y) as provided in Section 6(f), in the case of Registrable Securities or Exchange Securities to be sold by a Participating Broker-Dealer during the Applicable Period); (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities or Exchange Securities in a form eligible for deposit with DTC and of printing Prospectuses if the printing of Prospectuses is requested by the managing underwriters, if any, or, in respect of Registrable Securities or Exchange Securities to be sold by a Participating Broker-Dealer during the Applicable Period, by the Holders of a majority in aggregate principal amount of the Registrable Securities included in any Registration Statement or of such Exchange Securities, as the case may be); (iii) messenger, telephone, duplication, word processing and delivery expenses incurred by the Company in the performance of its obligations hereunder; (iv) fees and disbursements of counsel for the Company; (v) fees and disbursements of all independent certified public accountants referred to in Section 6(n)(iii) (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance); (vi) fees and expenses of any "qualified independent underwriter" or other independent appraiser participating in an offering pursuant to Section 3 of Schedule E to the By-laws of the NASD, but only where the need for such a "qualified independent underwriter" arises due to a relationship with the Company; (vii) Securities Act liability insurance, if the Company so desires such insurance; (viii) fees and expenses of all other Persons retained by the Company; internal expenses of the Company (including, without limitation, all salaries and expenses of officers and employees of the 20 Company performing legal or accounting duties); and the expense of any annual audit; and (ix) rating agency fees and the fees and expenses incurred in connection with the listing of the Securities to be registered on any securities exchange. (b) The Company and the Guarantors shall reimburse the Holders for the reasonable fees and disbursements of not more than one counsel (in addition to appropriate local counsel) chosen by the Holders of a majority in aggregate principal amount of the Registrable Securities to be included in any Registration Statement. The Company shall pay all documentary, stamp, transfer or other transactional taxes attributable to the issuance or delivery of the Exchange Securities or Private Exchange Securities in exchange for the Notes; provided that the Company shall not be required to pay taxes payable in respect of any transfer involved in the issuance or delivery of any Exchange Security or Private Exchange Security in a name other than that of the holder of the Note in respect of which such Exchange Security or Private Exchange Security is being issued. (c) Neither the Company or the Guarantors shall be liable for any underwriting, brokerage, finder's or similar fees, discounts or commissions, if any, attributable to the sale of the Registrable Securities which discounts, commissions or taxes shall be paid by the Holders of such Registrable Securities. 8. Indemnification (a) Indemnification by the Company. The Company and each of the Guarantors, jointly and severally, shall, without limitation as to time, indemnify and hold harmless each Holder and each Participating Broker-Dealer selling Exchange Securities during the Applicable Period, each Person who controls each such Holder (within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act) and the officers, directors, partners, employees, representatives and agents of each such Holder, Participating Broker-Dealer and controlling person, to the fullest extent lawful, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable costs of preparation and reasonable attorneys' fees as provided in this Section 8) and expenses (including, without limitation, reasonable costs and expenses incurred in connection with investigating, preparing, pursuing or defending against any of the foregoing) (collectively, "Losses"), as incurred, directly or indirectly caused by, related to, based upon, arising out of or in connection with any untrue or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or form of prospectus, or in any 21 amendment or supplement thereto, or in any preliminary prospectus, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except insofar as such Losses are based upon information relating to such Holder or Participating Broker-Dealer and furnished in writing to the Company (or reviewed and approved in writing) by such Holder or Participating Broker-Dealer expressly for use therein; provided, however, that neither the Company nor any of the Guarantors shall be liable to any Indemnified Party to the extent that any such losses arise solely out of an untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary prospectus if (i) such Indemnified Party or related holder of a Registrable Security failed to send or deliver a copy of the Prospectus with or prior to the delivery of written confirmation of the sale by such Indemnified Party or the related holder of a Registrable Security to the person asserting the claim from which such Losses arise, (ii) the Prospectus would have corrected such untrue statement or alleged untrue statement or omission or alleged omission, and (iii) the Company and the Guarantors have complied with their obligations under Section 6(e) hereof. The Company and each of the Guarantors shall also indemnify underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, their officers, directors, agents and employees and each Person who controls such Persons (within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act) to the same extent as provided above with respect to the indemnification of the Holders or the Participating Broker-Dealer. (b) Indemnification by Holder of Registrable Securities. In connection with any Registration Statement, Prospectus or form of prospectus, any amendment or supplement thereto, or any preliminary prospectus in which a Holder in which a Holder is participating, such Holder shall furnish to the Company in writing such information as the Company reasonably requests for use in connection with any Registration Statement, Prospectus or form of prospectus, any amendment or supplement thereto, or any preliminary prospectus and shall, without limitation as to time, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person, if any, who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20(a) of the Exchange Act), and the directors, officers, agents or employees of such controlling persons, to the fullest extent lawful, from and against all Losses arising out of or based upon any untrue or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading to the extent, but only to the 22 extent, that such untrue statement or alleged untrue statement of a material fact or omission or alleged omission of a material fact is contained in or omitted from any information so furnished in writing by such holder to the Company expressly for use therein. In no event shall the liability of any selling Holder be greater in amount than the dollar amount of the proceeds (net of payment of all expenses) received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. (c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an "indemnified party"), such indemnified party shall promptly notify the party or parties from which such indemnity is sought (the "indemnifying parties") in writing; provided, that the failure to so notify the indemnifying parties shall not relieve the indemnifying parties from any obligation or liability except to the extent (but only to the extent) that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal) that the indemnifying parties have been prejudiced materially by such failure. The indemnifying party shall have the right, exercisable by giving written notice to an indemnified party, within 20 business days after receipt of written notice from such indemnified party of such Proceeding, to assume, at its expense, the defense of any such Proceeding, provided, that an indemnified party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such indemnified party or parties unless: (1) the indemnifying party has agreed to pay such fees and expenses; or (2) the indemnifying party shall have failed promptly to assume the defense of such Proceeding or shall have failed to employ counsel reasonably satisfactory to such indemnified party; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such indemnified party and the indemnifying party or any of its affiliates or controlling persons, and such indemnified party shall have been advised by counsel that there may be one or more defenses available to such indemnified party that are in addition to, or in conflict with, those defenses available to the indemnifying party or such affiliate or controlling person (in which case, if such indemnified party notifies the indemnifying parties in writing that it elects to employ separate counsel at the expense of the indemnifying parties, the indemnifying parties shall not have the right to assume the defense and the reasonable fees and expenses of such counsel shall be at the expense of the indemnifying party; it being understood, however, that, the indemnifying party shall not, in connection with any one such Proceeding or separate but substantially similar or related Proceedings in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses 23 of more than one separate firm of attorneys (together with appropriate local counsel) at any time for such indemnified party). No indemnifying party shall be liable for any settlement of any such Proceeding effected without its written consent, but if settled with its written consent, or if there be a final judgment for the plaintiff in any such Proceeding, each indemnifying party jointly and severally agrees, subject to the exceptions and limitations set forth above, to indemnify and hold harmless each indemnified party from and against any and all Losses by reason of such settlement or judgment. The indemnifying party shall not consent to the entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to each indemnified party of a release, in form and substance reasonably satisfactory to the indemnified party, from all liability in respect of such Proceeding for which such indemnified party would be entitled to indemnification hereunder (whether or not any indemnified party is a party thereto). (d) Contribution. If the indemnification provided for in this Section 8 is unavailable to an indemnified party or is insufficient to hold such indemnified party harmless for any Losses in respect of which this Section 8 would otherwise apply by its terms (other than by reason of exceptions provided in this Section 8), then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall have a joint and several obligation to contribute to the amount paid or payable by such indemnified party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and such indemnified party, on the other hand, in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such indemnifying party, on the one hand, and indemnified party, on the other hand, shall be determined by reference to, among other things, whether any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent any such statement or omission. The amount paid or payable by an indemnified party as a result of any Losses shall be deemed to include any legal or other fees or expenses incurred by such party in connection with any Proceeding, to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in Section 8(a) or 8(b) was available to such party. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable 24 considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 8(d), an indemnifying party that is a selling Holder shall not be required to contribute, in the aggregate, any amount in excess of such Holder's Maximum Contribution Amount. A selling Holder's "Maximum Contribution Amount" shall equal the excess of (i) the aggregate proceeds received by such Holder pursuant to the sale of such Registrable Securities over (ii) the aggregate amount of damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The indemnity and contribution agreements contained in this Section 8 are in addition to any liability that the indemnifying parties may have to the indemnified parties. 9. Rule 144 and Rule 144A Each of the Company and each Guarantor covenants that it shall (a) file the reports required to be filed by it (if so required) under the Securities Act and the Exchange Act in a timely manner and, if at any time any such Person is not required to file such reports, it will, upon the request of any Holder, make publicly available other information necessary to permit sales pursuant to Rule 144 and Rule 144A and (b) take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act pursuant to the exemptions provided by Rule 144 and Rule 144A. Upon the request of any Holder, the Company and the Guarantors shall deliver to such Holder a written statement as to whether they have complied with such information and requirements. 10. Underwritten Registrations If any of the Registrable Securities covered by any Shelf Registration are to be sold in an Underwritten Offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Holders of a majority in aggregate principal amount of such Registrable Securities included in such offering and shall be reasonably acceptable to the Company and the Guarantors; it being understood that any Underwritten Offering shall include at least $10,000,000 principal amount of the Registrable Securities. 25 No Holder may participate in any Underwritten Registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 11. Miscellaneous (a) Remedies. In the event of a breach by the Company or any of the Guarantors of any of its respective obligations under this Agreement, each Holder, in addition to being entitled to exercise all rights provided herein, in the Indenture or, in the case of the Purchasers, in the Purchase Agreement, or granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each of the Guarantors agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Company has not entered into, as of the date hereof, and shall not enter into, after the date of this Agreement, any agreement with respect to any of its securities that is inconsistent with the rights granted to the holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. (c) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of Holders of at least a majority of the then outstanding aggregate principal amount of Registrable Securities; provided, that Sections 6(a) and 8 shall not be amended, modified or supplemented, and waivers or consents to departures from this proviso may not be given, unless the Company has obtained the written consent of each Holder. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority in aggregate principal amount of the Registrable Securities being sold by such Holders pursuant to such Registration Statement, provided that the provisions of this sentence may not be 26 amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. (d) Notices. All notices and other communications (including, without limitation, any notices or other communications to the Trustee) provided for or permitted hereunder shall be made in writing by hand-delivery, certified first-class mail, return receipt requested, next-day air courier or facsimile: (i) if to a Holder, at the most current address given by such holder to the Company in accordance with the provisions of this Section 11(d), which address initially is, with respect to each holder, the address of such holder maintained by the Registrar under the Indenture, with a copy to Skadden, Arps, Slate, Meagher & Flom, 300 South Grand Avenue, Los Angeles, California 90071, telecopy number (213) 687-5600, Attention: Michael A. Woronoff, Esq.; and (ii) if to the Company or any of the Guarantors, initially 7 North Street, Staten Island, New York 10302-1205, telecopy number (708) 442-5105, Attention: Nathan Schlenker, and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 11(d), with copies to Silverman, Collura and Chernis, P.C., 381 Park Avenue South, Suite 1601, New York, New York 10016, telecopy number (212) 779-8858, Attention: Peter Silverman, and Jones, Day, Reavis & Pogue, 599 Lexington Avenue, New York, New York 10022, telecopy number (212) 755-7306, Attention: Robert A. Zuccaro. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; one business day after being timely delivered to a next-day air courier; and when receipt is acknowledged by the addressee, if telecopied. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee under the Indenture at the address specified in such Indenture. (e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders. 27 (f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE COMPANY AND EACH GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. EACH OF THE COMPANY AND EACH GUARANTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE COMPANY AND EACH GUARANTOR IRREVOCABLY CONSENTS, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY AT ITS SAID ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY HOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY OR ANY GUARANTOR IN ANY OTHER JURISDICTION. (i) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, 28 illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (j) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement, and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein, with respect to the registration rights granted by the Company in respect of securities sold pursuant to the Purchase Agreement. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. (k) Securities Held by the Company or its Affiliates. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or its affiliates (as such term is defined in Rule 405 under the Securities Act) (other than Holders deemed to be such affiliates solely by reason of their holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the holders of such required percentage. 29 REGISTRATION RIGHTS AGREEMENT ----------------------------- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. ATLANTIC EXPRESS TRANSPORTATION CORP. By:__________________________________ Name:________________________________ Title:_______________________________ AMBOY BUS CO., INC. COURTESY BUS CO., INC. By: ________________________________ By: _________________________________ Name: ______________________________ Name: _______________________________ Title: _____________________________ Title: ______________________________ STATEN ISLAND BUS, INC. K. CORR, INC. By: ________________________________ By: _________________________________ Name: ______________________________ Name: _______________________________ Title: _____________________________ Title: ______________________________ RAYBERN CAPITAL CORP. RAYBERN EQUITY CORP. By: ________________________________ By: _________________________________ Name: ______________________________ Name: _______________________________ Title: _____________________________ Title: ______________________________ METROPOLITAN ESCORT SERVICE, INC. METRO AFFILIATES, INC. By: ________________________________ By: _________________________________ Name: ______________________________ Name: _______________________________ Title: _____________________________ Title: ______________________________ MERIT TRANSPORTATION CORP. MIDWAY LEASING INC. By: ________________________________ By: _________________________________ Name: ______________________________ Name: _______________________________ Title: _____________________________ Title: ______________________________ TEMPORARY TRANSIT SERVICE, INC. BROOKFIELD TRANSIT INC. By: ________________________________ By: _________________________________ Name: ______________________________ Name: _______________________________ Title: _____________________________ Title: ______________________________ ATLANTIC-HUDSON, INC. ATLANTIC PARATRANS, INC. By: ________________________________ By: _________________________________ Name: ______________________________ Name: _______________________________ Title: _____________________________ Title: ______________________________ 180 JAMAICA CORP. BLOCK 7932, INC. By: ________________________________ By: _________________________________ Name: ______________________________ Name: _______________________________ Title: _____________________________ Title: ______________________________ ATLANTIC EXPRESS COACHWAYS, INC. ATLANTIC-CONN. TRANSIT, INC. By: ________________________________ By: _________________________________ Name: ______________________________ Name: _______________________________ Title: _____________________________ Title: ______________________________ ATLANTIC EXPRESS OF PENNSYLVANIA, ATLANTIC EXPRESS OF MISSOURI INC. INC. By: ________________________________ By: _________________________________ Name: ______________________________ Name: _______________________________ Title: _____________________________ Title: ______________________________ ATLANTIC PARATRANS OF KENTUCKY INC. RAYBERN BUS SERVICE, INC. By: ________________________________ By: _________________________________ Name: ______________________________ Name: _______________________________ Title: _____________________________ Title: ______________________________ DOM-RICH ASSOCIATES, INC. G.V.D. LEASING CO., INC. By: ________________________________ By: _________________________________ Name: ______________________________ Name: _______________________________ Title: _____________________________ Title: ______________________________ ACCEPTED AND AGREED TO: JEFFERIES & COMPANY, INC. By: ________________________________ Name: Title: EX-10.2 10 LOAN & SECURITY AGREE 2/4/97 AETG Exhibit 10.2 EXECUTION COPY Loan and Security Agreement by and between CONGRESS FINANCIAL CORPORATION, as Lender, CERTAIN SUBSIDIARIES OF ATLANTIC EXPRESS TRANSPORTATION CORP., as Borrowers, and ATLANTIC EXPRESS TRANSPORTATION CORP. as Guarantor Dated: February 4, 1997 TABLE OF CONTENTS Page ---- SECTION 1. DEFINITIONS..................................................... 1 SECTION 2. CREDIT FACILITIES............................................... 13 2.1 Revolving Loans................................................. 13 2.2 Letter of Credit Accommodations................................. 14 2.3 Availability Reserves........................................... 16 2.4 Borrowers' Representative....................................... 16 SECTION 3. INTEREST AND FEES............................................... 16 3.1 Interest........................................................ 16 3.2 Closing Fee..................................................... 18 3.3 Servicing Fee................................................... 18 3.4 Unused Line Fee................................................. 18 3.5 Changes in Laws and Increased Costs of Loans.................... 18 SECTION 4. CONDITIONS PRECEDENT............................................ 19 4.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations ................................................. 19 4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations ................................................. 21 SECTION 5. GRANT OF SECURITY INTEREST...................................... 21 SECTION 6. COLLECTION AND ADMINISTRATION................................... 22 6.1 Borrower's Loan Account......................................... 22 6.2 Statements...................................................... 22 6.3 Collection of Accounts.......................................... 23 6.4 Payments........................................................ 24 6.5 Authorization to Make Loans..................................... 24 6.6 Use of Proceeds................................................. 24 SECTION 7. COLLATERAL REPORTING AND COVENANTS.............................. 25 7.1 Collateral Reporting............................................ 25 7.2 Accounts Covenants.............................................. 25 7.3 Power of Attorney............................................... 26 7.4 Right to Cure................................................... 27 7.5 Access to Premises.............................................. 27 SECTION 8. REPRESENTATIONS AND WARRANTIES.................................. 28 8.1 Corporate Existence, Power and Authority; Subsidiaries.......... 28 8.2 Financial Statements; No Material Adverse Change................ 28 8.3 Chief Executive Office; Collateral Locations.................... 29 8.4 Priority of Liens; Title to Properties.......................... 29 8.5 Tax Returns..................................................... 29 8.6 Litigation...................................................... 29 8.7 Compliance with Other Agreements and Applicable Laws............ 30 8.8 Employee Benefits............................................... 30 8.9 Environmental Compliance........................................ 31 8.10 Accuracy and Completeness of Information....................... 31 8.11 Survival of Warranties; Cumulative............................. 32 SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS.............................. 32 9.1 Maintenance of Existence........................................ 32 9.2 New Collateral Locations........................................ 32 9.3 Compliance with Laws, Regulations, Etc.......................... 32 9.4 Payment of Taxes and Claims..................................... 34 9.5 Insurance....................................................... 34 9.6 Financial Statements and Other Information...................... 35 9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc......... 36 9.8 Encumbrances.................................................... 37 9.9 Indebtedness.................................................... 38 9.10 Loans, Investments, Guarantees, Etc............................ 39 9.11 Dividends and Redemptions...................................... 39 9.12 Transactions with Affiliates................................... 40 9.13 Costs and Expenses............................................. 40 9.14 Compliance with ERISA.......................................... 41 9.15 Further Assurances............................................. 41 SECTION 10. EVENTS OF DEFAULT AND REMEDIES................................. 42 10.1 Events of Default.............................................. 42 10.2 Remedies....................................................... 44 SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW... 45 11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver ................................................. 45 11.2 Waiver of Notices............................................. 46 11.3 Amendments and Waivers........................................ 46 11.4 Waiver of Counterclaims....................................... 46 11.5 Indemnification............................................... 47 SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS............................... 47 12.1 Term.......................................................... 47 12.2 Notices....................................................... 48 12.3 Partial Invalidity............................................ 48 12.4 Successors.................................................... 49 12.5 Entire Agreement.............................................. 49 INDEX TO EXHIBITS AND SCHEDULES Exhibit A Information Certificate Schedule 8.9 Environmental Matters LOAN AND SECURITY AGREEMENT This Loan and Security Agreement dated February 4, 1997 is entered into by and between CONGRESS FINANCIAL CORPORATION, a California corporation ("Lender"), AMBOY BUS CO., INC., a New York corporation, ATLANTIC-CONN. TRANSIT, INC., a Connecticut corporation, ATLANTIC-HUDSON, INC., a New York corporation, ATLANTIC PARATRANS, INC., a New York corporation, ATLANTIC PARATRANS OF KENTUCKY INC., a Kentucky corporation, ATLANTIC EXPRESS COACHWAYS, INC., a New Jersey corporation, ATLANTIC EXPRESS OF MISSOURI INC., a Missouri corporation, ATLANTIC EXPRESS OF PENNSYLVANIA, INC., a Delaware corporation, BROOKFIELD TRANSIT INC., a New York corporation, COURTESY BUS CO., INC., a New York corporation, K. CORR, INC., a New York corporation, MERIT TRANSPORTATION CORP., a New York corporation, METROPOLITAN ESCORT SERVICE, INC., a New York corporation, RAYBERN BUS SERVICE, INC., a New York corporation, RAYBERN CAPITAL CORP., a New York corporation, RAYBERN EQUITY CORP., a New York corporation, and STATEN ISLAND BUS, INC., a New York corporation (each individually, a "Borrower" and any two or more collectively, "Borrowers"), and ATLANTIC EXPRESS TRANSPORTATION CORP., a New York corporation (a "Guarantor"). W I T N E S E T H: WHEREAS, Borrowers have requested that Lender enter into certain financing arrangements with Borrowers pursuant to which Lender may make loans and provide other financial accommodations to Borrowers; and WHEREAS, Lender is willing to make such loans and provide such financial accommodations on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS All terms used herein which are defined in Article 1 or Article 9 of the Uniform Commercial Code of the State of New York shall have the meanings given therein unless otherwise defined in this Agreement. All references to the plural herein shall also mean the singular and to the singular shall also mean the plural. All references to Borrowers, Guarantors, and Lender pursuant to the definitions set forth in the recitals hereto, or to any other person herein, shall include their respective successors and assigns. The words "hereof", "herein", "hereunder", "this Agreement" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not any particular provision of this Agreement and as this Agreement now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. An Event of Default shall exist or continue or be continuing until such Event of Default is waived in accordance with Section 11.3. Any accounting term used herein unless otherwise defined in this Agreement shall have the meanings customarily given to such term in accordance with GAAP. For purposes of this Agreement, the following terms shall have the respective meanings given to them below: 1.1 "Accounts" of a Borrower shall mean all present and future rights of such Borrower to payment for goods sold or leased or for services rendered, which are not evidenced by instruments or chattel paper, and whether or not earned by performance. 1.2 "Adjusted Eurodollar Rate" shall mean, with respect to each Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded upwards, if necessary, to the next one-sixteenth (1/16) of one (1%) percent) determined by dividing (a) the Eurodollar Rate for such Interest Period by (b) a percentage equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes hereof, "Reserve Percentage" shall mean the reserve percentage, expressed as a decimal, prescribed by any United States or foreign banking authority for determining the reserve requirement which is or would be applicable to deposits of United States dollars in a non-United States or an international banking office of Reference Bank used to fund a Eurodollar Rate Loan or any Eurodollar Rate Loan made with the proceeds of such deposit, whether or not the Reference Bank actually holds or has made any such deposits or loans. The Adjusted Eurodollar Rate shall be adjusted on and as of the effective date of any change in the Reserve Percentage. 1.3 "Adjusted Pre-Tax Income" shall mean, for any fiscal year, the amount equal to: (a) the Consolidated Net Income of Parent and its Subsidiaries (on a consolidated basis) for such year; plus (b) the provision for taxes deducted in determining such Consolidated Net Income; plus (c) any amounts deducted pursuant to clause (v) of the definition of Consolidated Net Income in determining the Consolidated Net Income for such year. 1.4 "AETG" shall mean Atlantic Express Transportation Group Inc., a New York corporation. 1.5 "Affiliate" of any specified Person shall mean any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with") shall mean, with respect to any Person: (i) the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; (ii) in the case of a corporation, beneficial ownership of 10% or more of any class of Capital Stock of such Person; and (iii) in the case of an individual, (A) members of such Person's immediate family (as defined in Instruction 2 of Item 404(a) of Regulation S-K promulgated under the Securities Act of 1933, as amended, as in effect on the date hereof), and (B) trusts, any trustee or beneficiary of which is such Person or members of such Person's immediate family. Notwithstanding the foregoing definitions, none of Jefferies & Company, Inc. and its Affiliates shall be considered Affiliates of Parent or any of its Subsidiaries. 1.6 "Asset Sale" shall mean (a) any transfer, other than in the ordinary course of business, of any assets of Parent or any of its Subsidiaries; or (b) any direct or indirect issuance of any Capital Stock of any Subsidiary of Parent; in the case of either (a) or (b), to any Person other than Parent or a Subsidiary of Parent and other than the issuance of directors' qualifying shares. For the purposes of this definition, (x) any series of transfers that are part of a common plan shall be deemed a single Asset Sale and (y) the term "Asset Sale" shall not include any disposition of all or substantially all of the assets of Parent or any of its Subsidiaries. 1.7 "Atlantic North" shall mean Atlantic North Casualty Company, a Vermont corporation. 2 1.8 "Availability Reserves" shall mean, as of any date of determination, such amounts as Lender may from time to time establish and revise in good faith reducing the amount of Revolving Loans and Letter of Credit Accommodations which would otherwise be available to a Borrower under the lending formula(s) provided for herein: (a) to reflect events, conditions, contingencies or risks which, as determined by Lender in good faith, do or may (i) affect in any material respect the Collateral or any other property which is security for the Obligations or its value, (ii) affect in any material respect the assets, business or prospects of any Borrower individually or of Parent and its Subsidiaries taken as a whole or (iii) the security interests and other rights of Lender in the Collateral (including the enforceability, perfection and priority thereof); or (b) to reflect Lender's good faith belief that any collateral report or financial information furnished by or on behalf of a Borrower or any Obligor to Lender is or may have been incomplete, inaccurate or misleading in any material respect or (c) in respect of any state of facts which Lender determines in good faith constitutes an Event of Default or can reasonably be expected, with notice or passage of time or both, to constitute an Event of Default. 1.9 "Blocked Accounts" shall have the meaning set forth in Section 6.3 hereof. 1.10 "Borrower" shall mean each Person identified as such in the caption of this Agreement and which executes and delivers this Agreement, and each other Subsidiary of Parent that from time to time hereafter becomes a Borrower pursuant to a written supplement to this Agreement acceptable in form and substance to Lender. 1.11 "Borrowers' Representative" shall mean Parent. 1.12 "Business Day" shall mean (a) for the Prime Rate Loans, any day other than a Saturday, Sunday, or other day on which commercial banks are authorized or required to close under the laws of the State of New York or the Commonwealth of Pennsylvania, and a day on which the Reference Bank and Lender are open for the transaction of business, and (b) for all Eurodollar Rate Loans, any such day as described in (a) above in this definition of Business Day, excluding any day on which banks are closed for dealings in dollar deposits in the London interbank market or other applicable Eurodollar Rate market. 1.13 "Capital Stock" shall mean (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interest (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. 1.14 "Cash Equivalent" shall mean (a) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof); (b) time deposits and certificates of deposit and commercial paper issued by the parent corporation of any domestic commercial bank of recognized standing having capital and surplus in excess of $250,000,000 and commercial paper issued by others rated at least A-2 or the equivalent thereof by Standard & Poor's Corporation or at least P-2 or the equivalent thereof by Moody's Investors Service, Inc. and in each case maturing within one year after the date of acquisition; and (c) investments in money market funds substantially all of whose assets comprise securities of the types described in clauses (a) and (b) above. 3 1.15 "Change of Control" shall mean (a) the transfer (in one transaction or a series of transactions) of all or substantially all of the assets of Parent or its Subsidiaries to any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act) other than to one or more Existing Holders; (b) the liquidation or dissolution of Parent or the adoption of a plan by the stockholders of Parent relating to the dissolution or liquidation of Parent; (c) the acquisition by any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act), except for one or more Existing Holders, of beneficial ownership, directly or indirectly, of more than 50% of the aggregate ordinary voting power of the total outstanding Voting Stock of Parent or AETG; (iv) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of Parent or AETG (together with any new directors whose nomination for election by the stockholders of Parent or AETG, as the case may be, was approved by a vote of at least 66-2/3 of the directors 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 Parent or AETG, as the case may be, then still in office; or (v) the failure by AETG to own 51% of the voting power of the total outstanding Voting Stock of Parent. 1.16 "Code" shall mean the Internal Revenue Code of 1986, as the same now exists or may from time to time hereafter be amended, modified, recodified or supplemented, together with all rules, regulations and interpretations thereunder or related thereto. 1.17 "Collateral" shall have the meaning set forth in Section 5 hereof. 1.18 "Consolidated Net Income" shall mean, for any period, the amount equal to: (a) the net income or loss of Parent and its subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; minus (b) to the extent included in calculating such net income or loss: (i) gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with any Asset Sales and dispositions pursuant to sale and leaseback transactions; (ii) extraordinary gain (but not loss), together with any related provision for taxes on such gain (but not loss); (iii) the net income of any Person that is not a wholly owned Subsidiary of Parent or that is accounted for by the equity method of accounting to the extent it exceeds the amount of dividends or distributions paid during such period to Parent or a wholly owned Subsidiary of Parent; (iv) the net income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition; and (v) the net income of any Subsidiary to the extent that declarations of dividends or distributions by that Subsidiary of such net income are not at the time permitted, directly or indirectly, by operation of the terms of its organization documents, or any agreement, instrument, judgment, decree, order, statute, rule, or governmental regulation applicable to that Subsidiary or its owners. 1.19 "Disqualified Capital Stock" shall mean any Equity Interest that (i) either by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) is or upon the happening of an event would be required to be redeemed or repurchased or is redeemable at the option of the holder thereof at any time or (ii) is convertible into or exchangeable at the option of the issuer thereof or any other Person for debt securities. 1.20 "Eligible Accounts" of a Borrower shall mean Accounts created by a Borrower which are and continue to be acceptable to Lender based on the criteria set forth below. In general, Accounts shall be Eligible Accounts if: 4 (a) such Accounts arise from the actual and bona fide sale and delivery of goods by such Borrower or rendition of services by such Borrower in the ordinary course of its business which transactions are completed in accordance with all those terms and provisions contained in any documents related thereto with which such Borrower must comply in order for the account debtor to be obligated to pay such Accounts; (b) such Accounts are not unpaid more than ninety (90) days after the date of the original invoice for them, or more than one hundred twenty (120) days after the date of the original invoice in the case of Accounts arising from paratransit services, transportation services funded under Medicaid, or transportation services for physically or mentally challenged pre-kindergarten students ("Paratrans/Pre-K/Medicaid Accounts"), provided, however, that there shall not be included in Eligible Accounts more than an aggregate of $6,000,000 in gross amount of Accounts that are unpaid more than ninety (90) days but less than one hundred twenty (120) days after the original invoice date; (c) such Accounts comply with the terms and conditions contained in Section 7.2(c) of this Agreement; (d) such Accounts do not arise from sales on consignment, guaranteed sale, sale and return, sale on approval, or other terms under which payment by the account debtor may be conditional or contingent; (e) the chief executive office of the account debtor with respect to such Accounts is located in the United States of America, or, at Lender's option, if either: (i) the account debtor has delivered to such Borrower an irrevocable letter of credit issued or confirmed by a bank satisfactory to Lender, sufficient to cover such Account, in form and substance satisfactory to Lender and, if required by Lender, the original of such letter of credit has been delivered to Lender or Lender's agent and the issuer thereof notified of the assignment of the proceeds of such letter of credit to Lender, or (ii) such Account is subject to credit insurance payable to Lender issued by an insurer and on terms and in an amount acceptable to Lender, or (iii) such Account is otherwise acceptable in all respects to Lender (subject to such lending formula with respect thereto as Lender may determine); (f) such Accounts do not consist of progress billings, bill and hold invoices or retainage invoices (it being understood that Accounts representing amounts accrued for transportation services provided for a portion of the current month shall not constitute progress billings solely because the account debtor is not billed for such amounts until after the end of such month); (g) the account debtor with respect to such Accounts has not asserted a counterclaim, defense or dispute and does not have, and does not engage in transactions which may give rise to, any right of setoff against such Accounts; (h) there are no facts, events or occurrences which would impair the validity, enforceability or collectability of such Accounts or reduce the amount payable or delay payment thereunder; (i) such Accounts are subject to the first priority, valid and perfected security interest of Lender and any goods giving rise thereto are not, and were not at the time of the sale thereof, subject to any liens except those permitted in this Agreement; 5 (j) neither the account debtor nor any officer or employee of the account debtor with respect to such Accounts is an officer, employee or agent of or affiliated with such Borrower directly or indirectly by virtue of family membership, ownership, control, management or otherwise; (k) the account debtors with respect to such Accounts are not any foreign government, the United States of America, any State, political subdivision, department, agency or instrumentality thereof, unless, if the account debtor is the United States of America, any State, political subdivision, department, agency or instrumentality thereof, the applicable Borrower has complied with any Federal, State or local law, compliance with which is required in order for Lender to have a security interest in the Accounts owed by such account debtor that is enforceable and perfected against such account debtor and third parties; (l) there are no proceedings or actions which are threatened or pending against the account debtors with respect to such Accounts which might result in any material adverse change in any such account debtor's financial condition; (m) such Accounts of a single account debtor or its Affiliates do not constitute more than twenty-five (25%) percent (or fifty (50%) percent in the case of Accounts owed by the New York City Board of Education) of all otherwise Eligible Accounts, net of retainages included therein (but the portion of the Accounts not in excess of such percentage may be deemed Eligible Accounts); (n) such Accounts are not owed by an account debtor who has Accounts unpaid more than ninety (90) days (or one hundred twenty (120) days in the case of Paratrans/Pre-K/Medicaid Accounts) after the date of the original invoice for them which constitute more than fifty (50%) percent of the total Accounts of such account debtor; (o) such Accounts are owed by account debtors whose total indebtedness to all Borrowers does not exceed the credit limit with respect to such account debtors as determined by Lender from time to time in its reasonable judgment (but the portion of the Accounts not in excess of such credit limit may still be deemed Eligible Accounts); and (p) such Accounts are owed by account debtors deemed creditworthy at all times by Lender, as determined in good faith by Lender. General criteria for Eligible Accounts may be established and revised from time to time by Lender in good faith. Lender shall give the Borrower's Representative notice of any new or revised criteria as promptly as practicable after establishing or revising such criteria. Any Accounts which are not Eligible Accounts shall nevertheless be part of the Collateral. 1.21 "Environmental Laws" shall mean all federal, state, district, local and foreign laws, rules, regulations, ordinances, and consent decrees relating to health, safety, hazardous substances, pollution and environmental matters, as now or at any time hereafter in effect, applicable to a Borrower's business and facilities (whether or not owned by it), including laws relating to emissions, discharges, releases or threatened releases of pollutants, contamination, chemicals, or hazardous, toxic or dangerous substances, materials or wastes into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the generation, manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals, or hazardous, toxic or dangerous substances, materials or wastes. 6 1.22 "Equity Interests" shall mean Capital Stock or warrants, options, or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). 1.23 "ERISA" shall mean the United States Employee Retirement Income Security Act of 1974, as the same now exists or may hereafter from time to time be amended, modified, recodified or supplemented, together with all rules, regulations and interpretations thereunder or related thereto. 1.24 "ERISA Affiliate" shall mean any person required to be aggregated with Parent or any Borrower or any of their Subsidiaries under Sections 414(b), 414(c), 414(m) or 414(o) of the Code. 1.25 "Eurodollar Rate" shall mean with respect to the Interest Period for a Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic average of the rates of interest per annum (rounded upwards, if necessary, to the next one-sixteenth (1/16) of one (1%) percent) at which Reference Bank is offered deposits of United States dollars in the London interbank market (or other Eurodollar Rate market selected by Borrowers and approved by Lender) on or about 9:00 a.m. (New York City time) two (2) Business Days prior to the commencement of such Interest Period in amounts substantially equal to the principal amount of the Eurodollar Rate Loans requested by and available to a Borrower in accordance with this Agreement, with a maturity of comparable duration to the Interest Period selected by such Borrower. 1.26 "Eurodollar Rate Loans" shall mean any Loans or portion thereof on which interest is payable based on the Adjusted Eurodollar Rate in accordance with the terms hereof. 1.27 "Event of Default" shall mean the occurrence or existence of any event or condition described in Section 10.1 hereof. 1.28 "Excess Availability" shall mean the amount, as determined by Lender, calculated at any time, equal to: (a) the lesser of (i) the amount of the Revolving Loans available to Borrowers as of such time based on the applicable lending formulas multiplied by the Net Amount of Eligible Accounts, as determined by Lender, and subject to the sublimits and Availability Reserves from time to time established by Lender hereunder and (ii) the Maximum Credit, minus (b) the sum of: (i) the amount of all then outstanding and unpaid Obligations, plus (ii) the aggregate amount of all trade payable of Borrowers which are more than sixty (60) days past due as of such time. 1.29 "Exchange Act" shall mean the Securities Exchange Act of 1934, as the same now exists or may from time to time hereafter be amended, modified, recodified, or supplemented, together with all rules, regulations, and interpretations thereunder or related thereto. 1.30 "Existing Holders" shall mean Domenic Gatto, Michael Gatto, Patrick Gatto, and Busco Capital Inc. 1.31 "Financing Agreements" shall mean, collectively, this Agreement and all notes, guarantees, security agreements and other agreements, documents and instruments now or at any time hereafter executed and/or delivered by any Borrower or any Obligor in connection with this Agreement, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.32 "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time as set forth in the opinions and pronouncements of the 7 Accounting Principles Board and the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Boards which are applicable to the circumstances as of the date of determination consistently applied, except that, for purposes of calculating Consolidated Net Income and Adjusted Pre-Tax Income, GAAP shall be determined on the basis of such principles in effect on the date hereof and consistent with those used in the preparation of the audited financial statements delivered to Lender prior to the date hereof. 1.33 "Guarantors" shall mean (a) Parent, Block 7932, Inc., a New York corporation, G.V.D. Leasing Co., Inc., a New York corporation, 180 Jamaica Corp., a New York corporation, Metro Affiliates, Inc., a New York corporation, Midway Leasing Inc., a New York corporation, and Temporary Transit Service, Inc., a New York corporation, and (b) each other Person (other than a Borrower) that from time to time hereafter becomes a Guarantor pursuant to a written guarantee of the Obligations acceptable in form and substance to Lender. 1.34 "Hazardous Materials" shall mean any hazardous, toxic or dangerous substances, materials and wastes, including, without limitation, hydrocarbons (including naturally occurring or man-made petroleum and hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation, radioactive materials, biological substances, polychlorinated biphenyls, pesticides, herbicides and any other kind and/or type of pollutants or contaminants (including, without limitation, materials which include hazardous constituents), sewage, sludge, industrial slag, solvents and/or any other similar substances, materials, or wastes and including any other substances, materials or wastes that are or become regulated under any Environmental Law (including, without limitation any that are or become classified as hazardous or toxic under any Environmental Law). 1.35 "Indenture" shall mean the Indenture dated as of February 4, 1997, among Parent, the Subsidiaries of Parent as guarantors, and The Bank of New York, as Trustee for the holders of the Senior Notes, pursuant to which Parent is issuing the Senior Notes, as the same may be amended, modified, supplemented, extended, renewed, restated, or replaced. 1.36 "Information Certificate" shall mean the Information Certificate of the Borrowers and Guarantors constituting Exhibit A hereto containing material information with respect to each Borrower and Guarantor, its business and assets provided by or on behalf of Borrowers and Guarantors to Lender in connection with the preparation of this Agreement and the other Financing Agreements and the financing arrangements provided for herein. 1.37 "Intercreditor Agreement" shall mean the Intercreditor Agreement dated the date hereof between Lender and the collateral agent for the Senior Notes, as the same may be amended, modified, supplemented, extended, renewed, restated or replaced, all in form and substance acceptable to Lender. 1.38 "Interest Period" shall mean for any Eurodollar Rate Loan, a period of approximately one (1), two (2), or three (3) months duration as a Borrower may elect, the exact duration to be determined in accordance with the customary practice in the applicable Eurodollar Rate market; provided, that, a Borrower may not elect an Interest Period which will end after the last day of the then-current term of this Agreement. 1.39 "Interest Rate" shall mean, as to Prime Rate Loans, a rate of three-quarters of one (3/4%) percent per annum in excess of the Prime Rate and, as to Eurodollar Rate Loans, a rate of two and three-quarter (2-3/4%) percent per annum in excess of the Adjusted Eurodollar Rate (based on the Eurodollar Rate applicable for the Interest Period selected by a Borrower as in effect three (3) 8 Business Days after the date of receipt by Lender of the request of such Borrower for such Eurodollar Rate Loans in accordance with the terms hereof, whether such rate is higher or lower than any rate previously quoted to such Borrower); provided, that, the Interest Rate shall mean the rate of two and three-quarters (2-3/4%) percent per annum in excess of the Prime Rate as to Prime Rate Loans and all other non-contingent Obligations (other than Eurodollar Rate Loans) and the rate of four and three-quarters (4-3/4%) percent per annum in excess of the Adjusted Eurodollar Rate as to Eurodollar Rate Loans, at Lender's option, without notice, (a) for the period on and after the date of termination or non-renewal hereof, or the date of the occurrence of any Event of Default or event which with notice or passage of time or both would constitute an Event of Default, and for so long as such Event of Default or other event is continuing and until such time as all Obligations are indefeasibly paid in full (notwithstanding entry of any judgment against any Borrower) and (b) on the Revolving Loans at any time outstanding in excess of the amounts available to Borrowers under Section 2 (whether or not such excess(es) arise or are made with or without Lender's knowledge or consent and whether made before or after an Event of Default). Notwithstanding the preceding provisions if for any fiscal year of Parent ending on or after June 30, 1997, Parent has Adjusted Pre-Tax Income in excess of $2,000,000 then, effective five business days after Lender receives audited financial statements of Parent and its consolidated Subsidiaries for such fiscal year, conforming to the requirements of Section 9.6(a) and reflecting such Adjusted Pre-Tax Income, the percentages per annum referenced above, which are added to the Prime Rate or the Adjusted Eurodollar Rate, as the case may be, shall be reduced in each instance by one-quarter of one (1/4%) percent per annum. While Lender may rely on such financial statements for purposes of determining whether such rate adjustment shall apply, it shall not be bound by such financial statement if it reasonably determines that such statements are inaccurate or incomplete in any respect. Only one such reduction shall be permitted during the term or any renewal term hereof. 1.40 "Inventory" of a Borrower shall mean all of such Borrower's now owned and hereafter existing or acquired inventory consisting of fuel and oil and other supplies used or useful in such Borrower's business and spare parts for vehicles, wherever located. 1.41 "Letter of Credit Accommodations" shall mean the letters of credit, merchandise purchase or other guaranties which are from time to time either (a) issued or opened by Lender for the account of any Borrower or any Obligor or (b) with respect to which Lender has agreed to indemnify the issuer or guaranteed to the issuer the performance by any Borrower of its obligations to such issuer. 1.42 "Loans" shall mean the Revolving Loans. 1.43 "Maximum Credit" shall mean the amount of $30,000.000. 1.44 "Net Amount of Eligible Accounts" shall mean the gross amount of Eligible Accounts less (a) sales, excise or similar taxes included in the amount thereof and (b) returns, discounts, claims, credits, allowances and retainages of any nature at any time issued, owing, granted, outstanding, available or claimed with respect thereto. 1.45 "Net Proceeds" means the aggregate proceeds received in the form of cash or Cash Equivalents in respect of any Asset Sale (including payments in respect of deferred payment obligations when received), net of (a) the reasonable and customary direct out-of-pocket costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales commissions), other than any such costs payable to an Affiliate of AETG, (b) taxes actually payable directly as a result of such Asset Sale (after taking into account any available tax credits or 9 deductions and any tax sharing arrangements), (c) amounts required to be applied to the permanent repayment of indebtedness in connection with such Asset Sale, and (d) appropriate amounts provided as a reserve by Parent or any Subsidiary of Parent, in accordance with GAAP, against any liabilities associated with such Asset Sale and retained by Parent or such Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations arising from such Asset Sale. 1.46 "Obligations" shall mean any and all Revolving Loans, Letter of Credit Accommodations and all other obligations, liabilities and indebtedness of every kind, nature and description owing by any one or more Borrowers to Lender and/or its affiliates, including principal, interest, charges, fees, costs and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, whether arising under this Agreement or otherwise, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of this Agreement or after the commencement of any case with respect to a Borrower under the United States Bankruptcy Code or any similar statute (including, without limitation, the payment of interest and other amounts which would accrue and become due but for the commencement of such case), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, and however acquired by Lender. 1.47 "Obligor" shall mean any Guarantor, and any endorser, acceptor, surety or other person liable on or with respect to the Obligations or who is the owner of any property which is security for the Obligations, other than Borrowers. 1.48 "Parent" shall mean Atlantic Express Transportation Corp., a New York corporation. 1.49 "Payment Account" shall have the meaning set forth in Section 6.3 hereof. 1.50 "Permitted Payments Amount" shall mean $2,000,000 plus the amount, if any, not less than zero, equal to the sum of (a) 50% of the Consolidated Net Income of Parent and its subsidiaries for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing immediately after the date hereof to the end of Parent's most recently ended fiscal quarter for which internal financial statements are available at the time of determination (or if such Consolidated Net Income is a deficit, 100% of such deficit), plus (b) 100% of the aggregate net cash proceeds (or the net cash proceeds received upon conversion of non-cash proceeds to cash) received by Parent from the issuance or sale, other than to a Subsidiary, of Equity Interests (other than Disqualified Capital Stock) after the date hereof and on or prior to the time of determination, plus (c) 100% of the aggregate net cash proceeds (or the net cash proceeds received upon the conversion of non-cash proceeds into cash) received by Parent from the issuance or sale, other than to a Subsidiary, of any convertible or exchangeable debt security of Parent that has been converted or exchanged into Equity Interest of Parent (other than Disqualified Capital Stock) pursuant to the terms thereof after the date hereof and on or prior to the date of determination (including any net cash proceeds received by Parent upon such conversion or exchange). 1.51 "Person" or "person" shall mean any individual, sole proprietorship, partnership, corporation (including, without limitation, any corporation which elects subchapter S status under the Code) limited liability company, business trust, unincorporated association, joint stock corporation, trust, joint venture or other entity or any government or any agency or instrumentality or political subdivision thereof. 10 1.52 "Prime Rate" shall mean the rate from time to time publicly announced by CoreStates Bank, N.A., or its successors, at its office in Philadelphia, Pennsylvania, as its prime rate, whether or not such announced rate is the best rate available at such bank. 1.53 "Prime Rate Loans" shall mean any Loans or portion thereof on which interest is payable based on the Prime Rate in accordance with the terms hereof. 1.54 "Public Equity Offering" shall mean an underwritten public offering of Capital Stock of Parent (other than Disqualified Capital Stock), pursuant to a registration statement filed with and declared effective by the Commission in accordance with the Securities Act of 1933, as amended, and the rules and regulations thereunder. 1.55 "Purchase Money Indebtedness" shall mean (a) the amount of any obligations of any Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and (b) indebtedness of any specified Person representing, or incurred to finance, the cost of acquiring or improving any assets, or the cost of construction or build-out of manufacturing, distribution, or administrative facilities (including any such indebtedness of any Person at the time it is merged with or into or is otherwise acquired by the specified Person), provided that indebtedness described in this clause (b) shall not constitute Purchase Money Indebtedness unless (i) the principal amount of such indebtedness is equal to or less than 100% of the cost (including construction charges) of the assets or facilities, (ii) any lien securing such indebtedness does not extend to or encumber any asset or property other than the asset or property being acquired, improved, constructed, or built out with the proceeds of such indebtedness, and (iii) such indebtedness is incurred, and any liens with respect thereto are granted, within 180 days of the acquisition or improvement of such asset or property. 1.56 "Records" shall mean all of a Borrower's present and future books of account of every kind or nature, purchase and sale agreements, invoices, ledger cards, bills of lading and other shipping evidence, statements, correspondence, memoranda, credit files and other data relating to the Collateral or any account debtor, together with the tapes, disks, diskettes and other data and software storage media and devices, file cabinets or containers in or on which the foregoing are stored (including any rights of such Borrower with respect to the foregoing maintained with or by any other person). 1.57 "Reference Bank" shall mean CoreStates Bank, N.A., or its successors, or such other bank as Lender may from time to time designate. 1.58 "Revolving Loans" shall mean the loans now or hereafter made by Lender to or for the benefit of a Borrower on a revolving basis (involving advances, repayments and readvances) as set forth in Section 2.1 hereof. 1.59 "Senior Notes" shall mean Parent's 10 3/4% Senior Secured Notes due 2004, in the aggregate original principal amount of $110,000,000, together with any notes with terms substantially identical thereto offered in exchange therefor pursuant to a registration statement filed in accordance with the Registration Rights Agreement (as defined in the Indenture). 1.60 "Stockholders Agreement" shall mean the Stockholders Agreement dated as of February 28, 1994 by and among AETG and the Existing Holders as amended by the First Amendment thereto dated as of January 30, 1997 by and among AETG and the Existing Holders. 11 1.61 "Subsidiary" shall mean with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Voting Stock is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of such Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof; provided, however, that for the purposes of this Agreement, Atlantic North shall not be considered a Subsidiary of Parent except as otherwise expressly provided herein. 1.62 "Tax Sharing Agreement" shall mean the Tax Sharing Agreement dated as of January 31, 1997 between Parent and AETG. 1.63 "Voting Stock" shall mean, with respect to any Person: (a) one or more classes of the Capital Stock of such Person having general voting power to elect at least a majority of the board of directors, managers, or trustees of such Person (irrespective of whether or not at the time Capital Stock of any other class or classes has or might have voting power by reason of the happening of any contingency); and (b) any Capital Stock of such Person convertible or exchangeable without restriction at the option of the holder thereof into Capital Stock of such Person described in clause (a) of this definition. 1.64 "Weighted Average Life to Maturity" shall mean, when applied to any indebtedness at any date, the number of years (rounded to the nearest one-twelfth) obtained by dividing (i) the then outstanding principal amount of such indebtedness into (ii) the total of the products obtained by multiplying (x) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (y) the number of years (calculated to the nearest one twelfth) that will elapse between such date and the making of such payment. SECTION 2. CREDIT FACILITIES 2.1 Revolving Loans. (a) Subject to, and upon the terms and conditions contained herein, Lender agrees to make Revolving Loans to each Borrower from time to time in amounts requested by such Borrower or the Borrowers' Representative up to an amount, which, when taken together with all other Revolving Loans which are outstanding to Borrowers, does not exceed to the sum of: (i) eighty-five (85%) percent of the aggregate Net Amount of Eligible Accounts of all Borrowers, less (ii) any Availability Reserves. (b) Lender may, in its discretion, from time to time, upon not less than five (5) Business Days prior telephonic notice to Borrowers' Representative (which may, in Lender's sole discretion, be confirmed by Lender in writing at any time thereafter without limiting the effectiveness of the original telephonic notice), reduce the lending formula with respect to Eligible Accounts to the extent that Lender determines in good faith that: (A) the dilution with respect to the Accounts for any period (based on the ratio of (1) the aggregate amount of reductions in Accounts other than as a result of payments in cash to (2) the aggregate amount of total revenues) has increased in any material respect or may be reasonably anticipated to increase in any material respect above historical levels, or 12 (B) the general creditworthiness of account debtors has declined. In determining whether to reduce the lending formula(s), Lender may consider events, conditions, contingencies or risks which are also considered in determining Eligible Accounts or in establishing Availability Reserves. (c) Except in Lender's discretion, the aggregate amount of the Loans and the Letter of Credit Accommodations outstanding to all Borrowers at any time shall not exceed the Maximum Credit. In the event that the outstanding amount of any component of the Loans, or the aggregate amount of the outstanding Loans and Letter of Credit Accommodations, exceed the amounts available under the lending formulas, the sublimits for Letter of Credit Accommodations set forth in Section 2.2(c) or the Maximum Credit, as applicable, such event shall not limit, waive or otherwise affect any rights of Lender in that circumstance or on any future occasions and Borrowers shall, upon demand by Lender, which may be made at any time or from time to time, immediately repay to Lender the entire amount of any such excess(es) for which payment is demanded. 2.2 Letter of Credit Accommodations. (a) Subject to, and upon the terms and conditions contained herein, at the request of a Borrower or the Borrowers' Representative, Lender agrees to provide or arrange for Letter of Credit Accommodations for the account of a Borrower containing terms and conditions acceptable to Lender and the issuer thereof. Any payments made by Lender to any issuer thereof and/or related parties in connection with the Letter of Credit Accommodations shall constitute additional Revolving Loans to such Borrower pursuant to this Section 2. (b) In addition to any charges, fees or expenses charged by any bank or issuer in connection with the Letter of Credit Accommodations, each Borrower shall pay to Lender a letter of credit fee at a rate equal to one and one-quarter (1.25%) percent per annum on the daily outstanding balance of the Letter of Credit Accommodations for the immediately preceding month (or part thereof), payable in arrears as of the first day of each succeeding month; provided, however, that for the period on and after the date of termination of non-renewal hereof, or the date of the occurrence of any Event of Default or event which with notice or passage of time or both would constitute an Event of Default, and for so long as such Event of Default or other event is continuing as determined by Lender and until such time as all Obligations (including, without limitation contingent Obligations with respect to Letter of Credit Accommodations) are indefeasibly paid or satisfied in full (notwithstanding entry of any judgment against any Borrower) such letter of credit fee shall accrue at a rate of two and one-quarter (2.25%) per cent per annum. Such letter of credit fee shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed and the obligation of such Borrower to pay such fee shall survive the termination or non-renewal of this Agreement. (c) No Letter of Credit Accommodations shall be available unless on the date of the proposed issuance of any Letter of Credit Accommodations, the Revolving Loans available to the Borrowers (subject to the Maximum Credit and any Availability Reserves) are equal to or greater than one hundred (100%) percent of the face amount of such proposed Letter of Credit Accommodations and all other commitments and obligations made or incurred by Lender with respect thereto. Effective on the issuance of each Letter of Credit Accommodation, the amount of Revolving Loans which might otherwise be available to Borrowers shall be reduced by one hundred (100%) percent of the face amount of such Letter of Credit Accommodation. (d) Except in Lender's discretion, the amount of all outstanding Letter of Credit Accommodations and all other commitments and obligations made or incurred by Lender in 13 connection therewith, shall not at any time exceed $10,000,000. At any time an Event of Default exists or has occurred and is continuing, upon Lender's request, each Borrower will either furnish cash collateral to secure the reimbursement obligations to the issuer in connection with any Letter of Credit Accommodations furnished to such Borrower or furnish cash collateral to Lender for the Letter of Credit Accommodations furnished to such Borrower, and in either case, the Revolving Loans otherwise available to such Borrower shall not be reduced as provided in Section 2.2(c) to the extent of such cash collateral. (e) Each Borrower shall, jointly and severally with all other Borrowers, indemnify and hold Lender harmless from and against any and all losses, claims, damages, liabilities, costs and expenses which Lender may suffer or incur in connection with any Letter of Credit Accommodations and any documents, drafts or acceptances relating thereto, including, but not limited to, any losses, claims, damages, liabilities, costs and expenses due to any action taken by any issuer or correspondent with respect to any Letter of Credit Accommodation. Each Borrower assumes all risks with respect to the acts or omissions of the drawer under or beneficiary of any Letter of Credit Accommodation and for such purposes the drawer or beneficiary shall be deemed such Borrower's agent. Each Borrower assumes all risks for, and agrees to pay, all foreign, Federal, State and local taxes, duties and levies relating to any goods subject to any Letter of Credit Accommodations or any documents, drafts or acceptances thereunder. Each Borrower hereby releases and holds Lender harmless from and against any acts, waivers, errors, delays or omissions, whether caused by such Borrower, by any issuer or correspondent or otherwise with respect to or relating to any Letter of Credit Accommodation. The provisions of this Section 2.2(e) shall survive the payment of Obligations and the termination or non-renewal of this Agreement. (f) Nothing contained herein shall be deemed or construed to grant any Borrower any right or authority to pledge the credit of Lender in any manner. Lender shall have no liability of any kind with respect to any Letter of Credit Accommodation provided by an issuer other than Lender unless Lender has duly executed and delivered to such issuer the application or a guarantee or indemnification in writing with respect to such Letter of Credit Accommodation. Each Borrower shall be bound by any interpretation made in good faith by Lender, or any other issuer or correspondent under or in connection with any Letter of Credit Accommodation or any documents, drafts or acceptances thereunder, notwithstanding that such interpretation may be inconsistent with any instructions of any Borrower or Borrowers' Representative with respect to such Letter of Credit Accommodations or documents. Lender shall have the sole and exclusive right and authority to, and no Borrower shall: (i) at any time an Event of Default exists or has occurred and is continuing, (A) approve or resolve any questions of non-compliance of documents, (B) give any instructions as to acceptance or rejection of any documents or goods or (C) execute any and all applications for steamship or airway guaranties, indemnities or delivery orders, and (ii) at all times, (A) grant any extensions of the maturity of, time of payment for, or time of presentation of, any drafts, acceptances, or documents, and (B) agree with any third party as to any amendments, renewals, extensions, modifications, changes or cancellations (which have been requested or approved by Borrowers' Representative or the applicable Borrower) of any of the terms or conditions of any of the applications, Letter of Credit Accommodations, or documents, drafts or acceptances thereunder or any letters of credit included in the Collateral. Lender may take such actions either in its own name or in a Borrower's name. (g) Any rights, remedies, duties or obligations granted or undertaken by a Borrower to any issuer or correspondent in any application for any Letter of Credit Accommodation, or any other agreement in favor of any issuer or correspondent relating to any Letter of Credit Accommodation, shall be deemed to have been granted or undertaken by such Borrower to Lender. 14 Any duties or obligations undertaken by Lender to any issuer or correspondent in any application for any Letter of Credit Accommodation, or any other agreement by Lender in favor of any issuer or correspondent relating to any Letter of Credit Accommodation, shall be deemed to have been undertaken by the applicable Borrower to Lender and to apply in all respects to such Borrower. 2.3 Availability Reserves. All Revolving Loans and Letter of Credit Accommodation otherwise available to any Borrower pursuant to the lending formulas and subject to the Maximum Credit and other applicable limits hereunder shall be subject to Lender's continuing right to establish and revise Availability Reserves. Lender shall give Borrowers' Representative notice of any Availability Reserve as promptly as practicable after it is established or revised. 2.4 Borrowers' Representative. Each of the Borrowers hereby appoints the Borrowers' Representative as its agent and representative for the purposes of all communications and authorizations between such Borrower and Lender under this Agreement or any of the other Financing Agreements, including, without limitation: making requests for Loans or Letter of Credit Accommodations; giving notices to Lender and receiving notices from Lender; and giving any direction or instruction to Lender contemplated by this Agreement. Each of the Borrowers hereby authorizes and directs Lender to act in accordance with any and every authorization, request, notice, instruction, or direction received on such Borrower's behalf from the Borrower's Representative, without requiring Lender to confirm such Borrower's authorization therefor, and each Borrower hereby releases Lender from and indemnifies Lender and holds Lender harmless against any liability, claim, loss, damages, cost, or expense arising from or relating in any way to Lender's acting upon such authorization, request, notice, instruction, or direction. Notwithstanding the foregoing, Lender may require a Borrower to confirm such request, notice, instruction, or direction, or to execute personally any agreement or instrument between such Borrower and Lender, whenever Lender in its sole discretion deems it necessary or desirable to do so. SECTION 3. INTEREST AND FEES 3.1 Interest. (a) Each Borrower shall pay to Lender interest on the outstanding principal amount of the non-contingent Obligations of such Borrower at the Interest Rate. All interest accruing on and after the date of any Event of Default or termination or non-renewal hereof shall be payable on demand. (b) Each Borrower may from time to time request that Prime Rate Loans be converted to Eurodollar Rate Loans or that any existing Eurodollar Rate Loans continue for an additional Interest Period. Such request from a Borrower shall specify the amount of the Prime Rate Loans which will constitute Eurodollar Rate Loans (subject to the limits set forth below) and the Interest Period to be applicable to such Eurodollar Rate Loans. Subject to the terms and conditions contained herein, three (3) Business Days after receipt by Lender of such a request from a Borrower, such Prime Rate Loans shall be converted to Eurodollar Rate Loans or such Eurodollar Rate Loans shall continue, as the case may be, provided, that, (i) no Event of Default, or event which with notice or passage of time or both would constitute an Event of Default, exists or has occurred and is continuing, (ii) no party hereto shall have sent any notice of termination or non-renewal of this Agreement, (iii) such Borrower shall have complied with such customary procedures as are established by Lender and specified by Lender to such Borrower from time to time for requests by a Borrower for Eurodollar Rate Loans, (iv) no more than four (4) Interest Periods may be in effect at 15 any one time, (v) the aggregate amount of the Eurodollar Rate Loans to all Borrowers must be in an amount not less than $1,000,000 or an integral multiple of $1,000,000 in excess thereof, (vi) the maximum amount of the Eurodollar Rate Loans at any time requested by such Borrower and all other Eurodollar Rate Loans outstanding to the Borrowers shall not exceed the amount equal to eighty (80%) percent of the daily average of the principal amount of the Revolving Loans which it is anticipated will be outstanding during the applicable Interest Period, as determined by Lender (but with no obligation of Lender to make such Revolving Loans) and (vii) Lender shall have determined that the Interest Period or Adjusted Eurodollar Rate is available to Lender through the Reference Bank and can be readily determined as of the date of the request for such Eurodollar Rate Loan by such Borrower. Any request by a Borrower to convert Prime Rate Loans to Eurodollar Rate Loans or to continue any existing Eurodollar Rate Loans shall be irrevocable. Notwithstanding anything to the contrary contained herein, Lender and Reference Bank shall not be required to purchase United States Dollar deposits in the London interbank market or other applicable Eurodollar Rate market to fund any Eurodollar Rate Loans, but the provisions hereof shall be deemed to apply as if Lender and Reference Bank had purchased such deposits to fund the Eurodollar Rate Loans. (c) Any Eurodollar Rate Loans shall automatically convert to Prime Rate Loans upon the last day of the applicable Interest Period, unless Lender has received and approved a request to continue such Eurodollar Rate Loan at least three (3) Business Days prior to such last day in accordance with the terms hereof. Any Eurodollar Rate Loans shall, at Lender's option, upon notice by Lender to the applicable Borrower, convert to Prime Rate Loans in the event that (i) an Event of Default, or event which with the notice or passage of time or both would constitute an Event of Default, shall exist, (ii) this Agreement shall terminate or not be renewed, or (iii) the aggregate principal amount of the Prime Rate Loans which have previously been converted to Eurodollar Rate Loans or existing Eurodollar Rate Loans continued, as the case may be, at the beginning of an Interest Period shall at any time during such Interest Period exceed (or would exceed but for such conversion and after giving effect to all repayments of Revolving Loans during such Interest Period) either (A) the aggregate principal amount of the Loans then outstanding, or (B) the then outstanding principal amount of the Revolving Loans then available to Borrowers under Section 2 hereof. Each Borrower shall pay to Lender, upon demand by Lender (or Lender may, at its option, charge any loan account of any Borrower) any amounts required to compensate Lender, the Reference Bank or any participant with Lender for any loss (including loss of anticipated profits), cost or expense incurred by such person, as a result of the conversion of Eurodollar Rate Loans to Prime Rate Loans pursuant to any of the foregoing. (d) Interest shall be payable by Borrowers to Lender monthly in arrears not later than the first day of each calendar month and shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed. The interest rate on non-contingent Obligations (other than Eurodollar Rate Loans) shall increase or decrease by an amount equal to each increase or decrease in the Prime Rate effective on the first day of the month after any change in such Prime Rate is announced based on the Prime Rate in effect on the last day of the month in which any such change occurs. In no event shall charges constituting interest payable by any Borrower to Lender exceed the maximum amount or the rate permitted under any applicable law or regulation, and if any part or provision of this Agreement is in contravention of any such law or regulation, such part or provision shall be deemed amended to conform thereto. 3.2 Closing Fee. Borrowers shall jointly and severally pay to Lender as a closing fee the amount of $150,000, which shall be fully earned as of and payable on the date hereof. 16 3.3 Servicing Fee. Borrowers shall jointly and severally pay to Lender monthly a servicing fee in an amount equal to $3,250 in respect of Lender's services for each month (or part thereof) while this Agreement remains in effect and for so long thereafter as any of the Obligations are outstanding, which fee shall be fully earned as of and payable in advance on the date hereof and on the first day of each month hereafter. 3.4 Unused Line Fee. Borrowers shall jointly and severally pay to Lender monthly an unused line fee equal at a rate equal to three-eighths of one (3/8%) percent per annum calculated upon the amount by which $22,000,000 exceeds the average daily principal balance of the outstanding Revolving Loans and Letter of Credit Accommodations during the immediately preceding month (or part thereof) while this Agreement is in effect and for so long thereafter as any of the Obligations are outstanding, which fee shall be payable on the first day of each month in arrears. 3.5 Changes in Laws and Increased Costs of Loans. (a) Notwithstanding anything to the contrary contained herein, all Eurodollar Rate Loans shall, upon notice by Lender to Borrowers, convert to Prime Rate Loans in the event that (i) any change in applicable law or regulation (or the interpretation or administration thereof) shall either (A) make it unlawful for Lender or the Reference Bank to make or maintain Eurodollar Rate Loans or to comply with the terms hereof in connection with the Eurodollar Rate Loans, or (B) shall result in the increase in the costs to Lender of making or maintaining any Eurodollar Rate Loans by an amount deemed by Lender to be material, or (C) reduce the amounts received or receivable by Lender in respect thereof, by an amount deemed by Lender to be material or (ii) the cost to Lender of making or maintaining any Eurodollar Rate Loans shall otherwise increase by an amount deemed by Lender to be material. Each Borrower shall pay to Lender, upon demand by Lender (or Lender may, at its option, charge any loan account of any Borrower) any amounts required to compensate Lender or the Reference Bank for any loss (including loss of anticipated profits), cost or expense incurred by such Person as a result of the foregoing, including, without limitation, any such loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Person to make or maintain the Eurodollar Rate Loans or any portion thereof. A certificate of Lender setting forth the basis for the determination of such amount necessary to compensate Lender as aforesaid shall be delivered to Borrowers and shall be conclusive, absent manifest error. (b) If any payments or prepayments in respect of the Eurodollar Rate Loans are received by Lender other than on the last day of the applicable Interest Period (whether pursuant to acceleration, upon maturity or otherwise), including any payments pursuant to the application of collections under Section 6.3 or any other payments made with the proceeds of Collateral, each Borrower shall pay to Lender upon demand by Lender (or Lender may, at its option, charge any loan account of any Borrower) any amounts required to compensate Lender or the Reference Bank for any additional loss (including loss of anticipated profits), cost or expense incurred by such person as a result of such prepayment or payment, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Person to make or maintain such Eurodollar Rate Loans or any portion thereof. SECTION 4. CONDITIONS PRECEDENT 4.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations. Each of the following is a condition precedent to Lender making the initial Loans and providing the initial Letter of Credit Accommodations hereunder: 17 (a) Lender shall have received evidence, in form and substance satisfactory to Lender, that Lender has valid perfected and first priority security interests in and liens upon the Collateral and any other property which is intended to be security for the Obligations or the liability of any Obligor in respect thereof, subject only to the security interests and liens permitted herein or in the other Financing Agreements; without limiting the foregoing, Lender shall have received, in form and substance satisfactory to Lender, all releases, terminations and such other documents as Lender may request to evidence and effectuate the termination by the existing lenders to Borrowers and Guarantors and/or their respective Subsidiaries of such existing lenders' respective financing arrangements with Borrowers and Guarantors and/or such Subsidiaries and the termination and release by them, of any interest in and to any assets and property of each Borrower or Guarantor and its Subsidiaries, duly authorized, executed and delivered by each such existing lender, including, but not limited to, (i) UCC termination statements for all UCC financing statements previously filed by each such existing lender or its predecessors, as secured party, and any Borrower, any Guarantor, any such Subsidiary or any other Obligor, as debtor, and (ii) satisfactions and discharges of any mortgages, deeds of trust or deeds to secure debt by any Borrower or Guarantor, its Subsidiaries or any other Obligor in favor of such existing lenders, in form acceptable for recording in the appropriate government office; (b) all requisite corporate action and proceedings in connection with this Agreement and the other Financing Agreements shall be satisfactory in form and substance to Lender, and Lender shall have received all information and copies of all documents, including, without limitation, records of requisite corporate action and proceedings which Lender may have requested in connection therewith, such documents where requested by Lender or its counsel to be certified by appropriate corporate officers or governmental authorities; (c) no material adverse change shall have occurred in the assets, business or prospects of any Borrower or Guarantor since the date of Lender's latest field examination and no change or event shall have occurred which would impair the ability of any Borrower or any Obligor to perform its obligations hereunder or under any of the other Financing Agreements to which it is a party or of Lender to enforce the Obligations or realize upon the Collateral; (d) Lender shall have completed a field review of the Records and such other information with respect to the Collateral as Lender may require to determine the amount of Revolving Loans available to Borrowers, the results of which shall be satisfactory to Lender, not more than three (3) business days prior to the date hereof; (e) Lender shall have received, in form and substance satisfactory to Lender, all consents, waivers, acknowledgments and other agreements from third persons which Lender may deem necessary or desirable in order to permit, protect and perfect its security interests in and liens upon the Collateral or to effectuate the provisions or purposes of this Agreement and the other Financing Agreements; (f) Lender shall have received evidence of insurance required hereunder and under the other Financing Agreements, in form and substance satisfactory to Lender; (g) Lender shall have received, in form and substance satisfactory to Lender, such opinion letters of counsel to Borrowers and Guarantors with respect to the Financing Agreements and such other matters as Lender may request; 18 (h) Lender shall have conducted such review and due diligence as it deems appropriate (with the results of such review and due diligence to be satisfactory to Lender) with respect to (i) contracts pursuant to which any of the Borrowers render services to its customers, (ii) performance bonds, and any similar instruments or performance support, which any Borrower has provided to any of its customers (iii) all collective bargaining agreement to which any Borrower or any Subsidiary of a Borrower is a party and (iv) other matters pertaining to the business, operations or assets of any of the Borrowers or their Subsidiaries; (i) Lender shall have received evidence satisfactory to it of the completion of the issuance, on terms acceptable to Lender, by Parent of the Senior Notes and Parent shall be simultaneously receiving the proceeds thereof and applying such proceeds to repay all outstanding indebtedness for borrowed money or capital leases of Borrowers and their respective Subsidiaries (other than approximately $800,000 in principal amount of indebtedness incurred to finance vehicles used in Borrowers' paratransit operations); (j) Lender shall have received (i) a guarantee agreement, in form and substance satisfactory to it, from (A) each Borrower, guaranteeing the Obligations of all other Borrowers, and (B) Parent and each Subsidiary of Parent that is not a Borrower, guaranteeing the Obligations of all Borrowers and (ii) a security agreement from each Subsidiary of Parent that is not a Borrower, granting Lender a security interest in its personal property of the same types as the Collateral to secure its guarantee of the Obligations; and (k) Lender shall have received the Intercreditor Agreement, duly executed by the collateral agent for the holders of the Senior Notes, and in full force and effect; and (l) the other Financing Agreements and all instruments and documents hereunder and thereunder shall have been duly executed and delivered to Lender, in form and substance satisfactory to Lender. 4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations. Each of the following is an additional condition precedent to Lender making Loans and/or providing Letter of Credit Accommodations to any Borrower, including the initial Loans and Letter of Credit Accommodations and any future Loans and Letter of Credit Accommodations: (a) all representations and warranties contained herein and in the other Financing Agreements shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of the making of each such Loan or providing each such Letter of Credit Accommodation and after giving effect thereto; and (b) no Event of Default and no event or condition which, with notice or passage of time or both, would constitute an Event of Default, shall exist or have occurred and be continuing on and as of the date of the making of such Loan or providing each such Letter of Credit Accommodation and after giving effect thereto. 19 SECTION 5. GRANT OF SECURITY INTEREST To secure payment and performance of all Obligations, each Borrower hereby grants to Lender a continuing security interest in, a lien upon, and a right of set off against, and hereby assigns to Lender as security, the following property and interests in property, whether now owned or hereafter acquired or existing, and wherever located (collectively, the "Collateral"): 5.1 Accounts; 5.2 subject to the final paragraph of this Section 5, all present and future contract rights (including, without limitation, all rights under service contracts pursuant to which any Borrower renders its services to its customers, which rights shall include any and all rights to all retainages which may arise thereunder), general intangibles (including, but not limited to, tax and duty refunds, patents, trade secrets, trademarks, service marks, copyrights, trade names, applications and registrations for the foregoing, goodwill, processes, drawings, blueprints, customer lists, licenses, whether as licensor or licensee, choses in action and other claims), chattel paper, documents, instruments, letters of credit, bankers' acceptances and guaranties; 5.3 all present and future monies, securities, credit balances, deposits, deposit accounts and other property of Borrower now or hereafter held or received by or in transit to Lender or its Affiliates or at any other depository or other institution from or for the account of Borrower, whether for safekeeping, pledge, custody, transmission, collection or otherwise, and all present and future liens, security interests, rights, remedies, title and interest in, to and in respect of Accounts and other Collateral, including, without limitation, (a) rights and remedies under or relating to guaranties, contracts of suretyship, letters of credit and credit and other insurance related to the Collateral, (b) rights of stoppage in transit, replevin, repossession, reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, (c) goods described in invoices, documents, contracts or instruments with respect to, or otherwise representing or evidencing, Accounts or other Collateral, including, without limitation, returned, repossessed and reclaimed goods, and (d) deposits by and property of account debtors or other persons securing the obligations of account debtors; 5.4 Inventory; 5.5 Records; and 5.6 all products and proceeds of the foregoing, in any form, including, without limitation, insurance proceeds and all claims against third parties for loss or damage to or destruction of any or all of the foregoing. In no event shall Lender's security interest in a contract or agreement of any Borrower be deemed to be a present assignment, transfer, conveyance, subletting or other disposition (an "Assignment") of such contract or agreement to Lender within the meaning of any provision in such contract or agreement prohibiting, or requiring any consent or establishing any other conditions for, an Assignment thereof by such Borrower. Lender acknowledges that any sale, transfer or assignment of any such contract or agreement upon the enforcement of Lender's security interest therein would be subject to the terms of such contract or agreement governing Assignment, except as otherwise provided in Section 9-318 of the Uniform Commercial Code. Lender's security interest in each contract or agreement of a Borrower shall attach from the date hereof to all of the following, whether now existing or hereafter arising or acquired: (i) all of such Borrower's Accounts and general intangibles for money due or to become due arising under such contract or agreement; (ii) all 20 proceeds paid or payable to such Borrower from any sale, transfer or assignment of such contract or agreement and all rights to receive such proceeds; and (iii) all other rights and interests of such Borrower in, to and under such contract or agreement to the fullest extent that attachment thereto would not be a violation of such contract or agreement directly or indirectly entitling a party thereto (other than any Borrower, Guarantor or Affiliate thereof) to a legally enforceable right to terminate such contract or agreement. SECTION 6. COLLECTION AND ADMINISTRATION 6.1 Borrower's Loan Account. Lender shall maintain one or more loan account(s) on its books in which shall be recorded (a) all Loans, Letter of Credit Accommodations and other Obligations and the Collateral, (b) all payments made by or on behalf of each Borrower and (c) all other appropriate debits and credits as provided in this Agreement, including, without limitation, fees, charges, costs, expenses and interest. All entries in the loan account(s) shall be made in accordance with Lender's customary practices as in effect from time to time. 6.2 Statements. Lender shall render to Borrowers each month a statement setting forth the balance in Borrowers' loan accounts maintained by Lender for Borrowers pursuant to the provisions of this Agreement, including principal, interest, fees, costs and expenses. Each such statement shall be subject to subsequent adjustment by Lender but shall, absent manifest errors or omissions, be considered correct and deemed accepted by each Borrower and conclusively binding upon each Borrower as an account stated except to the extent that Lender receives a written notice from a Borrower's Representative of any specific exceptions of such Borrower thereto within thirty (30) days after the date such statement has been mailed by Lender. Until such time as Lender shall have rendered to a Borrower a written statement as provided above, the balance in such Borrower's loan account(s) shall be presumptive evidence of the amounts due and owing to Lender by such Borrower. 6.3 Collection of Accounts. (a) The Borrowers shall establish and maintain, at their joint and several expense, such blocked accounts ("Blocked Accounts"), as Lender may specify, with such banks as Borrower selects and are reasonably acceptable to Lender, into which each Borrower shall promptly deposit or cause to be deposited all payments on Accounts and all payments constituting proceeds of other Collateral in the identical form in which such payments are made, whether by cash, check or other manner; provided, however, that with respect to the proceeds of Accounts and other Collateral received on a particular day, if, at all times during the immediately preceding 30 days (i) all accrued interest or fees that have become due and payable to Lender during such period have been paid when due, (ii) no Event of Default has occurred and (iii) there has been Excess Availability on an average daily basis (after giving effect to all outstanding Letter of Credit Accommodations) of at least $5,000,000, then Borrowers shall not be required to deposit or transfer the proceeds of Accounts and other Collateral received on such day to the Blocked Accounts or a Payment Account. All such proceeds that are not deposited or transferred to a Blocked Account shall be deposited to bank accounts of the applicable Borrower which have been identified to Lender in writing, and such proceeds shall be used only for Borrowers' working capital or other proper corporate purposes not otherwise prohibited by the terms hereof. The banks at which the Blocked Accounts are established shall enter into an agreement, in form and substance satisfactory to Lender, providing that all items received or deposited 21 in the Blocked Accounts are the property of Lender, that the depository bank has no lien upon, or right to setoff against, the Blocked Accounts, the items received for deposit therein, or the funds from time to time on deposit therein and that the depository bank will wire, or otherwise transfer, in immediately available funds, on a daily basis, all funds received or deposited into the Blocked Accounts to such bank account of Lender as Lender may from time to time designate for such purpose ("Payment Account"). Each Borrower agrees that all payments made to such Blocked Accounts or other funds received and collected by Lender, whether on the Accounts or as proceeds of other Collateral or otherwise shall be the property of Lender. (b) Payments or other funds received will be applied (conditional upon final collection) to the Obligations on the Business Day of receipt by Lender in the Payment Account, if such payments are received within sufficient time (in accordance with Lender's usual and customary practices as in effect from time to time) to credit Borrowers' loan account on such day, and if not, then on the next Business Day. (c) Each Borrower and all of its affiliates, Subsidiaries, shareholders, directors, employees or agents shall, acting as trustee for Lender, receive, as the property of Lender, any monies, checks, notes, drafts or any other payment relating to and/or proceeds of Accounts or other Collateral which come into their possession or under their control and immediately upon receipt thereof, except as otherwise expressly provided in Section 6.3(a), shall deposit or cause the same to be deposited in the Blocked Accounts, or remit the same or cause the same to be remitted, in kind, to Lender. Except when Borrowers are not required to deposit or transfer such payments and proceeds to the Blocked Accounts as expressly provided in Section 6.3(a), in no event shall the same be commingled with any Borrower's own funds. Each Borrower agrees to reimburse Lender on demand for any amounts owed or paid to any bank at which a Blocked Account is established or any other bank or person involved in the transfer of funds to or from the Blocked Accounts arising out of Lender's payments to or indemnification of such bank or person. The obligation of each Borrower to reimburse Lender for such amounts pursuant to this Section 6.3 shall survive the termination or non-renewal of this Agreement. 6.4 Payments. All Obligations shall be payable to the Payment Account as provided in Section 6.3 or such other place as Lender may designate from time to time. Lender may apply payments received or collected from a Borrower or for the account of a Borrower (including, without limitation, the monetary proceeds of collections or of realization upon any Collateral) to such of the Obligations, whether or not then due, in such order and manner as Lender determines; provided, however, that when no Event of Default has occurred and is continuing, all payments shall be applied first to the Obligations other than the principal of the Eurodollar Rate Loans that are not then due and payable, until there are no such Obligations outstanding, and then to the principal of such Eurodollar Rate Loans. At Lender's option, all principal, interest, fees, costs, expenses and other charges provided for in this Agreement or the other Financing Agreements may be charged directly to any loan account(s) of the applicable Borrower. Each Borrower shall make all payments to Lender on the Obligations free and clear of, and without deduction or withholding for or on account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts, fees, deductions, withholding, restrictions or conditions of any kind. If after receipt of any payment of, or proceeds of Collateral applied to the payment of, any of the Obligations, Lender is required to surrender or return such payment or proceeds to any Person for any reason, then the Obligations intended to be satisfied by such payment or proceeds shall be reinstated and continue and this Agreement shall continue in full force and effect as if such payment or proceeds had not been received by Lender. Each Borrower shall be liable to pay to Lender, and does hereby indemnify and hold Lender harmless for the amount of any payments or proceeds surrendered or returned. This Section 6.4 shall remain effective notwithstanding any contrary action which may be taken by Lender in reliance upon such payment or proceeds. This Section 6.4 shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. 22 6.5 Authorization to Make Loans. Lender is authorized to make the Loans and provide the Letter of Credit Accommodations based upon telephonic or other instructions received from anyone purporting to be an officer of a Borrower or the Borrower's Representative or other authorized person or, at the discretion of Lender, if such Loans are necessary to satisfy any Obligations. All requests for Loans or Letter of Credit Accommodations hereunder shall specify the date on which the requested advance is to be made or Letter of Credit Accommodations established (which day shall be a business day) and the amount of the requested Loan. Requests received after 12:00 noon, New York City time on any day shall be deemed to have been made as of the opening of business on the immediately following business day. All Loans and Letter of Credit Accommodations under this Agreement shall be conclusively presumed to have been made to, and at the request of and for the benefit of, a Borrower when deposited to the credit of such Borrower or otherwise disbursed or established in accordance with the instructions of such Borrower or in accordance with the terms and conditions of this Agreement. 6.6 Use of Proceeds. All Loans made or Letter of Credit Accommodations provided by Lender to a Borrower pursuant to the provisions hereof shall be used by such Borrower only for costs, expenses and fees in connection with the preparation, negotiation, execution and delivery of this Agreement and the other Financing Agreements and for general operating, working capital and other proper corporate purposes of such Borrower not otherwise prohibited by the terms hereof. None of the proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security or for the purposes of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Loans to be considered a "purpose credit" within the meaning of Regulation G of the Board of Governors of the Federal Reserve System, as amended. SECTION 7. COLLATERAL REPORTING AND COVENANTS 7.1 Collateral Reporting. Each Borrower shall provide Lender with the following documents in a form satisfactory to Lender: (a) on a weekly basis or other regular basis as required by Lender, a borrowing base report, which shall be in form, substance and detail satisfactory to Lender, (b) on a monthly basis or more frequently as Lender may request, agings of accounts payable and accounts receivable, (c) upon Lender's request, copies of customer statements and credit memos, remittance advices and reports, and copies of deposit slips and bank statements; and (d) such other reports as to the Collateral as Lender shall request from time to time. At any time that Excess Availability is less than $5,000,000, Lender shall have the right to require the foregoing documents and reports to be provided to it on a more frequent basis determined by Lender. If any of a Borrower's records or reports of the Collateral are prepared or maintained by an accounting service, contractor, shipper or other agent, such Borrower hereby irrevocably authorizes such service, contractor, shipper or agent to deliver such records, reports, and related documents to Lender and to follow Lender's instructions with respect to further services at any time that an Event of Default exists or has occurred and is continuing. 7.2 Accounts Covenants. (a) Each Borrower shall notify Lender promptly of: (i) any material delay in such Borrower's performance of any of its obligations to any account debtor or the assertion of any claims, offsets, defenses or counterclaims by any account debtor, or any disputes with account debtors, or any settlement, adjustment or compromise thereof, (ii) all material adverse information relating to the financial condition of any account debtor and (iii) any event or circumstance which, to such 23 Borrower's knowledge would cause Lender to consider any then existing Accounts as no longer constituting Eligible Accounts. No credit, discount, allowance or extension or agreement for any of the foregoing shall be granted to any account debtor without Lender's consent, except in the ordinary course of such Borrower's business in accordance with practices and policies previously disclosed in writing to Lender. So long as no Event of Default exists or has occurred and is continuing, each Borrower shall settle, adjust or compromise any claim, offset, counterclaim or dispute with any account debtor in accordance with such Borrower's business judgment and customary practices. At any time that an Event of Default exists or has occurred and is continuing, Lender shall, at its option, have the exclusive right to settle, adjust or compromise any claim, offset, counterclaim or dispute with account debtors or grant any credits, discounts or allowances. (b) With respect to each Account: (i) the amounts shown on any invoice delivered to Lender or schedule thereof or borrowing base report delivered to Lender shall be true and complete, (ii) no payments shall be made thereon except payments immediately delivered to Lender pursuant to the terms of this Agreement (except as otherwise expressly permitted herein), (iii) no credit, discount, allowance, extension or retainage or agreement for any of the foregoing shall be granted to any account debtor except as reported to Lender in accordance with this Agreement and except for credits, discounts, allowances or extensions made or given in the ordinary course of the applicable Borrower's business in accordance with practices and policies previously disclosed to Lender, (iv) there shall be no setoffs, deductions, retainages, contras, defenses, counterclaims or disputes existing or asserted with respect thereto except as reported to Lender in accordance with the terms of this Agreement, and (v) none of the transactions giving rise thereto will violate in any material respect any applicable State or Federal laws or regulations, all documentation relating thereto will be legally sufficient under such laws and regulations and all such documentation will be legally enforceable in accordance with its terms. (c) Lender shall have the right at any time or times, in Lender's name or in the name of a nominee of Lender, to verify the validity, amount or any other matter relating to any Account or other Collateral, by mail, telephone, facsimile transmission or otherwise. When no Event of Default has occurred and is continuing, Lender shall give Borrowers' Representative at least one Business Day's prior telephonic notice of any such verification. (d) Each Borrower shall deliver or cause to be delivered to Lender, with appropriate endorsement and assignment, with full recourse to such Borrower, all chattel paper and instruments which Borrower now owns or may at any time acquire immediately upon such Borrower's receipt thereof, except as Lender may otherwise agree. (e) Lender may, at any time or times that an Event of Default exists or has occurred and is continuing, (i) notify any or all account debtors that the Accounts have been assigned to Lender and that Lender has a security interest therein and Lender may direct any or all accounts debtors to make payment of Accounts directly to Lender or to the Blocked Accounts, (ii) extend the time of payment of, compromise, settle or adjust for cash, credit, return of merchandise or otherwise, and upon any terms or conditions, any and all Accounts or other obligations included in the Collateral and thereby discharge or release the account debtor or any other party or parties in any way liable for payment thereof without affecting any of the Obligations, (iii) demand, collect or enforce payment of any Accounts or such other obligations, but without any duty to do so, and Lender shall not be liable for its failure to collect or enforce the payment thereof nor for the negligence of its agents or attorneys with respect thereto and (iv) take whatever other action Lender may deem necessary or desirable for the protection of its interests. At any time that an Event of Default exists or has occurred and is continuing, at Lender's request, all invoices and statements sent to any account debtor 24 shall state that the Accounts and such other obligations have been assigned to Lender and are payable directly and only to Lender and each Borrower shall deliver to Lender such originals of documents evidencing the sale and delivery of goods or the performance of services giving rise to any Accounts as Lender may require. 7.3 Power of Attorney. Each Borrower hereby irrevocably designates and appoints Lender (and all persons designated by Lender) as such Borrower's true and lawful attorney-in-fact, and authorizes Lender, in such Borrower's or Lender's name, to: (a) at any time an Event of Default or event which with notice or passage of time or both would constitute an Event of Default exists or has occurred and is continuing (i) demand payment on Accounts or proceeds of other Collateral, (ii) enforce payment of Accounts by legal proceedings or otherwise, (iii) exercise all of such Borrower's rights and remedies to collect any Account or other Collateral, (iv) sell or assign any Account upon such terms, for such amount and at such time or times as the Lender deems advisable, (v) settle, adjust, compromise, extend or renew an Account, (vi) discharge and release any Account, (vii) prepare, file and sign such Borrower's name on any proof of claim in bankruptcy or other similar document against an account debtor, (viii) notify the post office authorities to change the address for delivery of such Borrower's mail to an address designated by Lender, and open and dispose of all mail addressed to such Borrower, and (ix) do all acts and things which are necessary, in Lender's determination, to fulfill such Borrower's obligations under this Agreement and the other Financing Agreements and (b) at any time to (i) take control in any manner of any item of payment or proceeds thereof, (ii) have access to any lockbox or postal box into which such Borrower's mail is deposited, (iii) endorse such Borrower's name upon any items of payment or proceeds thereof and deposit the same in the Lender's account for application to the Obligations, (iv) endorse such Borrower's name upon any chattel paper, document, instrument, invoice, or similar document or agreement relating to any Account or any goods pertaining thereto or any other Collateral, (v) sign such Borrower's name on any verification of Accounts and notices thereof to account debtors and (vi) execute in such Borrower's name and file any UCC financing statements or amendments thereto. Each Borrower hereby releases Lender and its officers, employees and designees from any liabilities arising from any act or acts under this power of attorney and in furtherance thereof, whether of omission or commission, except as a result of Lender's own gross negligence or wilful misconduct as determined pursuant to a final non-appealable order of a court of competent jurisdiction. 7.4 Right to Cure. Lender may, at its option, (a) cure any default by a Borrower under any agreement with a third party or pay or bond on appeal any judgment entered against a Borrower, (b) discharge taxes, liens, security interests or other encumbrances at any time levied on or existing with respect to the Collateral and (c) pay any amount, incur any expense or perform any act which, in Lender's judgment, is necessary or appropriate to preserve, protect, insure or maintain the Collateral and the rights of Lender with respect thereto. Lender may add any amounts so expended to the Obligations and charge the applicable Borrower's account therefor, such amounts to be repayable by such Borrower on demand. Lender shall be under no obligation to effect such cure, payment or bonding and shall not, by doing so, be deemed to have assumed any obligation or liability of any Borrower. Any payment made or other action taken by Lender under this Section shall be without prejudice to any right to assert an Event of Default hereunder and to proceed accordingly. 7.5 Access to Premises. From time to time as requested by Lender, at the cost and expense of each Borrower, (a) Lender or its designee shall have complete access to all of each Borrower's premises during normal business hours and after reasonable notice to the Borrowers' Representative, or at any time and without notice to any Borrower if an Event of Default exists or has occurred and is continuing, for the purposes of inspecting, verifying and auditing the Collateral and all of Borrowers' books and records, including, without limitation, the Records, (b) each Borrower shall promptly 25 furnish to Lender such copies of such books and records or extracts therefrom as Lender may request, and (c) use during normal business hours such of such Borrower's personnel, equipment, supplies and premises as may be reasonably necessary for the foregoing and if an Event of Default exists or has occurred and is continuing for the collection of Accounts and realization of other Collateral. SECTION 8. REPRESENTATIONS AND WARRANTIES Parent and each Borrower hereby represents and warrants to Lender the following (which shall survive the execution and delivery of this Agreement), the truth and accuracy of which are a continuing condition of the making of Loans and providing Letter of Credit Accommodations by Lender to Borrowers: 8.1 Corporate Existence, Power and Authority; Subsidiaries. Parent, Atlantic North, each Borrower, and each Subsidiary of a Borrower, is a corporation duly organized and in good standing under the laws of its state of incorporation and is duly qualified as a foreign corporation and in good standing in all states or other jurisdictions where the nature and extent of the business transacted by it or the ownership of assets makes such qualification necessary, except for those jurisdictions in which the failure to so qualify would not have a material adverse effect on Parent's, Atlantic North's, such Borrower's, or such Subsidiary's, financial condition, results of operation or business or the rights of Lender in or to any of the Collateral. The execution, delivery and performance of this Agreement, the other Financing Agreements and the transactions contemplated hereunder and thereunder are all within Parent's, each Borrower's, and each Subsidiary's corporate powers, have been duly authorized and are not in contravention of law or the terms of Parent's, each Borrower's, and each such Subsidiary's certificate of incorporation, by-laws, or other organizational documentation, or any indenture, agreement or undertaking to which Parent, any Borrower or any such Subsidiary is a party or by which Parent, any Borrower or any such Subsidiary or its property are bound. This Agreement and the other Financing Agreements constitute legal, valid and binding obligations of Parent, each Borrower and each Subsidiary of a Borrower that is a party hereto or thereto, enforceable in accordance with their respective terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting the enforcement of creditors rights generally, and by general principles of equity (whether considered at law or in equity). Neither Parent nor any Borrower has any Subsidiaries except (a) as set forth on the Information Certificate or (b) any Subsidiary which is created after the date hereof, which has been previously disclosed to Lender in writing, and which either has become a Borrower hereunder, or has guaranteed the Obligations and has granted to Lender a first priority security interest in all of its property of the type that would constitute Collateral if such Subsidiary was a Borrower hereunder, pursuant to documentation in form and substance satisfactory to Lender. 8.2 Financial Statements; No Material Adverse Change. All financial statements relating to AETG, Parent, the Borrowers and their respective Subsidiaries which have been or may hereafter be delivered by a Borrower or an Obligor to Lender have been or will have been, when delivered, prepared in accordance with GAAP and fairly present the financial condition and the results of operation of the Persons covered thereby and their respective Subsidiaries as at the dates and for the periods set forth therein. Except as disclosed in any interim financial statements furnished by any Borrower or an Obligor to Lender prior to the date of this Agreement, there has been no material adverse change in the assets, liabilities, properties and condition, financial or otherwise, of any Borrower or Obligor, since the date of the most recent audited financial statements furnished by such Borrower or Obligor to Lender prior to the date of this Agreement. 26 8.3 Chief Executive Office; Collateral Locations. The chief executive office of Parent and each Borrower and of Parent's and each Borrower's Records concerning Accounts are located only at 7 North Street, Staten Island, New York 10302 and the only other places of business of Parent or any Borrower and the only other locations of Collateral, if any, are the addresses set forth in the Information Certificate, subject to the right of Parent or a Borrower to establish new locations in accordance with Section 9.2 below. The Information Certificate correctly identifies any of such locations which are not owned by a Borrower or Obligor and sets forth the owners and/or operators thereof and to the best of Parent's and each Borrower's knowledge, the holders of any mortgages on such locations. 8.4 Priority of Liens; Title to Properties. The security interests and liens granted to Lender under this Agreement and the other Financing Agreements constitute valid and perfected first priority liens and security interests in and upon the Collateral subject only to the liens permitted under Section 9.8 hereof. Each Borrower and each Subsidiary of such Borrower has good and marketable title to all of its properties and assets subject to no liens, mortgages, pledges, security interests, encumbrances or charges of any kind, except those granted to Lender and such others as are specifically listed on Schedule 8.4 hereto or permitted under Section 9.8 hereof. 8.5 Tax Returns. Each of AETG, Parent, each Borrower, and each Subsidiary of each Borrower, has filed, or caused to be filed, in a timely manner all tax returns, reports and declarations which are required to have been filed by it (taking into account all proper extensions). All information in such tax returns, reports and declarations was complete and accurate in all material respects when they were filed. Each of AETG, Parent, each Borrower and each Subsidiary of each Borrower has paid or caused to be paid all taxes due and payable or claimed due and payable in any assessment received by it, except (a) taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to AETG, Parent, such Borrower or such Subsidiary, (b) taxes accrued but not yet due and payable, (c) taxes that are currently payable without penalty or interest and as to which no lien has been filed or otherwise created, (d) [taxes remaining to be paid under Chapter 11 plan], and (e) taxes where the failure to duly and timely pay has not had and could not reasonably be expected to have a material adverse effect on the Collateral or Lender's security interest therein, or Borrowers' and Guarantors' ability to pay and perform the obligations, or the business, assets, prospects, or condition (financial or otherwise) of Parent, Borrowers, and Parent's other Subsidiaries, taken as a whole, and as to which no lien has been filed or otherwise created. As to all such unpaid taxes, adequate reserves have been set aside on the applicable Person's books. Adequate provision has been made for the payment of all accrued and unpaid Federal, State, county, local, foreign and other taxes whether or not yet due and payable and whether or not disputed. 8.6 Litigation. Except as set forth on the Information Certificate, there is no present investigation by any governmental agency pending, or to the best of Parent's and each Borrower's knowledge threatened, against or affecting AETG, Parent, or any Borrower or any other Subsidiary of Parent, its assets or business and there is no action, suit, proceeding or claim by any Person pending, or to the best of Parent's and each Borrower's knowledge threatened, against AETG, Parent, or any Borrower or any other Subsidiary of Parent, or its assets or goodwill, or against or affecting any transactions contemplated by this Agreement, which if adversely determined against AETG, Parent, or such Borrower or Subsidiary would result in any material adverse change in the assets, business or prospects of Parent, such Borrower or Subsidiary or would impair the ability of Parent, such Borrower or such Subsidiary to perform its obligations hereunder or under any of the other Financing Agreements to which it is a party or of Lender to enforce any Obligations or realize upon any Collateral. 27 8.7 Compliance with Other Agreements and Applicable Laws. None of Parent, Borrowers and the Subsidiaries of any Borrower is in default in any material respect under, or in violation in any material respect of any of the terms of, any agreement, contract, instrument, lease or other commitment to which it is a party or by which it or any of its assets are bound, and Parent, each Borrower and each of the Subsidiaries of Borrower is in compliance in all material respects with all applicable provisions of laws, rules, regulations, licenses, permits, approvals and orders of any foreign, Federal, State or local governmental authority. 8.8 Employee Benefits. (a) Except with respect to a delinquency in filing reports with respect to a 401(k) plan, neither Parent, any Borrower nor any Subsidiary of a Borrower has engaged in any transaction in connection with which Parent, such Borrower or such Subsidiary or any of their ERISA Affiliates could be subject to either a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code, including any accumulated funding deficiency described in Section 8.8(c) hereof and any deficiency with respect to vested accrued benefits described in Section 8.8(d) hereof. (b) No liability to the Pension Benefit Guaranty Corporation has been or is expected by Parent, any Borrower or any Subsidiary of a Borrower to be incurred with respect to any employee pension benefit plan of Parent, such Borrower or any such Subsidiary or any of its ERISA Affiliates. There has been no reportable event (within the meaning of Section 4043(c) of ERISA) or any other event or condition with respect to any employee pension benefit plan of Parent, any such Borrower or any such Subsidiary or any of their ERISA Affiliates which presents a risk of termination of any such plan by the Pension Benefit Guaranty Corporation. (c) Full payment has been made of all amounts which Parent, any Borrower or any Subsidiary of a Borrower or any of their ERISA Affiliates is required under Section 302 of ERISA and Section 412 of the Code to have paid under the terms of each employee pension benefit plan as contributions to such plan as of the last day of the most recent fiscal year of such plan ended prior to the date hereof, and no accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists with respect to any employee pension benefit plan, including any penalty or tax described in Section 8.8(a) hereof and any deficiency with respect to vested accrued benefits described in Section 8.8(d) hereof. (d) The current value of all vested accrued benefits under all employee pension benefit plans maintained by Parent, any Borrower or any Subsidiary of a Borrower that are subject to Title IV of ERISA does not exceed the current value of the assets of such plans allocable to such vested accrued benefits, including any penalty or tax described in Section 8.8(a) hereof and any accumulated funding deficiency described in Section 8.8(c) hereof. The terms "current value" and "accrued benefit" have the meanings specified in ERISA. (e) Except for Amboy Bus Co., Inc., which is a party to a "multiemployer plan" (as defined below) for members of Local 1181-1061 of the Amalgamated Transit Union, none of Parent, any Borrower or any Subsidiary of a Borrower or any of their ERISA Affiliates is or has ever been obligated to contribute to any "multiemployer plan" (as such term is defined in Section 4001(a)(3) of ERISA) that is subject to Title IV of ERISA. 8.9 Environmental Compliance. 28 (a) Except as set forth on Schedule 8.9 hereto, none of the Borrowers or any of their respective Subsidiaries has generated, used, stored, treated, transported, manufactured, handled, produced or disposed of any Hazardous Materials, on or off its premises (whether or not owned by it) in any manner which at any time violates in any material respect any applicable Environmental Law or any license, permit, certificate, approval or similar authorization thereunder and the operations of each such Borrower and Subsidiary complies in all material respects with all Environmental Laws and all licenses, permits, certificates, approvals and similar authorizations thereunder. (b) Except as set forth on Schedule 8.9 hereto, there has been no investigation, proceeding, complaint, order, directive, claim, citation or notice by any governmental authority or any other person nor is any pending or to the best of Parent's and each Borrower's knowledge threatened, with respect to any non-compliance with or violation of the requirements of any Environmental Law by Parent, any Borrower or any Subsidiary of a Borrower or the release, spill or discharge, threatened or actual, of any Hazardous Material or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials or any other environmental, health or safety matter, which affects Parent, such Borrower or any such Subsidiary or its business, operations or assets or any properties at which Parent, such Borrower or any such Subsidiary has transported, stored or disposed of any Hazardous Materials. (c) None of Parent, the Borrowers or any of Subsidiaries of Borrowers has any material liability (contingent or otherwise) in connection with a release, spill or discharge, threatened or actual, of any Hazardous Materials or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials. (d) Parent, each Borrower and each Subsidiary of Borrowers has all licenses, permits, certificates, approvals or similar authorizations required to be obtained or filed in connection with the operations of Parent or such Borrower or Subsidiary under any Environmental Law and all of such licenses, permits, certificates, approvals or similar authorizations are valid and in full force and effect. 8.10 Accuracy and Completeness of Information. All information furnished by or on behalf of Parent or a Borrower or any of its Subsidiaries in writing to Lender in connection with this Agreement or any of the other Financing Agreements or any transaction contemplated hereby or thereby, including, without limitation, all information on the Information Certificate, is true and correct in all material respects on the date as of which such information is dated or certified and does not omit any material fact necessary in order to make such information not misleading. No event or circumstance has occurred which has had or could reasonably be expected to have a material adverse affect on the business, assets or prospects of Parent, any Borrower or any Subsidiary of a Borrower, which has not been fully and accurately disclosed to Lender in writing. 8.11 Survival of Warranties; Cumulative. All representations and warranties contained in this Agreement or any of the other Financing Agreements shall survive the execution and delivery of this Agreement and shall be deemed to have been made again to Lender on the date of each additional borrowing or other credit accommodation hereunder and shall be conclusively presumed to have been relied on by Lender regardless of any investigation made or information possessed by Lender. The representations and warranties set forth herein shall be cumulative and in addition to any other representations or warranties which Parent, any Borrower or any Obligor shall now or hereafter give, or cause to be given, to Lender. 29 SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS 9.1 Maintenance of Existence. Parent and each Borrower shall, and shall cause Atlantic North and all of their respective Subsidiaries to, at all times preserve, renew and keep in full, force and effect its corporate existence and rights and franchises with respect thereto and maintain in full force and effect all permits, licenses, trademarks, trade names, approvals, authorizations, leases and contracts necessary to carry on the business as presently or proposed to be conducted. Parent and each Borrower shall maintain and preserve, and shall cause each of their respective Subsidiaries and Atlantic North to maintain and preserve, in good working order and condition, subject to normal wear and tear, all of the assets and properties necessary to the operation of their respective businesses. Parent and each Borrower shall give Lender thirty (30) days prior written notice of any proposed change in its corporate name, which notice shall set forth the new name and Parent or such Borrower shall deliver to Lender a copy of the amendment to the Certificate of Incorporation of Parent or such Borrower providing for the name change certified by the Secretary of State of the jurisdiction of incorporation of such Borrower as soon as it is available. 9.2 New Collateral Locations. Parent or any Borrower may open any new location within the continental United States provided Parent or such Borrower (a) gives Lender thirty (30) days prior written notice of the opening of any such new location which (i) is in a jurisdiction in which Parent or such Borrower does not already have a place of business or operations or (ii) will be the chief executive office or location of Records of Parent or such Borrower and (b) executes and delivers, or causes to be executed and delivered, to Lender such agreements, documents, and instruments as Lender may deem reasonably necessary or desirable to protect its interests in the Collateral at such location, including, without limitation, UCC financing statements. 9.3 Compliance with Laws, Regulations, Etc. (a) Parent and each Borrower shall, and shall cause all of their respective Subsidiaries and Atlantic North to, at all times, comply in all material respects with all laws, rules, regulations, licenses, permits, approvals and orders applicable to it and duly observe all requirements of any Federal, State or local governmental authority, including, without limitation, the Employee Retirement Security Act of 1974, as amended, the Occupational Safety and Hazard Act of 1970, as amended, the Fair Labor Standards Act of 1938, as amended, and all statutes, rules, regulations, orders, permits and stipulations relating to environmental pollution and employee health and safety, including, without limitation, all of the Environmental Laws. (b) Parent and each Borrower shall, and shall cause all of their respective Subsidiaries to, establish and maintain, at its expense, a system to assure and monitor its continued compliance with all Environmental Laws in all of its operations, which system shall include annual reviews of such compliance by employees or agents of Parent or such Borrower or Subsidiary, as the case may be, who are familiar with the requirements of the Environmental Laws. Copies of all environmental surveys, audits, assessments, feasibility studies and results of remedial investigations with respect to Parent or a Borrower or any of their Subsidiaries or any of their respective properties shall be promptly furnished, or caused to be furnished, by Parent or the applicable Borrower to Lender. Parent and each Borrower shall take prompt and appropriate action to respond to any non-compliance of it or any of its Subsidiaries with any of the Environmental Laws and shall regularly report to Lender on such response. (c) Parent and each Borrower shall give both oral and written notice to Lender immediately upon Parent's or such Borrower's receipt of any notice of, or Parent or such Borrower 30 otherwise obtaining knowledge of, (i) the occurrence of any event involving the release, spill or discharge, threatened or actual, of any Hazardous Material which could result in any material liability for remediation expenses or fines or penalties or (ii) any investigation, proceeding, complaint, order, directive, claims, citation or notice with respect to: (A) any non-compliance with or violation of any Environmental Law by Parent or a Borrower or any of their respective Subsidiaries or (B) the release, spill or discharge, threatened or actual, of any Hazardous Material or (C) the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials or (D) any other environmental, health or safety matter, which affects Parent or a Borrower, any of their respective Subsidiaries or its business, operations or assets or any properties at which Parent or a Borrower or Subsidiary transported, stored or disposed of any Hazardous Materials; provided, however, that notice shall not be required under clause (ii) of this sentence if such investigation, proceeding, complaint, order, directive, claim, citation, or notice, if resolved or applied adversely to Parent, a Borrower, or one of their Subsidiaries, could not reasonably be expected to result in any material liability to any such Person for remediation expenses or fines or penalties. (d) Without limiting the generality of the foregoing, whenever Lender reasonably determines that there is non-compliance, or any condition which requires any action by or on behalf of Parent or a Borrower or any of their respective Subsidiaries in order to avoid any material non-compliance, with any Environmental Law, Parent or such Borrower shall, at Lender's request and at Parent's or such Borrower's expense: (i) cause an independent environmental engineer acceptable to Lender to conduct such tests of the site where such non-compliance or alleged non-compliance with such Environmental Laws has occurred as to such non-compliance and prepare and deliver to Lender a report as to such non-compliance setting forth the results of such tests, a proposed plan for responding to any environmental problems described therein, and an estimate of the costs thereof and (ii) provide to Lender a supplemental report of such engineer whenever the scope of such non-compliance, or Parent's, such Borrower's or such Subsidiary's response thereto or the estimated costs thereof, shall change in any material respect. (e) Parent and Borrowers shall jointly and severally indemnify and hold harmless Lender, its directors, officers, employees, agents, invitees, representatives, successors and assigns, from and against any and all losses, claims, damages, liabilities, costs, and expenses (including attorneys' fees and legal expenses) directly or indirectly arising out of or attributable to the use, generation, manufacture, reproduction, storage, release, threatened release, spill, discharge, disposal or presence of a Hazardous Material, including, without limitation, the costs of any required or necessary repair, cleanup or other remedial work with respect to any property of Parent, a Borrower or any Subsidiary of a Borrower and the preparation and implementation of any closure, remedial or other required plans. All representations, warranties, covenants and indemnifications in this Section 9.3 shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. 9.4 Payment of Taxes and Claims. Parent and each Borrower shall, and shall cause all of their respective Subsidiaries to, duly pay and discharge all taxes, assessments, contributions and governmental charges upon or against it or its properties or assets, except for taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Parent or such Borrower or Subsidiary, as the case may be, and with respect to which adequate reserves have been set aside on its books. Each Borrower shall be liable for any tax or penalties imposed on Lender as a result of the financing arrangements provided for herein and Borrowers agree jointly and severally to indemnify and hold Lender harmless with respect to the foregoing, and to repay to Lender on demand the amount thereof, and until paid by the Borrowers such amount shall be 31 added and deemed part of the Obligations, provided, that, nothing contained herein shall be construed to require any Borrower to pay any income or franchise taxes attributable to the income of Lender from any amounts charged or paid hereunder to Lender. The foregoing indemnity shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. 9.5 Insurance. Parent and each Borrower shall, and shall cause all of their respective Subsidiaries to, at all times, maintain with financially sound and reputable insurers insurance with respect to the Collateral and Parent's or such Borrower's or Subsidiary's other property and assets against loss or damage and all other insurance of the kinds and in the amounts customarily insured against or carried by corporations of established reputation engaged in the same or similar businesses and similarly situated. Said policies of insurance shall be satisfactory to Lender as to form, amount and insurer. Parent and each Borrower shall furnish, and shall cause their respective Subsidiaries to furnish, certificates, policies or endorsements to Lender as Lender shall require as proof of such insurance, and, if Parent or such Borrower or any such Subsidiary fails to do so, Lender is authorized, but not required, to obtain such insurance at the expense of Parent or such Borrower. All policies shall provide for at least thirty (30) days prior written notice to Lender of any cancellation or reduction of coverage and that Lender may act as attorney for Parent or the applicable Borrower in obtaining, and at any time an Event of Default exists or has occurred and is continuing, adjusting, settling, amending and canceling such insurance. If Lender so requests, Parent and each Borrower shall cause Lender to be named as a loss payee and an additional insured (but without any liability for any premiums) under such insurance policies insofar as they relate to any Collateral, and Parent and each Borrower shall obtain non-contributory lender's loss payable endorsements to all insurance policies insofar as they relate to any Collateral in form and substance satisfactory to Lender. Such lender's loss payable endorsements shall specify that the proceeds of such insurance shall be payable to Lender as its interests may appear and further specify that Lender shall be paid regardless of any act or omission by Parent or such Borrower or any of their Subsidiaries or affiliates. At its option, Lender may apply any insurance proceeds received by Lender at any time to the cost of repairs or replacement of Collateral and/or to payment of the Obligations, whether or not then due, in any order and in such manner as Lender may determine or hold such proceeds as cash collateral for the Obligations. 9.6 Financial Statements and Other Information. (a) Parent and each Borrower shall, and shall cause their respective Subsidiaries to, keep proper books and records in which true, current and complete entries shall be made of all dealings or transactions of or in relation to the Collateral and the business of Parent or such Borrower and its Subsidiaries in accordance with GAAP, and Parent and each Borrower shall furnish or cause to be furnished to Lender: (i) within forty (40) days after the end of each fiscal month, monthly unaudited consolidated financial statements (including in each case balance sheets, statements of income and loss and statements of shareholders' equity), all in reasonable detail, fairly presenting the financial position and the results of the operations of Parent and its Subsidiaries as of the end of and through such fiscal month and (ii) within ninety (90) days after the end of each fiscal year, audited consolidated financial statements of Parent and its Subsidiaries (including in each case balance sheets, statements of income and loss, statements of cash flow and statements of shareholders' equity), and the accompanying notes thereto, all in reasonable detail, fairly presenting the financial position and the results of the operations of Parent and its Subsidiaries as of the end of and for such fiscal year, together with the opinion of independent certified public accountants, which accountants shall be an independent accounting firm selected by Parent and reasonably acceptable to Lender, that such financial statements have been prepared in accordance with GAAP, and present fairly the results of 32 operations and financial condition of Parent and its Subsidiaries as of the end of and for the fiscal year then ended. (b) Parent and each Borrower shall promptly notify Lender in writing of the details of (i) any loss, damage, investigation, action, suit, proceeding or claim relating to any Collateral or other property which is security for the Obligations, if the Collateral or other property affected had a fair value in excess of $500,000, or which would result in any material adverse change in Parent's or such Borrower's or any of their respective Subsidiaries' business, properties, assets, goodwill or condition, financial or otherwise and (ii) the occurrence of any Event of Default or event which, with the passage of time or giving of notice or both, would constitute an Event of Default. (c) Parent shall, and shall cause each Subsidiary to, promptly after the sending or filing thereof, furnish or cause to be furnished to Lender copies of all reports which Parent or any Borrower or other Subsidiary sends to its stockholders generally and copies of all reports and registration statements which Parent, any Borrower or any other Subsidiary files with the Securities and Exchange Commission, any national securities exchange or the National Association of Securities Dealers, Inc. (d) Parent and each Borrower shall furnish or cause to be furnished to Lender such budgets, forecasts, projections and other information respecting the Collateral and the business of Parent, such Borrower and/or their respective Subsidiaries, as Lender may, from time to time, reasonably request. Parent and each Borrower hereby irrevocably authorizes and directs all accountants or auditors to deliver to Lender, at Parent's or such Borrower's expense, copies of the financial statements of Parent or such Borrower and/or their respective Subsidiaries and any reports or management letters prepared by such accountants or auditors on behalf of Parent and such Borrower or any of their respective Subsidiaries and to disclose to Lender such information as they may have regarding the business of such Borrower or any such Subsidiary. Any documents, schedules, invoices or other papers delivered to Lender may be destroyed or otherwise disposed of by Lender one (1) year after the same are delivered to Lender, except as otherwise designated by Parent or the applicable Borrower to Lender in writing. (e) Except as set forth below, Lender will not disclose to any Person any information provided to Lender regarding AETG, Parent, any Borrower, any Guarantor, or and other Subsidiary of Parent. Lender's agreement in the preceding sentence shall not apply (i) to disclosures to Lender's directors, officers, employees, and legal and other advisors in connection with the administration, interpretation, or enforcement of the Financing Agreements, (ii) if such information has become generally available to the public other than through disclosure by Lender, (iii) if such information was independently developed by Lender without violating its agreement herein or if such information was made available to Lender by a third party having no obligation of confidentiality to AETG, Parent, any Borrower or Guarantor, or any such other Subsidiary, (iv) to the extent Lender is required to disclose such information to comply with law or legal process, (v) as part of normal reporting or review procedures to governmental authorities, (vi) to Lender's parent company or their respective accountants and auditors, or (vii) to any participant or assignee or prospective participant or assignee pursuant to Section 12.4. 9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. None of Parent or Borrower shall, nor shall it permit or suffer any of their respective Subsidiaries to, directly or indirectly: (a) merge into or with or consolidate with any other Person or permit any other Person to merge into or with or consolidate with it unless Parent or such Borrower is the surviving 33 corporation, such merger or consolidation is permitted under Section 9.10, and no Event of Default has occurred and is then continuing (after giving effect to such merger or consolidation); (b) sell, transfer, or otherwise dispose of all or substantially all of its assets; (c) make any Asset Sale unless (i) Parent or such Borrower or Subsidiary receives consideration at the time of such Asset Sale at least equal to the fair market value (as determined in good faith by Parent's Board of Directors) of the assets subject to such Asset Sale, (ii) subject to the proviso to this clause (ii), at least 85% of the consideration for such Asset Sale is in the form of cash, Cash Equivalents, or liabilities of Parent, any Borrower, or any such Subsidiary (other than liabilities that are by their terms subordinated to the Obligations) that are assumed by the transferee of such assets (so long as following such Asset Sale there is no further recourse to Parent, any Borrower, or any other Subsidiary of Parent with respect to such liabilities), provided, however, that in the case of any Asset Sale of Accounts or general intangibles for money due or to become due, or chattel paper or instruments related thereto, 100% of the consideration therefor shall be in the form of cash, (iii) upon receipt of any Net Proceeds from an Asset Sale of Collateral, such Net Proceeds of Collateral are paid to Lender to the extent of and for application to the then outstanding principal balance of the Revolving Loans, and (iv) at the time of such Asset Sale and after giving effect thereto, no Event of Default has occurred and is continuing; or (d) form or acquire any Subsidiaries not in existence on the date hereof (unless each such Subsidiary has complied with the requirements set forth Section 9.10(d)); or (e) wind up, liquidate or dissolve or (f) agree to do any of the foregoing. 9.8 Encumbrances. Neither Parent nor any Borrower shall, nor shall it permit or suffer any of its Subsidiaries to, create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, charge or other encumbrance of any nature whatsoever on any of its assets or properties, including, without limitation, the Collateral, except: (a) liens and security interests of Lender; (b) liens securing the payment of taxes, either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Parent or such Borrower or Subsidiary and with respect to which adequate reserves have been set aside on its books; (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Parent's or such Borrower's or Subsidiary's business to the extent: (i) such liens secure indebtedness which is not overdue or (ii) such liens secure indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Parent or such Borrower or Subsidiary, as the case may be, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) zoning restrictions, easements, licenses, covenants and other restrictions affecting the use of real property which do not interfere in any material respect with the use of such real property or ordinary conduct of the business of Parent or such Borrower or Subsidiary, as the case may be, as presently conducted thereon or materially impair the value of the real property which may be subject thereto; (e) liens on property (other than property that would constitute Collateral hereunder if it were property of a Borrower) of a Person existing at the time such Person is acquired by, merged into or consolidated with Parent or such Borrower or Subsidiary, provided that such liens were not created in contemplation of such acquisition and do not extend to assets other than those subject to such liens immediately prior to such acquisition; (f) liens on 34 property (other than property that would constitute Collateral hereunder if it were property of a Borrower) existing at the time of acquisition thereof by Parent or such Borrower or Subsidiary, provided that such liens were not created in contemplation of such acquisition and do not extend to assets other than those subject to such liens immediately prior to such acquisition; (g) liens incurred in the ordinary course of business in respect of obligations incurred to fix the interest rate on any variable rate indebtedness permitted hereunder; (h) liens incurred in the ordinary course of business to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature (exclusive of obligations constituting indebtedness), including, without limitation, cash retainages; (i) liens incidental to the conduct of business or the ownership of properties incurred in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, bids, and government contracts and leases and subleases; (j) liens for any interest or title of a lessor under any operating lease permitted to be incurred hereunder, provided that such liens do not extend to any property or asset that is not property subject to such lease, and liens to secure Purchase Money Indebtedness permitted hereunder; (k) any extension, renewal, or replacement (or successive extensions, renewals or replacements), in whole or in part, of liens described in clauses (a) through (j) or (l) through (n); (l) Liens in addition to those permitted otherwise by this Section 9.8, which in the aggregate are secured by assets with a fair market value not in excess of $100,000 at any time; (m) liens and security interests in the Collateral or in the Capital Stock of Parent and its Subsidiaries for the benefit of the holders of the Senior Notes but only so long as such liens and security interests are subject to the Intercreditor Agreement, and provided that none of Parent, any Borrower, or any other Subsidiary of Parent shall grant any lien or security interest for the benefit of the holders of the Senior Notes in any other property or assets unless Lender is granted a lien or security interest in such property or assets that is prior to the lien or security interest for the benefit of the holders of the Senior Notes to the same extent as Lender's security interests in the Collateral, and the respective liens or security interests of Lender and such holders or their agent are otherwise subject to the Intercreditor Agreement; and (n) the security interests and liens existing on the date hereof and set forth on the Information Certificate. 9.9 Indebtedness. Neither Parent nor any Borrower shall, nor shall it permit or suffer any of its Subsidiaries to, incur, create, assume, become or be liable in any manner with respect to, or permit to exist, any obligations or indebtedness, except (a) the Obligations; (b) obligations and indebtedness that Parent, such Borrower, or such Subsidiary is permitted to incur at the time under Section 4.9(a) of the Indenture; (c) trade obligations and normal accruals in the ordinary course of business not yet due and payable, or with respect to which Parent or such Borrower or Subsidiary, as the case may be, is contesting in good faith the amount or validity thereof by appropriate proceedings diligently pursued and available to Parent or such Borrower or Subsidiary, and with respect to which adequate reserves have been set aside on its books; (d) Purchase Money Indebtedness in an aggregate amount not to exceed $10,000,000 outstanding at any time; (e) the Senior Notes and guarantees thereof, provided, that, (i) Parent may, and shall cause its Subsidiaries to, only make regularly scheduled payments of interest in respect of such indebtedness in accordance with the terms of the agreement or instrument evidencing or giving rise to such indebtedness as in effect on the date hereof, (ii) Parent shall, and shall cause its Subsidiaries to, not directly or indirectly, (A) amend, modify, alter or change the terms of such indebtedness or the terms of the Indenture or any other agreement, document or instrument related thereto as in effect on the date hereof, or (B) redeem, retire, defease, purchase or otherwise acquire such indebtedness, or set aside or otherwise deposit or invest any sums for such purpose, provided that Parent may purchase or redeem Senior Notes prior to their stated maturity (under the terms thereof as in effect on the date hereof) pursuant to clause (k) below or with the net cash proceeds of a Public Equity Offering, and (iii) Parent and each Borrower shall furnish to Lender all notices or demands in connection with such indebtedness either received by Parent or such 35 Borrower or any of its Subsidiaries or on its behalf, promptly after the receipt thereof, or sent by Parent or such Borrower or any of its Subsidiaries or on its behalf, concurrently with the sending thereof, as the case may be; (f) performance bonds, appeal bonds, surety bonds, insurance obligations or bonds and other similar bonds or obligations incurred in the ordinary course of business and not in connection with borrowing money; (g) obligations incurred to fix the interest rate on any variable rate indebtedness otherwise permitted hereunder; (h) indebtedness owed by (i) a Borrower or any other Subsidiary of Parent to Parent or to another Borrower or Subsidiary of Parent or (ii) Parent to a Borrower or other Subsidiary of Parent; (i) indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, that such indebtedness is extinguished within three Business Days of incurrence; (j) other indebtedness in addition to any described above which is in existence on the date hereof and is set forth on the Information Certificate; and (k) indebtedness issued in exchange for, or the proceeds of which are contemporaneously used to extend, refinance, renew, replace, or refund (collectively, "Refinance") indebtedness referred to in clause (e) or (j) above or this clause (k) ("Refinancing Indebtedness"); provided, that (i) the principal amount of such Refinancing Indebtedness does not exceed the principal amount of indebtedness so Refinanced (plus the premiums required to be paid, and the out-of-pocket expenses (other than those payable to an Affiliate of Parent) reasonably incurred, in connection therewith), (ii) the Refinancing Indebtedness has a final scheduled maturity that exceeds the final stated maturity, and a Weighted Average Life to Maturity that is equal to or greater than the Weighted Average Life to Maturity, of the indebtedness being Refinanced and (iii) the Refinancing Indebtedness ranks, in right of payment, no more favorable to the Obligations than the indebtedness being Refinanced. 9.10 Loans, Investments, Guarantees, Etc. Neither Parent nor any Borrower shall, nor shall it permit its Subsidiaries to, directly or indirectly, make any loans or advance money or property to any person, or invest in (by capital contribution, dividend or otherwise) or purchase or repurchase the stock or indebtedness or all or a substantial part of the assets or property of any person, or guarantee, assume, endorse, or otherwise become responsible for (directly or indirectly) the indebtedness, performance, obligations or dividends of any Person or agree to do any of the foregoing, except: (a) the endorsement of instruments for collection or deposit in the ordinary course of business; (b) investments in Cash Equivalents; provided, that, as to any Cash Equivalents that are of a type constituting Collateral, unless waived in writing by Lender, a Borrower or Guarantor shall take such actions as are deemed necessary by Lender to perfect the security interest of Lender in such investments; (c) the guarantees set forth in the Information Certificate and guarantees of the Obligations or the Senior Notes; (d) acquisitions of or investments in (i) Subsidiaries of Parent which are Borrowers or Guarantors on the date hereof or (ii) any Person which become a Subsidiary of Parent as a result of such acquisition or investment, provided that in connection with such acquisition or investment, such new Subsidiary either becomes a Borrower hereunder or guarantees the Obligations and grants to Lender a first priority security interest in all of its property of the type that would constitute Collateral if such Subsidiary were a Borrower hereunder, pursuant to documentation in form and substance satisfactory to Lender, and provided that no Event of Default shall have occurred and be continuing after giving effect to such acquisition of or investment in such Subsidiary; (e) any loan, advance, investment, or other transaction described above if after giving effect thereto, no Event of Default has occurred and is continuing and the aggregate amount of such transactions and all payments permitted under Section 9.11(g) since the date hereof is less than the Permitted Payment Amount; (f) obligations incurred to fix the interest rate on any variable rate indebtedness permitted hereunder; (g) investments in securities of customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such customers; (h) investments as a result of consideration received in an Asset Sale permitted under Section 9.7; (i) investments in 36 Atlantic North but only to the extent necessary under applicable law to permit such entity to provide insurance policies to Parent and its Subsidiaries; and (j) investments existing on the date hereof. 9.11 Dividends and Redemptions. Neither Parent nor any Borrower shall, or and shall permit its Subsidiaries to, directly or indirectly, declare or pay any dividends on account of any shares of class of Capital Stock of Parent or any Borrower or any of its Subsidiaries now or hereafter outstanding, or set aside or otherwise deposit or invest any sums for such purpose, or redeem, retire, defease, purchase or otherwise acquire any shares of any class of such Capital Stock (or set aside or otherwise deposit or invest any sums for such purpose) or apply or set apart any sum, or make any other distribution (by reduction of capital or otherwise) in respect of any such shares or agree to do any of the foregoing, except: (a) dividends or distributions payable in Equity Interests (other than Disqualified Capital Stock) of Parent or such Borrower or Subsidiary; (b) dividends or distributions payable to Parent or a wholly owned Subsidiary of Parent; (c) purchases or redemptions of Equity Interests owned by Parent or a wholly owned Subsidiary of Parent; (d) payments by Parent to AETG pursuant to the Tax Sharing Agreement; (e) distributions, loans, and advances to AETG in an aggregate amount not to exceed during any fiscal year the sum of (i) the Management Fees required to be paid by AETG under and as defined in the Stockholders Agreement during such fiscal year; (ii) and amount equal to $100,000 for the fiscal year ending June 30, 1997, and for each fiscal year thereafter, 105% of the amount permitted under this subclause (ii) during the immediately preceding fiscal year, provided, that the amounts permitted under this clause (e) are used by AETG only to pay ordinary operating expenses and Management Fees under the Stockholder's Agreement; (f) transactions permitted under Section 9.12; (g) any dividend, distribution, redemption or purchase of or in respect of Capital Stock if after giving effect thereto, no Event of Default has occurred and is continuing and the aggregate amount of such payments and all transactions permitted under Section 9.10(e) since the date hereof is less than the Permitted Payment Amount; and (h) redemption, repurchase, retirement, or other acquisition of Equity Interests of Parent in exchange for Equity Interests of Parent (other than Disqualified Capital Stock). 9.12 Transactions with Affiliates. Neither Parent nor any Borrower shall, or permit its Subsidiaries to, enter into any transaction for the purchase, sale or exchange of property or the rendering of any service to or by any affiliate, except (a) in the ordinary course of and pursuant to the reasonable requirements of Parent's or such Borrower's or Subsidiary's business and upon fair and reasonable terms no less favorable to Parent or such Borrower or Subsidiary than it would obtain in a comparable arm's length transaction with an unaffiliated person; (b) existing and future employment agreements entered into by Parent or any Subsidiary of Parent in the ordinary course of business with the approval of a majority of the disinterested members of Parent's Board of Directors; (c) transactions between or among Parent, Borrowers, and Guarantors; (d) reasonable and customary fees and compensation paid to and indemnity provided on behalf of, officers, directors, employees or consultants of the Parent or any Subsidiary of Parent as determined in good faith by a majority of the disinterested directors of Parent's Board of Directors or, if none, unanimously by such Board of Directors; (e) the "Park & Ride Lease" between Showplace Bowling Center Inc., as lessor, and Atlantic Express Coachway Inc., as lessee, and the lease between Dom Rich Associates, Inc., as lessor, and Staten Island Bus Inc., as lessee, in each case as in effect of the date hereof; and (f) annual premiums paid to Atlantic North in the ordinary course of business for insurance, provided, that such premiums do not exceed the annual aggregate deductibles on Parent's insurance policies then in effect. 9.13 Costs and Expenses. Each Borrower shall jointly and severally pay to Lender on demand all costs, expenses, filing fees and taxes paid or payable in connection with the preparation, negotiation, execution, delivery, recording, administration, collection, liquidation, enforcement and defense of the Obligations, Lender's rights in the Collateral, this Agreement, the other Financing 37 Agreements and all other documents related hereto or thereto, including any amendments, supplements or consents which may hereafter be contemplated (whether or not executed) or entered into in respect hereof and thereof, including, but not limited to: (a) all costs and expenses of filing or recording (including Uniform Commercial Code financing statement filing taxes and fees, documentary taxes, intangibles taxes and mortgage recording taxes and fees, if applicable); (b) all costs and expenses and fees for title insurance and other insurance premiums, environmental audits, surveys, assessments, engineering reports and inspections, appraisal fees and search fees; (c) costs and expenses of remitting loan proceeds, collecting checks and other items of payment, and establishing and maintaining the Blocked Accounts, together with Lender's customary charges and fees with respect thereto; (d) charges, fees or expenses charged by any bank or issuer in connection with the Letter of Credit Accommodations; (e) costs and expenses of preserving and protecting the Collateral; (f) costs and expenses paid or incurred in connection with obtaining payment of the Obligations, enforcing the security interests and liens of Lender, selling or otherwise realizing upon the Collateral, and otherwise enforcing the provisions of this Agreement and the other Financing Agreements or defending any claims made or threatened against Lender arising out of the transactions contemplated hereby and thereby (including, without limitation, preparations for and consultations concerning any such matters); (g) when an Event of Default has occurred and is continuing, all out-of-pocket expenses and costs incurred by Lender during the course of field examinations of the Collateral and Borrowers' operations, plus a per diem charge at the rate of $600 per person per day for Lender's examiners in the field and office; and (h) the fees and disbursements of counsel (including legal assistants) to Lender in connection with any of the foregoing. 9.14 Compliance with ERISA. Neither Parent nor any Borrower shall, and shall not permit or suffer any of its Subsidiaries to, with respect to any "employee pension benefit plans" maintained by Parent or such Borrower or Subsidiary or any of their ERISA Affiliates: (a) (i) terminate any of such employee pension benefit plans so as to incur any liability to the Pension Benefit Guaranty Corporation established pursuant to ERISA, (ii) allow or suffer to exist any prohibited transaction involving any of such employee pension benefit plans or any trust created thereunder which would subject Parent, such Borrower, such Subsidiary or such ERISA Affiliate to a tax or penalty or other liability on prohibited transactions imposed under Section 4975 of the Code or ERISA, (iii) fail to pay to any such employee pension benefit plan any contribution which it is obligated to pay under Section 302 of ERISA, Section 412 of the Code or the terms of such plan, (iv) allow or suffer to exist any accumulated funding deficiency, whether or not waived, with respect to any such employee pension benefit plan, (v) allow or suffer to exist any occurrence of a reportable event or any other event or condition which presents a material risk of termination by the Pension Benefit Guaranty Corporation of any such employee pension benefit plan that is a single employer plan, which termination could result in any liability to the Pension Benefit Guaranty Corporation or (vi) incur any withdrawal liability with respect to any multiemployer pension plan. (b) As used in this Section 9.14, the term "employee pension benefit plans," "employee benefit plans", "accumulated funding deficiency" and "reportable event" shall have the respective meanings assigned to them in ERISA, and the term "prohibited transaction" shall have the meaning assigned to it in Section 4975 of the Code and ERISA. 9.15 Further Assurances. At the request of Lender at any time and from time to time, Parent and each Borrower shall, at its expense, duly execute and deliver, or cause to be duly executed and delivered, such further agreements, documents and instruments, and do or cause to be done such further acts as may be necessary or proper to evidence, perfect, maintain and enforce the security interests and the priority thereof in the Collateral and to otherwise effectuate the provisions or 38 purposes of this Agreement or any of the other Financing Agreements. Lender may at any time and from time to time request a certificate from an officer of a Borrower representing that all conditions precedent to the making of Loans and providing Letter of Credit Accommodations contained herein are satisfied. In the event of such request by Lender, Lender may, at its option, cease to make any further Loans or provide any further Letter of Credit Accommodations until Lender has received such certificate and, in addition, Lender has determined that such conditions are satisfied. Where permitted by law, each Borrower hereby authorizes Lender to execute and file one or more UCC financing statements signed only by Lender. SECTION 10. EVENTS OF DEFAULT AND REMEDIES 10.1 Events of Default. The occurrence or existence of any one or more of the following events are referred to herein individually as an "Event of Default", and collectively as "Events of Default": (a) (i) Any Borrower fails to pay when due any of the Obligations or (ii) any Borrower or Obligor fails to perform any of the terms, covenants, conditions or provisions contained in this Agreement or any of the other Financing Agreements to which it is a party other than as described in Section 10.1 (a)(i) and such failure shall continue for five (5) Business Days; provided, that, such five (5) Business Day period shall not apply in the case of: (A) any failure to observe any such term, covenant, condition or provision which is not capable of being cured at all or within such five (5) Business Day period or which has been the subject of a prior failure within a six (6) month period or (B) an intentional breach by a Borrower or any Obligor of any such term, covenant, condition or provision, or (C) the failure to observe or perform any of the covenants or provisions contained in Section 6.3, 6.6, 7.1(a), 7.1(b), 7.2, or 7.5, the first sentence of Section 9.1, or Section 9.2, 9.4, or 9.7 through 9.12 of this Agreement or any covenants or agreements covering substantially the same matter as such sections in any of the other Financing Agreements; (b) any representation, warranty or statement of fact made by any Borrower, any Subsidiary of a Borrower or any Obligor to Lender in this Agreement, the other Financing Agreements or any other agreement, schedule, confirmatory assignment or otherwise shall when made or deemed made be false or misleading in any material respect; (c) any Obligor revokes, terminates or fails in any material respect to perform any of the terms, covenants, conditions or provisions of any guarantee, endorsement or other agreement of such party in favor of Lender; (d) (i) any judgment for the payment of money is rendered against any Borrower, any Subsidiary of a Borrower or any Obligor in excess of $500,000 in any one case or in excess of $1,000,000 in the aggregate, which judgments are not discharged, vacated, bonded, or stayed within a period of thirty (30) days, or execution shall at any time not be effectively stayed, or (ii) any judgment other than for the payment of money, or injunction, attachment, garnishment or execution is rendered against any Borrower, any such Subsidiary or any Obligor or any of their assets, if it would materially affect the business, assets, prospects, or condition (financial or otherwise) of Parent or any Borrower; (e) any Borrower or any Obligor, which is a partnership or corporation, dissolves or suspends or discontinues doing business; 39 (f) any Borrower or any Obligor makes an assignment for the benefit of creditors, makes or sends notice of a bulk transfer or calls a meeting of its creditors or principal creditors; or any Borrower or Parent becomes insolvent (however defined or evidenced); (g) a case or proceeding under the bankruptcy laws of the United States of America now or hereafter in effect or under any insolvency, reorganization, receivership, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether at law or in equity) is filed against any Borrower, any Subsidiary of a Borrower or any Obligor or all or any part of its properties and such petition or application is not dismissed within thirty (30) days after the date of its filing or any Borrower, any such Subsidiary or any Obligor shall file any answer admitting or not contesting such petition or application or indicates its consent to, acquiescence in or approval of, any such action or proceeding or the relief requested is granted sooner; (h) a case or proceeding under the bankruptcy laws of the United States of America now or hereafter in effect or under any insolvency, reorganization, receivership, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether at a law or equity) is filed by any Borrower, any Subsidiary of a Borrower or any Obligor or for all or any part of its property; or (i) any Event of Default, or event which with notice or the passage of time or both, would become an Event of Default, under and as defined in the Indenture, or any agreement securing or guaranteeing payment of the Senior Notes, or (ii) default by any Borrower, any Subsidiary of a Borrower or any Obligor under any agreement, document or instrument relating to any other indebtedness for borrowed money owing to any person other than Lender, or any capitalized lease obligations, contingent indebtedness in connection with any guarantee, letter of credit, indemnity or similar type of instrument in favor of any person other than Lender, in any case in an amount in excess of $500,000, which default continues for more than the applicable cure period, if any, with respect thereto, or any default by any Borrower, any such Subsidiary or any Obligor under any material contract, lease, license or other obligation to any person other than Lender, which default continues for more than the applicable cure period, if any, with respect thereto; (j) any Change of Control shall occur; (k) the indictment of any Borrower, any Subsidiary of a Borrower or any Obligor under any criminal statute, or commencement of criminal or civil proceedings against any Borrower, any such Subsidiary or any Obligor, pursuant to which statute or proceedings the penalties or remedies sought or available include forfeiture of any of the property of such Borrower, Subsidiary or Obligor; (l) there shall be a material adverse change in the business, assets or prospects of the Borrowers and the other Subsidiaries of Parent taken as a whole; (m) there shall be an event of default under any of the other Financing Agreements. 10.2 Remedies. (a) At any time an Event of Default exists or has occurred and is continuing, Lender shall have all rights and remedies provided in this Agreement, the other Financing Agreements, the Uniform Commercial Code and other applicable law, all of which rights and remedies may be exercised without notice to or consent by any Borrower or any Obligor, except as such notice or 40 consent is expressly provided for hereunder or required by applicable law. All rights, remedies and powers granted to Lender hereunder, under any of the other Financing Agreements, the Uniform Commercial Code or other applicable law, are cumulative, not exclusive and enforceable, in Lender's discretion, alternatively, successively, or concurrently on any one or more occasions, and shall include, without limitation, the right to apply to a court of equity for an injunction to restrain a breach or threatened breach by any Borrower of this Agreement or any of the other Financing Agreements. Lender may, at any time or times, proceed directly against any Borrower or any Obligor to collect the Obligations without prior recourse to the Collateral. (b) Without limiting the foregoing, at any time an Event of Default exists or has occurred and is continuing, Lender may, in its discretion and without limitation, (i) accelerate the payment of all Obligations and demand immediate payment thereof to Lender (provided, that, upon the occurrence of any Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations shall automatically become immediately due and payable), (ii) with or without judicial process or the aid or assistance of others, enter upon any premises on or in which any of the Collateral may be located and take possession of the Collateral or complete processing, manufacturing and repair of all or any portion of the Collateral, (iii) require any Borrower, at such Borrower's expense, to assemble and make available to Lender any part or all of the Collateral at any place and time designated by Lender, (iv) collect, foreclose, receive, appropriate, setoff and realize upon any and all Collateral, (v) remove any or all of the Collateral from any premises on or in which the same may be located for the purpose of effecting the sale, foreclosure or other disposition thereof or for any other purpose, (vi) sell, lease, transfer, assign, deliver or otherwise dispose of any and all Collateral (including, without limitation, entering into contracts with respect thereto, public or private sales at any exchange, broker's board, at any office of Lender or elsewhere) at such prices or terms as Lender may deem reasonable, for cash, upon credit or for future delivery, with the Lender having the right to purchase the whole or any part of the Collateral at any such public sale, all of the foregoing being free from any right or equity of redemption of any Borrower, which right or equity of redemption is hereby expressly waived and released by each Borrower and/or (vii) terminate this Agreement. If any of the Collateral is sold or leased by Lender upon credit terms or for future delivery, the Obligations shall not be reduced as a result thereof until payment therefor is finally collected by Lender. If notice of disposition of Collateral is required by law, five (5) Business Days prior notice by Lender to a Borrower designating the time and place of any public sale or the time after which any private sale or other intended disposition of Collateral is to be made, shall be deemed to be reasonable notice thereof and each Borrower waives any other notice. In the event Lender institutes an action to recover any Collateral or seeks recovery of any Collateral by way of prejudgment remedy, each Borrower waives the posting of any bond which might otherwise be required. (c) Lender may apply the cash proceeds of Collateral actually received by Lender from any sale, lease, foreclosure or other disposition of the Collateral to payment of the Obligations, in whole or in part and in such order as Lender may elect, whether or not then due. Each Borrower shall remain liable to Lender for the payment of any deficiency with interest at the highest rate provided for herein and all costs and expenses of collection or enforcement, including attorneys' fees and legal expenses. (d) Without limiting the foregoing, upon the occurrence of an Event of Default or an event which with notice or passage of time or both would constitute an Event of Default, Lender may, at its option, without notice, (i) cease making Loans or arranging for Letter of Credit Accommodations or reduce the lending formulas or amounts of Revolving Loans and Letter of Credit Accommodations available to any Borrower and/or (ii) terminate any provision of this Agreement 41 providing for any future Loans or Letter of Credit Accommodations to be made by Lender to any Borrower. SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW 11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver. (a) The validity, interpretation and enforcement of this Agreement and the other Financing Agreements and any dispute arising out of the relationship between the parties hereto, whether in contract, tort, equity or otherwise, shall be governed by the internal laws of the State of New York (without giving effect to principles of conflicts of law). (b) Each Borrower and Lender irrevocably consent and submit to the non-exclusive jurisdiction of the Supreme Court of the State of New York for New York County and the United States District Court for the Southern District of New York and waive any objection based on venue or forum non conveniens with respect to any action instituted therein arising under this Agreement or any of the other Financing Agreements or in any way connected with or related or incidental to the dealings of the parties hereto in respect of this Agreement or any of the other Financing Agreements or the transactions related hereto or thereto, in each case whether now existing or hereafter arising, and whether in contract, tort, equity or otherwise, and agree that any dispute with respect to any such matters shall be heard only in the courts described above (except that Lender shall have the right to bring any action or proceeding against any Borrower or its property in the courts of any other jurisdiction which Lender deems necessary or appropriate in order to realize on the Collateral or to otherwise enforce its rights against any Borrower or its property). (c) Each Borrower hereby waives personal service of any and all process upon it and consents that all such service of process may be made by certified mail (return receipt requested) directed to its address set forth on the signature pages hereof and service so made shall be deemed to be completed five (5) days after the same shall have been so deposited in the U.S. mails, or, at Lender's option, by service upon such Borrower in any other manner provided under the rules of any such courts. Lender shall send a copy of any such service to Silverman, Collura & Chernis, P.C., 381 Park Avenue South, Suite 1601, New York, New York 10016, Attention: Peter R. Silverman, Esq., but the delivery of such copy shall not be a condition to the effectiveness of service upon any Borrower. Within thirty (30) days after such service, such Borrower shall appear in answer to such process, failing which such Borrower shall be deemed in default and judgment may be entered by Lender against such Borrower for the amount of the claim and other relief requested. (d) EACH BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. EACH BORROWER AND LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER OR LENDER MAY FILE AN ORIGINAL COUNTERPART OR 42 A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. (e) Lender shall not have any liability to any Borrower (whether in tort, contract, equity or otherwise) for losses suffered by any Borrower in connection with, arising out of, or in any way related to the transactions or relationships contemplated by this Agreement, or any act, omission or event occurring in connection herewith, unless it is determined by a final and non-appealable judgment or court order binding on Lender, that the losses were the result of acts or omissions constituting gross negligence or willful misconduct. In any such litigation, Lender shall be entitled to the benefit of the rebuttable presumption that it acted in good faith and with the exercise of ordinary care in the performance by it of the terms of this Agreement. 11.2 Waiver of Notices. Each Borrower hereby expressly waives demand, presentment, protest and notice of protest and notice of dishonor with respect to any and all instruments and commercial paper, included in or evidencing any of the Obligations or the Collateral, and any and all other demands and notices of any kind or nature whatsoever with respect to the Obligations, the Collateral and this Agreement, except such as are expressly provided for herein. No notice to or demand on any Borrower which Lender may elect to give shall entitle any Borrower to any other or further notice or demand in the same, similar or other circumstances. 11.3 Amendments and Waivers. Neither this Agreement nor any provision hereof shall be amended, modified, waived or discharged orally or by course of conduct, but only by a written agreement signed by an authorized officer of Lender. Lender shall not, by any act, delay, omission or otherwise be deemed to have expressly or impliedly waived any of its rights, powers and/or remedies unless such waiver shall be in writing and signed by an authorized officer of Lender. Any such waiver shall be enforceable only to the extent specifically set forth therein. A waiver by Lender of any right, power and/or remedy on any one occasion shall not be construed as a bar to or waiver of any such right, power and/or remedy which Lender would otherwise have on any future occasion, whether similar in kind or otherwise. 11.4 Waiver of Counterclaims. Each Borrower waives all rights to interpose any claims, deductions, setoffs or counterclaims of any nature (other then compulsory counterclaims) in any action or proceeding with respect to this Agreement, the Obligations, the Collateral or any matter arising therefrom or relating hereto or thereto. 11.5 Indemnification. Each Borrower shall jointly and severally indemnify and hold Lender, and its directors, agents, employees and counsel, harmless from and against any and all losses, claims, damages, liabilities, costs or expenses imposed on, incurred by or asserted against any of them in connection with any litigation, investigation, claim or proceeding commenced or threatened related to the negotiation, preparation, execution, delivery, enforcement, performance or administration of this Agreement, any other Financing Agreements, or any undertaking or proceeding related to any of the transactions contemplated hereby or any act, omission, event or transaction related or attendant thereto, including, without limitation, amounts paid in settlement, court costs, and the fees and expenses of counsel (provided, that Borrowers shall not be liable for such indemnification with respect to any loss that is determined by a final and non-appealable judgment or court order binding on Lender to have resulted from Lender's gross negligence or wilful misconduct). To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section may be unenforceable because it violates any law or public policy, each Borrower shall pay the maximum portion which it is permitted to pay under applicable law to Lender in satisfaction of indemnified 43 matters under this Section. The foregoing indemnity shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS 12.1 Term. (a) This Agreement and the other Financing Agreements shall become effective as of the date set forth on the first page hereof and shall continue in full force and effect for a term ending on the date three (3) years from the date hereof (the "Expiration Date"). Borrowers may terminate this Agreement and the other Financing Agreements effective any time prior to the Expiration Date by giving to the Lender at least sixty (60) days prior written notice of such termination; provided, that, this Agreement and all other Financing Agreements must be terminated simultaneously and must be terminated as to all and not less than all of the Borrowers. Upon the effective date of termination or non-renewal of the Financing Agreements, Borrowers shall jointly and severally pay to Lender, in full, all outstanding and unpaid Obligations and shall jointly and severally furnish cash collateral to Lender in such amounts as Lender determines are reasonably necessary to secure Lender from loss, cost, damage or expense, including attorneys' fees and legal expenses, in connection with any contingent Obligations, including issued and outstanding Letter of Credit Accommodations and checks or other payments provisionally credited to the Obligations and/or as to which Lender has not yet received final and indefeasible payment. Such cash collateral shall be remitted by wire transfer in Federal funds to such bank account of Lender, as Lender may, in its discretion, designate in writing to Borrowers for such purpose. Interest shall be due until and including the next business day, if the amounts so paid by a Borrower to the bank account designated by Lender are received in such bank account later than 12:00 noon, New York City time. (b) No termination of this Agreement or the other Financing Agreements shall relieve or discharge any Borrower of its respective duties, obligations and covenants under this Agreement or the other Financing Agreements until all Obligations have been fully and finally discharged and paid, and Lender's continuing security interest in the Collateral and the rights and remedies of Lender hereunder, under the other Financing Agreements and applicable law, shall remain in effect until all such Obligations have been fully and finally discharged and paid. (c) If for any reason this Agreement is terminated prior to the Expiration Date, in view of the impracticality and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of Lender's lost profits as a result thereof, Borrowers shall jointly and severally pay to Lender, upon the effective date of such termination, an early termination fee in the aggregate amount set forth below if such termination is effective in the period indicated: Amount Period ------ ------ (i) 3% of Maximum Credit February 4, 1997 to and including February 3, 1998 (ii) 2% of Maximum Credit February 4, 1998 to and including February 3, 1999 44 (iii) 1% of Maximum Credit February 4, 1999 to and including February 3, 2000; provided, however, that if Borrowers terminate this Agreement in connection with, and repay the Obligations with the net cash proceeds of, the initial Public Equity Offering by the Company, then the early termination fee payable at such time shall be reduced to one-half (1/2) of the fee that would otherwise have been payable hereunder. Such early termination fee shall be presumed to be the amount of damages sustained by Lender as a result of such early termination and each Borrower agrees that it is reasonable under the circumstances currently existing. The early termination fee provided for in this Section 12.1 shall be deemed included in the Obligations. 12.2 Notices. All notices, requests and demands hereunder shall be in writing and (a) made to Lender at its address set forth below and to each Borrower at its chief executive office set forth below, or to such other address as either party may designate by written notice to the other in accordance with this provision, and (b) deemed to have been given or made: if delivered in person, immediately upon delivery; if by telex, telegram or facsimile transmission, immediately upon sending and upon confirmation of receipt; if by nationally recognized overnight courier service with instructions to deliver the next business day, one (1) business day after sending; and if by certified mail, return receipt requested, five (5) days after mailing. A copy of any notice given to a Borrower shall be sent to Silverman, Collura & Chernis, P.C., 381 Park Avenue South, Suite 1601, New York, New York 10016, Attention: Peter R. Silverman, Esq. 12.3 Partial Invalidity. If any provision of this Agreement is held to be invalid or unenforceable, such invalidity or unenforceability shall not invalidate this Agreement as a whole, but this Agreement shall be construed as though it did not contain the particular provision held to be invalid or unenforceable and the rights and obligations of the parties shall be construed and enforced only to such extent as shall be permitted by applicable law. 12.4 Successors. This Agreement, the other Financing Agreements and any other document referred to herein or therein shall be binding upon and inure to the benefit of and be enforceable by Lender, Borrowers and their respective successors and assigns, except that no Borrower may assign any of its rights under this Agreement, the other Financing Agreements and any other document referred to herein or therein without the prior written consent of Lender. Lender may, after notice to Borrowers, assign its rights and delegate its obligations under this Agreement and the other Financing Agreements and further may assign, or sell participations in, all or any part of the Loans, the Letter of Credit Accommodations or any other interest herein to another financial institution or other person, in which event, the assignee or participant shall have, to the extent of such assignment or participation, the same rights and benefits as it would have if it were the Lender hereunder, except as otherwise provided by the terms of such assignment or participation. 12.5 Entire Agreement. This Agreement, the other Financing Agreements, any supplements hereto or thereto, and any instruments or documents delivered or to be delivered in connection herewith or therewith represents the entire agreement and understanding concerning the subject matter hereof and thereof between the parties hereto, and supersede all other prior agreements, understandings, negotiations and discussions, representations, warranties, commitments, proposals, offers and contracts concerning the subject matter hereof, whether oral or written. 45 IN WITNESS WHEREOF, Lender and each of the Borrowers have caused these presents to be duly executed as of the day and year first above written. LENDER BORROWERS - ------ --------- CONGRESS FINANCIAL CORPORATION AMBOY BUS CO., INC. By:_____________________________ By:_____________________________ Title:___________________________ Title:__________________________ Address: Chief Executive Office: 1133 Avenue of the Americas 7 North Street New York, New York 10036 Staten Island, New York 10302 ATLANTIC-CONN. TRANSIT, INC. By:____________________________ Title:_________________________ Chief Executive Office: 7 North Street Staten Island, New York 10302 ATLANTIC-HUDSON, INC. By:____________________________ Title:_________________________ Chief Executive Office: 7 North Street Staten Island, New York 10302 ATLANTIC PARATRANS, INC. By:____________________________ Title:_________________________ Chief Executive Office: 7 North Street Staten Island, New York 10302 ATLANTIC PARATRANS OF KENTUCKY INC. By:____________________________ Title:_________________________ Chief Executive Office: 7 North Street Staten Island, New York 10302 ATLANTIC COACHWAYS, INC. By:____________________________ Title:_________________________ Chief Executive Office: 7 North Street Staten Island, New York 10302 ATLANTIC EXPRESS OF MISSOURI, INC. By:____________________________ Title:_________________________ Chief Executive Office: 7 North Street Staten Island, New York 10302 ATLANTIC EXPRESS OF PENNSYLVANIA, INC. By:____________________________ Title:_________________________ Chief Executive Office: 7 North Street Staten Island, New York 10302 BROOKFIELD TRANSIT INC. By:____________________________ Title:_________________________ Chief Executive Office: 7 North Street Staten Island, New York 10302 COURTESY BUS CO., INC. By:____________________________ Title:_________________________ Chief Executive Office: 7 North Street Staten Island, New York 10302 K. CORR, INC. By:____________________________ Title:_________________________ Chief Executive Office: 7 North Street Staten Island, New York 10302 MERIT TRANSPORTATION CORP. By:____________________________ Title:_________________________ Chief Executive Office: 7 North Street Staten Island, New York 10302 METROPOLITAN ESCORT SERVICE, INC. By:____________________________ Title:_________________________ Chief Executive Office: 7 North Street Staten Island, New York 10302 RAYBERN BUS SERVICE, INC. By:____________________________ Title:_________________________ Chief Executive Office: 7 North Street Staten Island, New York 10302 RAYBERN CAPITAL CORP. By:____________________________ Title:_________________________ Chief Executive Office: 7 North Street Staten Island, New York 10302 RAYBERN EQUITY CORP. By:____________________________ Title:_________________________ Chief Executive Office: 7 North Street Staten Island, New York 10302 STATEN ISLAND BUS, INC. By:____________________________ Title:_________________________ Chief Executive Office: 7 North Street Staten Island, New York 10302 PARENT ATLANTIC EXPRESS TRANSPORTATION CORP. By:____________________________ Title:_________________________ Chief Executive Office: 7 North Street Staten Island, New York 10302 EX-10.3 11 GENERAL SECURITY AGREEMENT Exhibit 10.3 EXECUTION COPY GENERAL SECURITY AGREEMENT This General Security Agreement dated February 4, 1997 is by and among ATLANTIC EXPRESS TRANSPORTATION CORP., a New York corporation, BLOCK 7932, INC., a New York corporation, G.V.D. LEASING CO., INC., a New York corporation, 180 JAMAICA CORP., a New York corporation, METRO AFFILIATES, INC., a New York corporation, MIDWAY LEASING INC., a New York corporation, and TEMPORARY TRANSIT SERVICE, INC., a New York corporation, (each individually a "Guarantor" and any two or more collectively, "Guarantors") in favor of Congress Financial Corporation, a California corporation ("Lender"). W I T N E S S E T H: WHEREAS, Lender has entered or is about to enter into certain financing arrangements with AMBOY BUS CO., INC., a New York corporation, ATLANTIC-CONN. TRANSIT, INC., a Connecticut corporation, ATLANTIC-HUDSON, INC., a New York corporation, ATLANTIC PARATRANS, INC., a New York corporation, ATLANTIC PARATRANS OF KENTUCKY INC., a Kentucky corporation, ATLANTIC EXPRESS COACHWAYS, INC., a New Jersey corporation, ATLANTIC EXPRESS OF MISSOURI INC., a Missouri corporation, ATLANTIC EXPRESS OF PENNSYLVANIA, INC., a Delaware corporation, BROOKFIELD TRANSIT INC., a New York corporation, COURTESY BUS CO., INC., a New York corporation, K. CORR, INC., a New York corporation, MERIT TRANSPORTATION CORP., a New York corporation, METROPOLITAN ESCORT SERVICE, INC., a New York corporation, RAYBERN BUS SERVICE, INC., a New York corporation, RAYBERN CAPITAL CORP., a New York corporation, RAYBERN EQUITY CORP., a New York corporation, and STATEN ISLAND BUS, INC., a New York corporation (each individually, a "Borrower" and any two or more collectively, "Borrowers"), pursuant to which Lender may make loans and provide other financial accommodations to one or more Borrowers; and WHEREAS, each Guarantor has executed and delivered or is about to execute and deliver to Lender its guarantee in favor of Lender pursuant to which such Guarantor absolutely and unconditionally guarantees to Lender the payment and performance of all now existing and hereafter arising obligations, liabilities and indebtedness of Borrowers to Lender; and NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS All terms used herein which are defined in Article 1 or Article 9 of the Uniform Commercial Code of the State of New York shall have the meanings given therein unless otherwise defined in this Agreement. All references to the plural herein shall also mean the singular and to the singular shall also mean the plural. All references to a Guarantor, a Borrower and Lender pursuant to the definitions set forth in the recitals hereto, or to any other person herein, shall include their respective successors and assigns. The words "hereof", "herein", "hereunder", "this Agreement" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not any particular provision of this Agreement and as this Agreement now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. An Event of Default shall exist or continue or be continuing until such Event of Default is waived in accordance with Section 7.3. Any accounting term used herein unless otherwise defined in this Agreement shall have the meanings customarily given to such term in accordance with GAAP. For purposes of this Agreement, the following terms shall have the respective meanings given to them below: 1.1 "Accounts" shall mean all present and future rights of a Guarantor to payment for goods sold or leased or for services rendered, which are not evidenced by instruments or chattel paper, and whether or not earned by performance. 1.2 "AETG" shall mean Atlantic Express Transportation Group Inc., a New York corporation. 1.3 "Capital Stock" shall mean (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interest (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. 1.4 "Code" shall mean the Internal Revenue Code of 1986, as the same now exists or may from time to time hereafter be amended, modified, recodified or supplemented, together with all rules, regulations and interpretations thereunder or related thereto. 1.5 "Environmental Laws" shall mean all federal, state, district, local and foreign laws, rules, regulations, ordinances, and consent decrees relating to health, safety, hazardous substances, pollution and environmental matters, as now or at any time hereafter in effect, applicable to a Borrower's or Guarantor's business and facilities or the business and facilities of a Subsidiary of a Borrower or Guarantor (in each case, whether or not such business or facilities are owned by it), including laws relating to emissions, discharges, releases or threatened releases of pollutants, contamination, chemicals, or hazardous, toxic or dangerous substances, materials or wastes into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the generation, manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals, or hazardous, toxic or dangerous substances, materials or wastes. 1.6 "ERISA" shall mean the United States Employee Retirement Income Security Act of 1974, as the same now exists or may hereafter from time to time be amended, modified, recodified or supplemented, together with all rules, regulations and interpretations thereunder or related thereto. 1.7 "ERISA Affiliate" shall mean any person required to be aggregated with Parent or any Borrower, Guarantor or any of their Subsidiaries under Sections 414(b), 414(c), 414(m) or 414(o) of the Code. 1.8 "Event of Default" shall have the meaning set forth in Section 6.1 hereof. 1.9 "Financing Agreements" shall mean, collectively, the Loan Agreement, this Agreement and all notes, guarantees, security agreements and other agreements, documents and instruments now or at any time hereafter executed and/or delivered by any Borrower, any Guarantor or any Obligor in connection with the Loan Agreement, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. -2- 1.10 "Guarantors' Representative" shall mean Parent. 1.11 "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time as set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Boards which are applicable to the circumstances as of the date of determination consistently applied. 1.12 "Hazardous Materials" shall mean any hazardous, toxic or dangerous substances, materials and wastes, including, without limitation, hydrocarbons (including naturally occurring or man-made petroleum and hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation, radioactive materials, biological substances, polychlorinated biphenyls, pesticides, herbicides and any other kind and/or type of pollutants or contaminants (including, without limitation, materials which include hazardous constituents), sewage, sludge, industrial slag, solvents and/or any other similar substances, materials, or wastes and including any other substances, materials or wastes that are or become regulated under any Environmental Law (including, without limitation any that are or become classified as hazardous or toxic under any Environmental Law). 1.13 "Information Certificate" shall mean the Information Certificate of each Guarantor collectively constituting Exhibit A hereto containing material information with respect to each Guarantor, its business and assets provided by or on behalf of such Guarantor to Lender in connection with the preparation of this Agreement and the other Financing Agreements and the financing arrangements provided for herein. 1.14 "Inventory" shall mean all of a Guarantor's now owned and hereafter existing or acquired inventory consisting of fuel and oil and other supplies used or useful in such Guarantor's business and spare parts for vehicles, wherever located. 1.15 "Loan Agreement" shall mean the Loan and Security Agreement, dated February 4, 1997, by and between the Borrowers, Parent and Lender, as the same now exists and may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.16 "Obligations" shall mean any and all obligations, liabilities and indebtedness of every kind, nature and description owing by any one or more Guarantors to Lender and/or its affiliates, including principal, interest, charges, fees, costs and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, whether arising under this Agreement or otherwise, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of the Loan Agreement or this Agreement or after the commencement of any case with respect to a Guarantor under the United States Bankruptcy Code or any similar statute (including, without limitation, the payment of interest and other amounts which would accrue and become due but for the commencement of such case), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, and however acquired by Lender. 1.17 "Obligor" shall mean any other guarantor, endorser, acceptor, surety or other person liable on or with respect to the Obligations or who is the owner of any property which is security for the Obligations, other than a Borrower. 1.18 "Parent" shall mean Atlantic Express Transportation Corp., a New York corporation. -3- 1.19 "Person" or "person" shall mean any individual, sole proprietorship, partnership, corporation (including, without limitation, any corporation which elects subchapter S status under the Internal Revenue Code of 1986, as amended), business trust, unincorporated association, joint stock corporation, trust, joint venture or other entity or any government or any agency or instrumentality or political subdivision thereof. 1.20 "Records" shall mean all of a Guarantor's present and future books of account of every kind or nature, purchase and sale agreements, invoices, ledger cards, bills of lading and other shipping evidence, statements, correspondence, memoranda, credit files and other data relating to any of the Collateral or any account debtor, together with the tapes, disks, diskettes and other data and software storage media and devices, file cabinets or containers in or on which the foregoing are stored (including any rights of a Guarantor with respect to the foregoing maintained with or by any other person). 1.21 "Subsidiary" shall mean with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Voting Stock is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of such Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof); provided, however, that for the purposes of this Agreement, Atlantic North shall not be considered a Subsidiary of Parent except as otherwise expressly provided herein. 1.22 "Voting Stock" shall mean, with respect to any Person: (a) one or more classes of the Capital Stock of such Person having general voting power to elect at least a majority of the board of directors, managers, or trustees of such Person (irrespective of whether or not at the time Capital Stock of any other class or classes has or might have voting power by reason of the happening of any contingency); and (b) any Capital Stock of such Person convertible or exchangeable without restriction at the option of the holder thereof into Capital Stock of such Person described in clause (a) of this definition. SECTION 2. GRANT OF SECURITY INTEREST To secure payment and performance of all Obligations, each Guarantor hereby grants to Lender a continuing security interest in, a lien upon, and a right of set off against, and hereby assigns to Lender as security, the following property and interests in property, whether now owned or hereafter acquired or existing, and wherever located (collectively, the "Collateral"): 2.1 Accounts; 2.2 subject to the last paragraph of this Section 2, all present and future contract rights (including, without limitation, all rights under service contracts pursuant to which any Guarantor renders its services to its customers, which rights shall include any and all rights to all retainages which may arise thereunder), general intangibles (including, but not limited to, tax and duty refunds, registered and unregistered patents, trademarks, service marks, copyrights, trade names, applications for the foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer lists, licenses, whether as licensor or licensee, choses in action and other claims), chattel paper, documents, instruments, letters of credit, bankers' acceptances and guaranties; -4- 2.3 all present and future monies, securities, credit balances, deposits, deposit accounts and other property of Guarantor now or hereafter held or received by or in transit to Lender or its affiliates or at any other depository or other institution from or for the account of Guarantor whether for safekeeping, pledge, custody, transmission, collection or otherwise, and all present and future liens, security interests, rights, remedies, title and interest in, to and in respect of Accounts and other Collateral, including, without limitation, (a) rights and remedies under or relating to guaranties, contracts of suretyship, letters of credit and credit and other insurance related to the Collateral, (b) rights of stoppage in transit, replevin, repossession, reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, (c) goods described in invoices, documents, contracts or instruments with respect to, or otherwise representing or evidencing, Accounts or other Collateral, including, without limitation, returned, repossessed and reclaimed goods, and (d) deposits by and property of account debtors or other persons securing the obligations of account debtors; 2.4 Inventory; 2.5 Records; and 2.6 all products and proceeds of the foregoing, in any form, including, without limitation, insurance proceeds and any claims against third parties for loss or damage to or destruction of any or all of the foregoing. In no event shall Lender's security interest in a contract or agreement of any Guarantor be deemed to be a present assignment, transfer, conveyance, subletting or other disposition (an "Assignment") of such contract or agreement to Lender within the meaning of any provision in such contract or agreement prohibiting, or requiring any consent or establishing any other conditions for, an Assignment thereof by such Guarantor. Lender acknowledges that any sale, transfer or assignment of any such contract or agreement upon the enforcement of Lender's security interest therein would be subject to the terms of such contract or agreement governing Assignment, except as otherwise provided in Section 9-318 of the Uniform Commercial Code. Lender's security interest in each contract or agreement of a Guarantor shall attach from the date hereof to all of the following, whether now existing or hereafter arising or acquired: (i) all of such Guarantor's Accounts and general intangibles for money due or to become due arising under such contract or agreement; (ii) all proceeds paid or payable to such Guarantor from any sale, transfer or assignment of such contract or agreement and all rights to receive such proceeds; and (iii) all other rights and interests of such Guarantor in, to and under such contract or agreement to the fullest extent that attachment thereto would not be a violation of such contract or agreement directly or indirectly entitling a party thereto (other than any Borrower, Guarantor or Affiliate thereof) to a legally enforceable right to terminate such contract or agreement. SECTION 3. COLLATERAL COVENANTS 3.1 Accounts Covenants. (a) Lender shall have the right at any time or times, in Lender's name or in the name of a nominee of Lender, to verify the validity, amount or any other matter relating to any Account or other Collateral, by mail, telephone, facsimile transmission or otherwise. When no Event of Default has occurred and is continuing, Lender shall give Borrowers' Representative at least one Business Day's prior telephonic notice of any such verification. -5- (b) Each Guarantor shall deliver or cause to be delivered to Lender, with appropriate endorsement and assignment, with full recourse to such Guarantor, all chattel paper and instruments which such Guarantor now owns or may at any time acquire immediately upon such Guarantor's receipt thereof, except as Lender may otherwise agree. (c) Lender may, at any time or times that an Event of Default exists or has occurred and is continuing, (i) notify any or all account debtors that the Accounts have been assigned to Lender and that Lender has a security interest therein and Lender may direct any or all account debtors to make payment of Accounts directly to Lender, (ii) extend the time of payment of, compromise, settle or adjust for cash, credit, return of merchandise or otherwise, and upon any terms or conditions, any and all Accounts or other obligations included in the Collateral and thereby discharge or release the account debtor or any other party or parties in any way liable for payment thereof without affecting any of the Obligations, (iii) demand, collect or enforce payment of any Accounts or such other obligations, but without any duty to do so, and Lender shall not be liable for its failure to collect or enforce the payment thereof nor for the negligence of its agents or attorneys with respect thereto and (iv) take whatever other action Lender may deem necessary or desirable for the protection of its interests. At any time that an Event of Default exists or has occurred and is continuing, at Lender's request, all invoices and statements sent to any account debtor shall state that the Accounts and such other obligations have been assigned to Lender and are payable directly and only to Lender and each Guarantor shall deliver to Lender such originals of documents evidencing the sale and delivery of goods or the performance of services giving rise to any Accounts as Lender may require. 3.2 Power of Attorney. Each Guarantor hereby irrevocably designates and appoints Lender (and all persons designated by Lender) as such Guarantor's true and lawful attorney-in-fact, and authorizes Lender, in such Guarantor's or Lender's name, to: (a) at any time an Event of Default or event which with notice or passage of time or both would constitute an Event of Default exists or has occurred and is continuing (i) demand payment on Accounts or other Collateral, (ii) enforce payment of Accounts by legal proceedings or otherwise, (iii) exercise all of such Guarantor's rights and remedies to collect any Account or other Collateral, (iv) sell or assign any Account upon such terms, for such amount and at such time or times as the Lender deems advisable, (v) settle, adjust, compromise, extend or renew an Account, (vi) discharge and release any Account, (vii) prepare, file and sign such Guarantor's name on any proof of claim in bankruptcy or other similar document against an account debtor, (viii) notify the post office authorities to change the address for delivery of such Guarantor's mail to an address designated by Lender, and open and dispose of all mail addressed to such Guarantor, and (ix) do all acts and things which are necessary, in Lender's determination, to fulfill such Guarantor's obligations under this Agreement and the other Financing Agreements and (b) at any time to (i) take control in any manner of any item of payment or proceeds thereof, (ii) have access to any lockbox or postal box into which such Guarantor's mail is deposited, (iii) endorse such Guarantor's name upon any items of payment or proceeds thereof and deposit the same in the Lender's account for application to the Obligations, (iv) endorse such Guarantor's name upon any chattel paper, document, instrument, invoice, or similar document or agreement relating to any Account or any goods pertaining thereto or any other Collateral, and (v) sign such Guarantor's name on any verification of Accounts and notices thereof to account debtors and (vi) execute in such Guarantor's name and file any UCC financing statements or amendments thereto. Each Guarantor hereby releases Lender and its officers, employees and designees from any liabilities arising from any act or acts under this power of attorney and in furtherance thereof, whether of omission or commission, except as a result of Lender's own gross negligence or wilful misconduct as determined pursuant to a final non-appealable order of a court of competent jurisdiction. -6- 3.3 Right to Cure. Lender may, at its option, (a) cure any default by a Guarantor under any agreement with a third party or pay or bond on appeal any judgment entered against a Guarantor, (b) discharge taxes, liens, security interests or other encumbrances at any time levied on or existing with respect to the Collateral and (c) pay any amount, incur any expense or perform any act which, in Lender's judgment, is necessary or appropriate to preserve, protect, insure or maintain the Collateral and the rights of Lender with respect thereto. Lender may add any amounts so expended to the Obligations and charge the applicable Guarantor's account therefor, such amounts to be repayable by such Guarantor on demand. Lender shall be under no obligation to effect such cure, payment or bonding and shall not, by doing so, be deemed to have assumed any obligation or liability of any Guarantor. Any payment made or other action taken by Lender under this Section shall be without prejudice to any right to assert an Event of Default hereunder and to proceed accordingly. 3.4 Access to Premises. From time to time as requested by Lender, at the cost and expense of each Guarantor, (a) Lender or its designee shall have complete access to all of each Guarantor's premises during normal business hours and after reasonable notice to such Guarantor, or at any time and without notice to Guarantor if an Event of Default exists or has occurred and is continuing, for the purposes of inspecting, verifying and auditing the Collateral and all of any one or more Guarantor's books and records, including, without limitation, the Records, and (b) each Guarantor shall promptly furnish to Lender such copies of such books and records or extracts therefrom as Lender may request, and (c) use during normal business hours such of such Guarantor's personnel, equipment, supplies and premises as may be reasonably necessary for the foregoing and if an Event of Default exists or has occurred and is continuing for the collection of Accounts and realization of other Collateral. SECTION 4. REPRESENTATIONS AND WARRANTIES Each Guarantor hereby represents and warrants to Lender the following (which shall survive the execution and delivery of this Agreement): 4.1 Corporate Existence, Power and Authority; Subsidiaries. Each Guarantor and each Subsidiary of a Guarantor, is a corporation duly organized and in good standing under the laws of its state of incorporation and is duly qualified as a foreign corporation and in good standing in all states or other jurisdictions where the nature and extent of the business transacted by it or the ownership of assets makes such qualification necessary, except for those jurisdictions in which the failure to so qualify would not have a material adverse effect on Parent's, Atlantic North's, a Borrower's, such Guarantor's, or such Subsidiary's, financial condition, results of operation or business or the rights of Lender in or to any of the Collateral. The execution, delivery and performance of this Agreement, the other Financing Agreements and the transactions contemplated hereunder and thereunder are all within such Guarantor's and each such Subsidiary's corporate powers, have been duly authorized and are not in contravention of law or the terms of Guarantor's, and each such Subsidiary's, certificate of incorporation, by-laws, or other organizational documentation, or any indenture, agreement or undertaking to which Parent, any Borrower, any Guarantor or any such Subsidiary is a party or by which Parent, any Borrower, any Guarantor or any such Subsidiary or its property are bound. This Agreement and the other Financing Agreements constitute legal, valid and binding obligations of each Guarantor and each Subsidiary of a Guarantor that is a party hereto or thereto, enforceable in accordance with their respective terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors rights generally, and by general principles of equity (whether considered at law or in equity). No Guarantor has any Subsidiaries except (a) as set forth on the Information Certificate or (b) any Subsidiary which is created after the date hereof, which has been previously disclosed to -7- Lender in writing, and which either has become a Borrower under the Loan Agreement, or has guaranteed the Obligations and has granted to Lender a first priority security interest in all of its property of the type that would constitute Collateral if such Subsidiary was a Borrower under the Loan Agreement, pursuant to documentation in form and substance satisfactory to Lender. 4.2 Financial Statements; No Material Adverse Change. All financial statements relating to the Guarantors and their respective Subsidiaries which have been or may hereafter be delivered by a Borrower, a Guarantor or an Obligor to Lender have been or will have been, when delivered, prepared in accordance with GAAP and fairly present the financial condition and the results of operation of the Persons covered thereby and their respective Subsidiaries as at the dates and for the periods set forth therein. Except as disclosed in any interim financial statements furnished by any Borrower, Guarantor or an Obligor to Lender prior to the date of this Agreement, there has been no material adverse change in the assets, liabilities, properties and condition, financial or otherwise, of any Borrower, Guarantor or Obligor, since the date of the most recent audited financial statements furnished by such Borrower, Guarantor or Obligor to Lender prior to the date of this Agreement. 4.3 Chief Executive Office; Collateral Locations. The chief executive office of each Guarantor and each Guarantor's Records concerning Accounts are located only at 7 North Street, Staten Island, New York 10302 and the only other places of business of Guarantor and the only other locations of Collateral, if any, are the addresses set forth in the Information Certificate, subject to the right of a Guarantor to establish new locations in accordance with Section 5.1 below. The applicable Information Certificate correctly identifies any of such locations which are not owned by a Guarantor or Obligor and sets forth the owners and/or operators thereof and to the best of each Guarantor 's knowledge, the holders of any mortgages on such locations. 4.4 Priority of Liens; Title to Properties. The security interests and liens granted to Lender under this Agreement and the other Financing Agreements constitute valid and perfected first priority liens and security interests in and upon the Collateral subject only to the liens indicated on Schedule 4.4 hereto and the other liens permitted under the Loan Agreement. Each Guarantor and each Subsidiary of such Guarantor has good and marketable title to all of its properties and assets subject to no liens, mortgages, pledges, security interests, encumbrances or charges of any kind, except those granted to Lender and such others as are specifically listed in the Information Certificate. 4.5 Tax Returns. Each Guarantor, and each Subsidiary of a Guarantor, has filed, or caused to be filed, in a timely manner all tax returns, reports and declarations which are required to have been filed by it (taking into account all proper extensions). All information in such tax returns, reports and declarations was complete and accurate in all material respects when they were filed. Each Guarantor and each Subsidiary of a Guarantor has paid or caused to be paid all taxes due and payable or claimed due and payable in any assessment received by it, except (a) taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to such Guarantor or such Subsidiary, (b) taxes accrued but not yet due and payable, (c) taxes that are currently payable without penalty or interest and as to which no lien has been filed or otherwise created, (d) [taxes remaining to be paid under Chapter 11 plan], and (e) taxes where the failure to duly and timely pay has not had and could not reasonably be expected to have a material adverse effect on the Collateral or Lender's security interest therein, or Borrowers' and Guarantors' ability to pay and perform the obligations, or the business, assets, prospects, or condition (financial or otherwise) of Parent, Borrowers, and Parent's other Subsidiaries, taken as a whole, and as to which no lien has been filed or otherwise created. As to all such unpaid taxes, adequate reserves have been set aside on the applicable Person's books. Adequate provision has been made for the payment of all -8- accrued and unpaid Federal, State, county, local, foreign and other taxes whether or not yet due and payable and whether or not disputed. 4.6 Litigation. Except as set forth on the applicable Information Certificate, there is no present investigation by any governmental agency pending, or to the best of each Guarantor's knowledge threatened, against or affecting AETG, Parent, any Borrower, any Guarantor or any other Subsidiary of Parent, its assets or business and there is no action, suit, proceeding or claim by any Person pending, or to the best of each Guarantor's knowledge threatened, against AETG, Parent, or any Borrower or Guarantor or any other Subsidiary of Parent, or its assets or goodwill, or against or affecting any transactions contemplated by this Agreement or any other Financing Agreement, which if adversely determined against AETG, Parent, or such Borrower, Guarantor or Subsidiary would result in any material adverse change in the assets, business or prospects of such Guarantor or Subsidiary or would impair the ability of such Guarantor or such Subsidiary to perform its obligations hereunder or under any of the other Financing Agreements to which it is a party or of Lender to enforce any Obligations or realize upon any Collateral. 4.7 Compliance with Other Agreements and Applicable Laws. None of Guarantors and the Subsidiaries of any Guarantor is in default in any material respect under, or in violation in any material respect of any of the terms of, any agreement, contract, instrument, lease or other commitment to which it is a party or by which it or any of its assets are bound, and each Guarantor and each of the Subsidiaries of each Guarantor is in compliance in all material respects with all applicable provisions of laws, rules, regulations, licenses, permits, approvals and orders of any foreign, Federal, State or local governmental authority. 4.8 Employee Benefits. (a) Except with respect to a delinquency in filing reports with respect to a 401(k) plan, neither any Guarantor nor any Subsidiary of a Guarantor has engaged in any transaction in connection with which such Guarantor or such Subsidiary or any of their ERISA Affiliates could be subject to either a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code, including any accumulated funding deficiency described in Section 4.8(c) hereof and any deficiency with respect to vested accrued benefits described in Section 4.8(d) hereof. (b) No liability to the Pension Benefit Guaranty Corporation has been or is expected by any Guarantor or any Subsidiary of a Guarantor to be incurred with respect to any employee pension benefit plan of Parent, any Borrower, any Guarantor or any Subsidiary of a Borrower or Guarantor or any of its ERISA Affiliates. There has been no reportable event (within the meaning of Section 4043(c) of ERISA) or any other event or condition with respect to any employee pension benefit plan of Parent, any Borrower, Guarantor or Subsidiary of a Borrower or Guarantor or any of their ERISA Affiliates which presents a risk of termination of any such plan by the Pension Benefit Guaranty Corporation. (c) Full payment has been made of all amounts which any Guarantor or any Subsidiary of a Guarantor or any of their ERISA Affiliates is required under Section 302 of ERISA and Section 412 of the Code to have paid under the terms of each employee pension benefit plan as contributions to such plan as of the last day of the most recent fiscal year of such plan ended prior to the date hereof, and no accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists with respect to any employee pension benefit plan, including any penalty or tax described in Section 4.8(a) hereof and any deficiency with respect to vested accrued benefits described in Section 4.8(d) hereof. -9- (d) The current value of all vested accrued benefits under all employee pension benefit plans maintained by any Guarantor or any Subsidiary of a Guarantor that are subject to Title IV of ERISA does not exceed the current value of the assets of such plans allocable to such vested accrued benefits, including any penalty or tax described in Section 4.8(a) hereof and any accumulated funding deficiency described in Section 4.8(c) hereof. The terms "current value" and "accrued benefit" have the meanings specified in ERISA. (e) Except for Amboy Bus Co., Inc., which is a party to a "multiemployer plan" (as defined below) for members of Local 1181-1061 of the Amalgamated Transit Union, none of any Guarantor or any Subsidiary of a Guarantor or any of their ERISA Affiliates is or has ever been obligated to contribute to any "multiemployer plan" (as such term is defined in Section 4001(a)(3) of ERISA) that is subject to Title IV of ERISA. 4.9 Environmental Compliance. (a) Except as set forth on Schedule 4.9 hereto, none of the Guarantors or any of their respective Subsidiaries has generated, used, stored, treated, transported, manufactured, handled, produced or disposed of any Hazardous Materials, on or off its premises (whether or not owned by it) in any manner which at any time violates in any material respect any applicable Environmental Law or any license, permit, certificate, approval or similar authorization thereunder and the operations of each such Guarantor and Subsidiary complies in all material respects with all Environmental Laws and all licenses, permits, certificates, approvals and similar authorizations thereunder. (b) Except as set forth on Schedule 4.9 hereto, there has been no investigation, proceeding, complaint, order, directive, claim, citation or notice by any governmental authority or any other person nor is any pending or to the best of each Guarantor's knowledge threatened, with respect to any non-compliance with or violation of the requirements of any Environmental Law by any Guarantor or any Subsidiary of a Guarantor or the release, spill or discharge, threatened or actual, of any Hazardous Material or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials or any other environmental, health or safety matter, which affects Parent, any Borrower, any Guarantor or any Subsidiary of a Borrower or Guarantor or its business, operations or assets or any properties at which Parent, such Borrower, such Guarantor or any such Subsidiary has transported, stored or disposed of any Hazardous Materials. (c) None of the Guarantors or any of the Subsidiaries of any Guarantor has any material liability (contingent or otherwise) in connection with a release, spill or discharge, threatened or actual, of any Hazardous Materials or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials. (d) Each Guarantor and each Subsidiary of the Guarantors has all licenses, permits, certificates, approvals or similar authorizations required to be obtained or filed in connection with the operations of such Guarantor or Subsidiary under any Environmental Law and all of such licenses, permits, certificates, approvals or similar authorizations are valid and in full force and effect. 4.10 Accuracy and Completeness of Information. All information furnished by or on behalf of Parent or a Borrower or Guarantor or any of its Subsidiaries in writing to Lender in connection with this Agreement or any of the other Financing Agreements or any transaction contemplated hereby or thereby, including, without limitation, all information on each Information -10- Certificate, is true and correct in all material respects on the date as of which such information is dated or certified and does not omit any material fact necessary in order to make such information not misleading. No event or circumstance has occurred which has had or could reasonably be expected to have a material adverse affect on the business, assets or prospects of Parent, any Borrower, any Guarantor or any Subsidiary of a Borrower or Guarantor, which has not been fully and accurately disclosed to Lender in writing. 4.11 Survival of Warranties; Cumulative. All representations and warranties contained in this Agreement or any of the other Financing Agreements shall survive the execution and delivery of this Agreement and shall be deemed to have been made again to Lender on the date of each additional borrowing or other credit accommodation under the Loan Agreement and shall be conclusively presumed to have been relied on by Lender regardless of any investigation made or information possessed by Lender. The representations and warranties set forth herein shall be cumulative and in addition to any other representations or warranties which Parent, any Borrower, any Guarantor or any Obligor shall now or hereafter give, or cause to be given, to Lender. SECTION 5. AFFIRMATIVE AND NEGATIVE COVENANTS 5.1 New Collateral Locations. Any Guarantor may open any new location within the continental United States provided such Guarantor (a) gives Lender thirty (30) days prior written notice of the opening of any such new location which (i) is in a jurisdiction in which such Guarantor does not already have a place of business or operations or (ii) will be the chief executive office or location of Records of such Guarantor and (b) executes and delivers, or causes to be executed and delivered, to Lender such agreements, documents, and instruments as Lender may deem reasonably necessary or desirable to protect its interests in the Collateral at such location, including, without limitation, UCC financing statements. 5.2 Costs and Expenses. Each Guarantor shall jointly and severally pay to Lender on demand all costs, expenses, filing fees and taxes paid or payable in connection with the preparation, negotiation, execution, delivery, recording, administration, collection, liquidation, enforcement and defense of the Obligations, Lender's rights in the Collateral, this Agreement, the other Financing Agreements and all other documents related hereto or thereto, including any amendments, supplements or consents which may hereafter be contemplated (whether or not executed) or entered into in respect hereof and thereof, including, but not limited to: (a) all costs and expenses of filing or recording (including Uniform Commercial Code financing statement filing taxes and fees, documentary taxes, intangibles taxes and mortgage recording taxes and fees, if applicable); (b) all title insurance and other insurance premiums, appraisal fees and search fees; (c) costs and expenses of preserving and protecting the Collateral; (d) costs and expenses paid or incurred in connection with obtaining payment of the Obligations, enforcing the security interests and liens of Lender, selling or otherwise realizing upon the Collateral, and otherwise enforcing the provisions of this Agreement and the other Financing Agreements or defending any claims made or threatened against Lender arising out of the transactions contemplated hereby and thereby (including, without limitation, preparations for and consultations concerning any such matters); and (e) the fees and disbursements of counsel (including legal assistants) to Lender in connection with any of the foregoing. 5.3 Further Assurances. At the request of Lender at any time and from time to time, each Guarantor shall, at its expense, at any time or times duly execute and deliver, or cause to be duly executed and delivered, such further agreements, documents and instruments, and do or cause to be done such further acts as may be necessary or proper to evidence, perfect, maintain and enforce -11- the security interests and the priority thereof in the Collateral and to otherwise effectuate the provisions or purposes of this Agreement or any of the other Financing Agreements. Where permitted by law, each Guarantor hereby authorizes Lender to execute and file one or more UCC financing statements signed only by Lender. 5.4 Compliance with Loan Agreement. Each Guarantor acknowledges that (i) the Loan Agreement contains provisions whereby the Borrowers and the Parent are required to cause the Guarantors to comply with certain covenants and terms set forth therein and (ii) it is familiar with all such covenants and terms. Each Guarantor shall take or refrain from all actions and do or refrain from all things as may be necessary, including, without limitation, full cooperation with Parent and/or any Borrower, in order to assure compliance with all covenants and terms set forth in Section 9 of the Loan Agreement and compliance with all other covenants and terms set forth in the Loan Agreement which pertain to such Guarantor, as fully as if such Guarantor had expressly and directly agreed to be bound by such covenants and terms as a direct party and signatory to the Loan Agreement. SECTION 6. EVENTS OF DEFAULT AND REMEDIES 6.1 Events of Default. The occurrence or existence of any Event of Default under the Loan Agreement is referred to herein individually as an "Event of Default", and collectively as "Events of Default". 6.2 Remedies. (a) At any time an Event of Default exists or has occurred and is continuing, Lender shall have all rights and remedies provided in this Agreement, the other Financing Agreements, the Uniform Commercial Code and other applicable law, all of which rights and remedies may be exercised without notice to or consent by any Guarantor or any Obligor, except as such notice or consent is expressly provided for hereunder or required by applicable law. All rights, remedies and powers granted to Lender hereunder, under any of the other Financing Agreements, the Uniform Commercial Code or other applicable law, are cumulative, not exclusive and enforceable, in Lender's discretion, alternatively, successively, or concurrently on any one or more occasions, and shall include, without limitation, the right to apply to a court of equity for an injunction to restrain a breach or threatened breach by any Guarantor of this Agreement or any of the other Financing Agreements. Lender may, at any time or times, proceed directly against any Guarantor or any Obligor to collect the Obligations without prior recourse to the Collateral. (b) Without limiting the foregoing, at any time an Event of Default exists or has occurred and is continuing, Lender may, in its discretion and without limitation, (i) accelerate the payment of all Obligations and demand immediate payment thereof to Lender (provided, that, upon the occurrence of any Event of Default described in Sections 10.1(g) or 10.1(h) of the Loan Agreement, all Obligations shall automatically become immediately due and payable), (ii) with or without judicial process or the aid or assistance of others, enter upon any premises on or in which any of the Collateral may be located and take possession of the Collateral or complete processing, manufacturing and repair of all or any portion of the Collateral, (iii) require any Guarantor, at such Guarantor's expense, to assemble and make available to Lender any part or all of the Collateral at any place and time designated by Lender, (iv) collect, foreclose, receive, appropriate, setoff and realize upon any and all Collateral, (v) remove any or all of the Collateral from any premises on or in which the same may be located for the purpose of effecting the sale, foreclosure or other disposition thereof or for any other purpose, (vi) sell, lease, transfer, assign, deliver or otherwise dispose of any and all Collateral (including, without limitation, entering into contracts with respect thereto, public or private -12- sales at any exchange, broker's board, at any office of Lender or elsewhere) at such prices or terms as Lender may deem reasonable, for cash, upon credit or for future delivery, with the Lender having the right to purchase the whole or any part of the Collateral at any such public sale, all of the foregoing being free from any right or equity of redemption of any Guarantor, which right or equity of redemption is hereby expressly waived and released by each Guarantor. If any of the Collateral is sold or leased by Lender upon credit terms or for future delivery, the Obligations shall not be reduced as a result thereof until payment therefor is finally collected by Lender. If notice of disposition of Collateral is required by law, five (5) Business Days prior notice by Lender to a Guarantor designating the time and place of any public sale or the time after which any private sale or other intended disposition of Collateral is to be made, shall be deemed to be reasonable notice thereof and each Guarantor waives any other notice. In the event Lender institutes an action to recover any Collateral or seeks recovery of any Collateral by way of prejudgment remedy, each Guarantor waives the posting of any bond which might otherwise be required. (c) Lender may apply the cash proceeds of Collateral actually received by Lender from any sale, lease, foreclosure or other disposition of the Collateral to payment of the Obligations, in whole or in part and in such order as Lender may elect, whether or not then due. Each Guarantor shall remain liable to Lender for the payment of any deficiency with interest at the highest rate provided for in the Loan Agreement and all costs and expenses of collection or enforcement, including attorneys' fees and legal expenses. SECTION 7. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW 7.1 Governing Law: Choice of Forum; Service of Process; Jury Trial Waiver. (a) The validity, interpretation and enforcement of this Agreement and the other Financing Agreements and any dispute arising out of the relationship between the parties hereto, whether in contract, tort, equity or otherwise, shall be governed by the internal laws of the State of New York (without giving effect to principles of conflicts of law). (b) Each Guarantor irrevocably consents and submits to the non-exclusive jurisdiction of the Supreme Court of the State of New York for New York County and the United States District Court for the Southern District of New York and waives any objection based on venue or forum non conveniens with respect to any action instituted therein arising under this Agreement or any of the other Financing Agreements or in any way connected or related or incidental to the dealings of any Guarantor and Lender in respect of this Agreement or the other Financing Agreements or the transactions related hereto or thereto, in each case whether now existing or hereafter arising, and whether in contract, tort, equity or otherwise, and agrees that any dispute with respect to any such matters shall be heard only in the courts described above (except that Lender shall have the right to bring any action or proceeding against any Guarantor or its property in the courts of any other jurisdiction which Lender deems necessary or appropriate in order to realize on the Collateral or to otherwise enforce its rights against any Guarantor or its property). (c) Each Guarantor hereby waives personal service of any and all process upon it and consents that all such service of process may be made by certified mail (return receipt requested, directed to its address set forth on the signature pages hereof and service so made shall be deemed be completed five (5) days after the same shall have been so deposited in the U.S. mails, or, at Lender's option, by service upon such Guarantor in any other manner provided under the rules of any such courts. A copy of any service upon such Guarantor shall be sent to Silverman, Collura & Chernis, -13- P.C., 381 Park Avenue South, Suite 1601, New York, New York 10016, Attention: Peter R. Silverman, Esq., but the delivery of such copy shall not be a condition to the effectiveness of service on any Guarantor. Within thirty (30) days after such service, such Guarantor shall appear in answer to such process, failing which such Guarantor shall be deemed in default and judgment may be entered by Lender against such Guarantor for the amount of the claim and other relief requested. (d) EACH GUARANTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF ANY GUARANTOR AND LENDER IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. EACH GUARANTOR HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT SUCH GUARANTOR OR LENDER MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF SUCH GUARANTOR AND LENDER TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. (e) Lender shall not have any liability to any Guarantor (whether in tort, contract, equity or otherwise) for losses suffered by such Guarantor in connection with, arising out of, or in any way related to the transactions or relationships contemplated by this Agreement, or any act, omission or even occurring in connection herewith, unless it is determined by a final and non-appealable judgment or court order binding on Lender that the losses were the result of acts or omissions consisting gross negligence or willful misconduct. In any such litigation, Lender shall be entitled to the benefit of the rebuttable presumption that it acted in good faith and with the exercise of ordinary care in the performance by it of the terms of this Agreement and the other Financing Agreements. 7.2 Waiver of Notices. Each Guarantor hereby expressly waives demand, presentment, protest and notice of protest and notice of dishonor with respect to any and all instruments and commercial paper, included in or evidencing any of the Obligations or the Collateral, and any and all other demands and notices of any kind or nature whatsoever with respect to the Obligations, the Collateral and this Agreement, except such as are expressly provided for herein. No notice to or demand on any Guarantor which Lender may elect to give shall entitle such Guarantor or any other Guarantor to any other or further notice or demand in the same, similar or other circumstances. 7.3 Amendments and Waivers. Neither this Agreement nor any provision hereof shall be amended, modified, waived or discharged orally or by course of conduct, but only by a written agreement signed by an authorized officer of Lender. Lender shall not, by any act, delay, omission or otherwise be deemed to have expressly or impliedly waived any of its rights, powers and/or remedies unless such waiver shall be in writing and signed by an authorized officer of Lender. Any such waiver shall be enforceable only to the extent specifically set forth therein. A waiver by Lender of any right, power and/or remedy on any one occasion shall not be construed as a bar to or waiver of any such right, power and/or remedy which Lender would otherwise have on any future occasion, whether similar in kind or otherwise. 7.4 Waiver of Counterclaims. Each Guarantor waives all rights to interpose any claims, deductions, setoffs or counterclaims of any nature (other then compulsory counterclaims) in any -14- action or proceeding with respect to this Agreement, the Obligations, the Collateral or any matter arising therefrom or relating hereto or thereto. 7.5 Indemnification. Each Guarantor shall jointly and severally indemnify and hold Lender, and its directors, agents, employees and counsel, harmless from and against any and all losses, claims, damages, liabilities, costs or expenses imposed on, incurred by or asserted against any of them in connection with any litigation, investigation, claim or proceeding commenced or threatened related to the negotiation, preparation, execution, delivery, enforcement, performance or administration of this Agreement, any other Financing Agreements, or any undertaking or proceeding related to any of the transactions contemplated hereby or any act, omission, event or transaction related or attendant thereto, including, without limitation, amounts paid in settlement, court costs, and the fees and expenses of counsel (provided, that Guarantors shall not be liable for such indemnification with respect to any loss that is determined by a final and non-appealable judgment or court order binding on Lender to have resulted from Lender's gross negligence or wilful misconduct). To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section may be unenforceable because it violates any law or public policy, each Guarantor shall pay the maximum portion which it is permitted to pay under applicable law to Lender in satisfaction of indemnified matters under this Section. The foregoing indemnity shall survive the payment of the Obligations, the termination of this Agreement and the termination or non-renewal of the Loan Agreement. All of the obligations under the foregoing indemnity shall be part of the Obligations and secured by the Collateral. SECTION 8. MISCELLANEOUS 8.1 Notices. All notices, requests and demands hereunder shall be in writing and (a) made to Lender at 1133 Avenue of the Americas, New York, New York 10036 and to a Guarantor or to the Guarantors' Representative at its chief executive office set forth below, or to such other address as such party may designate by written notice to the others in accordance with this provision, and (b) deemed to have been given or made: if delivered in person, immediately upon delivery; if by telex, telegram or facsimile transmission, immediately upon sending and upon confirmation of receipt; if by nationally recognized overnight courier service with instructions to deliver the next business day, one (1) business day after sending; and if by certified mail, return receipt requested, five (5) days after mailing. A copy of any notice given to a Guarantor shall be sent to Silverman, Collura & Chernis, P.C., 381 Park Avenue South, Suite 1601, New York, New York 10016, Attention: Peter R. Silverman, Esq. 8.2 Partial Invalidity. If any provision of this Agreement is held to be invalid or unenforceable, such invalidity or unenforceability shall not invalidate this Agreement as a whole, but this Agreement shall be construed as though it did not contain the particular provision held to be invalid or unenforceable and the rights and obligations of the parties shall be construed and enforced only to such extent as shall be permitted by applicable law. 8.3 Successors. This Agreement, the other Financing Agreements and any other document referred to herein or therein shall be binding upon each Guarantor and its successors and assigns and inure to the benefit of and be enforceable by Lender and its successors and assigns, except that no Guarantor may assign its rights under this Agreement, the other Financing Agreements and any other document referred to herein or therein without the prior written consent of Lender. -15- 8.4 Entire Agreement. This Agreement, the other Financing Agreements, any supplements hereto or thereto, and any instruments or documents delivered or to be delivered in connection herewith or therewith represents the entire agreement and understanding concerning the subject matter hereof and thereof between the parties hereto, and supersede all other prior agreements, understandings, negotiations and discussions, representations, warranties, commitments, proposals, offers and contracts concerning the subject matter hereof, whether oral or written. 8.5 Guarantors' Representative. Each of the Guarantors hereby appoints the Guarantors' Representative as its agent and representative for the purposes of all communications and authorizations between such Guarantor and Lender under this Agreement or any of the other Financing Agreements, including, without limitation, giving notices to Lender and receiving notices from Lender and giving any direction or instruction to Lender contemplated by this Agreement. Each of the Guarantors hereby authorizes and directs Lender to act in accordance with any and every authorization, request, notice, instruction, or direction received on such Guarantor's behalf from the Guarantors' Representative, without requiring Lender to confirm such Guarantor's authorization therefor, and each Guarantor hereby releases Lender from and indemnifies Lender and holds Lender harmless against any liability, claim, loss, damages, cost, or expense arising from or relating in any way to Lender's acting upon such authorization, request, notice, instruction, or direction. Notwithstanding the foregoing, Lender may require a Guarantor to confirm such request, notice, instruction, or direction, or to execute personally any agreement or instrument between such Guarantor and Lender, whenever Lender in its sole discretion deems it necessary or desirable to do so. The Guarantors' Representative agrees irrevocably to act as such, as outlined above. [THIS SPACE INTENTIONALLY LEFT BLANK] -16- IN WITNESS WHEREOF, each Guarantor has caused these presents to be duly executed as of the day and year first above written. GUARANTOR ATLANTIC EXPRESS TRANSPORTATION CORP. By:_____________________________________ Title:__________________________________ CHIEF EXECUTIVE OFFICE: 7 North Street Staten Island, New York 10302 GUARANTOR BLOCK 7932, INC. By:_____________________________________ Title:__________________________________ CHIEF EXECUTIVE OFFICE: 7 North Street Staten Island, New York 10302 GUARANTOR G.V.D. LEASING CO., INC. By:_____________________________________ Title:__________________________________ CHIEF EXECUTIVE OFFICE: 7 North Street Staten Island, New York 10302 [General Security Agreement] GUARANTOR 180 JAMAICA CORP. By:_____________________________________ Title:__________________________________ CHIEF EXECUTIVE OFFICE: 7 North Street Staten Island, New York 10302 GUARANTOR METRO AFFILIATES, INC. By:_____________________________________ Title:__________________________________ CHIEF EXECUTIVE OFFICE: 7 North Street Staten Island, New York 10302 GUARANTOR MIDWAY LEASING, INC. By:_____________________________________ Title:__________________________________ CHIEF EXECUTIVE OFFICE: 7 North Street Staten Island, New York 10302 [General Security Agreement] GUARANTOR TEMPORARY TRANSIT SERVICE, INC. By:_____________________________________ Title:__________________________________ CHIEF EXECUTIVE OFFICE: 7 North Street Staten Island, New York 10302 [General Security Agreement] EX-10.4 12 COLLATERAL ASSIGNMENT OF TRADEMARKS Exhibit 10.4 COLLATERAL ASSIGNMENT OF TRADEMARKS (SECURITY AGREEMENT) COLLATERAL ASSIGNMENT OF TRADEMARKS (SECURITY AGREEMENT) dated as of February 4, 1997, between ATLANTIC EXPRESS TRANSPORTATION CORP., a New York corporation with offices at 7 North Street, Staten Island, New York 10302 ("Assignor"), and THE BANK OF NEW YORK, a New York banking corporation, with offices at 101 Barclay Street-- 21W, New York, New York 10286, as the trustee under the Indenture (defined below) ("Assignee"). W I T N E S S E T H: WHEREAS, Amboy Bus Co., Inc., Atlantic-Conn. Transit, Inc., Atlantic-Hudson, Inc., Atlantic Paratrans, Inc., Atlantic Paratrans of Kentucky Inc., Atlantic Express Coachways, Inc., Atlantic Express of Missouri Inc., Atlantic Express of Pennsylvania, Inc., Brookfield Transit Inc., Courtesy Bus Co., Inc., K. Corr, Inc., Merit Transportation Corp., Metropolitan Escort Service, Inc., Raybern Bus Service, Inc., Raybern Capital Corp., Raybern Equity Corp., Staten Island Bus, Inc., 180 Jamaica Corp., Block 7932, Inc., G.V.D. Leasing Co., Inc., Metro Affiliates, Inc., Midway Leasing Inc., Temporary Transit Service, Inc. (each a "Guarantor" and collectively, "Guarantors"), Assignor, and Assignee have entered into an Indenture dated the date hereof (together with all supplements and amendments thereto and all extensions, renewals, restatements and replacements thereof, the "Indenture"), and a Security and Pledge Agreement dated the date hereof (together with all supplements and amendments thereto and all extensions, renewals, restatements and replacements thereof, the "Security Agreement," and such Indenture and Security Agreement together with all agreements, instruments and documents now or hereafter entered into or delivered in connection therewith, collectively, the "Financing Agreements"), pursuant to which Indenture Assignor has issued certain Notes (as defined in the Indenture); WHEREAS, Assignor is the sole stockholder of each Guarantor; WHEREAS, Assignor owns all right, title and interest in and to, among other things, certain United States and foreign trademarks and service marks, trademark and service mark registrations, and trademark and service mark applications and trade names, including, but not limited to, those set forth on Exhibit 1 hereto (the "Trademarks"), which are used in the business of one or more of the Guarantors, along with the goodwill of the business symbolized thereby and the Licenses (as hereinafter defined); WHEREAS, in order to secure its Obligations (as defined in the Indenture), Assignor has agreed to grant to Assignee a security interest and continuing lien in, to and under the Trade- marks, the goodwill and the Licenses and certain other assets with respect to the Trademarks, the goodwill and the Licenses, as further set forth herein, and Assignee has requested Assignor to enter into this Agreement to evidence such security interest; NOW THEREFORE, KNOW ALL MEN BY THESE PRESENTS, that for valuable consideration received and to be received, as security for the full payment and performance of the Obligations, and to induce Assignee to act as trustee pursuant to the Indenture, Assignor hereby grants to Assignee a security interest in and continuing lien on Assignor's right, title and interest in, to and under the following property of Assignor to the extent, and only the extent, that the following property is part of, is related to, or arises in connection with or from any "Accounts" or "Inventory" (as such terms are defined in the Security Agreement): (a) the Trademarks; (b) all applications and registrations of the Trademarks in any state of the United States and any foreign countries and localities; (c) all trade names, trademarks and service marks and trademark and service mark applications and registrations hereafter adopted or acquired and used by Assignor or any Guarantor in its business, including, but not limited to, those which are based upon or derived from the Trademarks or any variations thereof (the "Future Trademarks"); (d) all extensions, renewals, and continuations of the Trade marks and Future Trademarks and the registrations and applications referred to in clause (b) above; (e) all rights to sue for past, present and future infringements of the Trademarks and Future Trademarks, and any trade marks and service marks covered by any licenses of trademarks, trademark applications or registrations, or trade names used in the business of one or more of Guarantors and under which Assignor is licensee, to the extent that the assignment thereof will not result in Assignor's loss of the benefits thereof ("Licenses"); (f) all packaging, labeling, trade names, service marks, logos, and trade dress including or containing the Trademarks, Future Trademarks, and the trademarks and service marks covered by the Licenses, or a representation thereof, or any variation thereof; 2 (g) all licenses and other agreements under which Assignor is licensor, and all fees, rents, royalties, proceeds or monies thereunder, relating to the Trademarks, Future Trademarks, and the trademarks and service marks covered by the Licenses, and the use thereof, to the extent that the assignment thereof will not result in Assignor's loss of the benefits thereof; (h) all good will of Assignor's business connected with, symbolized by or in any way related to the items set forth in clauses (a) through (g) above; and (i) all proceeds of the foregoing, including without limitation, license royalties, income, payments, claims, damages and proceeds of suit. All of the foregoing items set forth in clauses (a) through (i) are hereinafter referred to collectively as the "Collateral". Assignor hereby covenants with Assignee as follows: 1. Defined Terms. As used herein, capitalized terms defined in the Security Agreement and not otherwise defined herein are used herein as so defined. 2. Assignor's Obligations. Assignor agrees that, notwithstanding this Agreement, it will perform and discharge and remain liable for all its covenants, duties, and obligations arising in connection with the Collateral and any licenses and agreements related thereto. Assignee shall have no obligation or liability in connection with the Collateral or any licenses or agreements relating thereto by reason of this Agreement or any payment received by Assignee relating to the Collateral and Assignee shall not be required to perform any covenant, duty or obligation of Assignor arising in connection with the Collateral or any license or agreement related thereto or to take any other action regarding the Collateral or any such licenses or agreement, except and only to the extent that Assignee has acquired absolute ownership of the Collateral upon an exercise of its remedies under Section 5 hereof. 3. Representations and Warranties. Assignor represents and warrants to Assignee that: (a) Assignor is the beneficial and record owner of the Collateral, and no adverse claims have been made with respect to its title to or the validity of the Collateral; (b) the Trademarks and the trademarks and service marks covered by the Licenses are the only trademarks, service marks, trademark and service mark registrations and applications therefor and trade names in which Assignor has any or all right, title and interest; (c) none of the Collateral is subject to any mortgage, pledge, lien, security interest, lease, charge, encumbrance, settlement or consent, 3 covenant not to sue, non-assertion assurance, release or license (by Assignor as licensor), except as set forth on Exhibit 1; (d) Assignor has performed all acts and has paid all renewal, maintenance and other fees and taxes required to maintain each and every registration and application of the Collateral in full force and effect; (e) no claims have been made that the use of any of the Collateral violates the asserted rights of any third party; (f) to the best of Assignor's knowledge, no third party is infringing upon any of the Collateral; and (g) when this Agreement is filed in and recorded by the United States Patent and Trademark Office (the "Trademark Office") and the Assignee has taken the other actions contemplated by the Security Agreement and in this Agreement, this Agreement will create a legal and valid perfected and continuing lien on and security interest in the Collateral in favor of Assignee, enforceable against Assignor and all third parties, subject to no other mortgage, lien, charge, encumbrance, or security or other interest except as expressly permitted by the Intercreditor Agreement. 4. Covenants. Assignor will maintain and renew all items of Collateral necessary for the conduct of its or any Guarantor's business and all registrations of the Collateral necessary for the conduct of its or any Guarantor's business and will defend the Collateral against the claims of all persons. Assignor will maintain, and will cause each Guarantor or other person that uses the Collateral to maintain, the same standards of quality for the goods and services in connection with which the Trademarks and the trademarks covered by the Licenses are used as Assignor or such other persons maintained for such goods and services prior to entering into this Agreement. Assignee shall have the right to enter upon Assignor's premises at all reasonable times to monitor such quality standards. Assignor shall promptly notify Assignee if it knows or has reason to know that any of the Collateral may become subject to any adverse determination or development (including the institution of proceedings) in any action or proceeding in the United States Patent and Trademark Office or any court. In the event that any of the Collateral is infringed or diluted by a third party, promptly after Assignor becomes aware of such infringement or dilution, Assignor shall take all reasonable actions to stop such infringement or dilution and protect its exclusive rights in such Collateral including, but not limited to, the initiation of a suit for injunctive relief and to recover damages. Without limiting the generality of the foregoing, Assignor shall not permit the expiration, termination or abandonment of any Trademark, Future Trademark or License used in or necessary for the conduct of its or any Borrower's business without the prior written consent of Assignee. If, before the Obligations have been satisfied in full, Assignor shall obtain rights to or be licensed to use any new trademark, or become entitled to the benefit of any trademark or service mark application or trademark or service mark registration not identified on Exhibit 1 hereto, the provisions of Section 2 hereof shall automatically apply 4 thereto and Assignor shall give Assignee prompt notice thereof in writing. 5. Remedies Upon Default. Whenever any Event of Default shall occur and be continuing, Assignee shall have all the rights and remedies granted to it in such event by the Security Agreement and the other Financing Agreements, which rights and remedies are specifically incorporated herein by reference and made a part hereof. Assignee in such event may collect directly any payments due to Assignor in respect of the Collateral and, subject to any limitations imposed under any license agreements constituting part of the Collateral, may sell, license, lease, assign, or otherwise dispose of the Collateral in the manner set forth in the Security Agreement or the other Financing Agreements. Assignor agrees that, in the event of any disposition of the Collateral upon any such Event of Default, it will duly execute, acknowledge, and deliver all documents necessary or advisable to record title to the Collateral in any transferee or transferees thereof, including, without limitation, valid, recordable assignments of the Trademarks, Future Trademarks, and Licenses. In the event Assignor fails or refuses to execute and deliver such documents, Assignor hereby irrevocably appoints Assignee as its attorney-in-fact, with power of substitution, to execute, deliver, and record any such documents on Assignor's behalf. Notwithstanding any provision hereof to the contrary, during the continuance of an Event of Default, Assignor may sell, and permit Guarantors to sell, merchandise or services bearing the Trademarks, Future Trademarks, and trademarks covered by the Licenses in the ordinary course of their respective business and in a manner consistent with its past practices, until it receives written notice from Assignee of an intended sale or disposition of the Collateral. The preceding sentence shall not limit any right or remedy granted to Assignee with respect to Assignor's inventory under the Security Agreement or any other agreement now or hereinafter in effect. 6. Power of Attorney. Concurrently with the execution and delivery hereof, Assignor shall execute and delivery to the Assignee, in the form of Exhibit 2 hereto, five (5) originals of a Special Power of Attorney for the implementation of the assignment, sale, license, lease or other disposition of the Trademarks, Future Trademarks, and Licenses pursuant to Section 5. Assignor hereby releases Assignee from any claims, causes of action and demands at any time arising out of or with respect to any actions taken or omitted to be taken by Assignee in accordance with Section 5 under the powers of attorney granted therein, other than actions taken or omitted to be taken through the bad faith, willful misconduct or gross negligence of Assignee, as determined by a final, non-appealable order of a court of competent jurisdiction. 7. Cumulative Remedies. The rights and remedies provided herein are cumulative and not exclusive of any other 5 rights or remedies provided by law. The security interest granted hereby is granted in conjunction with the security interest granted to Assignee under the Security Agreement. The rights and remedies of Assignee with respect to the security interest granted hereby are in addition to those set forth in the Security Agreement and the other Financing Agreements and those which are now or hereafter available to Assignee as a matter of law or equity. The exercise by Assignee of any one or more of the rights, powers or remedies provided for in this Agreement, in the Security Agreement, in the other Financing Agreements or now or hereafter existing at law or in equity shall not preclude the simultaneous or later exercise by any person, including Assignee, of any or all other rights, powers or remedies. The rights and remedies provided herein are intended to be in addition to and not in substitution of the rights and remedies provided by the Security Agreement. 8. Amendments and Waivers. This Agreement may not be modified, supplemented, or amended, or any of its provisions waived at the request of Assignor, without the prior written consent of Assignee. Assignor hereby authorizes Assignee to modify this Agreement by amending Exhibit 1 hereto to include any Future Trademarks or additional licenses. 9. Waiver of Rights. No course of dealing between the parties to this Agreement or any failure or delay on the part of any such party in exercising any rights or remedies hereunder shall operate as a waiver of any rights and remedies of such party or any other party, and no single or partial exercise of any rights or remedies by one party hereunder shall operate as a waiver or preclude the exercise of any other rights and remedies of such party or any other party. No waiver by Assignee of any breach or default by Assignor shall be deemed a waiver of any other previous breach or default or of any breach or default occurring thereafter. 10. Assignment. The provisions of this Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of the parties hereto; provided, however, that no interest herein or in or to the Collateral may be assigned by Assignor without the prior written consent of Assignee; and, provided, further, that the Assignee may assign the rights and benefits hereof to any party acquiring any interest in the Obligations or any part hereof. 11. Further Acts. Assignor shall have the duty to prosecute diligently any application for the Trademarks and Future Trademarks necessary for the conduct of its or any Guarantor's business pending as of the date of this Agreement or thereafter, until the Obligations shall have been paid in full, and to make applications on material unregistered but registrable trademarks necessary for the conduct of its or any Guarantor's business in any location where Assignor does business and to preserve and maintain all rights in the Trademarks and the other 6 Collateral necessary for the conduct of its or any Guarantor's business. Any expenses incurred in connection with such applications shall be borne by Assignor. Assignor shall not abandon any right to file a trademark or service mark application or registration for any trademark or service mark used in or necessary for the conduct of its business, or abandon any such pending trademark application or registration necessary for the conduct of its or any Guarantor's business, without the consent of Assignee. 12. Enforcement. Upon Assignor's failure to do so after Assignee's demand, or upon an Event of Default, Assignee shall have the right but shall in no way be obligated to bring suit in its own name to enforce the Trademarks, Future Trademarks, Licenses, or the trademarks covered by the Licenses, and any license under any of the foregoing, in which event Assignor shall at the request of Assignee do any and all lawful acts and execute any and all proper documents that may be reasonably requested by Assignee in aid of such enforcement including, but not limited to, joining as a plaintiff in any such enforcement action and Assignor shall promptly, upon demand, reimburse and indemnify Assignee or its agents for all reasonable costs and expenses incurred by Assignee in the exercise of its rights under this Section 12. 13. Release and Re-Assignment. At such time as all of the Obligations have been satisfied, and the Financing Agreements have been terminated, other than upon enforcement of Assignee's remedies under the Financing Agreements after an Event of Default, Assignee will execute and deliver to Assignor all deeds, assignments and other instruments as may be necessary or proper to release Assignor's lien in the Collateral and reassign to Assignee any and all rights of Assignor therein which were granted to Assignor hereunder, subject to any dispositions thereof which may have been made by Assignee pursuant hereto. 14. Severability. If any clause or provision of this Agreement shall be held invalid or unenforceable, in whole or in part, in any jurisdiction, such invalidity or unenforceability shall attach only to such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect any other clause or provision in any other jurisdiction. 15. Notices. All notices, requests and demands to or upon Assignor or Assignee under this Agreement shall be given in the manner prescribed by the Security Agreement. 16. Governing Law. This Agreement shall be governed by and construed, applied, and enforced in accordance with the federal laws of the United States of America applicable to trademarks and the laws of the State of New York, except that no doctrine of choice of law shall be used to apply the laws of any other state or jurisdiction. 7 17. Financing Agreement. This Agreement is one of the Financing Agreements. 8 IN WITNESS WHEREOF, the parties have entered into this Agreement as of the date first above written. ATLANTIC EXPRESS TRANSPORTATION CORP., Assignor By: __________________________________ Name: Title: THE BANK OF NEW YORK, as Trustee, Assignee By: __________________________________ Name: Title: STATE OF NEW YORK ) ) ss: COUNTY OF NEW YORK ) On the ____ day of February 1997 before me personally came _______________, to me known, who being by me duly sworn, did depose and say that he is the _______________ of ATLANTIC EXPRESS TRANSPORTATION CORP., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. _____________________________ Notary Public STATE OF NEW YORK ) ) ss: COUNTY OF NEW YORK ) On the ____ day of February 1997 before me personally came _______________, to me known, who being by me duly sworn, did depose and say that he is a _______________ of THE BANK OF NEW YORK, the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. _____________________________ Notary Public EXHIBIT 1 LIST OF ASSIGNOR'S TRADEMARKS Registered Trademarks U.S. Date and Service Marks Registration No. Registered - ----------------- ---------------- ---------- ATLANTIC EXPRESS 1,964,915 4/2/96 AE (Stylized Letters) 1,667,874 12/10/91 Applications U.S. for Registration Serial No. Date Filed - ---------------- ---------- ---------- AE ATLANTIC EXPRESS TRANSPORTATION GROUP 75-121,810 6/18/96 and DESIGN Trade Names - ----------- ATLANTIC EXPRESS STATE OF NEW YORK ) )ss: COUNTY OF NEW YORK ) On the ___ day of February 1997 before me personally came ______________, to me known, who being be me duly sworn, did depose and say that he is the ____________________ of ATLANTIC EXPRESS TRANSPORTATION CORP., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said Corporation. _____________________________ Notary Public EXHIBIT 2 SPECIAL POWER OF ATTORNEY STATE OF NEW YORK ) ) ss. COUNTY OF NEW YORK ) KNOW ALL MEN BY THESE PRESENTS, THAT ATLANTIC EXPRESS TRANSPORTATION CORP., a New York corporation with offices at 7 North Street, Staten Island, New York 10302 (hereinafter called "Assignor"), hereby appoints and constitutes THE BANK OF NEW YORK, a New York banking corporation with offices at 101 Barclay Street -- 21W, New York, New York 10286 (hereinafter called "Assignee"), its true and lawful attorney, with full power of substitution, and with full power and authority to perform the following acts on behalf of Assignor: 1. For the purpose of assigning, selling, licensing or otherwise disposing of all right, title and interest of Assignor in and to any trademarks and service marks, and all registrations, renewals, recordings and all pending applications therefor, and all licenses therefor, and for the purpose of the recording, registering and filing of, or accomplishing any other formality with respect to, the foregoing, to execute and deliver any and all agreements, documents, instruments of assignment or other papers necessary or advisable to effect such purpose; and 2. To execute any and all documents, statements, certificates or other papers necessary or advisable in order to obtain the purposes described above as Assignee may in its sole discretion determine. This power of attorney is made pursuant to a Collateral Assignment of Trademarks (Security Agreement) dated the date hereof, between Assignor and Assignee and takes effect solely for the purposes of Section 5 thereof and is subject to the conditions thereof and may not be revoked until the payment in full of all "Obligations" as defined in such Security Agreement. Dated: February 4, 1997 ATLANTIC EXPRESS TRANSPORTATION CORP. By: ____________________________________ Name: Title: EX-10.5 13 EMPLOYMENT AGREE 1/21 DOMENIC GATTO Exhibit 10.5 EMPLOYMENT AGREEMENT dated as of January 21, 1997 (the "Agreement") between Atlantic Express Transportation Corp., a New York corporation with an office at 7 North Street, Staten Island, New York 10302 (the "Company"), and Domenic Gatto, presently residing at 136 Monmouth Road, Spotswood, NJ 08884 (the "Executive"). WHEREAS, the Executive is presently employed by Atlantic Express Transportation Group Inc. ("Atlantic") the parent of the Company under an employment agreement entered into as of February 28, 1994 (the "1994 Agreement"); WHEREAS, Atlantic has agreed to transfer (the "Transfer") to the Company, all of the capital stock of the subsidiaries of Atlantic engaged in the transportation business (the "Transportation Subsidiaries"); WHEREAS, in connection with the Transfer, the Company will become the primary employer of the Executive and will provide all compensation and benefits to Executive, although the Executive will continue to act for Atlantic pursuant to an amendment to the 1994 Agreement; NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth, the parties hereto agree as follows: 1. EMPLOYMENT AND DUTIES 1.1. General. The Company hereby employs the Executive, and the Executive agrees to serve, as President and Chief Executive Officer of the Company and upon the Board of Directors of the Company (the "Board") as Chairman of the Board upon the terms and conditions herein contained, and in such capacities the Executive agrees to serve the Company faithfully and to the best of his ability under the direction of the Board. The Executive also agrees to serve, if elected, at no compensation in addition to that provided for in this Agreement, in the position of officer or director of Atlantic and of any subsidiary of the Company; provided, however, that such position shall be of no less status relative to such subsidiary as the position that the Executive holds pursuant to the first sentence of this Section 1.1 is with respect to the Company. 1.2. Exclusive Services. For so long as the Executive is employed by the Company, he shall devote his fulltime working hours to his duties hereunder. The Executive shall not, directly or indirectly, render services to any other person or organization for which he receives compensation (with the exception of services rendered on behalf of Atlantic or non Transportation Subsidiaries of Atlantic) without the unanimous consent of the Board or otherwise engage in activities which would interfere significantly with his faithful performance of his duties hereunder. 1.3. Term of Employment. The Executive's employment under this Agreement shall commence on January 15, 1997 (the "Effective Date") and shall terminate on the earliest of (i) the fifth anniversary of the Effective Date, (ii) the death of the Executive or (iii) the termination of the Executive's employment pursuant to this Agreement; provided, however, that the term of the Executive's employment under this Agreement may be extended for a period of up to three years by notice of approval from the Board to the Executive at least six months prior to the expiration of the then effective Employment Term but not earlier than the fourth anniversary of the Effective Date (the period commencing on the Effective Date and ending on the fifth anniversary of the Effective Date, or such later date to which the term of the Executive's employment shall have been extended is hereinafter referred to as the "Employment Term"). 2. SALARY 2.1. Base Salary. From the Effective Date, the Executive shall be entitled to receive a base salary ("Base Salary") at a rate of $510,935 per annum, payable in arrears in equal installments not less frequently than weekly in accordance with the Company's payroll practices, with such increases as may be provided in accordance with the terms hereof. Once increased, such higher amount shall constitute the Executive's annual Base Salary. 2.2. Annual Increases. Commencing one year from the Effective Date, and annually on each anniversary thereafter, the Executive's base salary shall be increased by the same percentage by which the regional consumer price index as of the June immediately preceding such anniversary date shall have increased over such consumer price index as of June of the prior year; provided, however, that in no event shall such annual increase be more than five percent (5%) nor less than three percent (3%) of such base salary. Regional consumer price index shall mean the index as determined by the United States Department of Labor for the New York, New York - Northeastern New Jersey area based upon the index for all urban consumers. 3. EMPLOYEE BENEFITS 3.1. General Benefits. The Executive shall receive the following benefits during the Employment Term: (a) the Executive will be eligible to participate in benefit programs of the Company consistent with those benefit programs provided to other senior executives of the Company; (b) a disability insurance policy providing $15,000 in monthly benefits commencing six months after a disability which prevents the Executive from performing the ordinary and necessary functions and duties of his employment; provided that the premium therefore shall not exceed the usual and customary rates charged by underwriters for such a policy for a person of the Executive's age in good health. At the option of the Executive and in the place of the disability policy, the Company shall pay the cash equivalent of the premium for such policy to the Executive (the "Disability Equivalent Payment"); (c) an automobile allowance of $2,150 per month; and 2 (d) a life insurance premium allowance of $35,000 payable annually in February of each year of the term hereof. 3.2. Vacation. The Executive shall be entitled to 25 days' paid vacation each year in accordance with the applicable policies of the Company; provided, however, that the Executive must utilize at least five (5) vacation days per contract year during the month of August. 3.3. Reimbursement of Expenses. The Company will reimburse the Executive for reasonable, ordinary and necessary business expenses incurred by him in the fulfillment of his duties hereunder upon presentation by the Executive of an itemized account of such expenditures, in accordance with Company practices consistently applied. 3.4. Non-Renewal of Agreement. In the event this Agreement is not renewed by the Company as provided in Section 1.3, the Executive shall be entitled to six months of his Base Salary as severance, payable in equal installments on the same terms as at the end of the Employment Term ("Severance Pay"). 4. TERMINATION OF EMPLOYMENT 4.1. Termination for Cause; Resignation. 4.1.l. General. If, prior to the expiration of the Employment Term, the Executive's employment is terminated by the Company for Cause, the Executive shall be entitled only to his Severance Pay, unless such termination is for a Disloyalty Termination Event, in which case the Executive shall be entitled only to payment of his Base Salary as then in effect through and including the date of termination. If the Executive resigns from his employment hereunder, the Executive shall be entitled only to payment of his Base Salary as then in effect through and including the date of resignation. The Executive shall have no further right to receive any other compensation, or to participate in any other plan, arrangement, or benefit, after such termination or resignation of employment, subject to the terms of such plans or arrangements. 4.1.2. Date of Termination/Resignation. The date of termination for a Felony Termination Event or a BOE Termination Event (as defined below) shall be the date of the written Notice of Termination provided for in Section 4.1.3. The date of termination for a Conduct, Performance or Disloyalty Termination Event shall be as provided in Section 4.1.4. The date of resignation shall be the date specified in the written notice of resignation from the Executive to the Company, or if no date is specified therein, 10 business days after receipt by the Company of written notice of resignation from the Executive. 4.l.3. Notice of Termination for Felony or BOE Termination Event. Unless first terminated by a written notice of the Board, termination of the Executive's employment for a Felony or BOE Termination Event (as defined below) shall be effected by delivery of a written notice of termination from Busco Capital, Inc., the holder of the Series A Preferred 3 Stock of Atlantic ("Busco") to the Executive, which notice shall specify the event or events set forth in Section 4.2 giving rise to such termination (the "Notice of Termination"). 4.l.4. Other Termination for Cause. Termination of the Executive's employment for a Conduct, Performance or Disloyalty Termination Event shall be determined by a single arbitrator selected from a list of three potential arbitrators offered by ENDISPUTE of 300 Park Avenue, New York, New York ("ENDISPUTE"). Busco and the Executive shall each have 72 hours to object to no more than one potential arbitrator. The remaining potential arbitrator (and if more than one is remaining, then one shall be selected by lot) shall serve as the single arbitrator, who shall conduct an arbitration proceeding in accordance with ENDISPUTE's then current policies and procedures. In the event ENDISPUTE is no longer conducting business as a dispute resolution firm at the time of the Busco Notice (as defined below), the list of three arbitrators shall be supplied by the American Arbitration Association ("AAA") and the single arbitrator shall be selected in the same manner as set forth above; such arbitrator shall conduct the arbitration proceeding in accordance with the AAA's then current policies and procedures. The decision of the arbitrator shall be final and binding to the extent permitted by law, and judgment thereon may be entered in any court having jurisdiction thereof. Such arbitration shall be commenced by a notice by Busco to the Executive requiring dismissal subject to the provisions of this Agreement and to ENDISPUTE (the "Busco Notice"). ENDISPUTE shall be informed that the determination of the arbitrator is sought within 60 days of the Busco Notice. Each party agrees to complete its presentation to the arbitrator not later than the 45th day after the Busco Notice. Should the arbitrator suspend the proceedings upon a court order or request of a prosecutor arising out of a criminal proceeding commenced or to be commenced against the Executive or should the Executive decline to participate in such arbitration, the arbitration shall be terminated and termination of the Executive's employment hereunder shall be final and no longer subject to arbitration. Unless termination is decided by an arbitrator, Busco shall be liable to the Executive for damages if such termination under this Section 4.l.4 was wrongful. 4.2. Cause. Termination for "Cause" shall mean termination of the Executive's employment because the Executive (a) has engaged in fraudulent or criminal conduct in connection with the performance of his duties hereunder, which conduct materially and adversely affects the Company (a "Conduct Termination Event", except that the Executive's conduct related to the facts and circumstances described under item 6 of Schedule 3.10 of the Stock Purchase Agreement shall not be considered a Conduct Termination Event, which exception shall not apply if a governmental authority shall commence a criminal suit against the Executive based on charges arising out of the same facts and circumstances as set forth in such item 6 of Schedule 3.10 of the Stock Purchase Agreement), (b) admits to or has been convicted of a crime punishable by imprisonment for more than one year (a "Felony Termination Event"), (c) has failed to perform in all material respects (following a written warning specifying such deficiency) the normal and customary duties required of his position of employment (a "Performance Termination Event"), (d) has been disloyal to the Company by assisting competitors of the Company to the disadvantage of the Company by a breach of Section 6 or by otherwise actively assisting competitors to the disadvantage of the Company (a "Disloyalty Termination Event"), or (e) has been identified by the Board of Education of 4 the City of New York in a notice to the Company (a "BOE notice") that the Board of Education has elected either not to extend an existing transportation contract or that it will not accept bids from the Company for a new transportation contract unless the employment of the Employee is terminated together with divestiture of the Employee's stock ownership (a "BOE Termination Event"). 5. PERMANENT DISABILITY In the event the Executive shall fail because of illness, physical or mental disability or other incapacity, for a period of six consecutive months, or for shorter periods aggregating six months during any twelve-month period, to render the services provided for by this Agreement, then the Company shall, by written notice to the Executive after the last day of the six consecutive months of disability or the day on which the shorter periods of disability equal an aggregate of six months, reduce the Executive's compensation hereunder for "Permanent Disability" as follows: First Six Months No Reduction Following 18 months 90% of compensation less $15,000 per month Following 12 months Fifty percent (50%) of (or if less, the compensation balance of the Employment Term) Balance of Employment Twenty-five percent (25%) of Term compensation The Executive will use his reasonable best efforts to cooperate with any physician referred to the Company by the physicians referral service of the Columbia Presbyterian Medical Center of 622 West 168th Street, New York, New York to determine whether or not Permanent Disability exists, and the determination of such physician made in writing to the Company and the Executive shall be final and conclusive for all purposes of this Agreement; provided that if such physician declines to make a determination as to medical disability, the matter will be referred to ENDISPUTE for resolution, whereby ENDISPUTE shall select a single arbitrator to make a determination based upon the evidence and testimony submitted by such physician and no other expert testimony or medical evidence shall be permitted or considered by such arbitrator. Any payments provided for in this Section 5 shall be reduced to the extent that such payments, together with any disability payments received by the Executive under any plan, program or arrangements including any payment to the employee under Section 3.1(b) exceed the Executive's Base Salary; provided that if disability payments are received which are free of federal income tax, the payments provided for in this Section 5 shall be reduced by an amount equal to the pre-tax income which would have been required to produce such payment free of tax based on the marginal tax rate for the previous tax year of the Executive. 5 Except (i) as to continue to pay the Executive's medical insurance premiums for a period of 18 months following delivery of the written notice of "Permanent Disability" to the Executive or (ii) as otherwise provided in this Section 5, upon delivery of such written notice, the Company shall have no further obligation to the Executive under this Agreement. 6. NONCOMPETITION NONSOLICITATION AND CONFIDENTIALITY 6.1. Noncompetition/Nonsolicitation. The Executive shall not, directly or indirectly, as a sole proprietor, member of a partnership, stockholder or investor, officer or director of a corporation, or as an employee, associate, consultant or agent of any person, partnership, corporation or other business organization or entity other than the Company: (a) engage in any business that is in competition with any business actively conducted by the Company or any of its subsidiaries within (i) the counties then served by the Company as well as adjacent counties, and (ii) any other counties in which the Company has made a bid within 24 months prior to the Executive's termination and any adjacent counties in which the Company conducts business; (b) solicit or endeavor to entice away from the Company or any of its subsidiaries any person who is, or was during the then most recent 24-month period, employed by or associated with the Company or any of its subsidiaries; or (c) solicit or endeavor to entice away from the Company or any of its subsidiaries any person or entity who is, or was within the then most recent 24-month period, a customer, client or prospect of the Company or any of its subsidiaries. The obligations of this Section 6.l shall apply for 24 months after termination of employment of the Executive as well as during employment and shall be extended by a period of time equal to any period during which the Executive shall be in breach of such obligations. The obligations of this Section 6.1 shall not be applicable during any period in which the Company is not in compliance with Executive's Put Right under the 1994 Agreement. 6.2. Confidentiality. The Executive covenants and agrees with the Company that he will not at any time, except in performance of his obligations to the Company hereunder or with the prior written consent of the Company, directly or indirectly, disclose any secret or confidential information that he may learn or has learned by reason of his association with the Company or any of its subsidiaries and affiliates. The term "confidential information" includes information not previously disclosed to the public or to the trade by the Company's management, or otherwise in the public domain, with respect the Company's, or any of its affiliates' or subsidiaries', products, services, facilities, applications and methods, trade secrets and other intellectual property, systems, procedures, manuals, confidential reports, product or service price lists, customer lists, technical information, financial information (including the revenues, costs or profits associated with any of the Company's products), business plans, prospects or opportunities. 6.3. Exclusive Property. The Executive confirms that all confidential information is and shall remain the exclusive property of the Company. All business records, papers and documents kept or made by the Executive relating to the business of the Company shall be and remain the property of the Company. 6 6.4. Injunctive Relief. Without intending to limit the remedies available to the Company, the Executive acknowledges that a breach of any of the covenants contained in this Section 6 may result in material and irreparable injury to the Company or its affiliates or subsidiaries for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, the Company shall be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction restraining the Executive from engaging in activities prohibited by this Section 6 or such other relief as may be required specifically to enforce any of the covenants in this Section 6. If for any reason a final decision of any court determines that the restrictions under this Section 6 are not reasonable or that consideration therefor is inadequate, such restrictions shall be interpreted, modified or rewritten by such court to include as much of the duration and scope identified in this Section 6 as will render such restrictions valid and enforceable. 7. MISCELLANEOUS 7.1. Notices. All notices or communications hereunder shall be in writing, addressed as follows: To the Company: Atlantic Express Transportation Corp. 7 North Street Staten Island, NY 10302 Attention: President To the Executive: Domenic Gatto 136 Monmouth Road Spotswood, NJ 08884 Any such notice or communication shall be sent certified or registered mail, return receipt requested, addressed as above (or to such other address as such party may designate in writing from time to time), and the actual date of receipt, as shown by the receipt therefor, shall determine the time at which notice was given. 7.2. Severability. If a court of competent jurisdiction determines that any term or provision hereof is invalid or unenforceable, (a) the remaining terms and provisions hereof shall be unimpaired and (b) such court shall have the authority to replace such invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. 7 7.3. Assignment. This Agreement shall inure to the benefit of the heirs and representatives of the Executive and the assigns and successors of the Company, but neither this Agreement nor any rights hereunder shall be assignable or otherwise subject to hypothecation by the Executive. 7.4. Entire Agreement. This Agreement represents the entire agreement of the parties and shall supersede any and all previous contracts, arrangements or understandings between the Company and the Executive, including the 1994 Agreement. The Agreement may be amended at any time by mutual written agreement of the parties hereto. 7.5. Withholding. The Company shall be entitled to withhold, or cause to be withheld, from payment any amount of withholding taxes required by law with respect to payments made to the Executive in connection with his employment hereunder. 7.6. Governing Law. This Agreement shall be construed, interpreted, and governed in accordance with the laws of New York without reference to rules relating to conflict of law. IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed and the Executive has hereunto set his hand, as of the day and year first above written. ATLANTIC EXPRESS TRANSPORTATION CORP. By: _________________________________ Name: Title: DOMENIC GATTO _____________________________________ 8 EX-10.6 14 EMPLOYMENT AGREE 1/21 MICHAEL GATTO Exhibit 10.6 EMPLOYMENT AGREEMENT dated as of January 21, 1997 (the "Agreement") between Atlantic Express Transportation Corp., a New York corporation with an office at 7 North Street, Staten Island, New York 10302 (the "Company"), and Michael Gatto, presently residing at 1 Elm Court, Perrinville, NJ 08535100 (the "Executive"). WHEREAS, the Executive is presently employed by Atlantic Express Transportation Group Inc. ("Atlantic"), the parent of the Company under an employment agreement entered into as of February 28, 1994 (the "1994 Agreement"); WHEREAS, Atlantic has agreed to transfer (the "Transfer") to the Company, all of the capital stock of the subsidiaries of Atlantic engaged in the transportation business (the "Transportation Subsidiaries"); and WHEREAS, in connection with the Transfer, the Company will become the primary employer of the Executive and will provide all compensation and benefits to Executive, although the Executive will continue to act for Atlantic pursuant to an amendment to the 1994 Agreement; NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth, the parties hereto agree as follows: 1. EMPLOYMENT AND DUTIES 1.1. General. The Company hereby employs the Executive, and the Executive agrees to serve, as Executive Vice President of the Company and upon the Board of Directors of the Company (the "Board") upon the terms and conditions herein contained, and in such capacities the Executive agrees to serve the Company faithfully and to the best of his ability under the direction of the Board. The Executive also agrees to serve, if elected, at no compensation in addition to that provided for in this Agreement, in the position of officer or director of Atlantic and of any subsidiary of the Company; Provided, however, that such position shall be of no less status relative to such subsidiary as the position that the Executive holds pursuant to the first sentence of this Section 1.1 is with respect to the Company. 1.2. Exclusive Services. For so long as the Executive is employed by the Company, he shall devote his full-time working hours to his duties hereunder. The Executive shall not, directly or indirectly, render services to any other person or organization for which he receives compensation (with the exception of services rendered on behalf of Atlantic or non transportation subsidiaries of Atlantic) without the unanimous consent of the Board or otherwise engage in activities which would interfere significantly with his faithful performance of his duties hereunder. 1.3. Term of Employment. The Executive's employment under this Agreement shall commence on January 15, 1997 (the "Effective Date") and shall terminate on the earliest of (i) the fifth anniversary of the Effective Date, (ii) the death of the Executive or (iii) the termination of the Executive's employment pursuant to this Agreement; provided however that the term of the Executive's employment under to this Agreement may be extended for a period of up to three years by notice of approval from the Board to the Executive at least six months prior to the expiration of the then effective Employment Term but not earlier than the fourth anniversary of the Effective Date (the period commencing on the Effective Date and ending on the fifth anniversary of the Effective Date, or such later date to which the term of the Executive's employment shall have been extended is hereinafter referred to as the "Employment Term"). 2. SALARY 2.1. Base Salary. From the Effective Date, the Executive shall be entitled to receive a base salary ("Base Salary") at a rate of $340,252 per annum, payable in arrears in equal installments not less frequently than weekly in accordance with the Company's payroll practices, with such increases as may be provided in accordance with the terms hereof. Once increased, such higher amount shall constitute the Executive's annual Base Salary. 2.2. Annual Increases. Commencing one year from the Effective Date, and annually on each anniversary thereafter, the Executive's base salary shall be increased by the same percentage by which the regional consumer price index as of the June immediately preceding such anniversary date shall have increased over such consumer price index as of June of the prior year; provided, however, that in no event shall such annual increase be more than five percent (5%) nor less than three percent (3%) of such base salary. Regional consumer price index shall mean the index as determined by the United States Department of Labor for the New York, New York - Northeastern New Jersey area based upon the index for all urban consumers. 3. EMPLOYEE BENEFITS 3.1. General Benefits. The Executive shall receive the following benefits during the Employment Term: (a) the Executive will be eligible to participate in benefit programs of the Company consistent with those benefit programs provided to other senior executives of the Company; (b) a disability insurance policy providing $10,000 in monthly benefits commencing six months after a disability which prevents the Executive from performing the ordinary and necessary functions and duties of his employment; Provided that the premium therefore shall not exceed the usual and customary rates charged by underwriters for such a policy for a person of the Executive's age in good health. At the option of the Executive and in the place of the disability policy, the Company shall pay the cash equivalent of the premium for such policy to the Executive the "Disability Equivalent Payment"); (c) an automobile allowance of $1,434 per month; and 2 (d) a life insurance premium allowance of $23,000 payable annually in February of each year of the term hereof. 3.2. Vacation. The Executive shall be entitled to 16 days paid vacation each year in accordance with the applicable policies of the Company; provided, however, that the Executive must utilize at least five (5) vacation days per contract year during the month of August. 3.3. Reimbursement of Expenses. The Company will reimburse the Executive for reasonable, ordinary and necessary business expenses incurred by him in the fulfillment of his duties hereunder upon presentation by the Executive of an itemized account of such expenditures, in accordance with Company practices consistently applied. 3.4. Non-Renewal of Agreement. In the event this Agreement is not renewed by the Company as provided in Section 1.3, the Executive shall be entitled to six months of his Base Salary as severance, payable in equal installments on the same terms as at the end of the Employment Term ("Severance Pay"). 4. TERMINATION OF EMPLOYMENT 4.1. Termination for Cause; Resignation. 4.1.1. General. If, prior to the expiration of the Employment Term, the Executive's employment is terminated by the Company for Cause, the Executive shall be entitled only to his Severance Pay, unless such termination is for a Disloyalty Termination Event, in which case the Executive shall be entitled only to payment of his Base Salary as then in effect through and including the date of termination. If the Executive resigns from his employment hereunder, the Executive shall be entitled only to payment of his Base Salary as then in effect through and including the date of resignation. The Executive shall have no further right to receive any other compensation, or to participate in any other plan, arrangement, or benefit, after such termination or resignation of employment, subject to the terms of such plans or arrangements. 4.1.2. Date of Termination/Resignation. The date of termination for a Felony Termination Event or a BOE Termination Event (as defined below) shall be the date of the written Notice of Termination provided for in Section 4.1.3. The date of termination for a Conduct, Performance or Disloyalty Termination Event shall be provided in Section 4.1.4. The date of resignation shall be the date specified in the written notice of resignation from the Executive to the Company, or if no date is specified therein, 10 business days after receipt by the Company of written notice of resignation from the Executive. 4.1.3. Notice of Termination for Felony or BOE Termination Event. Unless first terminated by a written notice of the Board, termination of the Executive's employment for a Felony or BOE Termination Event (as defined below) shall be effected by delivery of a written notice of termination from Busco Capital, Inc., the holder of the Series A Preferred 3 Stock of Atlantic ("Busco") to the Executive, which notice shall specify the event or events set forth in Section 4.2 giving rise to such termination (the "Notice of Termination"). 4.1.4. Other Termination for Cause. Termination of the Executive's employment for a Conduct, Performance or Disloyalty Termination Event shall be determined by a single arbitrator selected from a list of three potential arbitrators offered by ENDISPUTE of 300 Park Avenue, New York, New York ("ENDISPUTE"). Busco and the Executive shall each have 72 hours to object to no more than one potential arbitrator. The remaining potential arbitrator (and if more than one is remaining, then one shall be selected by lot) shall serve as the single arbitrator, who shall conduct an arbitration proceeding in accordance with ENDISPUTE's then current policies and procedures. In the event ENDISPUTE is no longer conducting business as a dispute resolution firm at the time of the Busco Notice (as defined below), the list of three arbitrators shall be supplied by the American Arbitration Association ("AAA"), and the single arbitrator shall be selected in the same manner as set forth above; such arbitrator shall conduct the arbitration proceeding in accordance with the AAA's then current policies and procedures. The decision of the arbitrator shall be final and binding to the extent permitted by law, and judgment thereon may be entered in any court having jurisdiction thereof. Such arbitration shall be commenced by a notice by Busco to the Executive requiring dismissal subject to the provisions of this Agreement and to ENDISPUTE (the "Busco Notice"). ENDISPUTE shall be informed that the determination of the arbitrator is sought within 60 days of the Busco Notice. Each party agrees to complete its presentation to the arbitrator not later than the 45th day after the Busco Notice. Should the arbitrator suspend the proceedings upon a court order or request of a prosecutor arising out of a criminal proceeding commenced or to be commenced against the Executive or should the Executive decline to participate in such arbitration, the arbitration shall be terminated and termination of the Executive's employment hereunder shall thereupon be final and no longer subject to arbitration. Unless termination is decided by an arbitrator, Busco shall be liable to the Executive for damages if such termination under this Section 4.1.4 was wrongful. 4.2. Cause. Termination for "Cause" shall mean termination of the Executive's employment because the Executive (a) has engaged in fraudulent or criminal conduct in connection with the performance of his duties hereunder, which conduct materially and adversely affects the Company (a "Conduct Termination Event", except that the Executive's conduct related to the facts and circumstances described under item 6 of Schedule 3.10 of the Stock Purchase Agreement shall not be considered a Conduct Termination Event, which exception shall not apply if a governmental authority shall commence a criminal suit against the Executive based on charges arising out of the same facts and circumstances as set forth in such item 6 of Schedule 3.10 of the Stock Purchase Agreement), (b) admits to or has been convicted of a crime punishable by imprisonment for more than one year (a "Felony Termination Event"), (c) has failed to perform in all material respects (following a written warning specifying such deficiency) the normal and customary duties required of his position of employment (a "Performance Termination Event"), (d) has been disloyal to the Company by assisting competitors of the Company to the disadvantage of the Company by a breach of Section 6 or by otherwise actively assisting competitors to the disadvantage of the Company (a "Disloyalty Termination Event"), or (e) has been identified by the Board of Education of 4 the City of New York in a notice to the Company (a "BOE Notice") that the Board of Education has elected either not to extend an existing transportation contract or that it will not accept bids from the Company for a new transportation contract unless the employment of the Employee is terminated together with divestiture of the Employee's stock ownership (a "BOE Termination Event"). 5. PERMANENT DISABILITY In the event the Executive shall fail because of illness, physical or mental disability or other incapacity, for a period of six consecutive months, or for shorter periods aggregating six months during any twelve-month period, to render the services provided for by this Agreement, then the Company shall, by written notice to the Executive after the last day of the six consecutive months of disability or the day on which the shorter periods of disability equal an aggregate of six months, reduce the Executive's compensation hereunder for "Permanent Disability" as follows: First Six Months No Reduction Following 18 months 90% of compensation less $l0,000 per month Following 12 months Fifty percent (50%) of (or if less, the compensation balance of the Employment Term) Balance of Employment Twenty-five percent (25%) of Term compensation The Executive will use his reasonable best efforts to cooperate with any physician referred to the Company by the physicians referral service of the Columbia Presbyterian Medical Center of 622 West 168th Street, New York, New York to determine whether or not Permanent Disability exists, and the determination of such physician made in writing to the Company and the Executive shall be final and conclusive for all purposes of this Agreement; provided that if such physician declines to make a determination as to medical disability, the matter will be referred to ENDISPUTE for resolution, whereby ENDISPUTE shall select a single arbitrator to make a determination based upon the evidence and testimony submitted by such physician and no other expert testimony or medical evidence shall be permitted or considered by such arbitrator. Any payments provided for in this Section 5 shall be reduced to the extent that such payments, together with any disability payments received by the Executive under any plan, program or arrangements, including any payment to the employee under Section 3.1(b) exceed the Executive's Base Salary; provided that if disability payments are received which are free of federal income tax. The payments provided for in this Section s shall be reduced by an amount equal to the pre-tax income which would have been required to produce such payment free of tax based on the marginal rate for the previous tax year of the Executive. Except (i) as to continue to pay the 5 Executive's medical insurance premiums for a period of 18 months following delivery of the written notice of "Permanent Disability" to the Executive or (ii) as otherwise provided in this Section 5, upon delivery of such written notice, the Company shall have no further obligation to the Executive under this Agreement. 6. NONCOMPETITION, NONSOLICITATION AND CONFIDENTIALITY 6.1. Noncompetition/Nonsolicitation. The Executive shall not, directly or indirectly, as a sole proprietor, member of a partnership, stockholder or investor, officer or director of a corporation, or as an employee, associate, consultant or agent of any person, partnership, corporation or other business organization or entity other than the Company: (a) engage in any business that is in competition with any business actively conducted by the Company or any of its subsidiaries within (i) the counties then served by the Company as well as adjacent counties, and (ii) any other counties in which the Company has made a bid within 24 months prior to the Executive's termination and any adjacent counties in which the Company conducts business; (b) solicit or endeavor to entice away from the Company or any of its subsidiaries any person who is, or was during the then most recent 24-month period, employed by or associated with the Company or any of its subsidiaries; or (c) solicit or endeavor to entice away from the Company or any of its subsidiaries any person or entity who is, or was within the then most recent 24-month period, a customer, client or prospect of the Company or any of its subsidiaries. The obligations of this Section 6.1 shall apply for 24 months after termination of employment of the Executive as well as during employment and shall be extended by a period of time equal to any period during which the Executive shall be in breach of such obligations. The obligations of this Section 6.1 shall not be applicable during any period in which the Company is not in compliance with Executive's Put Right under the 1994 Agreement. 6.2. Confidentiality. The Executive covenants and agrees with the Company that he will not at any time, except in performance of his obligations to the Company hereunder or with the prior written consent of the Company, directly or indirectly, disclose any secret or confidential information that he may learn or has learned by reason of his association with the Company or any of its subsidiaries and affiliates. The term "confidential information" includes information not previously disclosed to the public or to the trade by the Company's management, or otherwise in the public domain, with respect the Company's, or any of its affiliates' or subsidiaries', products, services, facilities, applications and methods, trade secrets and other intellectual property, systems, procedures, manuals, confidential reports, product or service price lists, customer lists, technical information, financial information (including the revenues, costs or profits associated with any of the Company's products), business plans, prospects or opportunities. 6.3. Exclusive Property. The Executive confirms that all confidential information is and shall remain the exclusive property of the Company. All business records, papers and documents kept or made by the Executive relating to the business of the Company shall be and remain the property of the Company. 6 6.4. Injunctive Relief. Without intending to limit the remedies available to the Company, the Executive acknowledges that a breach of any of the covenants contained in this Section 6 may result in material and irreparable injury to the Company or its affiliates or subsidiaries for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, the Company shall be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction restraining the Executive from engaging in activities prohibited by this Section 6 or such other relief as may be required specifically to enforce any of the covenants in this Section 6. If for any reason a final decision of any court determines that the restrictions under this Section 6 are not reasonable or that consideration therefor is inadequate, such restrictions shall be interpreted, modified or rewritten by such court to include as much of the duration and scope identified in this Section 6 as will render such restrictions valid and enforceable. 7. MISCELLANEOUS 7.1. Notices. All notices or communications hereunder shall be in writing, addressed as follows: To the Company: Atlantic Express Transportation Corp. 7 North Street Staten Island, NY 10302 Attention: President To the Executive: Michael Gatto 1 Elm Court Perrinville, NJ 08535 Any such notice or communication shall be sent certified or registered mail, return receipt requested, addressed as above (or to such other address as such party may designate in writing from time to time), and the actual date of receipt, as shown by the receipt therefor, shall determine the time at which notice was given. 7.2. Severability. If a court of competent jurisdiction determines that any term or provision hereof is invalid or unenforceable, (a) the remaining terms and provisions hereof shall be unimpaired and (b) such court shall have the authority to replace such invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. 7 7.3. Assignment. This Agreement shall inure to the benefit of the heirs and representatives of the Executive and the assigns and successors of the Company, but neither this Agreement nor any rights hereunder shall be assignable or otherwise subject to hypothecation by the Executive. 7.4. Entire Agreement. This Agreement represents the entire agreement of the parties and shall supersede any and all previous contracts, arrangements or understandings between the Company and the Executive, including the 1994 Agreement. The Agreement may be amended at any time by mutual written agreement of the parties hereto. 7.5. Withholding. The Company shall be entitled to withhold, or cause to be withheld, from payment any amount of withholding taxes required by law with respect to payments made to the Executive in connection with his employment hereunder. 7.6. Governing Law. This Agreement shall be construed, interpreted, and governed in accordance with the laws of New York without reference to rules relating to conflict of law. IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed and the Executive has hereunto set his hand, as of the day and year first above written. ATLANTIC EXPRESS TRANSPORTATION CORP. By:_________________________________ Name: Title: MICHAEL GATTO 8 EX-10.7 15 EMPLOYMENT AGREE 1/21 PATRICK GATTO Exhibit 10.7 EMPLOYMENT AGREEMENT dated as of January 21, 1997 (the "Agreement") between Atlantic Express Transportation Corp., a New York corporation with an office at 7 North Street, Staten Island, New York 10302 (the "Company"), and Patrick Gatto, presently residing at 100 Sandalwood Drive, Marlboro, NJ 07746 (the "Executive"). WHEREAS, the Executive is presently employed by Atlantic Express Transportation Group Inc. ("Atlantic"), the parent of the Company under an employment agreement entered into as of February 28, 1994 (the "1994 Agreement"); WHEREAS, Atlantic has agreed to transfer (the "Transfer") to the Company, all of the capital stock of the subsidiaries of Atlantic engaged in the transportation business (the "Transportation Subsidiaries"); and WHEREAS, in connection with the Transfer, the Company will become the primary employer of the Executive and will provide all compensation and benefits to Executive, although the Executive will continue to act for Atlantic pursuant to an amendment to the 1994 Agreement; NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth, the parties hereto agree as follows: 1. EMPLOYMENT AND DUTIES 1.1. General. The Company hereby employs the Executive, and the Executive agrees to serve, as Executive Vice President of the Company and upon the Board of Directors of the Company (the "Board") as a director upon the terms and conditions herein contained, and in such capacities the Executive agrees to serve the Company faithfully and to the best of his ability under the direction of the Board. The Executive also agrees to serve, if elected, at no compensation in addition to that provided for in this Agreement, in the position of officer or director of Atlantic and of any subsidiary of the Company; Provided, however, that such position shall be of no less status relative to such subsidiary as the position that the Executive holds pursuant to the first sentence of this Section 1.1 is with respect to the Company. 1.2. Exclusive Services. For so long as the Executive is employed by the Company, he shall devote his full-time working hours to his duties hereunder. The Executive shall not, directly or indirectly, render services to any other person or organization for which he receives compensation (with the exception of services rendered on behalf of Atlantic or non transportation subsidiaries of Atlantic) without the unanimous consent of the Board or otherwise engage in activities which would interfere significantly with his faithful performance of his duties hereunder. 1.3. Term of Employment. The Executive's employment under this Agreement shall commence on January 15, 1997 (the "Effective Date") and shall terminate on the earliest of (i) the fifth anniversary of the Effective Date, (ii) the death of the Executive or (iii) the termination of the Executive's employment pursuant to this Agreement; provided, however, that the term of the Executive's employment under this Agreement may be extended for a period of up to three years by notice of approval from the Board to the Executive at least six months prior to the expiration of the then effective Employment Term but not earlier than the fourth anniversary of the Effective Date (the period commencing on the Effective Date and ending on the fifth anniversary of the Effective Date, or such later date to which the term of the Executive's employment shall have been extended is hereinafter referred to as the "Employment Term"). 2. SALARY 2.1. Base Salary. From the Effective Date, the Executive shall be entitled to receive a base salary ("Base Salary") at a rate of $340,252 per annum, payable in arrears in equal installments not less frequently than weekly in accordance with the Company's payroll practices, with such increases as may be provided in accordance with the terms hereof. Once increased, such higher amount shall constitute the Executive's annual Base Salary. 2.2. Annual Increases. Commencing one year from the Effective Date, and annually on each anniversary thereafter, the Executive's base salary shall be increased by the same percentage by which the regional consumer price index as of the June immediately preceding such anniversary date shall have increased over such consumer price index as of June of the prior year; provided, however, that in no event shall such annual increase be more than five percent (5%) nor less than three percent (3%) of such base salary. Regional consumer price index shall mean the index as determined by the United States Department of Labor for the New York, New York - Northeastern New Jersey area based upon the index for all urban consumers. 3. EMPLOYEE BENEFITS 3.1. General Benefits. The Executive shall receive the following benefits during the Employment Term: (a) the Executive will be eligible to participate in benefit programs of the Company consistent with those benefit programs provided to other senior executives of the Company; (b) a disability insurance policy providing $10,000 in monthly benefits commencing six months after a disability which prevents the Executive from performing the ordinary and necessary functions and duties of his employment; Provided that the premium therefore shall not exceed the usual and customary rates charged by underwriters for such a policy for a person of the Executive's age in good health. At the option of the Executive and in the place of the disability policy, the Company shall pay the cash equivalent of the premium for such policy to the Executive the "Disability Equivalent Payment"); (c) an automobile allowance of $1,434 per month; and 2 (d) a life insurance premium allowance of $23,000 payable annually in February of each year of the term hereof. 3.2. Vacation. The Executive shall be entitled to 16 days paid vacation each year in accordance with the applicable policies of the Company; provided, however, that the Executive must utilize at least five (5) vacation days per contract year during the month of August. 3.3. Reimbursement of Expenses. The Company will reimburse the Executive for reasonable, ordinary and necessary business expenses incurred by him in the fulfillment of his duties hereunder upon presentation by the Executive of an itemized account of such expenditures, in accordance with Company practices consistently applied. 3.4. Non-Renewal of Agreement. In the event this Agreement is not renewed by the Company as provided in Section 1.3, the Executive shall be entitled to six months of his Base Salary as severance, payable in equal installments on the same terms as at the end of the Employment Term ("Severance Pay"). 4. TERMINATION OF EMPLOYMENT 4.1. Termination for Cause; Resignation. 4.1.1. General. If, prior to the expiration of the Employment Term, the Executive's employment is terminated by the Company for Cause, the Executive shall be entitled only to his Severance Pay, unless such termination is for a Disloyalty Termination Event, in which case the Executive shall be entitled only to payment of his Base Salary as then in effect through and including the date of termination. If the Executive resigns from his employment hereunder, the Executive shall be entitled only to payment of his Base Salary as then in effect through and including the date of resignation. The Executive shall have no further right to receive any other compensation, or to participate in any other plan, arrangement, or benefit, after such termination or resignation of employment, subject to the terms of such plans or arrangements. 4.1.2. Date of Termination/Resignation. The date of termination for a Felony Termination Event or a BOE Termination Event (as defined below) shall be the date of the written Notice of Termination provided for in Section 4.1.3. The date of termination for a Conduct, Performance or Disloyalty Termination Event shall be provided in Section 4.1.4. The date of resignation shall be the date specified in the written notice of resignation from the Executive to the Company, or if no date is specified therein, 10 business days after receipt by the Company of written notice of resignation from the Executive. 4.1.3. Notice of Termination for Felony or BOE Termination Event. Unless first terminated by a written notice of the Board, termination of the Executive's employment for a Felony or BOE Termination Event (as defined below) shall be effected by delivery of a written notice of termination from Busco Capital, Inc., the holder of the Series A Preferred 3 Stock of Atlantic ("Busco") to the Executive, which notice shall specify the event or events set forth in Section 4.2 giving rise to such termination (the "Notice of Termination"). 4.1.4. Other Termination for Cause. Termination of the Executive's employment for a Conduct, Performance or Disloyalty Termination Event shall be determined by a single arbitrator selected from a list of three potential arbitrators offered by ENDISPUTE of 300 Park Avenue, New York, New York ("ENDISPUTE"). Busco and the Executive shall each have 72 hours to object to no more than one potential arbitrator. The remaining potential arbitrator (and if more than one is remaining, then one shall be selected by lot) shall serve as the single arbitrator, who shall conduct an arbitration proceeding in accordance with ENDISPUTE's then current policies and procedures. In the event ENDISPUTE is no longer conducting business as a dispute resolution firm at the time of the Busco Notice (as defined below), the list of three arbitrators shall be supplied by the American Arbitration Association ("AAA"), and the single arbitrator shall be selected in the same manner as set forth above; such arbitrator shall conduct the arbitration proceeding in accordance with the AAA's then current policies and procedures. The decision of the arbitrator shall be final and binding to the extent permitted by law, and judgment thereon may be entered in any court having jurisdiction thereof. Such arbitration shall be commenced by a notice by Busco to the Executive requiring dismissal subject to the provisions of this Agreement and to ENDISPUTE (the "Busco Notice"). ENDISPUTE shall be informed that the determination of the arbitrator is sought within 60 days of the Busco Notice. Each party agrees to complete its presentation to the arbitrator not later than the 45th day after the Busco Notice. Should the arbitrator suspend the proceedings upon a court order or request of a prosecutor arising out of a criminal proceeding commenced or to be commenced against the Executive or should the Executive decline to participate in such arbitration, the arbitration shall be terminated and termination of the Executive's employment hereunder shall thereupon be final and no longer subject to arbitration. Unless termination is decided by an arbitrator, Busco shall be liable to the Executive for damages if such termination under this Section 4.1.4 was wrongful. 4.2. Cause. Termination for "Cause" shall mean termination of the Executive's employment because the Executive (a) has engaged in fraudulent or criminal conduct in connection with the performance of his duties hereunder, which conduct materially and adversely affects the Company (a "Conduct Termination Event", except that the Executive's conduct related to the facts and circumstances described under item 6 of Schedule 3.10 of the Stock Purchase Agreement shall not be considered a Conduct Termination Event, which exception shall not apply if a governmental authority shall commence a criminal suit against the Executive based on charges arising out of the same facts and circumstances as set forth in such item 6 of Schedule 3.10 of the Stock Purchase Agreement), (b) admits to or has been convicted of a crime punishable by imprisonment for more than one year (a "Felony Termination Event"), (c) has failed to perform in all material respects (following a written warning specifying such deficiency) the normal and customary duties required of his position of employment (a "Performance Termination Event"), (d) has been disloyal to the Company by assisting competitors of the Company to the disadvantage of the Company by a breach of Section 6 or by otherwise actively assisting competitors to the disadvantage of the Company (a "Disloyalty Termination Event"), or (e) has been identified by the Board of Education of 4 the City of New York in a notice to the Company (a "BOE Notice") that the Board of Education has elected either not to extend an existing transportation contract or that it will not accept bids from the Company for a new transportation contract unless the employment of the Employee is terminated together with divestiture of the Employee's stock ownership (a "BOE Termination Event"). 5. PERMANENT DISABILITY In the event the Executive shall fail because of illness, physical or mental disability or other incapacity, for a period of six consecutive months, or for shorter periods aggregating six months during any twelve-month period, to render the services provided for by this Agreement, then the Company shall, by written notice to the Executive after the last day of the six consecutive months of disability or the day on which the shorter periods of disability equal an aggregate of six months, reduce the Executive's compensation hereunder for "Permanent Disability" as follows: First Six Months No Reduction Following 18 months 90% of compensation less $l0,000 per month Following 12 months Fifty percent (50%) of (or if less, the compensation balance of the Employment Term) Balance of Employment Twenty-five percent (25%) of Term compensation The Executive will use his reasonable best efforts to cooperate with any physician referred to the Company by the physicians referral service of the Columbia Presbyterian Medical Center of 622 West 168th Street, New York, New York to determine whether or not Permanent Disability exists, and the determination of such physician made in writing to the Company and the Executive shall be final and conclusive for all purposes of this Agreement; provided that if such physician declines to make a determination as to medical disability, the matter will be referred to ENDISPUTE for resolution, whereby ENDISPUTE shall select a single arbitrator to make a determination based upon the evidence and testimony submitted by such physician and no other expert testimony or medical evidence shall be permitted or considered by such arbitrator. Any payments provided for in this Section 5 shall be reduced to the extent that such payments, together with any disability payments received by the Executive under any plan, program or arrangements, including any payment to the employee under Section 3.1(b) exceed the Executive's Base Salary; provided that if disability payments are received which are free of federal income tax. The payments provided for in this Section s shall be reduced by an amount equal to the pre-tax income which would have been required to produce such payment free of tax based on the marginal rate for the previous tax year of the Executive. Except (i) as to continue to pay the 5 Executive's medical insurance premiums for a period of 18 months following delivery of the written notice of "Permanent Disability" to the Executive or (ii) as otherwise provided in this Section 5, upon delivery of such written notice, the Company shall have no further obligation to the Executive under this Agreement. 6. NONCOMPETITION, NONSOLICITATION AND CONFIDENTIALITY 6.1. Noncompetition/Nonsolicitation. The Executive shall not, directly or indirectly, as a sole proprietor, member of a partnership, stockholder or investor, officer or director of a corporation, or as an employee, associate, consultant or agent of any person, partnership, corporation or other business organization or entity other than the Company: (a) engage in any business that is in competition with any business actively conducted by the Company or any of its subsidiaries within (i) the counties then served by the Company as well as adjacent counties, and (ii) any other counties in which the Company has made a bid within 24 months prior to the Executive's termination and any adjacent counties in which the Company conducts business; (b) solicit or endeavor to entice away from the Company or any of its subsidiaries any person who is, or was during the then most recent 24-month period, employed by or associated with the Company or any of its subsidiaries; or (c) solicit or endeavor to entice away from the Company or any of its subsidiaries any person or entity who is, or was within the then most recent 24-month period, a customer, client or prospect of the Company or any of its subsidiaries. The obligations of this Section 6.1 shall apply for 24 months after termination of employment of the Executive as well as during employment and shall be extended by a period of time equal to any period during which the Executive shall be in breach of such obligations. The obligations of this Section 6.1 shall not be applicable during any period in which the Company is not in compliance with Executive's Put Right under the 1994 Agreement. 6.2. Confidentiality. The Executive covenants and agrees with the Company that he will not at any time, except in performance of his obligations to the Company hereunder or with the prior written consent of the Company, directly or indirectly, disclose any secret or confidential information that he may learn or has learned by reason of his association with the Company or any of its subsidiaries and affiliates. The term "confidential information" includes information not previously disclosed to the public or to the trade by the Company's management, or otherwise in the public domain, with respect the Company's, or any of its affiliates' or subsidiaries', products, services, facilities, applications and methods, trade secrets and other intellectual property, systems, procedures, manuals, confidential reports, product or service price lists, customer lists, technical information, financial information (including the revenues, costs or profits associated with any of the Company's products), business plans, prospects or opportunities. 6.3. Exclusive Property. The Executive confirms that all confidential information is and shall remain the exclusive property of the Company. All business records, papers and documents kept or made by the Executive relating to the business of the Company shall be and remain the property of the Company. 6 6.4. Injunctive Relief. Without intending to limit the remedies available to the Company, the Executive acknowledges that a breach of any of the covenants contained in this Section 6 may result in material and irreparable injury to the Company or its affiliates or subsidiaries for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, the Company shall be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction restraining the Executive from engaging in activities prohibited by this Section 6 or such other relief as may be required specifically to enforce any of the covenants in this Section 6. If for any reason a final decision of any court determines that the restrictions under this Section 6 are not reasonable or that consideration therefor is inadequate, such restrictions shall be interpreted, modified or rewritten by such court to include as much of the duration and scope identified in this Section 6 as will render such restrictions valid and enforceable. 7. MISCELLANEOUS 7.1. Notices. All notices or communications hereunder shall be in writing, addressed as follows: To the Company: Atlantic Express Transportation Corp. 7 North Street Staten Island, NY 10302 Attention: President To the Executive: Patrick Gatto 100 Sandalwood Drive Marlboro, NJ 07746 Any such notice or communication shall be sent certified or registered mail, return receipt requested, addressed as above (or to such other address as such party may designate in writing from time to time), and the actual date of receipt, as shown by the receipt therefor, shall determine the time at which notice was given. 7.2. Severability. If a court of competent jurisdiction determines that any term or provision hereof is invalid or unenforceable, (a) the remaining terms and provisions hereof shall be unimpaired and (b) such court shall have the authority to replace such invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. 7 7.3. Assignment. This Agreement shall inure to the benefit of the heirs and representatives of the Executive and the assigns and successors of the Company, but neither this Agreement nor any rights hereunder shall be assignable or otherwise subject to hypothecation by the Executive. 7.4. Entire Agreement. This Agreement represents the entire agreement of the parties and shall supersede any and all previous contracts, arrangements or understandings between the Company and the Executive, including the 1994 Agreement. The Agreement may be amended at any time by mutual written agreement of the parties hereto. 7.5. Withholding. The Company shall be entitled to withhold, or cause to be withheld, from payment any amount of withholding taxes required by law with respect to payments made to the Executive in connection with his employment hereunder. 7.6. Governing Law. This Agreement shall be construed, interpreted, and governed in accordance with the laws of New York without reference to rules relating to conflict of law. IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed and the Executive has hereunto set his hand, as of the day and year first above written. ATLANTIC EXPRESS TRANSPORTATION CORP. By:______________________________ Name: Title: PATRICK GATTO __________________________________ 8 EX-10.8 16 EMPLOYMENT AGREE 1/21 NATHAN SCHLENKER Exhibit 10.8 EMPLOYMENT AGREEMENT dated as of January 21, 1997 (the "Agreement") between Atlantic Express Transportation Corp., a New York corporation with an office at 7 North Street, Staten Island, New York 10302 (the "Company"), and Nathan Schlenker, presently residing at 136 Bushnell Road, Mayfield, New York 12117 (the "Executive"). WHEREAS, the Executive is presently employed by Atlantic Express Transportation Group Inc. ("Atlantic") under an employment agreement entered into as of February 28, 1994 (the "1994 Agreement"); WHEREAS, Atlantic has agreed to transfer (the "Transfer") to the Company, all of the capital stock of the subsidiaries of Atlantic engaged in the transportation business (the "Transportation Subsidiaries"); and WHEREAS, in connection with the Transfer, the Company will become the primary employer of the Executive and will provide all compensation and benefits to Executive, although the Executive will continue to act for Atlantic hereunder; NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth, the parties hereto agree as follows: 1. EMPLOYMENT AND DUTIES 1.1. General. The Company hereby employs the Executive, and the Executive agrees to serve, as Chief Financial Officer of the Company upon the terms and conditions herein contained, and in such capacities the Executive agrees to serve the Company faithfully and to the best of his ability under the direction of the Board of Directors of the Company (the "Board"). The Executive also agrees to serve, if elected, at no compensation in addition to that provided for in this Agreement, in the position of officer or director of Atlantic and any subsidiary of the Company; provided, however, that such position shall be of no less status relative to such subsidiary as the position that the Executive holds pursuant to the first sentence of this Section 1.1 is with respect to the Company. Both the Company and the Executive acknowledge that the 1994 Agreement with Atlantic is terminated as of January 15, 1997 and neither party shall have rights under it thereafter. 1.2. Exclusive Services. For so long as the Executive is employed by the Company, he shall devote his full-time working hours to his duties hereunder. Except for financial consulting services offered to Ronald Richardson, RTA Corp. and its affiliates and services rendered on behalf of Atlantic or non Transportation Subsidiaries of Atlantic, the Executive shall not, directly or indirectly, render services to any other person or organization for which he receives compensation without the unanimous consent of the Board or otherwise engage in activities which would interfere significantly with his faithful performance of his duties hereunder. 1.3. Term of Employment. The Executive's employment under this Agreement shall commence on January 15, 1997 (the "Effective Date") and shall terminate on the earliest of (i) the first anniversary of the Effective Date, (ii) the death of the Executive or (iii) the termination of the Executive's employment pursuant to this Agreement; Provided, however, that the term of the Executive's employment under this Agreement may be extended for a period of up to three years subject to the approval of the Executive by notice of approval from the Board to the Executive at least six months prior to the expiration of the then effective Employment Term (the period commencing on the Effective Date and ending on the first anniversary of the Effective Date, or such later date to which the term of the Executive's employment shall have been extended is hereinafter referred to as the "Employment Term".) 2. SALARY 2.1. Base Salary. From the Effective Date, the Executive shall be entitled to receive a base salary ("Base Salary") at a rate of $191,227 per annum, payable in eual installments not less freuently than monthly in accordance with the Company's payroll practices, with such increases as may be provided in accordance with the terms hereof. Once increased, such higher amount shall constitute the Executive's annual Base Salary. 2.2. Annual Increases. Commencing one year from the Effective Date, and annually on each anniversary thereafter, the Executive's base salary shall be increased by the same percentage by which the regional consumer price index as of the June immediately preceding such anniversary date shall have increased over such consumer price index as of June of the prior year; provided, however, that in no event shall such annual increase be more than five percent (5%) nor less than three percent (3%) of such base salary. Regional consumer price index shall mean the index as determined by the United States Department of Labor for the New York, New York - Northeastern New Jersey area based upon the index for all urban consumers. 3. EMPLOYEE BENEFITS 3.1. General Benefits. The Executive shall receive the following benefits during the Employment Term: (a) the Executive will be eligible to participate in benefit programs of the Company consistent with those benefit programs provided to other senior executives of the Company; (b) a disability insurance policy providing $6,000 in monthly benefits commencing six months after a disability which prevents the Executive from performing the 2 ordinary and necessary functions and duties of his employment; Provided that the premium therefore shall not exceed the usual and customary rates charged by underwriters for such a policy for a person of the Executive's age in good health. At the option of the Executive and in the place of the disability policy, the Company shall pay the cash euivalent of the premium for such policy to the Executive (the "Disability Euivalent Payment"); (c) an automobile allowance of $250 per month plus a company car (as approved by the Board); (d) a life insurance premium allowance of $2,500 payable annually in February of each year of the term hereof; and (e) a travel allowance not to exceed $7,500 annually. 3.2. Vacation. The Executive shall be entitled to 15 days' paid vacation each year in accordance with the applicable policies of the Company; provided, however, that the Executive must utilize at least five (5) vacation days per contract year during the month of August. 3.3. Reimbursement of Expenses. The Company will reimburse the Executive for reasonable, ordinary and necessary business expenses incurred by him in the fulfillment of his duties hereunder upon presentation by the Executive of an itemized account of such expenditures, in accordance with Company practices consistently applied. 3.4. Severance Payment Upon Termination. Upon expiration of the term of the Executive's employment, the Executive shall be entitled to severance pay in the amount of $2,000 per month for a total of 96 consecutive months. In addition thereto, in the first sixty months following expiration of the term, the Company shall pay to the Executive an amount which shall eual 50% of the annual premiums paid by the Executive for major medical health insurance for his family, provided that in no event shall the Company's payment for such medical insurance exceed $3,000 per year. 4. TERMINATION OF EMPLOYMENT 4.1. Termination for Cause: Resignation. 4.1.1. General. If, prior to the expiration of the Employment Term, the Executive's employment is terminated by the Company for Cause, the Executive shall be entitled only to twelve months of his Base Salary as severance, payable in arrears in eual installments not less freuently than monthly, unless such termination is for a Disloyalty Termination Event, in which case the Executive shall be entitled only to payment of his Base Salary as then in effect through and including the date of termination. If the Executive resigns from his employment hereunder, the Executive shall be entitled only to payment of his Base Salary as then in effect through and including the date of resignation. The Executive shall 3 have no further right to receive any other compensation, or to participate in any other plan, arrangement, or benefit, after such termination or resignation of employment, subject to the terms of such plans or arrangements. 4.1.2. Date of Termination/Resignation. The date of termination for Cause shall be the date of the written Notice of Termination provided for in Section 4.1.3. The date of resignation shall be the date specified in the written notice of resignation from the Executive to the Company, or if no date is specified therein, 10 business days after receipt by the Company of written notice of resignation from the Executive. 4.1.3. Notice of Termination. Termination of the Executive's employment for Cause shall be effected by delivery of a written notice of termination from the Board to the Executive, which notice shall specify the event or events set forth in Section 4.2 giving rise to such termination (the "Notice of Termination") 4.2. Cause. Termination for "Cause" shall mean termination of the Executive's employment because the Executive (a) has engaged in fraudulent or criminal conduct in connection with the performance of his duties hereunder, which conduct materially and adversely affects the ComPany (a "Conduct Termination Event"), (b) admits to or has been convicted of a crime punishable by imprisonment for more than one year (a "Felony Termination Event"), (c) has failed to perform in all material respects (following a written warning specifying such deficiency) the normal and customary duties reuired of his position of employment (a "Performance Termination Event"), (d) has been disloyal to the Company by assisting competitors of the Company to the disadvantage of the Company by a breach of Section 6 or by otherwise actively assisting competitors to the disadvantage of the Company (a "Disloyalty Termination Event"), or (e) has been identified by the Board of Education of the City of New York in a notice to the Company (a "BOE notice") that the Board of Education has elected either not to extend an existing transportation contract or that it will not accept bids from the Company for a new transportation contract unless the employment of the Employee is terminated together with divestiture of the Employee's stock ownership (a "BOE Termination Event") 4.3. Termination Without Cause. If the Executive is terminated without Cause, he shall be entitled to the severance provided for in Section 3.4. 5. PERMANENT DISABILITY In the event the Executive shall fail because of illness, physical or mental disability or other incapacity, for a period of six consecutive months, or for shorter periods aggregating six months during any 12-month period, to render the services provided for by this Agreement, then the Company shall, by written notice to the Executive after the last day of the six consecutive months of disability or the day on which the shorter periods of disability eual an aggregate of six months, reduce the Executive's compensation hereunder for "Permanent Disability" as follows: 4 First Six Months No Reduction Following 18 months 50% of compensation The Executive will use his reasonable best efforts to cooperate with any physician referred to the Company by the physicians referral service of the Columbia Presbyterian Medical Center of 622 West 168th Street, New York, New York, to determine whether or not Permanent Disability exists, and the determination of such physician made in writing to the Company and the Executive shall be final and conclusive for all purposes of this Agreement; Provided that if such physician declines to make a determination as to medical disability, the matter will be referred to ENDISPUTE of 300 Park Avenue, New York, New York for resolution, whereby ENDISPUTE shall select a single arbitrator to make a determination based upon the evidence and testimony submitted by such physician and no other expert testimony or medical evidence shall be permitted or considered by such arbitrator. Any payments provided for in this Section 5 shall be reduced to the extent that such payments, together with any disability payments received by the Executive under any plan, program or arrangements including any payment to the employee under Section 3.1(b) exceed the Executive's Base Salary; provided that if disability payments are received which are free of federal income tax, the payments provided for in this Section 5 shall be reduced by an amount eual to the pre-tax income which would have been reuired to produce such payment free of tax based on the marginal tax rate for the previous tax year of the Executive. Except (i) as to continue to pay the Executive's medical insurance premiums for a period of 18 months following delivery of the written notice of "Permanent Disability" to the Executive or (ii) as otherwise provided in this Section 5, upon delivery of such written notice, the Company shall have no further obligation to the Executive under this Agreement. 6. NONCOMPETITION, NONSOLICITATION AND CONFIDENTIALITY 6.1. Noncompetition/Nonsolicitation. The Executive shall not, directly or indirectly, as a sole proprietor, member of a partnership, stockholder or investor, officer or director of a corporation, or as an employee, associate, consultant or agent of any person, partnership, corporation or other business organization or entity other than the Company: (a) engage in any business that is in competition with any business actively conducted by the Company or any of its subsidiaries within (i) the counties then served by the Company as well as adjacent counties, and (ii) any other counties in which the Company has made a bid within 24 months prior to the Executive's termination and any adjacent counties in which the Company conducts business; (b) solicit or endeavor to entice away from the Company or any of its subsidiaries any person who is, or was during the then most recent 24-month period, employed by or associated with the Company or any of its subsidiaries; or (c) solicit or endeavor to entice away from the Company or any of its subsidiaries any person or entity who is, or was within the then most recent 24-month period, a customer, client or prospect of the Company or any of its subsidiaries. The obligations of this Section 6.1 shall apply for 24 months after termination of employment of the Executive as well as during employment 5 and shall be extended by a period of time eual to any period during which the Executive shall be in breach of such obligations. 6.2. Confidentiality. The Executive covenants and agrees with the Company that he will not at any time, except in performance of his obligations to the Company hereunder or with the prior written consent of the Company, directly or indirectly, disclose any secret or confidential information that he may learn or has learned by reason of his association with the Company or any of its subsidiaries and affiliates. The term "confidential information" includes information not previously disclosed to the public or to the trade by the Company's management, or otherwise in the public domain, with respect the Company's, or any of its affiliates' or subsidiaries', products, services, facilities, applications and methods, trade secrets and other intellectual property, systems, procedures, manuals, confidential reports, product or service price lists, customer lists, technical information, financial information (including the revenues, costs or profits associated with any of the Company's products), business plans, prospects or opportunities. 6.3. Exclusive Property. The Executive confirms that all confidential information is and shall remain the exclusive property of the Company. All business records, papers and documents kept or made by the Executive relating to the business of the Company shall be and remain the property of the Company. 6.4. Injunctive Relief. Without intending to limit the remedies available to the Company, the Executive acknowledges that a breach of any of the covenants contained in this Section 6 may result in material and irreparable injury to the Company or its affiliates or subsidiaries for which there is no adeuate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, the Company shall be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction restraining the Executive from engaging in activities prohibited by this Section 6 or such other relief as may be reuired specifically to enforce any of the covenants in this Section 6. If for any reason a final decision of any court determines that the restrictions under this Section 6 are not reasonable or that consideration therefor is inadeuate, such restrictions shall be interpreted, modified or rewritten by such court to include as much of the duration and scope identified in this Section 6 as will render such restrictions valid and enforceable. 7. MISCELLANEOUS 7.1. Notices. All notices or communications hereunder shall be in writing, addressed as follows: To the Company: Atlantic Express Transportation Corp. 6 7 North Street Staten Island, NY 10302 Attention: President To the Executive: Nathan Schlenker 136 Bushnell Road Mayfield, NY 12117 Any such notice or communication shall be sent certified or registered mail, return receipt reuested, addressed as above (or to such other address as such party may designate in writing from time to time), and the actual date of receipt, as shown by the receipt therefor, shall determine the time at which notice was given. 7.2. Severability. If a court of competent jurisdiction determines that any term or provision hereof is invalid or unenforceable, (a) the remaining terms and provisions hereof shall be unimpaired and (b) such court shall have the authority to replace such invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. 7.3. Assignment. This Agreement shall inure to the benefit of the heirs and representatives of the Executive and the assigns and successors of the Company, but neither this Agreement nor any rights hereunder shall be assignable or otherwise subject to hypothecation by the Executive. 7.4. Entire Agreement. This Agreement represents the entire agreement of the parties and shall supersede any and all previous contracts, arrangements or understandings between the Company and the Executive, including the Prior Agreement. The Agreement may be amended at any time by mutual written agreement of the parties hereto. 7.5. Withholding. The Company shall be entitled to withhold, or cause to be withheld, from payment any amount of withholding taxes reuired by law with respect to payments made to the Executive in connection with his employment hereunder. 7.6. Governing Law. This Agreement shall be construed, interpreted, and governed in accordance with the laws of New York without reference to rules relating to conflict of law. IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed and the Executive has hereunto set his hand, as of the day and year first above written. 7 ATLANTIC EXPRESS TRANSPORTATION CORP. By: ________________________________ Name: Title: NATHAN SCHLENKER ____________________________________ 8 EX-10.9 17 LEASE AGREEMENT 8/5 BONNIE HEIGHTS REALTY LEASE AGREEMENT PARTIES THIS LEASE AGREEMENT, made this 5th day of August, 1986, between BONNIE HEIGHTS REALTY CORP. having an office at 1 Edgewater Plaza, Staten Island, hereinafter referred to as "Landlord", and AMBOY BUS CO. a New York corporation having an address at 52 Bay View Avenue, Staten Island, New York, hereinafter referred to as "Tenant". WITNESSETH: 1. Landlord, in consideration of the rents to be paid and the covenants and agreements to be performed by Tenant, hereby lets and Tenant hereby leases the parcel or parcels of land with appurtenances, and improvements thereon thereunto belonging, DESCRIPTION hereinafter collectively referred to as the "premises", located at l752 Shore Parkway Brooklyn, New York and more particularly the office building, garage and appurtenances and vacant land as per the survey attached hereto marked Exhibit A excepting there from so much of the demised premises as are presently occupied by Midwood Carting Co. in the rear of the property used as a tranfer station until such time as Midwood Carting Co. ceases to be a tenant. Landlord represents that Midwood is a month to month tenant; that Midwood is obligated to remove debris from portions of the premises pursuant to a certain order or orders of the Department of Environmental Conservation; landlord will not enter a lease with Midwood and shall deliver occupancy to such portions of the premises to Tenant within 90 days after such orders are satisfied or vacated. AUTHORIZED Primarily for use as a storage, parking, maintenance, and RENT service establishment of omnibuses including dispatch and general offices and all other purposes incidental to such service and for any other lawful purpose not injurious to the TERM reversion for a term of five (5) years, beginning on the 20th day of August, 1986 and ending on the 19th day of August, 1991, RENT at a base rental of $3.50 per square foot for the garage and office consisting of ______ square feet; $1.25 per square foot for the first 80,000 square feet of vacant land and $.90 per square foot for the balance of the square footage of vacant land comprising the above described premises but at no time during the initial term of this lease shall the total rental exceed $310,000 which rent shall be payable in equal monthly installments of $25,833 payable in advance on the first business day of each month during the term. It is understood that the rent on vacant land does not include that portion on which the garage and office are situated. Tenant will commence to pay rent on that portion of the premises occupied by Midwood Carting Co. or a portion thereof, on the first day of the month after Midwood vacates such premises or a portion thereof, but in no event less than two (2) weeks after such vacating. Landlord shall use its best efforts to require Midwood to clear and vacate 50,000 square feet of land within a period of 18 months including commencing litigation to compel same. ADDITIONAL Tenant agrees during the initial term of this lease to pay, as RENT additional rent, all real estate taxes assessed against the demised premises in excess of the amount of real estate taxes assessed in the "base year." The base year for the purpose of this lease shall be the 1986-87 tax year. The Landlord shall be responsible for paying the real estate tax on the demised premises and will, upon receipt of the tax bill, notify the Tenant in writing of the amount of excess that the Tenant shall be required to pay as additional rent. The tenant shall remit to the Landlord, within thirty (30) days of the receipt of such tax bill, the additional amount of real estate tax on its part to be paid. RIGHT TO LET 2. Landlord covenants and warrants that it has the right to let AND CONDITION the premises for the aforesaid use and term on the terms and OF PREMISES conditions herein contained. POSSESSION 3. Landlord covenants and agrees that the premises will be delivered to the Tenant at the commencement of the term, free from all tenancies and occupancies except as set forth in Schedule B annexed hereto. The Landlord Agrees to assign to the tenant all of its rights to remove and dispossess any tenant now in possession on expiration of its lease or if the tenant is an holdover tenant or a month to month tenancy or hold possession of the premises under any other legal right and will agree to execute any and all legal documents necessary to give effect to this paragraph. It is specifically understood that the removal of the tenants and/or occupants by the Tenant herein shall be at Tenant's cost and expense unless otherwise agreed to by the Landlord. COVENANT TO 4. Tenant shall make all repairs necessary to keep the premises REPAIR AND and the buildings and appurtenances situated thereon in as good TAKE CARE OF order and condition as when delivered to it, Tenant represents PREMISES that it has inspected the office building and garage prior to occupancy and is satisfied with the conditions of the structure and the exterior of the building including the roof and agrees to accept same as is. COVENANT TO 5. Tenant shall pay the specified rent subject to Paragraph One PAY RENT (1) and upon expiration of the term remove all personal property not attached to the premises and such personal property that may be attached that can be readily removed provided the Tenant restores the premises to good condition and peacefully yield up the premises to the Landlord. ASSIGNMENT 6. Tenant shall not assign this Lease. The Tenant shall not sublet the premises without the written consent of the Landlord, which consent shall not be unreasonably withheld. Should the Tenant sublet the whole of the demised premises, then this lease shall terminate and the Landlord shall have the right to enter into a lease with the proposed subleasee upon such terms and conditions as the Landlord may specify. Any such sublease shall bind the sublessor to perform all of the obligations of the Tenant the same as required by the primary lease. In the event the sublessee should default in the performance of any obligation on its part required to be performed which under the primary lease is the obligation of the Tenant, then such default, unless cured by the Tenant within fifteen (15) days, after the Landlord notifies the Tenant of such default such default will be considered a default under this lease. Tenant will supply Landlord with a fully executed copy of the sub-lease. MAJOR CHANGES 7. Tenant shall have the right, with the written consent of the IN PREMISES Landlord, which consent shall not be unreasonably withheld, at its sole cost and expense, to make additions and related modifications to the existing building(s) and to the premises at any time after the commencement of and during the term of this Lease, subject only to the restriction that such improvements shall be constructed in accordance with all applicable laws, statutes, ordinances, rulings and codes and Tenant shall not permit any mechanic's liens to remain on the premises for a period in excess of thirty (30) days from date of filing thereof. Tenant in such event shall furnish all appropriate insurance and insure Landlord against loss or damages and will hold harmless and indemnify Landlord against any liability on account thereof. Upon termination of this Lease, title to all such improvements shall vest in Landlord. LANDLORD'S 8. Landlord warrants and represents that the premises may be REPRESENTATION used for the purposes herein set forth in Pargraph One (1) of OF LAWFUL USE this lease. If any judicial decree, law, ordinance, ruling, order or regulation of the United States, State, municipal or other governmental unit or agency which now exists or is hereafter enacted or created which prohibits, restricts or alters the proposed use of the premises by Tenant or its subtenant for any one or more of the foregoing purposes, or creates or levies any fine or penalty, Tenant may, at its option, terminate this Lease and all of its liability hereunder shall cease from and after the date of such law, ordinance, ruling, regulation, prohibition or penalty becomes effective and prepaid rental or other sums prepaid by Tenant shall be apportioned and paid to Tenant. FIRE AND 9. (a) If the premises shall be so damaged by fire, casualty or OTHER CASUALTY other cause of happening so as to render the premises unfit for Tenant's proposed use, then this Lease shall terminate at the option of Tenant and, if terminated, Tenant's obligation to pay rent shall cease and any unearned rent paid in advance shall be refunded to Tenant. (b) If the demised premises shall be partially destroyed by fire, casualty, or other cause or happening, but not to such an extent as to render the premises unfit for Tenant's proposed use, then the premises shall be with reasonable dispatch restored by Landlord and a portion of the rent specified shall abate until the premises shall have been restored. If the parties are unable to agree on the amount of such abatement of rent, then such dispute shall be settled by arbitration in accordance with the rules of the American Arbitration Association, with each party paying one-half (1/2) of the cost thereof. In determining what constitutes reasonable dispatch consideration shall be given to delays caused by strikes, adjustment of insurance and other causes beyond the Landlord's control. (c) Notwithstanding the provisions set forth in subparagraphs (a) and (b) above, in the event of any such loss, Tenant shall not be obligated to replace or rebuild such improvements as it may have placed on the premises during the term hereof. In the event that the Tenant elects not to reconstruct or replace such improvements, applicable insurance proceeds shall belong to Tenant and Tenant shall promptly remove all debris, walls, footings and any vestige of such improvements, fill any excavations with clean fill sand and level the area upon which such improvements were located to prevailing grade levels. CONDEMNATION 10. (a) If all of the premises shall be condemned or taken by AND UNSAFE lawful authority or if such portion of the premises be so CONDITION condemned or taken making it unreasonable or imprudent to use the remaining portion for its intended use, this Lease shall terminate at Tenant's option as of the date when possession is required to be given in such condemnation or taking. The rent shall be prorated to such date and all further rights and liabilities of the parties under this Lease shall terminate. (b) If a portion of the demised premises shall be condemned or taken and such taking does not make it unreasonable or imprudent to use the remaining portion for the purposes for which the premises were leased, this Lease shall continue as to the part not so taken, and Landlord shall, forthwith at its expense, restore and reconstruct the original buildings and improvements situated on the premises to substantially the same extent, quality, condition and functional character, as existed prior to such condemnation or taking, to the extent possible on the real property thus remaining excluding any improvements added by Tenant. The rent specified in Paragraph One (1) shall be reduced as of the date of condemnation or taking to an amount determined by multiplying said rent by a fraction the numerator of which is the value of the premises immediately after such condemnation or taking and denominator of which is the value immediately before such condemnation or taking. Said rent, as reduced, shall be increased as of the date restoration is completed to an amount which bears the same proportion to said rent, as reduced, as the value of the premises immediately after completion of restoration bears to the value immediately after such condemnation or taking. Changes in value occurring during the period of restoration not related to such restoration shall be disregarded in computing said increase. Said rent, as increased, shall not exceed the rent set out in Paragraph One (1). Improvements added by Tenant that are condemned or taken shall be restored by Tenant at its option. (c) If any lawful authority shall declare the premises unsafe and/or order demolition or removal of any structure covered by this Lease so as to render the premises unfit for Tenant's proposed used, then this Lease at Tenant's option shall terminate and the Landlord shall not be required to reconstruct any structure demolished or removed. If such declaration or order does not render 50% or more of the premises unfit for Tenant's proposed use, then Landlord shall promptly comply with such declaration or order and commence reconstruction of any premises demolished or removed but only as to Landlord's improvements and not as to any improvements or additions made by Tenant and a portion of the rent specified shall abate until such compliance and reconstruction is complete. The rent to be paid during the abatement period shall be reduced to an amount which bears the same proportion to the rent specified as the square footage of the portion of the premises demolished or removed bears to the square footage of the entire demised premises of the building thereon. If the parties are unable to agree on the amount of their shares of awards or the amount of adjustments of rent provided for in this Paragraph Eleven (11), then such dispute shall be settled by arbitration in accordance with the rules of the American Arbitration Association, with each party paying one-half (1/2) of the cost thereof. Improvements added by Tenant shall be disregarded in computing such adjustments of rent. RIGHT OF ENTRY 11. Landlord may, during the term of this Lease, at reasonable OF LANDLORD times and during usual business hours, enter the premises to view them, and except, in the event of renewal or extension, may, at any time within two (2) months next preceding the expiration of the specified term, during normal business hours, show the premises to others for the purpose of rental "FOR SALE" or sale and may affix to any suitable parts of the AND "TO LET" premises a notice for lease or sale thereof, provided SIGNS such sign or notice shall not interfere with the usual and ordinary conduct to Tenant's business operations. ALTERATIONS 12. If any alterations or improvements, except painting or wall OR IMPROVE- papering, are made at Tenant's expense or if Tenant shall MENTS BY install or acquire ownership of previously installed shelving, TENANT, TRADE lighting fixtures, removable partitions, trade fixtures, FIXTURES, INC. machinery and equipment or advertising signs, they shall remain Tenant's property and may be removed prior to termination of Tenant's occupancy; provided, however, that Tenant shall repair any damage occasioned by removal thereof and shall, at Landlord's option, restore or replace any structural parts or improvements which may previously have been removed by Tenant. LANDLORD'S 13. If Tenant shall fail to observe or perform any of its REMEDIES IN obligations under this Lease and shall fail to cure its default EVENT OF within thirty (30) days after notice from Landlord to do so or DEFAULT, if Tenant shall be adjudicated bankrupt or become insolvent or BANKRUPTCY, shall make an assignment for the benefit of creditors, then in OR INSOLVENCY any of said events, Landlord may lawfully enter into and upon OF TENANT the premises or any part thereof and repossess the same and expel the Tenant and persons claiming under and through it, and remove any effects, forcibly if necessary, without being guilty of trespass and without prejudice to any remedies which may be available for arrears or rent or for Tenant's breach of covenent. Upon entry as aforesaid, this Lease shall terminate and wholly expire, and Tenant covenants that in the event of such termination it will indemnify Landlord against all loss of rent, which Landlord may incur by reason of such termination during the residue of the specified term. INDEMNIFICA- 14. Tenant agrees to indemnify Landlord against any actions or TION OF CLAIMS claims which may be asserted or brought by third parties AGAINST LAND- against Landlord and which are based upon Tenant's negligent LORD acts or omissions in connection with its use and occupancy of the premises. OPTION TO 15. The Tenant is hereby granted an option to renew the lease RENEW after the initial term thereof for an additional period or five (5) years upon the same terms and conditions except that the rent reserved as base rent as herein set forth in Paragraph One (1) shall be increased by the percentage increase of the Consumer Price Index from the inseption of the lease to the time of the renewal or by an additional 15% of the annual rent so reserved, whichever is less. The Tenant agrees to pay during such renewal term of five (5) years as additional rent, real estate taxes assessed against the demised premises in excess of the real estate taxes in the base year which for the purposes of this lease shall be the year 1986/1987. The Landlord shall be responsible for paying all of the real estate taxes on the demised premises and will promptly, upon receipt of the tax bill, notify the Tenant in writing, of the amount of excess that the Tenant shall be required to pay as additional rent. The Tenant shall remit to the Landlord, within thirty (30) days of the receipt of such tax bill, the additional amount of real estate taxes on its part required to be paid. The Tenant is hereby granted an option to renew for a second additional period of five years. Upon the same terms and conditions except that the rent reserved as base rent as herein set forth in Paragraph 1 shall be increased by percentage increase of the Consumer Price Index from the inception of the lease to the time of renewal. The Tenant agrees to pay during such renewal term of five years as additional rent, real estate taxes assessed against the demised premises in excess of real estate taxes in the base year which for the purpose of this lease shall be the year 1986/1987. The procedure for paying such taxes shall be the same as previously set forth in this paragraph. Tenant shall be responsible for the payment of all utilities, to wit: gas, electric, water, fuel, on the demised premises and shall maintain the buildings thereon at its own cost and expense. The Consumer Price Index referred to in this Paragraph 15, shall be the Consumer Price Index for the New York Metropolitan area. Any option to renew must be exercised in writing 60 days prior the expiration date of this lease or any additional term thereof by notice to the Landlord at 1 Edgewater Plaza, Staten Island, New York. SUBORDINATION 16. This Lease and all rights of Tenant hereunder are and shall OF MORTGAGE be subject and subordinate to the lien of any mortgage or mortgages constituting a first lien on the premises, or any part thereof, at the date hereof, and to any mortgage or mortgages, consolidated or otherwise, constituting a first lien on the premises, hereafter placed on the premises, or any part thereof, and made to and accepted by a savings bank, bank, trust or insurance company, or other reputable institution, private or public, authorized to make mortgage loans in the State of New York, and to any and all renewals, modifications, consolidations or extensions of any such mortgage or mortgages. Tenant shall, upon demand, at any time or times, execute, acknowledge and deliver to Landlord, any and all instruments that may be necessary or proper to subordinate this Lease and all rights of Tenant hereunder to the lien of any such mortgage or mortgages. The subordination of this Lease to any such existing or new mortgage is expressly conditioned upon the existing or new mortgagee, simultaneously with the making of this Lease or of such new mortgage, entering into an agreement, in recordable form, but its terms binding upon the mortgagee, its successors and assigns whereby the mortgagee agrees that in the event that it should become necessary to foreclose said mortgage, it will cause the sale of said premises to be made subject to this Lease, provided that the Tenant is not in default under any of the terms, conditions or covenants of this Lease at the time of such foreclosure and, in the event of condemnation or damage by fire, casualty or other causes as covered by fire and extended coverage insurance, the condemnation award or proceeds of such insurance shall be used for reconstruction or otherwise disbursed as provided herein. TENANT'S 17. At any time during the term of this Lease, including any RIGHT OF renewal or extension hereof, Tenant may, at its option, TERMINATION terminate this Lease. In the event that Tenant so elects to terminate, it shall notify Landlord or such termination by Registered or Certified United States Mail, Return Receipt Requested, and this Lease shall cease and terminate ninety (90) days following the postdate of such notice of termination. Not more than fifteen (15) days prior to the Lease termination date, as provided hereinabove, and as consideration for such cancellation, Tenant shall pay to Landlord the present value of the remainder of the base rent due for the balance of the lease term then in effect, including taxes, insurance, special assessment or any other additional sums payable hereunder and excluding any increase in basic rental which may be effective subsequent to the termination date. Upon delivery of such funds, Landlord shall execute a termination agreement releasing and absolving Tenant from any and all obligations, past or future, under and pursuant to this Lease. Any prepaid or unpaid rent, taxes, insurance, special assessments or similar items shall be prorated as of the termination date with payment to Landlord or Tenant, as the case may be. NOTICES 18. All notices to be given hereunder by either party shall be in writing and given by personal delivery, certified or registered mail to Landlord or to an officer of the Tenant, and the date of any notice by certified or registered mail shall be deemed to be the date of registration thereof. MEMORANDUM 19. For the purposes of recording some of the basic terms and OF LEASE conditions of this Lease, Landlord and Tenant agree to execute, as soon as the commencement date of the original term has been determined, a short form of lease. It is understood that such short form of Lease is for purposes of recordation only and is not intended and shall not in any way modify, amend, supersede or otherwise affect this Lease. Tenant agrees not to record this lease or memorandum of lease for a period of three (3) years after execution of this lease. SURRENDER 20. Tenant shall, on the last day of the term hereof or of any extension or renewal thereof or upon any earlier termination of this Lease, surrender and deliver up the premises into the possession of the Landlord in the same order, condition and repair as when delivered to Tenant, wear and tear, damage by fire, explosion or the element excepted. QUIET 21. Landlord covenants that if and so long as Tenant pays the ENJOYMENT rent, additional rent and other sum or sums of money and charges as herein provided and upon performance of all of the covenants, conditions and agreements aforesaid, Tenant shall and may preaceably and quietly have, hold and enjoy the premises for the term aforesaid, subject, however, to the terms of this Lease. 22. That if the said premises, or any part thereof shall be deserted or become vacant during said term, or if any default be made in the payment of the said rent or any part thereof, or if any default be made in the performance of any of the covenants herein contained, the Landlord or representatives may re-enter the said premises by force, summary proceedings or otherwise, and remove all persons therefrom, without being liable to prosecution therefor, and the Tenant hereby expressly waives the service of any notice in writing of intention to re-enter, and the Tenant shall pay at the same time as the rent becomes payable under the terms hereof a sum equivalent to the rent reserved herein, and the Landlord may rent the premises on behalf of the Tenant, reserving the right to rent the premises for a longer period of time than fixed in the original lease without releasing the original Tenant from any liability, applying any moneys collected, first to the expense of resuming or obtaining possession, second to restoring the premises to rentable condition, and then to the payment of the rent and all other charges due and to grow due to the landlord, any surplus to be aid to the Tenant, who shall remain liable for any deficiency. 23. That the Landlord is exempt from any and all liability for any damage or injury to person or property caused by or resulting from steam, electricity, gas, water, rain, ice or snow, or any leak or flow from or into any part of said building or from any damage or injury resulting or arising from any other cause or happening whatsoever unless said damage or injury be caused by or be due to the negligence of the Landlord. 24. The Tenant has this day deposited with the Landlord the sum of $ 25,833.00 as security for the full and faithful performance by the Tenant of all the terms, covenants and conditions of this lease upon the Tenant's part to be performed, which said sum shall be returned to the Tenant after the time fixed as the expiration of the term herein, provided the Tenant has fully and faithfully carried out all of said terms, covenants and conditions on Tenant's part to be performed. In the event of a bona fide sale, subject to this lease, the Landlord shall have the right to transfer the security to the vendee for the benefit of the Tenant and the Landlord shall be considered released by the Tenant from all liability for the return of such security; and the Tenant agrees to look to the new Landlord solely for the return of said security, and it is agreed that this shall apply to every transfer or assignment made of the security to a new Landlord. 25. That the security deposited under this lease shall not be mortgaged, assigned or encumbered by the Tenant without the written consent of the Landlord. 26. It is expressly understood and agreed that in case the demised premises shall be deserted or vacated, or if default be made in the payment of the rent or any part thereof as herein specified, or if, without the consent of the Landlord, the Tenant shall sell, assign or mortgage this lease or if default be made in the performance of any of the covenants and agreements in this lease contained on the part of the Tenant to be kept performed, or if the Tenant shall fail to comply with any of the statutes, ordinances, rules, orders, regulations and requirements of the Federal, State and City Government or of any and all their Departments and Bureaus, applicable to said premises, or hereafter established as herein provided, or if the Tenant shall file a petition in bankruptcy or be adjudicated a bankrupt, or make an assignment for the benefit of crditors to take advantage of any insolvency act, the Landlord may, if the Landlord so elects, at any time thereafter temrinate this lease and the term hereof, on giving to the Tenant five days' notice in writing of the Landlord's intention so to do, and this lease and the term hereof shall expire and come to an end on the date fixed in such notice as if the said date were the date originally fixed in this lease for hte expiration hereof. Such notice may be given by mail to the Tenant addressed to the demised premises. 27. That the Tenant will not nor will the Tenant permit undertenants or other persons to do anything in said premises, or bring anything into said premises, or permit anything to be brought into said premises or to be kept therein, which will in any way increase the rate of fire insurance on said demised premises, nor use the demised premises or any part thereof, nor suffer or permit their use for any business or purpose which would cause an increase in the rate of fire insurance on said building, and the Tenant agrees to pay on demand any such increase. 28. The failure of the Landlord to insist upon a strict performance of any of the terms, conditions and covenants herein, shall not be deemed a waiver of any rights or remedies that the Landlord may have, and shall not be deemed a waiver of any subsequent breach or default in the terms, conditions and covenants herein contained. This instrument may not be changed, modified or discharged orally. 29. In the event that the relation of the Landlord and Tenant may cease or terminate by reason of the re-entry of the Landlord under the terms and covenants contained in this lease or by the ejectment of the Tenant by summary proceedings or otherwise, or after the abandonment of the premises by the Tenant, it is hereby agreed that the Tenant shall remain liable and shall pay in monthly payments the rent which accrues subsequent to the re-entry by the Landlord, and the Tenant expressly agrees to pay as damages for the breach of the covenants herein contained, the difference between the rent reserved and the rent collected and received, if any, by the Landlord during the remainder of the unexpired term, such difference or deficiency between the rent herein reserved and the rent collected if any, shall become due and payable in monthly payments during the remainder of the unexpired term, as the amounts of such difference of deficiency shall from time to time be ascertained; and the Tenant waives and will waive all rights to trial by jury in any summary proceedings hereafter instituted by the Landlord against the Tenant in respect to the demised premises or in any action brought to recover rent or damages hereunder. 30. Landlord states that it has a report of the New York Testing Laboratory, that the land fill is non-toxic in nature. INSURANCE 31. (a) Tenant is to maintain, throughout the term of the lease both bodily injury and property damage liability insurance for the mutual benefit of the Landlord and Tenant, naming the Landlord as an additional insured against claims for bodily injury, death or property damage occurring on, in or about the premises, sidewalks, adjoining streets, property and passageways. Such insurance shall be a general, all risk liability policy of not less than $1,000,000 per person for bodily injury or wrongful death and not less than $100,000 property damage. b) All insurance policies maintained by the Tenant shall name the Landlord and Tenant as insureds as their respective interests may appear. Such insurance shall be written by companies of recognized financial standing. All insurance maintained by Tenant shall provide that no cancellation, reduction or other material changes thereof shall be effective until at least ten (10) days after receipt of written notice thereof by Landlord, and Tenant will, at the Landlord's request, furnish to Landlord certificates of such insurance. c) Tenant is to maintain, throughout the term of the lease, fire insurance covering the premises in an amount equal to the fair market value of the building and structures thereon presently and in the event the tenant makes improvements or constructs additional structures on the premises, the tenant shall supply coverage of such additional structures in an amount not less than the replacement value. The policy shall name Landlord as an insured under the policy as its interest may appear. The tenant shall furnish to the Landlord, at Landlord's request, certificates of insurance. 32. Tenant has inspected said premises and is thoroughly acquainted with its condition and is leasing said premises "as is" and in their present condition. IN WITNESS WHEREOF, the parties hereto have executed this Lease in person or by a duly authorized officer on the day and year stated in the commencement. SIGNED, SEALED AND DELIVERED LANDLORD; Bonnie Heights Realty IN THE PRESENCE OF: Corp. BY: [ILLEGIBLE] ------------------------------ ______________________________ ITS: Vice Pres. ----------------------------- TENANT: ______________________________ BY: [ILLEGIBLE] ------------------------------ ITS: Pres. ----------------------------- AMBOY BUS CO., INC. 7 North Street Staten Island, New York 10302 May 10, 1996 CERTIFIED MAIL RETURN RECEIPT REQUESTED Bonnie Heights Realty Corp. One Edgewater Plaza Staten Island, New York 10305 Re: Lease Agreement dated August 5, 1986 between Bonnie Heights Realty Corp. as Landlord and Amboy Bus Co., Inc. as Tenant Gentlemen: Reference is made to the above-captioned lease and more particularly to paragraph 15 thereof entitled "Option to Renew". Please be advised that the tenant hereby exercises its option to renew the lease for an additional period of five years. Very truly yours, AMBOY BUS CO., INC. By: /s/ Domenic Gatto ---------------------------- Domenic Gatto, President DG/cz cc: Kenneth Lee Raisch, Esq. AMBOY BUS CO., INC. 52 Bayview Avenue Staten Island, New York 10309 December 26, 1989 CERTIFIED MAIL RETURN RECEIPT REQUESTED Bonnie Heights Realty Corp. One Edgewater Plaza Staten Island, New York 10305 Re: Lease Agreement dated August 5, 1986 between Bonnie Heights Realty Corp. as Landlord and Amboy Bus Co., Inc. as Tenant Gentlemen: Reference is made to the above-captioned lease and more particularly to paragraph 15 thereof entitled "Option to Renew". Please be advised that the tenant hereby exercises its option to renew the lease for an additional period of five years. Very truly yours, AMBOY BUS CO., INC. By: /s/ Domenic Gatto ---------------------------- Domenic Gatto President cc: James Dowling, Esq. EX-10.10 18 LEASE AGREEMENT 6/30 ROCKHILL LIMITED LEASE This Lease made and entered into as of this 30th day of June, 1993, by and between Rockhill Limited Partnership, and its successors and assigns (the "Lessor") and Mayflower Contract Services, Inc. (the "Lessee"), WITNESSETH: 1. LEASED PREMISES: LESSOR hereby agrees to lease to LESSEE and LESSEE hereby agrees to lease from LESSOR the premises owned by LESSOR commonly known as 6810 Prescott, St. Louis, Missouri, as more particularly described on Exhibit A attached hereto (the "Leased Premises".). 2. TERM, RENT AND OPTIONS: This Lease covering the Leased Premises shall be for an original term commencing July 15, 1993, through June 30, 1996. Rent shall be payable monthly in advance, on the first day of each month in the following amounts: July 15, 1993, to June 30, 1994, at a rate of $7,500 per month; July 1, 1994, to June 30, 1995, at a rate of $7,800 per month; and July 1, 1995, to June 30, 1996, at a rate of $8,l00 per month. LESSOR or LESSEE shall have the option between March 1 and March, 31 of each year to cancel or terminate this lease agreement effective June 30 of that specific year. Any monthly payment during the original term of this Lease, or any renewal term which is not received by the LESSOR by the tenth day of the month in which such payment is due shall be accompanied by an additional payment equal to five percent (5%) of the delinquent payment. The additional payment shall constitute additional rent under this Lease and shall be immediately due and payable. 3. SECURITY DEPOSIT: LESSEE shall deliver to LESSOR upon commencement of this Lease a security deposit in the amount of $15,O00. LESSOR shall hold the security deposit without liability for interest thereon and shall return said security deposit, less any rents or additional rents due hereunder and less any amounts necessary to repair damages to the Leased Premises, to the LESSEE promptly upon termination of this Lease. 4. POSSESSION AT BEGINNING OF TERM: LESSOR shall give possession at the beginning of the term of this Lease. 5. INSURANCE: LESSEE shall, at its own cost and expense, obtain and maintain extended coverage insurance for fire, windstorm, hail, earthquake, vandalism and malicious mischief, in an amount not less than 100% of the Leased Premises' replacement value, subject to a deductible amount of One Hundred Thousand Dollars ($100,000), and will keep such insurance in full force and effect during the entire term of the Lease, including all extension periods. All insurance against damage to the Leased Premises against fire or other casualty provided by LESSEE as required in this Paragraph shall be carried in favor of LESSOR and LESSEE as their interests may appear. LESSEE also agrees to maintain public liability insurance on the Premises in an amount not less than One Million Dollars ($1,000,000) combined single limit, for property damage, bodily injury and death. Lessor shall be an additional insured under the public liability policy. LESSEE is self-insured to the extent of any deductible permitted by this Paragraph and shall indemnify LESSOR from and against any loss, cost, expense or damage arising out of the existence of any such deductible. LESSEE shall furnish LESSOR certificates indicating that the insurance policies are in full force and effect and that the policies may not be canceled unless ten (10) day's prior written notice of the proposed cancellation has been given to LESSOR. 6. ASSIGNMENT AND SUBLEASE: LESSEE shall not assign, transfer, or encumber this Lease and shall not sublease the Leased Premises or any part thereof or allow any other person to be in possession thereof without the prior written consent of LESSOR. LESSOR shall not unreasonably withhold consent for LESSEE to sublease the whole or any part of the Leased Premises. 7. ACCEPTANCE, MAINTENANCE, AND REPAIR: LESSEE has inspected and knows the condition of the Leased Premises and accepts the same in their present condition (subject to ordinary wear, tear, and deterioration in the event the term commences after the date hereof and to the rights of present or former occupant or occupants, if any, to remove movable property). LESSEE shall take good care of the Leased Premises and the equipment and fixtures therein (including heating and air conditioning equipment) and shall keep the same in good working order and condition, including particularly protecting water pipes, heating and air conditioning equipment, plumbing, fixtures, appliances, and sprinkler system from becoming frozen, and shall keep the Leased Premises and the approaches, sidewalks, fences, parking lots and the alleys adjacent thereto, if any, clean and sightly and free from ice, snow, trash and weeds. At the expiration of the term, LESSEE shall surrender the premises broom clean, in as good condition as the reasonable use thereof will permit. LESSEE shall keep in repair, the roof, exterior and walls, gutters and downspouts of the premises in any building of which they are a part. LESSEE shall bear the entire cost of routine maintenance and repair of the Leased Premises. LESSEE shall bear only that pro rata portion of the cost of major repair of a piece of equipment on the Leased Premises with a cost in excess of $1,500 and with a useful life of five (5) or more years, which shall apply to the remainder of the term of the Lease, including available options, at the time such repair costs are incurred; provided LESSOR shall not be liable to pay any portion of the cost of such repairs due and owing to LESSEE'S failure to maintain the Leased Premises in accordance with the terms of this Lease. Should LESSEE fail within 30 days after written notice from LESSOR to LESSEE to make any maintenance or repairs required by this Lease, LESSOR may arrange to make the same on LESSEE'S behalf and the cost of said maintenance and repairs shall be additional rent under this Lease and shall be immediately due and payable. 8. LESSOR'S RIGHT OF ENTRY: LESSOR or LESSOR's agent may enter the Leased Premises at reasonable hours to examine the same and to do any LESSOR may be required to do hereunder or which LESSOR may deem necessary for the good of the Leased Premises or any building of which they are a part; and, during the last 180 days of this Lease, LESSOR may display a "For Rent" sign on, and show the Leased Premises. 9. DAMAGE BY CASUALTY: In case, during the term created or previous thereto, the Leased Premises hereby let, or the building on which said Leased Premises are a part, shall be destroyed or shall be so damaged by fire or other casualty, as to become untenantable, then in such event, at the option of the LESSOR, the term hereby created shall cease, and this Lease shall become null and void from the date of such damage or destruction and the LESSEE shall immediately surrender said Leased Premises and all interest therein to LESSOR, and LESSEE shall pay rent within said term only to the time of such surrender; provided, however, that LESSOR shall exersize such option to so terminate this Lease by notice in writing delivered to LESSEE within one hundred twenty (120) days after such damage or destruction. In case LESSOR shall not so elect to terminate this Lease, in such event, this Lease shall continue in full force and effect and the LESSOR shall repair the leased premises within one hundred eighty (180) days, placing the same in approximately as good a condition as they were at the time of the damage or destruction, and for that purpose may enter said Leased Premises and rent shall abate in proportion to the extent and duration of untenantability. In either event, LESSEE shall remove all rubbish, debris, merchandise, furniture, equipment and other of its personal property, within five (5) days after the request of the LESSOR. If the Leased Premises shall be but slightly injured by fire the elements so as not to render the same untenantable and unfit for occupancy, then the LESSOR shall repair the same within ninety (90) days, and in that case the rent shall not abate. No compensation or claim shall be made by or allowed to the LESSEE by reason of any inconvenience or annoyance arising from the necessity of repairing any portion of the building or the Leased Premises, however the necessity may occur. In the event the LESSOR elects to repair the Leased Premises but fails to complete the repairs as required herein, then LESSEE may terminate the Lease upon sixty (60) day's written notice to LESSOR. 10. PERSONAL PROPERTY: LESSOR shall not be liable for any loss or damage to any merchandise or personal property in or about the Leased Premises, regardless of the cause of such loss or damage. 11. PERSONAL INJURY: LESSOR shall not be liable for any personal injury occurring on the Leased Premises, regardless of the cause of such personal injury. LESSEE shall indemnify and hold LESSOR harmless for any such personal injury. 12. ALTERATIONS: LESSEE shall not make any alterations or additions in or to the Leased Premises without the prior written consent of LESSOR. 13. UTILITIES AND SERVICES: LESSEE shall furnish and pay for all electricity, gas, fuel, sewer, water and any services or utilities used in or assessed against the Leased Premises. 14. PUBLIC REQUIREMENTS: LESSEE shall comply with all laws, orders, ordinances and other public requirements now or hereafter affecting the Leased Premises or the use thereof (including, but not limited to, fueling equipment), and save LESSOR harmless from expense or damage resulting from failure to do so. The provisions of this Paragraph shall not apply to the fueling equipment currently installed on the Leased Premises unless placed in use by LESSEE. 15. FIXTURES: All building, repairs, alterations, additions, improvements, installations, equipment and fixtures, by whomsoever installed or erected (except such business trade fixtures belonging to LESSEE as can be removed without damage to or leaving incomplete the Leased Premises or building) shall belong to LESSOR and remain on and be surrendered with the Leased Premises as a part thereof, at the expiration of this lease or any extension thereof, unless LESSOR shall request removal of such and the repair of the damage caused thereby. 16. REAL ESTATES TAXES: LESSEE shall pay the real estate taxes, both general and special, payable with respect to the Leased Premises during any lease year during the term hereof. Should LESSEE fail to pay the real estate taxes prior said taxes becoming delinquent, LESSOR may pay said taxes on LESSEE'S behalf and the cost of said taxes shall be additional rent under this Lease and shall be immediately due and payable. 17. EMINENT DOMAIN: If the Leased Premises or any substantial part thereof shall be taken by any competent authority under the power of eminent domain or be acquired for any public or quasi public use or purpose, the term of this Lease shall cease and terminate upon the date when the possession of said Leased Premises or the part thereof so taken shall be required for such use or purpose and without apportionment of the award, and LESSEE shall have no claim against LESSOR for the value of any unexpired term of this Lease. If any condemnation proceeding shall be instituted in which it is sought to take or damage any part of LESSOR'S building or the land under it or if the grade of any street or alley adjacent to the building is changed by any competent authority and such change of grade makes it necessary or desirable to remodel the building to conform to the changed grade, LESSOR shall have the right to cancel this Lease after having given written notice of cancellation to LESSEE not less than ninety (90) days prior to the date of cancellation designated in the notice. In either of said events, rent at the then current rate shall be apportioned as the date of the termination. No money or other consideration shall be payable by the LESSOR to the LESSEE for the right of cancellation and the LESSEE shall have no right to share in the condemnation award or in any judgment for damages caused by the taking or the change of grade. Nothing in this Paragraph shall preclude an award being made to LESSEE by the condemning authority for loss of business or depreciation to and cost of removal of equipment or fixtures. 18. SUBROGATION: As part of the consideration of this Lease, each of the parties hereto does hereby release the other party hereto from all liability for damage due to any act or neglect of the other party (except as hereinafter provided) occasioned to property owned by said parties which is or might be incident to or the result of a fire or any other casualty against loss for which either of the parties is now carrying on hereafter may carry insurance; provided, however, that the releases herein contained shall not apply to any loss or damage occasioned by the willful, wanton, or premeditated negligence of either of the parties hereto, and the parties hereto further covenant that any insurance that they obtain on their respective properties shall contain an appropriate provision whereby the insurance company or companies consent to the mutual release of liability contained in this Paragraph. 19. DEFAULT: If default is made in the payment of any installment of rent on the due date thereof, or if LESSEE shall default in the performance of any other Agreement (other than payment of rent) and such default (other than payment of rent) continues for 30 days after written notice thereof, or if the Leased Premises be vacated or abandoned in violation of the terms hereof, then in any such event this Lease shall terminate, at the option of the LESSOR, and LESSOR may re-enter the Leased Premises and take possession thereof, with or without force or legal process and without notice or demand, the service of notice, demand or legal process being hereby expressly waived, and upon such entry, as aforesaid, this Lease shall terminate and the LESSOR may exclude LESSEE from the Leased Premises, changing the lock on the door or doors if deemed necessary, without being liable to LESSEE for any damages or for prosecution therefore, LESSOR's rights in such event may be enforced by action in unlawful detainer or other proper legal action, and the LESSEE shall remain liable for a sum equal to the entire rent payable to the end of the term hereof and shall pay any loss or deficiency sustained by the LESSOR on account of the Leased Premises being let for the remainder of the then current term for a sum less than the amount due hereunder. LESSOR, as agent for LESSEE without notice, may re-let the Leased Premises or any part thereof for the remainder of the then current term for a sum less than the amount due hereunder. LESSOR, as agent for LESSEE without notice, may re-let the Leased Premises or any part thereof for the remainder of the term or for any longer or shorter period as opportunity may offer, and at such rentals as may be obtained, and LESSEE agrees to pay the difference between a sum equal to the amount of rent payable during the residue of the term and the net rent actually received by the LESSOR during the term after deducting all expenses of every kind for repairs, recovering possession and re-letting the same, which difference shall accrue and be payable monthly. 20. WAIVER: The rights and remedies of the LESSOR under this Lease, as well as those provided or accorded by law, shall be cumulative, and none shall be exclusive of any other rights or remedies hereunder or allowed by law. A waiver by LESSOR of any breach or breaches, default or defaults, of LESSEE hereunder shall be in writing and shall not be deemed or construed to be a continuing waiver of such breach or default nor as a waiver of or permission, expressed or implied, for any subsequent breach or default, and it is agreed that the acceptance by LESSOR of any installment of rent subsequently to the date the same should have been paid hereunder, shall in no manner alter or affect the covenant and obligation of LESSEE to pay subsequent installments for rent promptly upon the due date thereof. No receipt of money by LESSOR after the termination of this Lease shall reinstate, continue or extend the term hereof. 21. NOTICES: Any notice required to be given by either party to the other shall be deposited in the United States mail, certified, postage prepaid, addressed to the following: To LESSOR: Rockhill Limited Partnership 10435 Baur Blvd. St. Louis, MO 63132 To LESSEE: Barry Bland Vice President Mayflower Contract Services, Inc. 544 Clark Kirkwood, MO 63122 with a copy to: Paul D. Larson Senior Vice President Mayflower Contract Services, Inc. 5360 College Blvd. Overland Park, KS 66211 22. SUCCESSORS: The provisions, covenants and conditions of this Lease shall bind and inure to the benefit of the legal representatives, heirs, successors and assigns of each of the parties hereto, except that no assignment or subletting may be made by LESSEE without the written consent Of LESSOR. 23. QUIET POSSESSION: LESSOR agrees that so long as LESSEE fully complies with all of the terms, covenants and conditions here contained on LESSEE's part to be kept and performed, LESSEE shall and may peaceably and quietly have, hold and enjoy the said Leased Premises for the term aforesaid, it being expressly understood and agreed that, however, the aforesaid covenent of quiet enjoyment shall be binding upon the LESSOR only so long as LESSOR remains the owner in fee or leasehold of the Leased Premises, anything to the contrary in this instrument notwithstanding. LESSOR and LESSEE covenants and represents to each other that each has full right, title, power and authority to make, execute and deliver this Lease. 24. BANKRUPTCY: Neither this Lease nor any interest therein nor any estate hereby created shall pass to any trustee or receiver in bankruptcy or to any other receiver or assignee for the benefit of creditors or otherwise by operation of law during the term of this Lease or any renewal thereof. 25. REMEDIES: If LESSEE should default under the terms of this Lease and such default is not cured in accordance with the terms hereof, LESSOR shall be entitled to take any available action, in law or in equity and shall also be entitled to all reasonable costs, charges, expenses and attorney's fees incurred in connection therewith. 26. ENTIRE AGREEMENT; SEVERABILITY: This Lease contains the entire Agreement between the parties, and no modification of this Lease shall be binding upon the parties unless evidenced by an agreement in writing signed by the LESSOR and the LESSEE after the date hereof. If any provision of this Lease shall be held invalid, the remaining provisions be unaffected by such invalidity and shall be enforceable in accordance with their terms. 27. HAZARDOUS WASTES AND ENVIRONMENTAL MATTERS. (A) LESSEE hereby waives and relinquishes any indemnification by or from LESSOR, expressed or implied, for any costs or liabilities arising out of or related to the discharge, release or presence of any hazardous or toxic waste, substance, or constituent or other substances on, in, or from the Leased Premises, which discharge, release or presence first occurs on or after July 15, 1995, and before the end of the Lease term or any extensions or renewals thereof. LESSEE shall indemnify, hold harmless and defend LESSOR against and in respect of any and all liability, claim, loss, cost, damage, expense (including attorneys' fees and remedial costs), fine, penalty, suit, demand or other action, including but not limited to those matters related to the death, dismemberment or other injury to any person, asserted against LESSOR resulting from, arising out of, related to or in connection with the (i) release by LESSEE, its agents, contractors or employees, from or upon the Leased Premises of any hazardous or toxic substance, waste, constituent or other substance into the environment; (ii) any arrangement by LESSEE, its affiliates, or agents for the treatment, recycling, storage or disposal at any facility owned or operated by any person or entity of a hazardous or toxic substance, waste, constituent or other substance which has been or may be deposited at, disposed on, or released onto the Leased Premises; and (iii) cleanup or other remedial measures with regard to environmental pollution caused by LESSEE, its affiliates or agents, which may be required by any governmental agency pursuant to federal, state or local statutes or regulations, including with limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. et seq. ("CERCLA"). (B) LESSOR hereby waives and relinquishes any indemnification by or from LESSEE, express or implied, for any costs or liabilities arising out of or related to the presence, discharged or release of any hazardous or toxic waste, substance, or constituent or other substances on, in, or from the Leased Premises, which presence, discharge, or release occurs before July 15, 1995, or after the expiration of this Lease including any extensions or renewals hereof. LESSOR shall indemnify, hold harmless and defend LESSEE against and in respect of any and all liability, claim, loss, cost, damage, expense (including attorneys' fees and remedial costs), fine, penalty, suit, demand or other action, including but not limited to those matters related to the death, dismemberment or other injury to any person, asserted against LESSEE resulting from, arising out of, related to or in connection with the: (i) release from or upon the Leased Premises of any hazardous or toxic substance, waste, constituent or other substance into the environment, (ii) the treatment, recycling, storage or disposal at any facility owned or operated by any person or entity of a hazardous or toxic substance, waste, constituent or other substance which has been deposited at, disposed on, or released onto the Leased Premises; and (iii) cleanup or other remedial measures with regard to environmental pollution caused by LESSOR, its predecessors in title, affiliates, agents or lessees which may be required by any governmental agency pursuant to federal, state, or local statues or regulations, including with limitation, CERCLA. (C) To the extent any provision of this Paragraph 27 is inconsistent with any other term of this Lease, this Paragraph 27 shall prevail. (D) The provisions of this Paragraph 27 shall survive the expiration or earlier termination of this Lease. IT WITNESS WHEREOF, the parties have signed triplicate copies hereof. MAYFLOWER CONTRACT SERVICES, INC. By /s/ [ILLEGIBLE] ---------------------------------------- LESSEE ROCKHILL LIMITED PARTNERSHIP By /s/ Harry T. Bussmann, III ---------------------------------------- Harry T. Bussmann, III, General Partner LESSOR EXHIBIT "A" The real estate and improvements located at 6810 Prescott, St. Louis City, Missouri 63110, said property being more particularly described as follows: A parcel of CB 3511 Bulwer with approximately 6.601 acres of the O'Falon Estate Addition bounded on the South 640 feet NNL of Newman, plus a parcel of CB 4200 W. N. Front with .773 acres bounded W 425 feet E E.L. of Broadway, plus a parcel of CB 4200 N Front with .056 acres survey 926 addition bounded W 292 feet E of Broadway. SUBLEASE THIS SUBLEASE is made and entered into this 28th day of May, 1996, by and between Mayflower Contract Services, Inc. doing business as Laidlaw Transit, Inc., hereinafter referred to as "SUBLESSOR" and Atlantic Express of Missouri, hereinafter referred to as "SUBLESSEE". WHEREAS, SUBLESSOR is a Tenant under a Lease dated June 30, 1993, and Amendment to Lease dated April 28, 1995, (hereinafter said Lease and Amendment shall be referred to as the "Prime Lease"), for a property located at 6810 Prescott, St. Louis, Missouri (hereinafter referred to as the "Premises"), wherein Rockhill Partnership (hereinafter referred to as the "Landlord") is the Lessor and SUBLESSOR is the Lessee; and WHEREAS, SUBLESSEE wishes to sublease the Premises subject to said Prime Lease from SUBLESSOR. NOW, THEREFORE, for and in consideration of the above premises and the mutual promises and covenants contained herein, the parties agree as follows: 1. SUBLESSOR does hereby Sublease the Premises subject to the Prime Lease upon the terms and conditions as set forth herein. 2. SUBLESSEE, by its acceptance of this Sublease, assumes the performance of all SUBLESSOR'S duties and obligations under the assigned Prime Lease, and will hold SUBLESSOR harmless, including any attorneys fees, from any liability or loss resulting from the performance or nonperformance of SUBLESSEE'S duties and obligations under said Prime Lease. 3. This Sublease is conditioned upon the approval of Rock Hill Partnership, the Landlord to this Sublease. 4. Notwithstanding the foregoing, SUBLESSOR shall retain ownership of the security deposit as set forth in Paragraph 1 of the Prime Lease Addenda. The Landlord shall be entitled to retain a security deposit of $8,400 from Atlantic Express of Missouri and a security deposit of $6,600 from Laidlaw Transit, Inc. totaling $15,000 throughout the term of the Prime Lease, pursuant to the terms and conditions of the Prime Lease and to secure the performance of SUBLESSEE'S duties and obligations under the Prime Lease. Should, at the termination of the Prime Lease, SUBLESSEE have completed all of its duties and obligations and the security deposit be refundable, then, any security deposit so refunded shall be refunded to SUBLESSOR, pursuant to the terms of this Sublease. 5. SUBLESSEE shall pay all rents due under said Prime Lease directly to the Landlord under said Prime Lease commencing July 1,1996 through June 30, 1998. The rent due under the Prime Lease shall be as follows: July 1, 1996 - June 30, 1997 = $8,400/month July 1, 1997 - June 30, 1998 = $8,700/month 6. In case of default of SUBLESSEE under the terms of the Prime Lease or this Sublease, SUBLESSOR may terminate this Sublease and retake possession of the Premises using SUBLESSOR INITIAL /s/ [ILLEGIBLE] -Page 1- SUBLESSEE INITIAL /s/ [ILLEGIBLE] any and all lawful means. SUBLESSEE shall be accountable to SUBLESSOR for any and all damages incurred by SUBLESSOR, including attorneys fees, arising from SUBLESSEE'S breach of this Sublease or the Prime Lease. 7. In the event SUBLESSEE shall breach this Sublease or fail to perform any of the covenants assumed herein, the Landlord may assert claims for damages suffered by the Landlord against SUBLESSEE and such claims shall not preclude or limit the Landlord from asserting claims for additional damages or asserting other remedies against the SUBLESSOR or SUBLESSOR'S security deposit as referred to in Paragraph 4 above. In the event the Landlord is required to institute any such claims, the SUBLESSEE agrees to pay the reasonable cost and attorney's fees incurred by the Landlord in connection therewith. 8. This Sublease is binding upon the parties hereto and shall inure to the benefit of the parties hereto and the Landlord and their respective heirs, personal representatives, successors and assigns. This Sublease may not be amended or cancelled, the Premises may not be further subleased, and neither SUBLESSOR or SUBLESSEE may assign their rights hereunder, without the prior written consent of Landlord. IN WITNESS WHEREOF, the parties have executed this Sublease on the day and year first above written. SUBLESSOR: SUBLESSEE: MAYFLOWER CONTRACT SERVICES, INC. DOING BUSINESS AS LAIDLAW TRANSIT, INC. ATLANTIC EXPRESS OF MISSOURI By: /s/ [ILLEGIBLE] By: /s/ David T. [ILLEGIBLE] -------------------------- ------------------------- This First Amendment to Lease ("First Amendment") is entered into the 28th of April, 1995, by and between Rock Hill Limited Partnership, a Missouri limited partnership ("Landlord"), whose address is 10435 Baur Blvd., St. Louis, Missouri 63132, and Laidlaw Transit, Inc., a Missouri corporation, ("Tenant"), whose address is 2210 S. 7th Street, St. Louis, Missouri 63104. RECITALS Tenant currently leases from Landlord certain real property and improvements thereon located in City of St. Louis, Missouri, known as 6810 Prescott pursuant to a Lease dated June 30, 1993. AGREEMENT For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant agree to amend the Lease as follows: 1. Rent. The rent which Tenant is obligated to pay pursuant to the Lease, shall be as follows: o July 1, 1995, through June 30, 1996, $8,l00.00/month. o July 1, 1996, through June 30, l997, $8,400.00/month. o July 1, 1997, through June 30, 1998, $8,700.00/month. 2. Incorporation of Recitals. The Recitals to this First Amendment are incorporated herein and made a part hereof. 3. Incorporation of Lease. The terms and conditions of this First Amendment shall be deemed incorporated into the Lease and shall be governed, enforced and interpreted in accordance therewith. 4. No Additional Amendments. The Lease shall be amended and modified only to the extent and as specifically provided for in this First Amendment; it is otherwise ratified and affirmed. 5. Drafting of First Amendment. This First Amendment is a product of the negotiations of both parties. For convenience, it has been drafted by one of the parties and it shall not be construed in favor of, or against, either party simply because it was drafted by one party. 6. No Default Waiver. This First Amendment does not waive any prior, present or future default by either party hereto which has occurred or may occur under the terms of the Lease. 7. Counterparts. This First Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document. LANDLORD TENANT Rock Hill Limited Partnership, Laidlaw Transit, Inc., a Missouri Corporation a Limited Partnership by /s/ [ILLEGIBLE] by /s/ [ILLEGIBLE] ----------------------------- ------------------- Title Gen'l Partner Title Dist Dir of Maint ACCEPTANCE OF SUBLEASE COMES NOW Rock Hill Partnership and hereby accepts the terms and conditions of the Sublease by and between Mayflower Contract Services, Inc. doing business as Laidlaw Transit, Inc., SUBLESSOR and Atlantic Express of Missouri, SUBLESSEE. The Landlord does not release Laidlaw Transit, Inc. from liability under said Prime Lease, but hereby accepts the Sublease and Assignment and accepts Atlantic Express of Missouri, first, for all duties and obligations of Tenant under said Prime Lease, but should Atlantic Express of Missouri fail to fulfill said obligations, then Rock Hill Partnership may look to Laidlaw Transit, Inc. for fulfillment of said terms and obligations. Notwithstanding the foregoing, should Atlantic Express of Missouri, as Tenant, fully perform all of its duties and obligations under said Prime Lease and should the security deposit, as set forth in Paragraph 1 of said Prime Lease Addenda, be due and owing at the termination of the initial term of the Prime Lease, then $8,400 of the security deposit shall be returned to Atlantic Express of Missouiri and the balance of $6,600 of the security deposit shall be returned to Laidlaw Transit, Inc. Notwithstanding the foregoing, Rock Hill Partnership, may not make any agreement with SUBLESSEE which would increase the duties and obligations of SUBLESSEE or SUBLESSOR without the written approval of SUBLESSOR. Furthermore, no option to extend said Prime Lease shall be made between SUBLESSEE and SUBLESSOR. Any and all notices to be sent under the terms of the Prime Lease by Rock Hill Partnership shall be sent to both Laidlaw Transits, Inc. at _______________ and Atlantic Express of Missouri at 6810 Prescott, St. Louis, Missouri. ROCK HILL PARTNERSHIP L.P. By /s/ Harry T. Bussmann, III ---------------------------------------- General Partner SUBLEASE THIS SUBLEASE is made and entered into this 28th day of May, 1996, by and between Mayflower Contract Services, Inc. doing business as Laidlaw Transit, Inc., hereinafter referred to as "SUBLESSOR" and Atlantic Express of Missouri, hereinafter referred to as "SUBLESSEE". WHEREAS, SUBLESSOR is a Tenant under a Lease dated June 30, 1993, and Amendment to Lease dated April 28, 1995, (hereinafter said Lease and Amendment shall be referred to as the "Prime Lease"), for a property located at 6810 Prescott, St. Louis, Missouri (hereinafter referred to as the "Premises"), wherein Rockhill Partnership (hereinafter referred to as the "Landlord") is the Lessor and SUBLESSOR is the Lessee; and WHEREAS, SUBLESSEE wishes to sublease the Premises subject to said Prime Lease from SUBLESSOR. NOW, THEREFORE, for and in consideration of the above premises and the mutual promises and covenants contained herein, the parties agree as follows: 1. SUBLESSOR does hereby Sublease the Premises subject to the Prime Lease upon the terms and conditions as set forth herein. 2. SUBLESSEE, by its acceptance of this Sublease, assumes the performance of all SUBLESSOR'S duties and obligations under the assigned Prime Lease, and will hold SUBLESSOR harmless, including any attorneys fees, from any liability or loss resulting from the performance or nonperformance of SUBLESSEE'S duties and obligations under said Prime Lease. 3. This Sublease is conditioned upon the approval of Rock Hill Partnership, the Landlord to this Sublease. 4. Notwithstanding the foregoing, SUBLESSOR shall retain ownership of the security deposit as set forth in Paragraph 1 of the Prime Lease Addenda. The Landlord shall be entitled to retain a security deposit of $8,400 from Atlantic Express of Missouri and a security deposit of $6,600 from Laidlaw Transit, Inc. totaling $15,000 throughout the term of the Prime Lease, pursuant to the terms and conditions of the Prime Lease and to secure the performance of SUBLESSEE'S duties and obligations under the Prime Lease. Should, at the termination of the Prime Lease, SUBLESSEE have completed all of its duties and obligations and the security deposit be refundable, then, any security deposit so refunded shall be refunded to SUBLESSOR, pursuant to the terms of this Sublease. 5. SUBLESSEE shall pay all rents due under said Prime Lease directly to the Landlord under said Prime Lease commencing July 1,1996 through June 30, 1998. The rent due under the Prime Lease shall be as follows: July 1, 1996 - June 30, 1997 = $8,400/month July 1, 1997 - June 30, 1998 = $8,700/month 6. In case of default of SUBLESSEE under the terms of the Prime Lease or this Sublease, SUBLESSOR may terminate this Sublease and retake possession of the Premises using SUBLESSOR INITIAL /s/ [ILLEGIBLE] -Page 1- SUBLESSEE INITIAL /s/ [ILLEGIBLE] any and all lawful means. SUBLESSEE shall be accountable to SUBLESSOR for any and all damages incurred by SUBLESSOR, including attorneys fees, arising from SUBLESSEE'S breach of this Sublease or the Prime Lease. 7. In the event SUBLESSEE shall breach this Sublease or fail to perform any of the covenants assumed herein, the Landlord may assert claims for damages suffered by the Landlord against SUBLESSEE and such claims shall not preclude or limit the Landlord from asserting claims for additional damages or asserting other remedies against the SUBLESSOR or SUBLESSOR'S security deposit as referred to in Paragraph 4 above. In the event the Landlord is required to institute any such claims, the SUBLESSEE agrees to pay the reasonable cost and attorney's fees incurred by the Landlord in connection therewith. 8. This Sublease is binding upon the parties hereto and shall inure to the benefit of the parties hereto and the Landlord and their respective heirs, personal representatives, successors and assigns. This Sublease may not be amended or cancelled, the Premises may not be further subleased, and neither SUBLESSOR or SUBLESSEE may assign their rights hereunder, without the prior written consent of Landlord. IN WITNESS WHEREOF, the parties have executed this Sublease on the day and year first above written. SUBLESSOR: SUBLESSEE: MAYFLOWER CONTRACT SERVICES, INC. DOING BUSINESS AS LAIDLAW TRANSIT, INC. ATLANTIC EXPRESS OF MISSOURI By: /s/ [ILLEGIBLE] By: /s/ David [ILLEGIBLE] -------------------------- ------------------------- EX-10.11 19 LEASE AGREEMENT 8/1 STAMAR REALTY STANDARD FORM OF STORE LEASE The Real Estate Board of New York, Inc. Agreement of lease, made as of this 1st day of August 1995, between Stamar Realty Corp. party of the first part, hereinafter referred to as OWNER, and or Landlord, and 180 Jamaica Corp. party of the second part, hereinafter referred to as TENANT. Witnesseth: Owner hereby leases to Tenant and Tenant hereby hires from Owner the building (approximately 21,000 square feet) known as 107-10 180th Street and the land (consisting of approximately 201,000 square feet) as set forth on the site plan annexed hereto in the Borough of Queens, City of New York, for the term of (or until such term shall sooner cease and expire as hereinafter provided) to commence on the 1st day of August nineteen hundred and ninety-five, and to end on the 31st day of July two thousand and ten, unless terminated sooner both dates inclusive, at an annual rental rate of ____ as hereinafter provided see rider which Tenant agrees to pay in lawful money of the United States which shall be legal tender in payment of all debts and dues, public and private, at the time of payment, in equal monthly installments in advance on the first day of each month during said term, at the office of Owner or such other place as Owner may designate, without any set off or deduction whatsoever, except that Tenant shall pay the first monthly installment(s) on the execution hereof (unless this lease be a renewal). In the event that, at the commencement of the term of this lease, or thereafter, Tenant shall be in default in the payment of rent to Owner pursuant to the terms of another lease with Owner or with Owner's predecessor in interest, Owner may at Owner's option and without notice to Tenant add the amount of such arrears to any monthly installment of rent payable hereunder and the same shall be payable to Owner as additional rent. The parties hereto, for themselves, their heirs, distributees, executors, administrators, legal representatives, successors and assigns, hereby covenant as follows: Rent: 1. Tenant shall pay the rent as above and as hereinafter provided. Occupancy: 2. Tenant shall use and occupy demised premises for a vehicle storage and maintenance facility and offices. Tenant shall at all times conduct its business in a high grade and reputable manner, shall not violate Article 37 hereof, and shall keep show windows and signs in a neat and clean condition. Alterations: 3. Tenant shall make no changes in or to the demised premises of any nature without Owner's prior written consent. Subject to the prior written consent of Owner, and to the provisions of this article, Tenant, at Tenant's expense, may make alterations, installations, additions or improvements which are non-structural and which do not affect utility services or plumbing and electrical lines, in or to the interior of the demised premises by using contractors or mechanics first approved in each instance by Owner. Tenant shall, before making any alterations, additions, installations or improvements, at its expense, obtain all permits, approvals and certificates required by any governmental or quasi-governmental bodies and (upon completion) certificates of final approval thereof and shall deliver promptly duplicates of all such permits, approvals and certificates to Owner and Tenant agrees to carry and will cause Tenant's contractors and sub-contractors to carry such workman's compensation, general liability, personal and property damage insurance as Owner may require. If any mechanic's lien is filed against the demised premises, or the building of which the same forms a part, for work claimed to have done for, or materials furnished to, Tenant, whether or not done pursuant to this article, the same shall be discharged by Tenant within 30 days thereafter, at Tenant's expense, by payment or filing the bond required by law. All fixtures and all paneling, partitions, railings and like installations installed in the premises at any time, either by Tenant or by Owner on Tenant's behalf, shall, upon installation, become the property of Owner and shall, upon installation, become the property of Owner and shall remain upon and be surrendered with the demised premises unless Owner by notice to Tenant no later than twenty days prior to the date fixed as the termination of this lease, elects to relinquish Owners rights thereto and to have them removed by Tenant, in which event, the same shall be removed from the premises by Tenant prior to the expiration of the lease, at Tenant's expense. Nothing in this article shall be construed to give Owner title to or to prevent Tenant's removal of trade fixtures, moveable office furniture and equipment, but upon removal of any such from the premises or upon removal of other installation as may be required by Owner, Tenant shall immediately and at its expense, repair and restore the premises to the condition existing prior to installation and repair any damage to the demised premises or the building due to such removal. All property permitted or required to be removed by Tenant at the end of the term remaining in the premises after Tenant's removal shall be deemed abandoned and may, at the election of Owner, either be retained as Owner's property or may be removed from the premises by Owner at Tenant's expense. Repairs: 4. Owner shall maintain and repair the public portions of the building, both exterior and interior, except that if Owner allows Tenant to erect on the outside of the building a sign or signs, or a hoist, lift or sidewalk elevator for the exclusive use of Tenant, Tenant shall maintain such exterior installations in good appearance and shall cause the same to be operated in a good and workmanlike manner and shall make all repairs thereto necessary to keep same in good order and condition at Tenant's own cost and expense, and shall cause the same to be covered by the insurance provided for hereafter in Article 8. Tenant shall, throughout the term of this lease, take good care of the demised premises and the fixtures and appurtenances therein, and the sidewalks adjacent thereto, and at its sole cost and expense, make all non-structural repairs thereto as and when needed to preserve them in good working order and condition, reasonable wear and tear, obsolescence and damage from the elements, fire or other casualty, excepted. If the demised premises be or become infested with vermin, Tenant shall at Tenant's expense, cause the same to be exterminated from time to time to the satisfaction of Owner. Except as specifically provided in Article 9 or elsewhere in this lease, there shall be no allowance to the Tenant for the diminution of rental value and no liability on the part of Owner by reason of inconvenience, annoyance or injury to business arising from Owner, Tenant or others making or failing to make any repairs, alterations, additions or improvements in or to any portion of the building including the erection or the operation of any crane, derrick or sidewalk shed, or in or to the demised premises or the fixtures, appurtenances or equipment thereof. It is specifically agreed that Tenant shall be not entitled to any set off or reduction of rent by reason of any failure of Owner to comply with the covenants of this or any other article of this lease. Tenant agrees that Tenant's sole remedy at law in such instance will be by way of an action for damages for breach of contract. The provisions of this Article 4 with respect to the making of repairs shall not apply in the case of fire or other Casualty which are dealt with in Article 9 hereof. Window Cleaning: 5. Tenant will not clean nor require, permit, suffer or allow any window in the demised premises to be cleaned from the outside in violation of Section 202 of the New York State Labor Law or any other applicable law or of the Rules of the Board of Standards and Appeals, or of any other Board or body having or asserting jurisdiction. Requirements of Law, Fire Insurance: 6. Prior to the commencement of the lease term, if Tenant is then in possession, and at all times thereafter, Tenant, at Tenant's sole cost and expense, shall promptly comply with all present and future laws, orders and regulations of all state, federal, municipal and local governments, departments, commissions and boards and any direction of any public officer pursuant to law, and all orders, rules and regulations of the New York Board of Fire Underwriters or the Insurance Services Office, or any similar body which shall impose any violation, order or duty upon Owner or Tenant with respect to the demised premises, and with respect to the portion of the sidewalk adjacent to the premises, if the premises are on the street level, whether or not arising out of Tenant's use or manner of use thereof, or with respect to the building if arising out of Tenant's use or manner of use of the premises or the building (including the use permitted under the lease). Except as provided in Article 29 hereof, nothing herein shall require Tenant to make structural repairs or alterations unless Tenant has by its manner of use of the demised premises or method of operation therein, violated any such laws, ordinances, orders, rules, regulations or requirements with respect thereto. Tenant shall not do or permit any act or thing to be done in or to the demised premises which is contrary to law, or which will invalidate or be in conflict with public liability, fire or other policies of insurance at any time carried by or for the benefit of Owner. Tenant shall pay all costs, expenses, fines, penalties or damages, which may be imposed upon Owner by reason of Tenant's failure to comply with the provisions of this article. If the fire insurance rate shall, at the beginning of the lease or at any time thereafter, be higher than it otherwise would be, then Tenant shall reimburse Owner, as additional rent hereunder, for that portion of all fire insurance premiums thereafter paid by Owner which shall have been charged because of such failure by Tenant to comply with the terms of this article. In any action or proceeding wherein Owner and Tenant are parties, a schedule or "make-up" of rate for the building or demised premises issued by a body making fire insurance rates applicable to said premises shall be conclusive evidence of the facts therein stated and of the several items and charges in the fire insurance rate then applicable to said premises. Subordination: 7. This lease is subject and subordinate to all ground or underlying leases and to all mortgages which may now or hereafter affect such leases or the real property of which demised premises are a part and to all renewals, modifications, consolidations, replacements, and extensions of any such underlying leases and mortgages. This clause shall be self-operative and no further instrument of subordination shall be required by any ground or underlying lessor or by any mortgagee, affecting any lease or the real property of which the demised premises are a part. In confirmation of such subordination, Tenant shall from time to time execute promptly any certificate that Owner may request. Tenant's Liability Insurance Property Loss, Damage, Indemnity: 8. Owner or its agents shall not be liable for any damage to property of Tenant or of others entrusted to employees of the building, nor for loss of or damage to any property of Tenant by theft or other wise, nor for any injury or damage to persons or property resulting from any cause of whatsoever nature, unless caused by or due to the negligence of Owner, its agents, servants or employees. Owner or its agents will not be liable for any such damage caused by other tenants or persons in, upon or about said building or caused by operations in construction of any private, public or quasi public work. Tenant agrees, at Tenant's sole costs and expense, to maintain general public liability insurance in standard form in favor of Owner and Tenant against claims for bodily injury or death or property damage occurring in or upon the demised premises, effective from the date Tenant enters into possession and during the term of this lease. Such insurance shall be in an amount and with carriers acceptable to the Owner. Such policy or policies shall be delivered to the Owner. On Tenant's default in obtaining or delivering any such policy or policies or failure to pay the charges therefor, Owner may secure or pay the charges for any such policy or policies and charge the Tenant as additional rent therefor. Tenant shall indemnify and save harmless Owner against and from all liabilities, obligations, damages, penalties, claims, costs and expenses for which Owner shall not be reimbursed by insurance, including reasonable attorneys fees, paid, suffered or incurred as a result of any breach by Tenant, Tenant's agent, contractors, employees, invitees, or licensees, of any covenant on condition of this lease, or the carelessness, negligence or improper conduct of the Tenant, Tenant's agents, contractors, employees, invitees or licensees. Tenant's liability under this lease extends to the acts and omissions of any subtenant, and any agent, contractor, employee, invitee or licensee of any subtenant. In case any action or proceeding is brought against Owner by reason of any such claim, Tenant, upon written notice from Owner, will, at Tenant's expense, resist or defend such acton or proceeding by counsel approved by Owner in writing, such approval not to be unreasonably withheld. Destruction, Fire, and other Casualty: 9. (a) If the demised premises or any part thereof shall be damaged by fire or other casualty, Tenant shall give immediate notice thereof to owner and this lease shall continue in full force and effect except as hereinafter set forth. (b) If the demised premises are partially damaged or rendered partially unusable by fire or other casualty, the damages therein shall be repaired by and at the expense of owner and the rent and other items of additional rent, until such repair shall be substantially completed, shall be apportioned from the day following the casualty according to the part of the premises which is usable. (c) If the demised premises are totally damaged or rendered wholly unusable by fire or other casualty, then the rent and other items of additional rent as hereinafter expressly provided shall be proportionately paid up to the time of the casualty and thenceforth shall cease until the date when the premises shall have been repaired and restored by Owner (or sooner reoccupied in part by Tenant then rent shall be apportioned as provided in subsection (b) above), subject to Owner's right to elect not to restore the same as hereinafter provided. (d) If the demised premises are rendered wholly unusable or (whether or not the demised premises are damaged in whole or in part) if the building shall be so damaged that Owner shall decide to demolish it or to rebuild it, then, in any of such events, Owner may elect to terminate this lease by written notice to Tenant given within 90 days after such fire or casualty or 30 days after adjustment of the insurance claim for such fire or casualty, whichever is sooner, specifying a date for the expiration of the lease, which date shall not be more than 60 days after the giving of such notice, and upon the date specified in such notice the term of this lease shall expire as fully and completely as if such date were the date set forth above for the termination of this lease and Tenant shall forthwith quit, surrender and vacate the premises without prejudice however, to Owner's rights and remedies against Tenant under the lease provisions in effect prior to such termination, and any rent owing shall be paid up to such date and any payments of rent made by Tenant which were on account of any period subsequent to such date shall be returned to Tenant. Unless Owner shall serve a termination notice as provided for herein, Owner shall make the repairs and restoration under the conditions of (b) and (c) hereof, with all reasonable expedition subject to delays due to adjustment of insurance claims, labor troubles and causes beyond Owner's control. After any such casualty, Tenant shall cooperate with Owner's restoration by removing from the premises as promptly as reasonably possible, all of Tenant's salvageable inventory and movable equipment, furniture, and other property. Tenant's liability for rent shall resume five (5) days after written notice from Owner that the premises are substantially ready for Tenant's occupancy. (e) Nothing contained hereinabove shall relieve Tenant from liability that may exist as a result of damage from fire or other casualty. Notwithstanding the foregoing, including Owner's obligation to restore under subparagraph (b) above, each party shall look first to any insurance in its favor before making any claim against the other party for recovery for loss or damage resulting from fire or other casualty, and to the extent that such insurance is in force and collectible and to the extent permitted by law, Owner and Tenant each hereby releases and waives all right of recovery with respect to subparagraphs (b), (d), and (e) above, against the other or anyone claiming through or under each of them by way of subrogation or otherwise. The release and waiver herein referred to shall be deemed to include any loss or damage to the demised premises and/or any personal property, equipment, trade fixtures, goods and merchandise located therein. The foregoing release and waiver shall be in force only if both releasors' insurance policies contain a clause providing that such a release or waiver shall not invalidate the insurance. Tenant acknowledges that Owner will not carry insurance on Tenant's furniture and/or furnishings or any fixtures or equipment, improvements, or appurtenances removable by Tenant and agrees that Owner will not be obligated to repair any damage thereto or replace the same. (f) Tenant hereby waives the provisions of Section 227 of the Real Property Law and agrees that the provisions of this article shall govern and control in lieu thereof. Eminent Domain: 10. If the whole or any part of the demised premises shall be acquired or condemned by Eminent Domain for any public or quasi public use or purpose, then and in that event, the term of this lease shall cease and terminate from that date of title vesting in such proceeding and Tenant shall have no claim for the value of any unexpired term of said lease. Tenant shall have the right to make an independent claim to the condemning authority for the value of Tenant's moving expenses and personal property, trade fixtures and equipment, provided Tenant is entitled pursuant to the terms of the lease to remove such property, trade fixtures and equipment, at the end of the term and provided further such claim does not reduce Owner's award. Assignment, Mortgage, Etc.: 11. Tenant, for itself, its heirs, distributees, executors, administrators, legal representatives, successors and assigns expressly covenants that it shall not assign, mortgage or encumber this agreement, nor underlet, or suffer or permit the demised premises or any part thereof to be used by others, without the prior written consent of Owner in each instance. Transfer of the majority of the stock of a corporate tenant or the majority partnership interest of a partnership tenant shall be deemed an assignment. If this lease be assigned, or if the demised premises or any part thereof be underlet or occupied by anybody other than Tenant, Owner may, after default by Tenant, collect rent from the assignee, under-tenant or occupant, and apply the net amount collected to the rent herein reserved, but no such assignment, underletting, occupancy or collection shall be deemed a waiver of the covenant, or the acceptance of the assignee, under-tenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained. The consent by Owner to an assignment or underletting shall not in any wise be construed to relieve Tenant from obtaining the express consent in writing of Owner to any further assignment or underletting. Electric Current: 12. Rates and conditions in respect to submetering or rent inclusion, as the case may be, to be added in RIDER attached hereto. Tenant covenants and agrees that at all times its use of electric current shall not exceed the capacity of existing feeders to the building or the risers or wiring installation and Tenant may not use any electrical equipment which, in Owner's opinion, reasonably exercised, will overload such installations or interfere with the use thereof by other tenants of the building. The change at any time of the character of electric service shall in no wise make Owner liable or responsible to Tenant, for any loss, damages or expenses which Tenant may sustain. Access to Premises: 13. Owner or Owner's agents shall have the right (but shall not be obligated) to enter the demised premises in any emergency at any time, and, at other reasonable times, to examine the same and to make such repairs, replacements and improvements as Owner may deem necessary and reasonably desirable to any portion of the building or which Owner may elect to perform, in the premises, following Tenant's failure to make repairs or perform any work which Tenant is obligated to perform under this lease, or for purpose of complying with laws, regulations and other directions of governmental authorities. Tenant shall permit Owner to use and maintain and replace pipes and conduits in and through the demised premises and to erect new pipes and conduits therein, provided they are concealed within the walls, floors or ceiling, wherever practicable. Owner may, during the progress of any work in the demised premises, take all necessary materials and equipment into said premises without the same constituting an eviction nor shall the Tenant be entitled to any abatement of rent while such work is in progress nor to any damages by reason of loss or interruption of business otherwise. Throughout the term hereof Owner shall have the right to enter the demised premises at reasonable hours for the purpose of showing the same to prospective purchasers or mortgagees of the building, and during the last six months of the term for the purpose of showing the same to prospective tenants and may, during said six months period, place upon the demised premises the usual notice "To Let" and "For Sale" which notices Tenant shall permit to remain thereon without molestation. If Tenant is not present to open and permit an entry into the demised premises, Owner or Owner's agents may enter the same whenever such entry may be necessary or permissible by master key or forcibly and provided reasonable care is exercised to safeguard Tenant's property, such entry shall not render Owner or its agents liable therefor, nor in any event shall the obligations of Tenant hereunder be affected. If during the last month of term Tenant shall have removed all or substantially all of Tenant's property therefrom, Owner may immediately enter, alter, renovate or redecorate the demised premises without limitation or abatement of rent, or incurring liability to Tenant for any compensation and such act shall have no effect on this lease or Tenant's obligations hereunder. Owner shall have the right at any time, without the same constituting an eviction and without incurring liability to Tenant therefor to change the arrangement and/or location of public entrances, passageways, doors, doorways, corridors, elevators, stairs, toilets, or other public parts of the building and to change the name, number or designation by which the building may be known. Vault, Vault Space, Area: 14. No vaults, vault space or area, whether or not enclosed or covered, not within the property line of the building is leased hereunder, anything contained in or indicated on any sketch, blue print or plan, or anything contained elsewhere in this lease to the contrary notwithstanding. Owner makes no representation as to the location of the property line of the - ---------- Rider to be added if necessary. building. All vaults and vault space and all such areas not within the property line of the building, which Tenant may be permitted to use and/or occupy, is to be used and/or occupied under a revocable license, and if any such license be revoked, or if the amount of such space or area be diminished or required by any federal, state or municipal authority or public utility, Owner shall not be subject to any liability nor shall Tenant be entitled to any compensation or diminution or abatement of rent, nor shall such revocation, diminution or requisition be deemed constructive or actual eviction. Any tax, fee or charge of municipal authorities for such vault or area shall be paid by Tenant. Occupancy: 15. Tenant will not at any time use or occupy the demised premises in violation of Articles 2 or 37 hereof, or of the certificate of occupancy issued for the building of which the demised premises are a part. Tenant has inspected the premises and accepts them as is, subject to the riders annexed hereto with respect to owner's work, if any. In any event, Owner makes no representation as to the condition of the premises and Tenant agrees to accept the same subject to violations whether or not of record. Bankruptcy: 16. (a) Anything elsewhere in this lease to the contrary notwithstanding, this lease may be cancelled by Landlord by the sending of a written notice to Tenant within a reasonable time after the happening of any one or more of the following events: (1) the commencement of a case in bankruptcy or under the laws of any state naming Tenant as the debtor; or (2) the making by Tenant of an assignment or any other arrangement for the benefit of creditors under any state statute. Neither Tenant nor any person claiming through or under Tenant, or by reason of any statute or order of court, shall thereafter be entitled to possession of the premises demised but shall forthwith quit and surrender the premises. If this lease shall be assigned in accordance with its terms, the provisions of this Article 16 shall be applicable only to the party then owning Tenant's interest in this lease. (b) It is stipulated and agreed that in the event of the termination of this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any other provisions of this lease to the contrary, be entitled to recover from Tenant as and for liquidated damages an amount equal to the difference between the rent reserved hereunder for the unexpired portion of the term demised and the fair and reasonable rental value of the demised premises for the same period. In the computation of such damages the difference between any installment of rent becoming due hereunder after the date of termination and the fair and reasonable rental value of the demised premises for the period for which such installment was payable shall be discounted to the date of termination at the rate of four percent (4%) per annum. If such premises or any part thereof be re-let by the Owner for the unexpired term of said lease, or any part therof, before presentation of proof of such liquidated damages to any court, commission or tribunal, the amount of rent reserved upon such re-letting shall be deemed to be the fair and reasonable rental value for the part or the whole of the premises so re-let during the term of the re-letting. Nothing herein contained shall limit or prejudice the right of the Owner to prove for and obtain as liquidated damages by reason of such termination, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, such damages are to be proved, whether or not such amount be greater, equal to, or less than the amount of the difference referred to above. Default: 17. (1) If Tenant defaults in fulfilling any of the covenants of this lease other than the covenants for the payment of rent or additional rent; or if the demised premises become vacant or deserted; or if any execution or attachment shall be issued against Tenant or any of Tenant's property whereupon the demised premises shall be taken or occupied by someone other than Tenant; or if this lease be rejected under Section 365 of Title 11 of the U.S. Code (Bankruptcy Code) or if Tenant shall fail to move into or take possession of the premises within thirty (30) days after the commencement of the term of this lease, of which fact Owner shall be the sole judge; then, in any one or more of such events, upon Owner serving a written fifteen (15) days notice upon Tenant specifying the nature of said default and upon the expiration of said fifteen (15) days, if Tenant shall have failed to comply with or remedy such default, or if the said default or omission complained of shall be of a nature that the same cannot be completely cured or remedied within said fifteen (15) day period, and if Tenant shall not have diligently commenced curing such default within such fifteen (15) day period, and shall not thereafter with reasonable diligence and in good faith proceed to remedy or cure such default, then owner may serve a written * days notice of cancellation of this lease upon Tenant, and upon the expiration of said * days ** this lease and the term thereunder shall end and expire as fully and completely as if the expiration of such * day period were the day herein definitely fixed for the end and expiration of this lease and the term thereof and Tenant shall then quit and surrender the demised premises to Owner but Tenant shall remain liable as hereinafter provided. (2) If the notice provided for in (1) hereof shall have been given, and the term shall expire as aforesaid; or if Tenant shall make default in the payment of the rent reserved herein or any item of additional herein mentioned or any part of either or in making any other payment herein required; then and in any of such events Owner may without notice, re-enter the demised premises either by force or otherwise, and dispossess Tenant by summary proceedings or otherwise, and the legal representative of Tenant or other occupant of demised premises and remove their effects and hold the premises as if this lease had not been made, and Tenant hereby waives the service of notice of intention to re-enter or to institute legal proceedings to that end. Remedies of Owner and Waiver of Redemption: 18. In case of any such default, re-entry, expiration and/or dispossess by summary proceedings or other wise, (a) the rent, and additional rent, shall become due thereupon and be paid up to the time of such re-entry, dispossess and/or expiration, (b) Owner may re-let the premises or any part or parts therof, either in the name of Owner or otherwise, for a term or terms, which may at Owner's option be less than or exceed the period which would otherwise have constituted the balance of the term of this lease and may grant concessions or free rent or charge a higher rental than that in this lease, and/or (c) Tenant or the legal representatives of Tenant shall also pay Owner as liquidated damages for the failure of Tenant to observe and perform said Tenant's covenants herein contained, any deficiency between the rent hereby reserved and/or covenanted to be paid and the net amount, if any, of the rents collected on account of the subsequent lease or leases of the demised premises for each month of the period which would otherwise have constituted the balance of the term of this lease. The failure of Owner to re-let the premises or any part or parts thereof shall not release or affect Tenant's liability for damages. In computing such liquidated damages there shall be added to the said deficiency such expenses as Owner may incur in connection with re-letting, such as legal expenses, reasonable attorneys' fees, brokerage, advertising and for keeping the demised premises in good order or for preparing the same for re-letting. Any such liquidated damages shall be paid in monthly installments by Tenant on the rent day specified in this lease. Owner, in putting the demised premises in good order or preparing the same for re-rental may, at Owner's option, make such alterations, repairs, replacements, and/or decorations in the demised premises as Owner, in Owner's sole judgement, considers advisable and necessary for the purpose of re-letting the demised premises, and the making of such alterations, repairs, replacements, and/or decorations shall not operate or be construed to release Tenant from liability. Owner shall in no event be liable in any way whatsoever for failure to re-let the demised premises, or in the event that the demised premises are re-let, for failure to collect the rent thereof under such re-letting, and in no event shall Tenant be entitled to receive any excess, if any, of such net rent collected over the sums payable by Tenant to Owner hereunder. In the event of a breach or threatened breach by Tenant or any of the covenants or provisions hereof, Owner shall have the right of injunction and the right to invoke any remedy allowed at law or in equity as if re-entry, summary proceedings and other remedies were not herein provided for. Mention in this lease of any particular remedy, shall not preclude Owner from any other remedy, in law or in equity. Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws. Fees and Expenses: 19. If Tenant shall default in the observance or performance of any term or covenant on Tenant's part to be observed or performed under or by virtue of any of the terms or provisions in any article of this lease after notice if required and upon expiration of any applicable grace period if any, (except in an emergency), then, unless otherwise provided elsewhere in this lease, Owner may immediately or at any time thereafter and without notice perform the obligation of Tenant thereunder, and if Owner, in connection therewith or in connection with any default by Tenant in the covenant to pay rent hereunder, makes any expenditures or incurs any obligations for the payment of money, including but not limited to reasonable attorney's fees, in instituting, prosecuting or defending any actions or proceeding and prevails in any such action or proceeding, such sums so paid or obligations incurred with interest and costs shall be deemed to be additional rent hereunder and shall be paid by Tenant to Owner within ten (10) days of rendition of any bill or statement to Tenant therefor, and if Tenant's lease term shall have expired at the time of making of such expenditures or incurring of such obligations, such sums shall be recoverable by owner as damages. No Representations by Owner: 20. Neither Owner nor Owner's agent have made any representations or promises with respect to the physical condition of the building, the land upon which it is erected or the demised premises, the rents, leases, expenses of operation, or any other matter or thing affecting or related to the premises except as herein expressly set forth and no rights, easements or licenses are acquired by Tenant by implication or other wise except as expressly set forth in the provisions of this lease. Tenant has inspected the building and the demised premises and is thoroughly acquainted with their condition, and agrees to take the same "as is" and acknowledges that the taking of possession of the demised premises by Tenant shall be conclusive evidence that the said premises and the building of which the same form a part were in good and satisfactory condition at the time such possession was so taken, except as to latent defects. All understandings and agreements heretofore made between the parties hereto are merged in this contract, which alone fully and completely expresses the agreement between Owner and Tenant and any executory agreement hereafter made shall be ineffective to change, modify, discharge or effect an abandonment of it in whole or in part, unless such executory agreement is in writing and signed by the party against whom enforcement of the change, modification, discharge or abandonment is sought. End of Term: 21. Upon the expiration or other termination of the term of this lease, Tenant shall quit and surrender to Owner the demised premises, broom clean, in good order and condition, ordinary wear excepted, and Tenant shall remove all its property. Tenant's obligation to observe or perform this covenant shall survive the expiration or other termination of this lease. If the last day of the term of this lease or any renewal thereof, falls on Sunday, this lease shall expire at noon on the preceding Saturday unless it be a legal holiday in which case it shall expire at noon on the preceding business day. Quiet Enjoyment: 22. Owner covenants and agrees with Tenant that upon Tenant paying the rent and additional rent and observing and performing all the terms, covenants and conditions, on Tenant's part to be observed and performed, Tenant may peaceably and quietly enjoy the premises hereby demised, subject, nevertheless, to the terms and conditions of this lease including, but not limited to, Article 33 hereof and to the ground leases, underlying leases and mortgages hereinbefore mentioned. Failure to Give Possession: 23. If Owner is unable to give possession of the demised premises on the date of the commencement of the term hereof, because of the holding over or retention of possession of any tenant, undertenant or occupants, or if the premises are located in a building being constructed because such building has not been sufficiently completed to make the premises ready for occupancy or because of the fact that a certificate of occupancy has not been procured or for any other reason, Owner shall not be subject to any liability for failure to give possession on said date and the validity of the lease shall not be impaired under such circumstances, nor shall the same be construed in any wise to extend the term of this lease, but the rent payable hereunder shall be abated (provided Tenant is not responsible for the inability to obtain possession or complete construction) until after Owner shall have given Tenant written notice that the Owner is able to deliver possession in the condition required by this lease. If permission is given to Tenant to enter into the possession of the demised premises or to occupy premises other than the demised premises prior to the date specified as the commencement of the term of this lease,Tenant covenants and agrees that such possession and/or occupancy shall be deemed to be under all the terms, covenants, conditions and provisions of this lease except the obligation to pay the fixed annual rent set forth in page * ten (10) ** unless tenant has cured such default one of this lease. The provisions of this article are intended to constitute "an express provision to the contrary" within the meaning of Section 223-a of the New York Real Property Law. No Waiver: 24. The failure of Owner to seek redress for violation of, or to insist upon the strict performance of any covenant or condition of this lease or of any of the Rules or Regulations set forth or hereafter adopted by Owner, shall not prevent a subsequent act which would have originally constituted a violation from having all the force and effect of an original violation. The receipt by Owner of rent and/or additional rent with knowledge of the breach of any covenant of this lease shall not be deemed a waiver of such breach and no provision of this lease shall be deemed to have been waived by Owner unless such waiver be in writing signed by Owner. No payment by Tenant or receipt by Owner of a lesser amount than the monthly rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement of any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Owner may accept such check or payment without prejudice to Owner's right to recover the balance of such rent or pursue any other remedy in this lease provided. No act or thing done by Owner or Owner's agents during the term hereby demised shall be deemed in acceptance of a surrender of said premises and no agreement to accept such surrender shall be valid unless in writing signed by Owner. No employee of Owner or Owner's agent shall have any power to accept the keys of said premises prior to the termination of the lease and the delivery of keys to any such agent or employee shall not operate as a termination of the lease or a surrender of the premises. Waiver of Trial by Jury: 25. It is mutually agreed by and between Owner and Tenant that the respective parties hereto shall and they hereby do waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other (except for personal injury or property damage) on any matters whatsoever arising out of or in any way connected with this lease, the relationship of Owner and Tenant, Tenant's use of or occupancy of said premises, and any emergency statutory or any other statutory remedy. It is further mutually agreed that in the event Owner commences any proceeding for action or possession including a summary proceeding for possession of the premises, Tenant will not interpose any counterclaim of whatever nature or description in any such proceeding, including a counterclaim under Article 4 except for statutory mandatory counterclaims. Inability to Perform: 26. This lease and the obligation of Tenant to pay rent hereunder and perform all of the other covenants and agreements hereunder on part of Tenant to be performed shall in no wise be affected, impaired or excused because Owner is unable to fulfill any of its obligations under this lease or to supply or is delayed in supplying any service expressly or impliedly to be supplied or is unable to make, or is delayed in making any repair, additions, alterations or decorations or is unable to supply or is delayed in supplying any equipment, fixtures or other materials if Owner is prevented or delayed from so doing by reason of strike or labor troubles, government preemption or restrictions or by reason of any rule, order or regulation of any department or subdivision thereof of any government agency or by reason of the conditions of which have been or are affected, either directly or indirectly, by war or other emergency, or when, in the judgement of Owner, temporary interruption of such services is necessary by reason of accident, mechanical breakdown or to make repairs, alterations or improvements. Bills and Notices: 27. Except as otherwise in this lease provided, a bill, statement, notice or communication which Owner may desire or be required to give to Tenant, shall be deemed sufficiently given or rendered if, in writing, delivered to Tenant personally or sent by registered or certified mail addressed to Tenant at the building of which the demised premises form a part or at the last known residence address or business address of Tenant or left at any of the aforesaid premises addressed to Tenant, and the time of the rendition of such bill or statement and of the giving of such notice or communication shall be deemed to be the time when the same is delivered to Tenant, mailed, or left at the premises as herein provided. Any notice by Tenant to Owner must be served by registered or certified mail addressed to Owner at the address first hereinabove given or at such other address as Owner shall designate by written notice. Water Charges: 28. If Tenant requires, uses or consumes water for any purpose in addition to ordinary lavatory purposes (of which fact Tenant constitutes Owner to be the sole judge) Owner may install a water meter and thereby measure Tenant's water consumption for all purposes. Tenant shall pay Owner for the cost of the meter and the cost of installation thereof and throughout the duration of Tenant's occupancy Tenant shall keep said meter and installation equipment in good working order and repair at Tenant's own cost and expense. Tenant agrees to pay for water consumed, as shown on said meter as and when bills are rendered. Tenant covenants and agrees to pay the sewer rent, charge or any other tax, rent, levy or charge which now or hereafter is assessed, imposed or a lien upon the demised premises or the realty of which they are part pursuant to law, order or regulation made or issued in connection with the use, consumption, maintenance or supply of water, water system or sewage or sewage connection or system. The bill rendered by Owner shall be payable by Tenant as additional rent. If the building or the demised premises or any part thereof be supplied with water through a meter through which water is also supplied to other premises Tenant shall pay to Owner as additional rent, on the first day of each month, _______ % ($______) of the total meter charges, as Tenant's portion. Independently of and in addition to any of the remedies reserved to Owner hereinabove or elsewhere in this lease, Owner may sue for and collect any monies to be paid by Tenant or paid by Owner for any of the reasons or purposes hereinabove set forth. Sprinklers: 29. Anything elsewhere in this lease to the contrary notwithstanding, if the New York Board of Fire Underwriters or the Insurance Services Office or any bureau, department or official of the federal, state or city government require or recommend the installation of a sprinkler system or that any changes, modifications, alterations, or additional sprinkler heads or other equipment be made or supplied in an existing sprinkler system by reason of Tenant's business, or the location of partitions, trade fixtures, or other contents of the demised premises, or for any other reason, or if any such sprinkler system installations, changes, modifications, alterations, additional sprinkler heads or other such equipment, become necessary to prevent the imposition of a penalty or charge against the full allowance for a sprinkler system in the fire insurance rate set by any said Exchange or by any fire insurance company, Tenant shall, at Tenant's expense, promptly make such sprinkler system installations, changes, modifications, alterations, and supply additional sprinkler heads or other equipment as required whether the work involved shall be structural or non-structural in nature. Tenant shall pay to Owner as additional rent the sum of $_____, on the first day of each month during the term of this lease, as Tenant's portion of the contract price for sprinkler supervisory service. Elevators, Heat, Cleaning: 30. As long as Tenant is not in default under any of the covenants of this lease beyond the applicable grace period provided in this lease for the curing of such defaults, Owner shall, if and insofar as existing facilities permit furnish heat to the demised premises, when and as required by law, on business days from 8:00 a.m. to 6:00 p.m. and on Saturdays from 8:00 a.m. to 1:00 p.m. Tenant shall at Tenant's expense, keep demised premises clean and in order, to the satisfaction to Owner, and if demised premises are situated on the street floor, Tenant shall, at Tenant's own expense, make all repairs and replacements to the sidewalks and curbs adjacent thereto, and keep said sidewalks and curbs free from snow, ice, dirt and rubbish. Tenant shall pay to Owner the cost of removal of any of Tenant's refuse and rubbish from the building. Bills for the same shall be rendered by Owner to Tenant at such times as Owner may elect and shall be due and payable, when rendered, and the amount of such bills shall be deemed to be, and be paid as, additional rent. Tenant shall, however, have the option of independently contracting for the removal of such rubbish and refuse in the event that Tenant does not wish to have same done by employees of Owner. Under such circumstances, however, the removal of such refuse and rubbish by others shall be subject to such rules and regulations as, in the judgement of Owner, are necessary for the proper operation of the building. Security: 31. Tenant has deposited with Owner the sum of $30,667.50 as security for the faithful performance and observance by Tenant of the terms, provisions and conditions and of this lease; it is agreed that in the event Tenant defaults in respect of any of the terms, provisions and conditions of this lease, including, but not limited to, the payment of rent and additional rent, Owner may use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of any rent and additional rent or any other sum as to which Tenant is in default or for any sum which Owner may expend or may be required to expend by reason of Tenant's default in respect of any of the terms, covenants and conditions of this lease, including but not limited to, any damages or deficiency in the re-letting of the premises, whether such damages or deficiency accrued before or after summary proceedings or other re-entry by Owner. In the event that Tenant shall fully and faithfully comply with all of the terms, provisions, covenants and conditions of this lease, the security shall be returned to Tenant after the date fixed as the end of the Lease and after delivery of entire possession of the demised premises to Owner. In the event of a sale of the land and building or leasing of the building, of which the demised premises form a part, Owner shall have the right to transfer the security to the vendee or lessee and Owner shall thereupon be released by Tenant from all liability for return of said security, and Tenant agrees to look to the new Owner solely for return of such security; and it is agreed that the provisions hereof shall apply to every transfer or assignment made of the security to a new Owner. Tenant further covenants that it will not assign or encumber or attempt to assign or encumber the monies deposited herein as security and that neither Owner nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. Captions: 32. The Captions are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope of this lease nor the intent of any provisions thereof. Definitions: 33. The terms "Owner" as used in this lease means only the Owner, or the mortgagee in possession, for the time being of the land and building (or the Owner of a lease of the building or of the land and building) of which the demised premises form a part, so that in the event of any sale or sales of said land and building or of said lease, or in the event of a lease of said building, or of the land and building, the said Owner shall be and hereby is entirely freed and relieved of all covenants and obligations of Owner hereunder, and it shall be deemed and construed without further agreement between the parties of their successors in interest, or between the parties and the purchaser, at any such sale, or the said lessee of the building, or of the land and building, that the purchaser or the lessee of the building has assumed and agreed to carry out any and all covenants and obligations of Owner hereunder. The words "re-enter" and "re-entry" as used in this lease are not restricted to their technical legal meaning. The term "business days" as used in this lease shall exclude Saturdays, Sundays and all days designated as holidays by the applicable building service union employees service contract or by the applicable Operating Engineers contract with respect to HVAC service. Wherever it is expressly provided in this lease that consent shall not be unreasonably withheld, such consent shall not be unreasonably delayed. Adjacent Excavation-Shoring: 34. If an excavation shall be made upon land adjacent to the demised premises, or shall be authorized to be made, Tenant shall afford to the person causing or authorized to cause such excavation, license to enter upon the demised premises for the purpose of doing such work as said person shall deem necessary to preserve the wall or the building of which demised premises form a part from injury or damage and to support the same by proper foundations without any claim for damages or indemnity against Owner, or diminution or abatement of rent. Rules and Regulations: 35. Tenant and Tenant's servants, employees, agents, visitors, and licensees shall observe faithfully, and comply strictly with the Rules and Regulations and such other and further reasonable Rules and Regulations as Owner and Owner's agents may from time to time adopt. Notice of any additional rules or regulations shall be given in such manner as Owner may elect. In case Tenant disputes the reasonableness or any additional Rule or Regulation hereafter made or adopted by Owner or Owner's agents, the parties hereto agree to submit the question of the reasonableness of such Rule or Regulation for decision to the New York office of the American Arbitration Association, whose determination shall be final and conclusive upon the parties hereto. The right to dispute the reasonableness of any additional Rule or Regulation upon Tenant's part shall be deemed waived unless the same shall be asserted by service of a notice, in writing, upon Owner within fifteen (15) days after the giving of notice thereof. Nothing in this lease contained shall be construed to impose upon Owner any duty or obligation to enforce the Rules and Regulations or terms, covenants or conditions in any other lease, as against any other tenant and Owner shall not be liable to Tenant for violation of the same by any other tenant, its servants, employees, agents, visitors or licensees. Glass: 36. Owner shall replace, at the expense of Tenant, any and all plate and other glass damaged or broken from any cause whatsoever in and about the demised premises. Owner may insure, and keep insured, at Tenant's expense, all plate and other glass in the demised premises for an in the name of Owner. Bills for the premiums therefor shall be rendered by Owner to Tenant at such times as Owner may elect, and shall be due from, and payable by, Tenant when rendered, and the amount thereof shall be deemed to be, and be paid as, additional rent. Pornographic Uses Prohibited: 37. Tenant agrees that the value of the demised premises and the reputation of the Owner will be seriously injured if the premises are used for any obscene or pornographic purposes or any sort of commercial sex establishment. Tenant agrees that Tenant will not bring or permit any obscene or pornographic material on the premises, and shall not permit or conduct any obscene, nude, or semi-nude live performances on the premises, not permit use of the premises for nude modeling, rap sessions, or as a so called rubber goods shops, or as a sex club of any sort, or as a "massage parlor." Tenant agrees further that Tenant will not permit any of these uses by any subleasee or assignee of the premises. This Article shall directly bind any successors in interest to the Tenant. Tenant agrees that if at any time Tenant violates any of the provisions of this Article, such violation shall be deemed a breach of a substantial obligation of the terms of this lease and objectionable conduct. Pornographic material is defined for purposes of this Article as any written or pictorial manner with prurient appeal or any objects of instrument that are primarily concerned with lewd or prurient sexual activity. Obscene material is defined here as it is in Penal law SS235.00. Estroppel Certificate: 38. Tenant, at any time, and from time to time, upon at least 10 days prior notice by Owner, shall execute, acknowledge and deliver to Owner, and/or to any other person, firm or corporation specified by Owner, a statement certifying that this lease is unmodified and in full force and effect (or, if there have been modifications, that the same is in full force and effect as modified and stating the modifcations), stating the dates which the rent and additional rent have been paid, and stating whether or not there exists any defaults by Owner under this lease, and, if so, specifying each such default. Successors and Assigns: 39. The covenants, conditions and agreements contained in this lease shall bind and inure to the benefit of Owner and Tenant and their respective heirs, distributees, executors, administrators, successors, and except as otherwise provided in this lease, their assigns. Tenant shall look only to Owner's estate and interest in the land and building for the satisfaction of Tenant's remedies for the collection of a judgment (or other judicial process) against Owner in the event of any default by Owner hereunder, and no other property or assets of such Owner (or any partner, member, officer or director thereof, disclosed or undisclosed), shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies under or with respect to this lease, the relationship of Owner and Tenant hereunder, or Tenant's use and occupancy of the demised premises. In Witness Whereof, Owner and Tenant have respectively signed and sealed this lease as of the day and year first above written. Witness for Owner: _____________________________________ STAMAR REALTY CORP. /s/ [ILLEGIBLE] /s/ [ILLEGIBLE] - --------------------------------- -------------------------------------- BY: Witness for Tenant: ______________________________________ 180 JAMAICA CORP. - --------------------------------- -------------------------------------- BY: ACKNOWLEDGEMENTS CORPORATE OWNER STATE OF NEW YORK, ss.: County of New York On this ___ day of ______, 19 _, before me personally came ______________ to me known, who being by me duly sworn, did depose and say that he resides in _____ that he is the _________ of _________________ the corporation described in and which executed the foregoing instrument, as OWNER; that he knows the seal of said corporation; the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation, and that he signed his name thereto by like order. -------------------------------------- INDIVIDUAL OWNER STATE OF NEW YORK, ss.: County of On this _______ day of ________, 19__, before me personally came _______________ to be known and known to me to be the individual _______________________________ described in and who, as OWNER, executed the foregoing instrument and acknowledged to me that ______________ he executed the same. ______________________________________ CORPORATE TENANT STATE OF NEW YORK, ss.: County of New York On this ____ day of ________, 19__, before me personally came ___________ to me known, who being duly sworn, did depose and say that he resides in _________ that he is the _________ of 180 _____________ the corporation described in and which executed the foregoing instrument, as TENANT; that he knows the seal of said corporation, the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation, and that he signed his name thereto by like order. /s/ [ILLEGIBLE] -------------------------------------- INDIVIDUAL TENANT STATE OF NEW YORK, s.s.: County of On this _______ day of ________, 19__, before me personally came _______________ to be known and known to me to be the individual _______________________________ described in and who, as OWNER, executed the foregoing instrument and acknowledged to me that ______________ he executed the same. ______________________________________ Guaranty The undersigned Guarantor guarantees to Owner, Owner's successors and assigns, the full performance and observance of all the agreements to be performed and observed by Tenant in the attached Lease, including the "Rules and Regulation" as therein provided, without requiring any notice to Guarantor of nonpayment, or nonperformance, or proof, or notice of demand, to hold the undersigned responsible under this guaranty, all of which the undersigned hereby expressly waives and expressly agrees that the legality of this agreement and the agreements of the Guarantor under this agreement shall not be ended, or changed by reason of the claims to Owner against Tenant of any of the rights or remedies given to Owner as agreed in the attached Lease. The Guarantor further agrees that this guaranty shall remain and continue in full force and effect as to any renewal, change or extension of the Lease. As a further inducement to Owner to make the Lease Owner and Guarantor agree that in any action or proceeding brought by either Owner or the Guarantor against the other on any matters concerning the Lease or of this guaranty that Owner and the undersigned shall and do waive trial by jury. Dated:_________________________ 19___ - ------------------------------------ Guarantor - ------------------------------------- Witness - ------------------------------------- Guarantor's Residence - ------------------------------------- Business Address - ------------------------------------- Firm Name STATE OF NEW YORK ) ss.: COUNTY OF ________ ) On this _______ day of ________, 19__, before me personally came _____________ to me known and known to me to be the individual described in, and who executed the foregoing Guaranty and acknowledged to me that he executed the same. - ---------------------------- Notary IMPORTANT PLEASE READ RULES AND REGULATIONS ATTACHED TO AND MADE A PART OF THIS LEASE IN ACCORDANCE WITH ARTICLE 35. 1. The sidewalks, entrances, driveways, passages, courts, elevators, vestibules, stairways, corridors or halls shall not be obstructed or encumbered by any Tenant or used for any purpose other than for ingress or egress from the demised premises and for delivery of merchandise and equipment in a prompt and efficient manner using elevators and passageways designated for such delivery by Owner. There shall not be used in any space, or in the public hall of the building, either by any tenant or by jobbers, or others in the delivery or receipt of merchandise, any hand trucks except those equipped with rubber tires and safeguards. 2. If the premises are situated on the ground floor of the building, Tenant thereof shall further, at Tenant's expense, keep the sidewalks and curb in front of said premises clean and free from ice, snow, etc. 3. The water and wash closets and plumbing fixtures shall not be used for any purposes other than those for which they were designed or constructed. 4. Tenant shall not use, keep or permit to be used or kept any foul or noxious gas or substance in the demised premises, or permit or suffer the demised premises to be occupied or used in a manner offensive or objectionable to Owner or other occupants of the building by reason of noise, odors and/or vibrations or interfere in any way with other Tenants or those having business therein. 5. No sign, advertisement, notice or other lettering shall be exhibited, inscribed, painted or affixed by any Tenant on any part of the outside of the demised premises or the building or on the inside of the demised premises if the same is visible from the outside of the premises without the prior written consent of Owner, except that the name of Tenant may appear on the entrance door of the premises. In the event of the violation of the foregoing by any Tenant, Owner may remove same without any liability and may charge the expense incurred by such removal to Tenant or Tenants violating this rule. Signs on interior doors and directory tablet shall be inscribed, painted or affixed for each Tenant by Owner at the expense of such Tenant, and shall be of a size, color and style acceptable to Owner. 6. No Tenant shall mark, paint, drill into, or in any way deface any part of the demised premises or the building of which they form a part. No boring, cutting or stringing of wires shall be permitted, except with the prior written consent of Owner, and as Owner may direct. No Tenant shall lay linoleum, or other similar floor covering, so that the same shall come in direct contact with the floor of the demised premises, and, if linoleum or other similar floor covering is desired to be used an interlining of builder's deadening felt shall be first affixed to the floor, by a paste or other material, soluble in water, the use of cement or other similar adhesive material being expressly prohibited. 7. Freight, furniture, business equipment, merchandise and bulky matter of any description shall be delivered to and removed from the premises only on the freight elevators and through the service entrances and corridors, and only during hours and in a manner approved by Owner. Owner reserves the right to inspect all freight to be brought into the building and to exclude from the building all freight which violates any of these Rules and Regulations or the lease of which these Rules and Regulations are a part. 8. Owner reserves the right to exclude from the building between the hours of 6 P.M. and 8 A.M. and at all hours on Sundays, and holidays all persons who do not present a pass to the building signed by Owner. Owner will furnish passes to persons for whom any Tenant requests same in writing. Each Tenant shall be responsible for all persons for whom he requests such pass and shall be liable to Owner for all acts of such person. 9. Owner shall have the right to prohibit any advertising by any Tenant which, in Owner's opinion, tends to impair the reputation of Owner or its desirability as a building for stores or offices, and upon written notice from Owner, Tenant shall refrain from or discontinue such advertising. 10. Tenant shall not bring or permit to be brought or kept in or on the demised premises, any inflammable, combustible, or explosive, or hazardous fluid, material, chemical or substance, or cause or permit any odors of cooking or other processes, or any unusual or other objectionable odors to permeate in or emanate from the demised premises. 11. Tenant shall not place a load on any floor of the demised premises exceeding the floor load per square foot area which it was designed to carry and which is allowed by law. Owner reserves the right to prescribe the weight and position of all safes, business machines, and mechanical equipment. Such installations shall be placed and maintained by Tenant at Tenant's expense in setting sufficient in Owner's judgement to absorb and prevent vibration, noise and annoyance. 12. Refuse and Trash - Tenant covenants and agrees, at its sole cost and expense, to comply with all present and future laws, orders and regulations of all state, federal, municipal and local governments, departments, commissions and boards regarding the collection, sorting, separation and recycling of waste products, garbage, refuse and trash. Tenant shall pay all costs, expenses, fines, penalties or damages that may be imposed on Owner or Tenant by reason of Tenant's failure to comply with the provisions of this Building Rule 12, and, at Tenant's sole cost and expense, shall indemnify, defend and hold Owner harmless (including reasonable legal fees and expenses) from and against any actions, claims and suits arising from such non-compliance, utilizing counsel reasonably satisfactory to Owner. Address Premises - ------------------------------------------- - ------------------------------------------- TO ============================ STANDARD FORM OF STORE LEASE The Real Estate Board of New York, Inc. (C)Copyright 1994. All rights Reserved. Reproduction in whole or in part prohibited. ============================== Dated_______________ 19 Rent Per Year_____________ Rent Per Month____________ Term From To Drawn by______________________ Checked by_____________________ Entered by______________________ Approved by_____________________ =============================== RIDER TO STANDARD FORM OF STORE LEASE, BY AND BETWEEN STAMAR REALTY CORP., AS LANDLORD, AND 180 JAMAICA CORP., AS TENANT. 40. RIDER PROVISIONS PREVAIL. The Tenant and Landlord herein agree that, in the event of a conflict between the provisions contained in the printed Standard Form of Store Lease and the attached Rider and Schedule, then, and in such event, the provisions of the Rider and Schedule shall prevail as to the intent of the parties. 41. AS-IS POSSESSION. A. Tenant acknowledges that it has inspected the demised premises and Landlord, or Landlord's agent, has made no representation or promises with regard to the demised premises for the term herein demised. The taking of possession of the Demised Premises by Tenant for the term herein demised shall be conclusive evidence as against Tenant that Tenant accepts the same subject to any and all defects therein, latent, patent or otherwise in its "as-is" condition. Landlord shall not be obligated to perform any work or make any repairs, alterations, improvements in additions to said demised premises for Tenant's occupancy. B. It is understood , that in consideration of Tenants renting the premises in "as is" condition that the Landlord shall offer Tenant a rent reduction in the sum of $220,000.00 which reduction has been calculated into the base rent over a Seventy Two (72) month period as set forth in paragraph "77" entitled "Base Rent" herein. Further, Tenant has agreed to perform certain work in the premises as elaborated in paragraph 43 herein. C. The landlord shall retain 200 square feet of storage space in the basement, 42. INTENTIONALLY OMITTED 43. TENANT'S WORK, INSTALLATION AND ALTERATIONS. At all times during the term of this Lease, except for Landlord's Work, if any, all work necessary or desirable to make the demised premises suitable for Tenant's use and occupancy shall be performed by Tenant at Tenant's own cost and expense (hereinafter called "Tenant's Work"). At all times during the term of this Lease; Tenant's Work shall be subject to the following conditions: A. Tenant shall comply with all the laws, orders, rules and regulations of all 1 governmental authority, and of the fire insurance rating organization having jurisdiction thereof, and the local board of fire underwriters, and the recommendation of any insurance company or any similar body, and Tenant shall have procured and paid for, so far as the same may be required, all governmental permits and authorizations; B. Prior to commencing Tenant's Work, all plans and specification therefor shall be submitted to Landlord for Landlord's prior written approval, said approval shall not be unreasonably withheld. The approval by Landlord of any of Tenant's plans and specifications shall not constitute an assumption of any liability on the part of the Landlord for their accuracy or their conformity with applicable law and Tenant shall be solely responsible therefor. Approval by Landlord of any of Tenant's plans and specifications shall not constitute a waiver by Landlord of the right to thereafter require Tenant to amend same to provide for omissions or errors therein later discovered by Landlord; C. Tenant's Work shall be completed (i) with reasonable dispatch, (ii) in accordance with the plans and specifications submitted to, and approved in writing by, Landlord pursuant to subparagraph (B) hereof and (iii) only with the use of new first class materials and supplies. Landlord reserves the right, from time to time, to inspect work in progress for the purposes of approving or disapproving the quality of workmanship and its conformity with approved plans, specifications and drawings; D. Except as otherwise expressly provided for herein, the cost of such Tenant's Work shall be paid by Tenant in cash, or its equivalent, so that the demised premises and Building shall at all times be free of liens for labor and materials supplied in connection with the Tenant's Work. Tenant shall not permit a mechanic's lien to be placed on the premises, and shall have same removed within seven days if placed on the premises due to work performed or materials supplied on behalf of Tenant. Tenant shall obtain release of lien(s) from all of its contractors, subcontractors, materialmen and laborers furnishing work and materials to the Tenant for construction and/or alterations at the Demised Premises. E. Prior to commencing Tenant's Work, Tenant shall at its own cost and expense deliver to Landlord an endorsement of its policy of comprehensive general liability insurance referred to in Article 50 of this Lease, covering the risk during the course of performance of Tenant's Work, which policy as endorsed shall protect Landlord in the same amounts against any claims or liability arising out of Tenant's Work and Tenant's contractors shall obtain Worker's Compensation Insurance to cover all persons engaged in Tenant's Work and liability insurance covering the work done at Tenant's premises in the amounts of $500,000 in respect of property damage and $1,000,000 in respect of any one person, not less than $3,000,000 of any one accident, and a certificate thereof shall be furnished to the Landlord before commencement of any work by any contractor, subcontractors, their agents, servants or employees. Tenant's contractor shall name Landlord and any such other party as Landlord may request, as additional insured under the amid insurance policies. 2 F. Notwithstanding anything herein contained to the contrary, Tenant shall make all repairs to the Demised Premises necessitated by Tenant's Work, and shall keep and maintain in good order and condition all of the installation in connection with Tenant's Work, and shall make all necessary replacements thereto. G. Tenant at its own cost and expense, and with no charge or obligation by the Landlord, shall furnish and install all work and materials necessary to grade and repave all parking areas with in the Premises, install area lighting ,remove and enlarge garage doors, install three underground diesel fuel tanks, remove existing above ground tanks on the premises and dispose of same in a manner that conforms with all relevant laws, and renovate the office areas. The Landlord by execution of this lease grants its approval to such work. H. Landlord shall not be required to furnish any labor, equipment or materials or reimburse Tenant for any costs or expenses in connection therewith. 44. UTILITIES A. It is expressly understood that Landlord shall not supply to the demised premises any utilities or building services of any kind. Tenant agrees to make its own arrangements with the public utility company servicing the demised premises for the furnishing of and payment of all charges for electricity and other utilities consumed by Tenant in the demised premises, and for the installation of separate meters therefor. In no event shall Landlord be responsible for charges for electricity, water or any other utilities consumed in the demised premises by Tenant. All meters at the demised premises for the purpose of measuring Tenant's consumption of the respective utilities (electricity, water, steam, etc.) shall be installed and maintained by Tenant, at Tenant's sole cost and expense, in good order and condition. Tenant acknowledges that it has inspected the demised premises and the Building, and is fully aware of the availability or the unavailability of utilities for use by Tenant in the operation of its business. Landlord makes no representations to Tenant as to the availability or unavailability of said utilities. Tenant shall have the right to use any existing meters. B. Interruption or curtailment of any utility or service shall not constitute a constructive or partial eviction, nor entitle Tenant to any compensation or abatement of rent. In no event shall Tenant in any way interfere with or tie in to any electrical feeders, risers or other electrical installations within the Building. 45. TAXES. A. Tenant shall pay as additional rent an amount equal to the taxes, which shall include all taxes related to the demised premises including but not limited to real estate taxes, water charges or taxes, and sewer taxes or charges, for each fiscal tax period, or pro rata portion thereof during the term of this Lease for which Landlord shall be obligated in excess of the Real Estate Taxes for the Premises for the fiscal year 1995/1996 (the amount payable by the Tenant is hereinafter referred to us as the "Excess Tax Payment"). The Excess Tax Payment shall be 3 prorated, if necessary, to correspond with that portion of a fiscal tax year occurring within the lease term. The Excess Tax Payment shall be payable by Tenant within ten days after receipt from the Landlord of a statement for the Excess Tax Payment due accompanied by a copy of the Landlord's tax bill. B. In the event that the Landlord, or the Tenant as agent for the Landlord, shall institute tax reduction or other proceedings to reduce the assessed valuation of the Premises and as a result thereof obtain a rebate or a reduction in assessment for periods during which Tenant has paid or is obligated to pay the Excess Tax, Landlord shall, after deducting any expenses it has incurred with respect to such proceedings, including without limitation reasonable attorneys fees and disbursements in connection therewith, return to Tenant the Tenant's share of any such estate which shall be based upon the Excess Tax Payment which would have been due in accordance with the reduced assessment. C. As soon as reasonably practical after the expiration of each tax year, the Landlord shall furnish to Tenant a statement setting forth Tenant's Excess Tax Payment and shall also deliver to Tenant a copy of the applicable tax bill. 46. MECIIANIC'S LIENS. A. Notwithstanding anything in the contrary contained in this Lease, Tenant, its successors and assigns, warrant and guarantee to Landlord, its successors and assigns, that if any mechanic's lien shall be filed against the Building, the work claimed to have been done for, or materials claimed to have been furnished to, Tenant, (i) the same shall be discharged by Tenant; by payment, by bond or otherwise, at the sole cost and expense of Tenant, within seven (7) days of the giving of notice thereof by Landlord, (ii) either a release or a satisfaction of lien, as the case may be, shall be filed with the County Clerk of the county in which the Building is situated within such seven (7) day period, and (iii) a copy of such release or satisfaction, as the case may be, certified to by such County Clerk shall be delivered to Landlord within three (3) days after such filing. B. In the event such mechanic's lien is not discharged timely, as aforesaid, Landlord may discharge same for the account of and at the expense of Tenant by payment, bonding or otherwise, without investigation as to the validity thereof or of any offsets or defenses thereto, and Tenant, within ten (10) days after being billed therefor, shall promptly reimburse Landlord, as Additional Rent, for all costs, disbursements, fees and expenses, including without limitation, Landlord's reasonable legal fees, incurred in connection with so discharging said mechanic's lien, together with interest thereon from the time or times of payment until reimbursement by Tenant. C. In the event such mechanic's lien is not discharged timely, as aforesaid, Landlord, in addition to all other rights granted to Landlord in this Lease and without limitation, may institute a dispossess summary proceeding based upon such failure to discharge any such lien. 4 D. It is further understood and agreed between the parties hereto that Landlord may apply all or a portion of the security deposit made by Tenant hereunder toward discharging any such mechanic's lien and the cost, expenses, fees and disbursements, including without limitation, reasonable legal fees, in connection therewith. Upon notification by Landlord of the application of all or a portion of the security deposited by Tenant, Tenant shall, within ten (10) days after receipt of said notice, restore the security deposit to such amount held by Landlord prior to application thereof. Tenant's failure or refusal to restore the security as aforesaid shall constitute a material default under this Lease. 47. INTENTIONALLY OMITTED 48. INTENTIONALLY OMITTED 49. INTENTIONALLY OMITTED 50. INDEMNITY-LIABILITY INSURANCE. A. Tenant covenants and agrees to indemnify and save Landlord and its principals, disclosed or undisclosed, harmless from and against any and all claims, losses, damages or expenses (including reasonable attorney's fees) or other liability arising during the term of this Lease out of or in connection with (i) the construction, possession, use, occupancy, management, repair, maintenance or control of the Demised Premises or any part thereof or any other part of the Building used by Tenant, or (ii) any act or omission of Tenant or Tenant's agents, employees, contractors, concessionaires, licenses, invitees, subtenants or assignees, or (iii) any default, breach, violation or non-performance of this Lease or any provision hereof by Tenant, or (iv) any Injury to person or property or loss of life sustained in or about the Demised Premises or any part thereof, except such claims found to be the result of the negligence of Landlord, its agents, employees or contractors. Tenant shall, at its own cost and expense, defend any and all actions, suits and proceedings which may be brought against, and Tenant shall pay, satisfy and discharge any and all judgments, orders and decree which may be made or entered against, Landlord, its principals, disclosed or undisclosed, with respect to, or in connection with, any of the foregoing. The comprehensive general liability coverage maintained by Tenant pursuant to this Lease shall specifically insure the contractual obligations of Tenant as set forth in this Article and/or as provided in this Lease. B. Tenant covenants to provide on or before the Commencement Date of the term hereof and to keep in force during the term hereof for the benefit of Landlord, STAMAR REALTY Corp. And Tenant a comprehensive policy of liability insurance protecting Landlord and Tenant against any liability whatsoever occasioned by accident on or about the demised premises or any appurtenances thereto. Such policy is to be written by new York admitted insurance companies in good standing, and the amounts of liability thereunder shall not be less than the amount of $3,000,000 in respect of any one person, in the amount of $3,000,000 in respect of any one accident, and in the amount of $1,000,000.00 in respect of property damages. Prior to the time 5 such insurance is first required to be carried by Tenant, and, thereafter, at least sixty (60) days prior to the expiration of any such policy. Tenant agrees to deliver to Landlord either a duplicate original of the aforesaid policy or a certificate evidencing such insurance provided said certificate contains an endorsement that such insurance may not be canceled or modified except upon thirty (30) days written notice to Landlord. Tenant's failure to provide and keep in force the aforementioned insurance shall be regarded as a material default hereunder, entitling Landlord to exercise any or all of the remedies as provided in this lease in the event of Tenant's default. C. Notwithstanding anything contained in this Lease to the contrary, Landlord shall have the right, at anytime during the term of this Lease, upon ten (10) days written notice to Tenant, to request Tenant to furnish to Landlord, a duplicate original of the insurance policy(s), or certificate(s) of insurance, which are required to be maintained pursuant to the terms of the Lease. D. Tenant shall be solely responsible for payment of premiums with respect to all such insurance. In the event of loss or damage to the Premises, the proceeds of such insurance must be applied for the cost of repair an/or replacement of the Premises. 51. INTENTIONALLY OMITTED 52. TENANT'S CERTIFICATION. Tenant shall, without charge at any time and from time to time, within ten (10) days after request by Landlord, certify by written instrument, duly executed, acknowledged and delivered, to any mortgages, assignee of any mortgage or purchaser, or any proponent mortgagee, assignee of any mortgage or purchaser, or any other person, firm or corporation specified by Landlord: A. that this Lease is unmodified and in full force and effect (or, if there has been modification, that the same is in full force and effect as modified and stating the modifications); B. whether or not there are then existing any setoffs or defenses against the enforcement of any of the agreements, terms, covenants or conditions hereof upon the part of Tenant to be performed or complied with (and, if so, specifying the same); and C. the dates, if any, to which the rental, additional rent and other charges hereunder have been paid in advance. 53. SUBORDINATION AND ATTORNMENT. A. This Lease is subject and subordinate to all ground or underlying Lease and to all mortgages which may now or hereafter affect such leases or the real property of which the Demised Premises are a part, and to all renewals, modifications, consolidations, replacements and extensions of any such ground or underlying leases or mortgages. This clause shall be self-operative and so further instrument or subordination shall be required by any ground or underlying leasee or by any mortgages affecting any lease or the real property of which the 6 Demised Premises are a part. However, in confirmation of such subordination, Tenant shall execute promptly any certificate the Landlord may request and Tenant hereby irrevocably constitutes and appoints Landlord as Tenant's attorney-in-fact to execute any such certificate or instrument for and on behalf of Tenant. B. Tenant covenants and agrees that, if by reason of a default on the part of Landlord, as leasee under any ground or underlying lease, in the performance of any of the terms or provisions of such ground or underlying lease, or for any other reason of any nature whatsoever, such ground or underlying lease and leasehold estate of Landlord as leasee thereunder is terminated by summary proceeding or otherwise, or if such ground or underlying lease and such leasehold estate is terminated through foreclosure proceedings brought by the holder of any mortgage to which such ground or underlying lease is subject or subordinate, or in case of any foreclosure of any mortgages affecting the real property of which the Demised Premises is a part. Tenant will attorn to the lessor under such proceedings, as the case may be and still recognize such lessor or such purchaser as Tenant's landlord under this Lease. Tenant agrees to execute and deliver at any time and from time to time, upon the request of Landlord, the lessor under any such ground or underlying lease, or such mortgagee or purchaser any instrument which may be necessary or appropriate to evidence such attornment and Tenant hereby irrevocably constitutes and appoints Landlord as Tenant's attorney-in-fact to execute and deliver any such instrument for and on behalf of Tenant. Such attornrnent by Tenant shall contain, among other things, provisions to the effect that in no event shall such lessor, mortgagee or purchaser as landlord, (i) be obligated to repair, replace or restore the Building or the Demised Premises in the event of damage or destruction, beyond such repair, replacement or restoration as can be reasonably accomplished from the net proceeds of insurance actually received by or made available to such landlord, (ii) be responsible for any previous act or omission of the landlord or the tenant under such ground or underlying lease or for the return of any security deposit unless actually received by such landlord, (iii) be subject to any liability or offset accruing to Tenant against Landlord, (iv) be bound by any previous modification or extension of this Lease unless previously consented to, or (v) by bound by any previous prepayment of more than one month's rent or other charge. Tenant further waives the provisions of any statute or rule of law now or hereafter in effect which may give or purport to give Tenant any right of election to terminate this Lease or to surrender possession of the Demised Premises in the event such ground or underlying lease terminates or any such summary proceeding or foreclosure proceeding is brought by the lessor under any such ground or underlying lease or the holder of any such and agrees that, unless and until any such lessor under any such ground or underlying lease or holder of any such mortgage in connection with any such proceeding shall elect to terminate this Lease and to extinguish the leasehold estate of Tenant hereunder this Lease shall not be affected in any way whatsoever by any such proceeding or termination. 54. INTENTIONALLY OMITTED 55. BROKER. Landlord and Tenant each represent to each other that they have not entered into any agreement or incurred any obligation in connection with this transaction 7 which might result in the obligation to pay a brokerage fee to any broker other tan C.B. Commercial Realty Agency. Landlord shall pay all fees and commissions when due according to a separate brokerage agreement. Each party shall indemnify and hold harmless the other party from and against any claims or demand by any other broker, for bringing about this lease who claims to have dealt with the indemnifying party, including all expenses incurred in defending any such claim or demand including reasonable attorneys fees. 56. CLEANING, REMOVAL OF SNOW AND GARBAGE. Tenant agrees that it will independently contract for the removal of all rubbish, refuse, garbage and waste from the Demised Premises, and will either remove or cause to be removed any snow or ice that accumulates in or around the demised premises. Tenant further agrees not to permit the accumulation (unless in concealed metal or plastic containers) of any rubbish or garbage in, on or about any part of the demised premises to arrange for the daily removal of any accumulated rubbish or garbage. Tenant shall indemnify and hold blameless the landlord from any and all claims relating to or arising out of the removal of any: garbage, rubbish, snow or ice. Tenant shall not encumber or obstruct, or permit to be encumbered or obstructed, the street and sidewalk adjacent to or abutting upon the Demised Premises. 57. TENANT'S REMEDIES. In any action by Landlord against Tenant for dispossess or other lease violation, Tenant shall not claim any money damages by way of setoff, counterclaim or defense, based upon any claim or assertion by Tenant, of whatever nature, that Landlord has unreasonably withheld or unreasonably delayed any consent or approval. 58. INTENTIONALLY OMITTED 59. TENANT'S OPERATING OBLIGATIONS. Tenant covenants and agrees that during the term of this Lease: A. If any governmental license or permit shall be required for the proper and lawful conduct of Tenant's business in the Demised Premises, or any part thereof, and if failure to secure such license or permit would in any way affect Landlord, then Tenant, at its sole cost and expense, shall duly procure and therefore maintain such license or permit and submit the same to inspection by Landlord. Tenant shall at all times comply with the terms and conditions of each such license or permit. B. Tenant shall maintain any sanitary lines in the Demised Premises and shall not misuse plumbing facilities or dispose of any foreign substances therein. Tenant shall not permit any food, waste, or other foreign substances to be thrown or drawn into the pipes. Tenant shall maintain the plumbing that it installs in good order, repair and condition, and repair any damage resulting from any violation of this paragraph. At Tenant's sole cost and expense Tenant shall make any repairs to the other plumbing in the Building, if damage results from Tenant's improper use of the plumbing in the Building or Demised Premises. 8 C. Tenant shall retain a licensed professional exterminating service which will service the Demised Premises on a regular basis throughout the term so as to keep the Demised Premises free of vermin. D. Tenant shall, throughout the term of this Lease, maintain, repair, service and replace when necessary, all doors leading into and out of the Demised Premises and all hardware appurtenant thereto, including, but not limited to, locks, hinges, silencers, door stops, door jams, door closers, latchsets, flushbolts, door frames, thresholds and door knobs. Landlord shall have no liability or obligation whatsoever regarding the maintenance, repair, service and replacement of the foregoing. E. Tenant shall not subject any fixtures or equipment in or on the Demised Premises which are affixed to the reality, to any mortgage, liens, conditions sales agreements, security interests or encumbrances. F. Tenant shall not perform any act or carry on any practice which may damage, mar or deface the Demised Premises or any other part of the Building. G. Tenant shall not install, operate or maintain in the Demised Premises any electrical equipment which will overload the electrical system, therein, or any part thereof, beyond its reasonable capacity for proper and safe operation, as determined by Landlord, in light of the overall system and requirements therefor in the Building, or which does not adhere to underwriters' approval. 60. INTENTIONALLY OMITTED 61. HOLDING OVER. If Tenant shall default in surrendering the Demised Premises upon the expiration or termination of the term. Tenant's occupancy subsequent to such expiration or termination, whether or not with the consent or acquiescence of Landlord, shall be deemed to be that of a tenancy at will and in no event from month-to-month or from year-to-year, and it shall be subject to all terms, covenants and conditions of this Lease applicable thereto, except the Base Rent shall be twice the amount payable in the last year of the term, and no extension or renewal of this Lease shall be deemed to have occurred by such holding over. In the event Landlord shall commence proceedings to dispossess Tenant by reason of Tenant's holding over or other default Tenant shall pay, in addition to costs and disbursements, reasonable legal fees for each proceeding as Additional Rent hereunder. Tenant shall also be liable to Landlord for all claims made by any succeeding tenants against Landlord or otherwise resulting from the failure of Tenant to timely surrender and vacate the Demised Premises. 62. NON-WAIVER AND SURVIVAL OF ADDITIONAL RENT OBLIGATIONS. Landlord's failure during the Lease term to prepare and deliver any of the tax bills, statements, notices or bills set forth in this Lease, or Landlord's failure to make a demand, 9 shall not in any way cause Landlord to forfeit or surrender its rights to collect any of the foregoing items of Additional Rent which may become due during the term of this Lease. Tenant's liability for the amounts due under this Lease shall survive the expiration of the Lease term. 63. ADDITIONAL RENT. "Additional Rent" shall mean and consist of all sums of money and charges that shall become due and payable by Tenant to Landlord hereunder other than base rent. In the event of the default of payment of additional rent, the Landlord shall have the same remedies as if the Tenant defaulted in the payment of the Base Rent. 64. LATE CHARGE. Should Tenant fail to pay when due any installment of Base Rent, Additional Rent, or any other sum payable to Landlord under the terms of this Lease, within ten (10) days after the date it is due, then interest shall accrue from and after the date on which any such sum shall be due and payable, together with a late charge of six cents ($.06) per every dollar overdue, to cover the extra expense involved in handling such delinquency shall be paid by Tenant to Landlord at the time of payment of the delinquent sum. If Tenant shall be late in making any payment due under this Lease more than three (3) times in any Lease Year, Landlord shall be entitled to demand from Tenant and Tenant agrees to tender to Landlord additional Security in the amount of one month's then current rent to be held in accordance with the terms of Article 31 hereof. 65. CHEMICAL WASTE. Tenant agrees that Tenant shall not pour or otherwise dispose of any chemical, chemical waste, chemical by products, or other such material, through the drainage (plumbing) system of the Building or Demised Premises. 66. INTENTIONALLY OMITTED 67. WATER CHARGES. Tenant shall install a water meter and thereby measure Tenant's water consumption for all purposes. Tenant shall pay for the cost of the meter and the cost of the installation Tenant shall keep said meter and installation equipment in good working order and repair a Tenant's own cost and expense. Tenant agrees to pay for water consumed as shown on said meter. Tenant covenants and agrees to pay the sewer rent charge or any other tax, rent, levy or charge which now or hereafter is assessed, imposed or a lien upon the Demised Premises or the realty of which they are post pursuant to law, order or regulation made or issued in connection with the use consumption, maintenance or supply of water, water system or sewage or sewage connection of system. Landlord may sue for and collect any monies to be paid by Tenant or paid by Landlord for any of the reasons or purposes hereinabove set forth. 68. ASSIGNMENT. Transfer, sale assignment or other disposition of any portion or all of the capital stock of the Tenant, including legal or beneficial title or interest therein shall be the equivalent of to an assignment of this lease and shall be subject to the prior 10 written approval of the landlord as well as to the restrictions set forth in this lease including but not limited to Article 11. Landlord agrees not to unreasonably withhold its consent to a proposed assignment of this Lease. Landlord shall have the right to demand and the assignee shall produce audited financial statements that said assignee can undertake the obligations of the lease including but not limited to the payment of Base rent as well as additional rent and the Real Estate Taxes. 69. NOTICES. Notwithstanding anything contained in this Lease to the contrary, notices sent by Landlord's attorney on behalf of Landlord shall be valid service pursuant to the terms of this Lease, provided, however, that the manner in which the notice is sent is in accordance with the terms of the Lease. In addition, Tenant shall not have any recourse nor the right to contest the fact that Landlord's attorney sent any such notice. All notices or other communications required or desired to be sent by either Landlord or Tenant under this Lease shall be in writing and shall be sent by (i) Registered or Certified Mail, Return Receipt Requested, or (ii) personal deliver; or (iii) Federal Express or other national overnight courier service; at the addresses set forth at the beginning of this Lease. Notices shall be deemed served four days following the date of registration with the postal authorities, if sent by Registered Mail and four days following the date of mailing, if sent by Certified Mail; when received if sent by personal delivery; and on the date delivered if sent by Federal Express or other national overnight courier service. Service of any notice on the Landlord shall be made upon Mr. Sheldon Schiff CIO New York Life Insurance 40 West 57th Street Suite 3200 New York, N.Y. 10019 and upon Finkelstein and Newman 185 Madison Avenue- Eighth Floor New York, N.Y. 10016 Service of any notice on the Tenant shall be made upon the Tenant at the premises, and upon Silverman, Collura & Chernis, P.C. 381 Park Avenue South New York, New York 10016 Attn: Peter Silverman, Esq. 70. RECORDATION. Landlord and Tenant will execute a statutory short form lease for recording purpose containing the names of the lessor and lessee, identification of 11 the premises, the terms of the lease, and such provisions of this Lease as Landlord, in its sole discretion, shall deem necessary. 71. LANDLORD'S CONSENT. If Tenant requests Landlord's consent or approval to alterations, assignment, subletting or any other matter or doing requiring Landlord's consent or approval under this Lease, and if in connection with such request Landlord seeks the advice of its attorneys, accountants, architect, engineer or other professional, then Landlord, as a condition precedent to granting its consent or approval, may require (in addition to any other requirements of Landlord in connection with such request) that Tenant pay the reasonable fees of Landlord's attorney's, accountant, architect, engineer or other professional in connection with the consideration of such request and/or the preparation of any documents pertaining thereto. Landlord's consent when properly requested in conformity with this lease and this rider, shall not be unreasonably withheld. 72. INTENTIONALLY OMITTED 73. ADDENDUM TO ARTICLE 6 (COMPLIANCE WITH LAWS). A. Supplementing the provisions of Article 6 hereof, Tenant shall give prompt notice to Landlord of any notice it receives of the violation of any law or requirement of any public authority with respect to the Demised Premises or the use or occupation thereof. Tenant shall promptly comply with all present and future laws, orders and regulations of all state, federal, municipal and local governments, departments, commissions and boards or any lawful direction of any public officer pursuant to law, and all orders, rules and regulations of the New York Board of Fire Underwriters, any insurance company or any similar body which shall impose any violations, order or duty upon Landlord or Tenant with respect to the Demised Premises. It is understood and agreed that in the event of the imposition of any such order the Tenant shall be responsible for the cost of such compliance whether said work is performed by Tenant or by Landlord. B. Tenant acknowledges with respect to the Demised Premises or any portion of the Building affecting the Demised Premises or relating thereto, that it shall be Tenant's responsibility and obligation to comply with all requirements and controls imposed by all Federal , state municipal and Local Laws of the City of New York, as same now exists or may hereafter be amended, as well as with any and all other laws, rules and regulations of the City of New York or of any governmental agency or department thereof having jurisdiction over the Building including without limitation the partitioning, layout, exit signs, telephone communications, fire extinguishers, electrical outlets, sprinklers, pressurization, HVAC systems, electrical controls, wiring, public address systems, conduits and additions to the Building electrical system. Tenant further acknowledges and agrees, if Landlord shall have performed Tenant's installation or alteration work for Tenant pursuant to any work letter agreement or pursuant to Tenant's request, the Landlord's sole responsibility with respect thereto shall be limited to the workmanlike manner of such installation or alteration and it is the responsibility of Tenant and Tenant's architect insofar as the legality of any such installation or alteration is 12 concerned, i.e., the drawing of plans to compliance with law and the obtaining of all permits relating thereto, including without limitation, all necessary approvals and signoffs, as well as any subsequent required, by law, modification(s) of any such installation or alteration made within the Demised Premises or alteration of the Building required as a result of such installation or alteration, which shall be solely the responsibility of Tenant, at Tenant's sole cost and expense, and Landlord shall have no obligation or duty with respect thereto. The performance of any of the foregoing Laws required work, installations and alterations shall be performed by Tenant in accordance with and subject to all applicable provisions of this Lease. C. (I.) If the National Board of Fire Underwriters or any local Board of Fire Underwriters or Insurance Exchange (or other bodies hereafter exercising similar functions) shall require or recommend the installation of fire extinguishers, a "sprinkler system", fire detection and prevention equipment (including but not limited to, smoke detectors and heat sensors), or any changes, modifications, alterations, or the installations of additional sprinkler heads or other equipment for any existing sprinkler system, fire extinguishing system, and/or fire detection system for any reason, whether or not attributable to Tenant's use of the Demised Premises or alterations performed by Tenant; or (II.) If any law, regulation or order or if any bureau, department, or official of the federal, state, and/or municipal governments shall require or recommend the installation of fire extinguishers, a "sprinkler system", fire detection and prevention equipment (including, but not limited to, smoke detectors and heat sensors), or any changes, modifications, alterations, or the installation of additional sprinkler heads or other equipment for an existing sprinkler system, fire extinguishing system, and/or fire detection system for any reason, whether or not attributable to Tenant's use of the Demised Premises or Alterations performed by Tenant: or (III) If any such installation, changes, modifications, alterations, sprinkler heads, or other equipment become necessary to prevent the imposition of a penalty, an additional charge, or an increase in the fire insurance rate as fixed by said Board of Exchange from time to time, or by any fire insurance company as a result of the use of the Demised Premises whether or not the same is a Permitted Use under Paragraph #2 (the Use clause), then, Tenant shall, at Tenant's sole cost and expense, promptly make such installations within the Demised Premises and make such changes, modifications, alterations, or the installation of additional sprinkler heads or other required or recommended equipment. 74. AIR CONDITIONING. All maintenance, repair, and replacement of the air conditioning and ventilation system if any, serving the Demised Premises shall be the responsibility of the Tenant, at the Tenant's sole cost and expense. Landlord shall not be liable to Tenant to damages or otherwise nor shall Tenant be entitled to any abatement or diminution of the Minimum Rent or any Additional Rent payable under this Lease if the operation of the air conditioning and/or ventilating system is interrupted, impaired, suspended or terminated because of failures, repairs, installations or improvements in or about the Demised Premises, nor shall any such interruptions, impairment, suspension, or termination release Tenant from the 13 performance of any of its obligations hereunder. A. If either the quantity or character of cooling and/or ventilating service furnished to the Demised Premises shall change or cease to be available or suitable for Tenant's requirements, no such change, unavailability or unsuitability shall constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to impose any liability upon Landlord or Landlord's agents. B. Tenant shall not, without prior written consent of Landlord, which consent shall not be unreasonably withheld, make or permit to be made any additions to or modifications of the existing air conditioning and ventilating system. Any such additions or modifications permitted to be made hereunder shall be performed by Tenant at Tenant's expense. C. Tenant acknowledges that at the end of the Lease term, or earlier termination, the air conditioning system shall remain in the Demised Premises. In addition, at end of the Lease term, Tenant will leave the air conditioning unit in good condition and good working order. D. Anything contained herein to the contrary notwithstanding, it is expressly agreed that Tenant shall pay the cost of any and all permits required by any branch or department of the borough, county, city, state or federal government in connection with any air conditioning presently or hereinafter installed in the Demised Premises. 75. INTENTIONALLY OMITTED 76. PERMITS AND FEES. A. Tenant covenants and agrees that, upon request of the Landlord, it shall, within ten (10) days from the date of the request, furnish Landlord with an up-to-date copy of any permit or license required by any authority having jurisdiction therein for Tenant to conduct business at the Demised Premises. B. In addition, Tenant further covenants and agrees that, upon request of the Landlord, it shall, within ten (10) days from the date of the request, furnish Landlord evidence which supports payment of current tax, assessment or fee, for personal property, fees or other impositions which is imposed upon the Tenant, other than the Real Estate Tax. 77. BASE RENT. The payments reserved under this Lease for the term hereof shall be and consist of "Base Rent", which shall be as follows: (i) $245,340.00 per annum ($ 20,445.00 per month) during the period commencing upon the Tenant's possession of the premises, and continuing thereafter to and including the 31st day of July, 2000; (ii) $273,540.00 per annum ($22,795.00 per month) during the period commencing upon the 1st of August, 2000, and continuing thereafter to and including the 31st day of July, 2001; 14 (iii) $310,200.00 per annum ($25,850.00 per month) during the period commencing upon the 1st day of August, 2001 , and continuing thereafter to and including the 31st day of July, 2005; (iv) $341,220.00 per annum ($28,435.00 per month) during the period commencing upon the 1st day of August, 2005, and continuing thereafter to and including the 31st day of July, 2010; 78. OPTION TO RENEW. A. Provided that the Tenant is not in default of any of the provisions of this immediate lease and rider, Tenant shall have the option to extend the terms of this lease for two (2) successive five (5) year periods, hereinafter known as "Extension Term I" and Extension Term II. B. Tenant shall notify the landlord in writing pursuant to the notice provision contained herein, at least 6 months prior to the expiration of the then existing term that it has elected to exercise its option for the following extension term. C. Both Extension Term I and Extension Term II shall be on the same terms, covenants and conditions as provided in this immediate lease and rider thereto. Payment of all Base Rent and additional rent and all other charges shall continue to be made during each of the Extension Terms. D. During Extension Term I, the Base Rent shall be as follows: (i) $349,750.05 per annum ($29,145.83 per month) during the period commencing upon the 1st day of August, 2010, and continuing thereafter to and including the 31st day of July, 2011; (ii) $358,494.26 per annum ($29,874.52 per month) during the period commencing upon the 1st day of August, 2011, and continuing thereafter to and including the 31st day of July, 2012; (iii) $367,456.61 per annum ($30,621.38 per month) during the period commencing upon the 1st day of August, 2012 , and continuing thereafter to and including the 31st day of July, 2013 (iv) $376,643.03 per annum ($31,386.91 per month) during the period commencing upon the 1st day of August, 2013 and continuing thereafter to and including the 31st day of July, 2014; 15 (v) $386,059.10 per annum ($32,171.59 per month) during the period commencing upon the 1st day of August, 20l4 and continuing thereafter to and including the 31st day of July, 2015; E. During Extension Term II, the Base rent shall be: (i) $395,710.57 per annum ($32,975.88 per month) during the period commencing upon the 1st day of August, 2015, and continuing thereafter to and including the 31st day of July, 2016; (ii) $405,603.34 per annum ($ 33,800.27 per month) during the period commencing upon the 1st day of August ,2016 , and continuing thereafter to and including the 31st day of July, 2017 (iii) $415,743.42 per annum ($34,645.28 per month) during the period commencing upon the 1st day of August,2017, and continuing thereafter to and including the 31st day of July, 2018 (iv) $426,137.01 per annum ($35,511.41 per month) during the period commencing upon the 1st day of August, 2018 and continuing thereafter to and including the 31st day of July, 2019 (v) $436,790.43 per annum ($36,399.20 per month) during the period commencing upon the 1st day of August, 2019 , and continuing thereafter to and including the 31st day of July, 2020. 79. SECURITY DEPOSIT A. Landlord hereby acknowledges receipt of the sum of THIRTY THOUSAND SIX HUNDRED SIXTY SEVEN DOLLARS FIFTY CENTS ($30,667.50), hereinafter referred to as "Security Deposit"), which Security Deposit is to be held by Landlord as security for the full and faithful performance by Tenant of each and every term, condition and covenant of this Lease on the part of Tenant to be observed and performance, it being expressly understood that such Security Deposit is not an advance payment of rental or a measure of Landlord's damages in the case of default by Tenant. Landlord will be required to account for the use of such Security Deposit, to keep such Security Deposit sequestered and shall pay interest on such Security Deposit. Such Security Deposit shall not be mortgaged, assigned, transferred or encumbered by Tenant without the consent of Landlord and any such act on the part of Tenant shall be without force and effect and shall not be binding upon Landlord. If any of the Base Rent or any item of Additional Rent payable by Tenant to Landlord shall be overdue and unpaid or should Landlord make payments on behalf of Tenant, or should Tenant fail to perform any of the terms of this Lease, then Landlord may, at its option, and without prejudice to any other remedy which 16 Landlord may have on account thereof, appropriate and apply said entire Security Deposit, or so much thereof as may be necessary to compensate Landlord toward the payment of Base Rent or any item of Additional Rent due from Tenant or towards any loss, damage or expense sustained by Landlord resulting from such default on the part of Tenant and, in such event, Tenant shall forthwith, upon demand, restore said Security Deposit to the original sum deposited. In the event Tenant shall fully and faithfully comply with all of the terms, covenants and conditions of this Lease, any remaining balance of such Security Deposit shall be returned by Landlord to Tenant following the date of the expiration or termination of this Lease and the surrender of the Demised Premises by Tenant in compliance with the provisions of this Lease. In the event any bankruptcy, insolvency, reorganization or other creditor-debtor proceedings shall be instituted by or against Tenant, or its successors or assigns, or any Surety of this Lease, such Security Deposit shall be deemed to be applied first to the payment of any Base Rent and any item of Additional Rent due Landlord for all periods prior to the institutions of such proceedings, and the balance, if any, of such Security Deposit may be retained by Landlord in partial liquidation of Landlord's damages. Landlord may deliver the Security Deposit by Tenant hereunder to the purchaser of Landlord's interest in the Demised Premises, in the event that such interest be sold or transferred and, thereupon, Landlord shall be discharged and released from all further liability with respect to such Security Deposit or the return thereof to Tenant, and Tenant shall look solely to the new Landlord for the return of said Security Deposit, and this provision shall also apply to any subsequent transferees. The interest which accrues shall accrue as principal thereby increasing the principal amount of the Security Deposit which shall be used in accordance with and be subject to all the terms of this Article. Landlord shall have the rights to deduct annually from the account the legal maximum rate permissible for reimbursement of its administrative expenses. B. Tenant shall upon the request of the Landlord furnish such additional sums as are required to keep the security deposit value at the total of one and one half (1.5) months Base Rent. 80. SAVING PROVISION. If any provision of the Lease, or its application to any situation, shall be invalid or unenforceable to any extent, the remainder of this Lease, or the application thereof to situations other than that as to which it is invalid or unenforceable , shall not be affected thereby, and every provision of this Lease shall be valid and enforceable to the fullest extent permitted by law. 81. LEASE NOT BINDING UNLESS EXECUTED. Submission by Landlord of the within Lease for execution by Tenant shall confer no rights nor impose any obligations on either party unless and until both Landlord and Tenant shall have executed this Lease and duplicate originals thereof shall have been delivered to the respective parties. 17 82. ENTIRE AGREEMENT. No earlier statement by Landlord, its agents or employees regarding this Lease in the Demised Premises or prior written matter, regarding this Lease in the Demised Premises shall have any force or effect. Tenant agrees that it is not relying on any representations or agreements other than those contained in this Lease. This agreement shall not be modified or canceled by writing subscribed by all parties. 83. INTENTIONALLY OMITTED 84. INTENTIONALLY OMITTED 85. SORTING AND SEPARATION OF REFUSE AND TRASH: Tenant covenants and agrees, at its sole cost and expense, to comply with all present and future laws, orders and regulations of all state, federal, municipal and local governments, departments, commissions and boards regarding the collection, sorting, separation and recycling of waste products, garbage, refuse and trash. Tenant shall sort and separate such waste products, garbage, refuse and trash into such categories as provided by law. Tenant shall pay all costs, expenses, fines, penalties or damages which may be imposed on Landlord or Tenant to reason of Tenant's failure to comply with the provisions of this article, and, at Tenant's sole cost and expense, shall indemnify, defend and hold Landlord harmless (including legal fees and expenses) from and against any actions, claims and suits arising from such not-compliance, utilizing counsel reasonably satisfactory to Landlord. 86. TENANTS RIGHT OF FIRST REFUSAL: During the course of the term herein or any Extension Term, the Landlord shall not accept any offer to purchase the premises unless: (i) the Landlord has provided the Tenant with written notice of the terms of any proposed sale or offer, affording the Tenant the right to purchase the property upon the same terms and conditions contained therein; and (ii) the Tenant shall not have accepted such offer within 30 days after such notice. The sale of more than 50% of the capital stock of the Landlord shall be deemed to be a sale requiring the giving of the notice provided for herein to the tenant. However, for purposes of this paragraph, the transfer conveyance or sale of the premises or any part thereof, to members of the immediate family of the principal shareholder of the Landlord shall not be deemed a sale. 87. INTENTIONALLY OMITTED 88. ENVIRONMENTAL HAZARDS A. Landlord shall indemnify and hold blameless Tenant and its successors and assigns 18 from all costs damages expenses liability and harm resulting from any spill, release or presence of toxic or hazardous materials, (hereinafter an "environmental condition"), and the violation of any federal state or local laws addressing environmental matters (hereinafter "environmental law")occurring or existing prior to the commencement of the term of the lease. B. The tenant shall indemnify and hold the Landlord harmless for and from any and all damage resulting from the occurrence of any environmental condition or the violation of any environmental law during the term of the tenancy. 89. CONDEMNATION. If the whole of the demised premises or more than 40% of the land area thereof, and/or the building on the demised premises shall be lawfully taken by condemnation, then this lease shall at the option of the Tenant terminate upon 60 days Notice of Termination based upon condemnation, which notice may be served upon Landlord at any time after the date of vesting of title in such taking and the rent shall be prorated and adjusted as of such date. If the Tenant does not exercise such option, the rent of the remaining portion of the term shall be reduced in proportion to the square footage of parking area and/or square footage of building which has been taken in condemnation. In the event that the parties cannot agree upon the amount of such reduction, the issue concerning the pro rata rent reduction shall be submitted to binding arbitration by one arbitrator in accordance with the rules of the American Arbitration Association. 90. TENANT'S CHANGES. Tenant, at its sole cost and expense, shall have the right, at any time from time to time during the term of the lease to make changes and alterations to the demised premises provided that the Tenant shall furnish the Landlord with prior written notice concerning the nature and extent of any such changes, which consent shall not be unreasonably withheld. 91. WARRANTIES OF LANDLORD. The Landlord warrants that the Premises shall be vacant and free of all tenancies, including but not limited to the current occupancy of Jamaica Towing and/or its affiliates by October 15, 1995. Landlord shall commence a summary holdover proceeding against the present occupants on or about August 1, 1995, and shall diligently prosecute such proceeding to conclusion. In the event the Landlord is unable to deliver the Premises to the Tenant vacant and free of all tenancies on or before October 15, l995, the Tenant shall have the option to terminate this lease upon 10 days written notice to the Landlord. Upon such termination neither Landlord nor Tenant shall have any further obligation or liability hereunder, with the exception of the return to the Tenant of the first month's lease and security deposit paid hereunder. The foregoing option shall expire in the event that such option has not been exercised prior to the earlier to occur of the following: 19 (i) written notification by the Landlord to the Tenant that the Premises are vacant and free of all tenancies; or (ii) December 1, 1995. In the event that the Landlord shall be unable to deliver the Premises to the Tenant vacant and free of all tenancies, on or before December 1, 1995, this Lease shall terminate as of such date and neither Landlord nor Tenant shall have any further obligation or responsibility hereunder with the exception of the return of Tenant's first month's rent and security deposit. The Tenant's obligation to pay rent or additional rent shall not commence until the Landlord has delivered possession of the Premises to Tenant vacant and free of all tenancies. 92. NON-DISTURBANCE: (A) West Side Corp., as the owner of the Premises, hereby consents to the entry into the lease agreement between Stamar Realty Corp. and 180 Jamaica Corp. (B) West Side Corp. waives any and all present and future defaults which may exist under the lease agreement between West Side Corp. and Stamar Realty Corp. dated July 31, 1995 ("July Lease"). This waiver shall remain in full force and effect during the term of this Lease between Stamar Realty Corp. and 180 Jamaica Corp. (C) No other lease or other form of agreement has been executed by West Side Corp. which grants any rights in and/or to the Premises with the exception of the July Lease. (D) West Side Corp. is the sole record and beneficial owner of the Premises. (E) Notwithstanding anything else contained in this Lease to the contrary, so long as this Lease is in full force and effect and Tenant is not in default hereunder beyond all applicable grace and notice periods, (a) Tenant shall not be evicted from the Premises by West Side Corp., any owner of the Premises, and/or any holder of a mortgage or deed of trust encumbering the building and/or the Demised Premises ("Mortgagee") or any assignee or other successor whose rights derive or are claimed to derive from, under or through Mortgagee and, in addition thereto, Tenant's right of possession and other rights under this Lease, including, without limitation, its right to use and occupy the Demised Premises in accordance with this Lease and its rights in and 20 to the other areas of the building shall not be terminated, disturbed, diminished, interfered with or in any way affected by: (i) any action of West Side Corp. Or any owner of the premises; and/or (ii) the foreclosure of a mortgage encumbering the building and/or Demised Premises or any renewal, modification, consolidation, extension or replacement thereof(" Mortgage"); and (b) Tenant shall not be named or joint as a panty defendant in any foreclosure action or proceeding which may be instituted or taken by the Mortgagee unless same is required by a court of competent jurisdiction and then only with respect to the foreclosure and not to evict Tenant from the demised premises; and (c) any sale or transfer of title to the building, the Demised Premises or any part thereof pursuant to the exercise of any rights or remedies under the Mortgage or otherwise, shall be made subject to this Lease and the rights of Tenant hereunder. (F) On or before March 15, 1996, (i) a non-disturbance agreement in a form reasonably satisfactory to the Tenant, must be delivered to the Tenant by the Mortgagee and (ii) Tenant must be satisfied as to the inability of tax agencies and judgement creditors to commence foreclosure proceedings against the property. In the event that the foregoing is not met, Tenant would have the option to terminate the lease on 120 days written notice to Landlord. In addition, in the event that foreclosure proceedings are commenced against the property prior to March 15, 1996, Tenant would also have the option to terminate the lease on 120 days written notice to the Landlord, or make rental payments directly to the Court. 93. GUARANTY: Atlantic Express Transportation Group Inc. (the "Guarantor") hereby unconditionally guarantees the payment of rent and additional rent for so long as either the Tenant or any sublessee or assignee of the Tenant shall remain in occupancy of the Premises. Upon receipt of written notice of non payment of rent or additional rent and demand for payment thereof, the Guarantor shall pay such rent or additional rents to Landlord and shall remain liable for all sums due or to become due for rent or additional rent during the period in which the Tenant or any sublessee or assignee of the Tenant shall remain in possession of the Premises. 94. SUBLEASE TO AFFILIATE: Landlord consents to the sublease of a portion or all of the Premises to any affiliate of the Tenant. For purposes of this paragraph "affiliate of the Tenant" shall include any corporation or entity which is wholly owned by Atlantic Express Transportation Group Inc. 95. ECONOMIC DEVELOPMENT ZONE PROGRAM: The Landlord and the Tenant, at Tenant's option, shall promptly make application for certification as a 21 qualified business under the Economic Development Zone Program for South Jamaica, Queens. All fees and expenses incurred or to be incurred in connection with the making of such application or the maintenance of such certification shall be paid by the Tenant. The Landlord and Tenant shall cooperate with each other with respect to the making of any application for benefits under such Economic Development Zone program including application for investment tax credit, real property tax exemptions and land tax abatements, provided that the Tenant shall pay all fees and expenses in connection with any and all such matters. In the event the Landlord shall receive a real property tax exemption or land tax abatement which shall reduce the amount of real estate taxes payable on the Premises to an amount which shall be less than the real property taxes payable as of the date hereof for the 1995/96 tax year, the Tenant shall receive a rent abatement which shall be equal to 75% of the annual tax savings resulting thereby and the monthly rent hereunder shall be reduced accordingly to reflect such abatement. IN WITNESS WHEREOF the parties hereto have respectively executed this agreement, This the 21st day of August 1995. Landlord: Tenant /s/ [ILLEGIBLE] /s/ [ILLEGIBLE] - ---------------------------------- ----------------------------- Stamar Realty Corp. 180 Jamaica Corporation By: By: /s/ [ILLEGIBLE] Guarantor: - ---------------------------------- West Side Corp. By. /s/ [ILLEGIBLE] ----------------------------- Atlantic Express Transportion Group Inc. By: 22 [Logo] Hentz-Dor Real Estate, Inc. Industrial/Commercial CONSULTANT RETAINER AGREEMENT 59-01 Avenue D, Brooklyn, NY 11203 Energy Discount Program/Property Tax Abatement This Agreement made this 26th day of July 1996, between Atlantic Express Inc. (ATLANTIC), party of the first part, and Hentz-Dor Real Estate, Inc. (HD), party of the second part, as follows: WHEREAS, ATLANTIC recognizes that the Financial Services Department of HD has specialized personnel with ability and expertise in the field of industrial and commercial project planning; WHEREAS, ATLANTIC has the need for special knowledge and advice in the industrial and commercial project planning and desires assistance in the preparation of documentation for submission to the New York City Department of Business Services, Department of Finance, Economic Development Corp., ("Consultation Services") and others, and; WHEREAS, ATLANTIC is planning the renovation of their building on 107-10 180th Street, Jamaica, N.Y. and is desirous of receiving benefits from various agencies, if possible; A. NOW, THEREFORE, Hentz-Dor Real Estate, Inc. agrees to render the Consultation Services to ATLANTIC for a period of 12 months from the date hereof and will make its best efforts to secure ATLANTIC the Energy Cost Savings Program Discount and Department of Finance ICIP Program, and ATLANTIC hereby agrees to pay Hentz-Dor Real Estate, Inc. the sum of twelve thousand dollars ($ 12,000) payable as follows: (1) ATLANTIC agrees to pay HD the sum of three thousand dollars ($ 3,000) as the initial non-refundable retainer fee for such Consultation Services. (2) ATLANTIC agrees to pay HD the sum of four thousand five hundred dollars ($ 4,500) in the event that ATLANTIC receives a preliminary Certificate of Eligibility from the New York City Industrial and Commercial Incentive Program (ICIP), whether or not such Certificate is received after the termination of this agreement. (3) ATLANTIC agrees to pay HD an additional sum of four thousand five hundred dollars ($ 4,500) in the event that ATLANTIC receives a Certificate of Eligibility from the New York City Economic Development Corporation EDC), Energy Cost Savings Reduction Program, whether or not such approval is received after the termination of this agreement. B. HD herewith acknowledges receipt of the initial non-refundable retainer fee of three thousand dollars ($3,000). /s/ [ILLEGIBLE] /s/ [ILLEGIBLE] - ---------------------------------- ----------------------------- WITNESS ATLANTIC, EXPRESS, INC - ---------------------------------- ----------------------------- WITNESS HENTZ-DOR REAL ESTATE, INC. 10-51 48th Avenue, Long Islad City, N.Y. 11101 Tel. 718-786-5151 Fax: 718-786-6914 SILVERMAN, COLLURA & CHERNIS, P.C. 381 PARK AVENUE SOUTH NEW YORK, N.Y. 1OOI6 ---------- (212) 779-8600 TELECOPIER: (212) 779-8858 PETER R. SILVERMAN ANTHONY M. COLLURA August 14, 1995 PAUL CHERNIS * RONALD A. BALZANO __________ ** MICHELLE J. COHN * NEW YORK AND CONNECTICUT BARS ** NEW YORK AND PENNSYLVANIA BARS VIA FACSIMILE 212 725-3711 Finkelstein & Newman 185 Madison Avenue New York, New York 10016 Attn: John Newman, Esq. Re: Stamar Realty Corp./180 Jamaica Corp. Lease for 107-10 180th Street Jamaica, Queens Dear John: This letter shall confirm the agreement and understanding between our respective clients as Landlord and Tenant under the above captioned Lease concerning the improvements which the Tenant intends to make following the delivery of the Premises to the Tenant, vacant and free of all tenancies. The Landlord, by execution of this Letter Agreement, grants its approval to the making of the improvements referenced on the annexed schedule dated July 7, 1995, as well as the installation of three 4,000 gallon diesel fuel tanks and temporary grading of the property, and shall require no further compliance by Tenant with the terms of the Lease with respect to the making of such improvements. The Tenant in its sole discretion shall decide when such improvements shall be made. The Tenant, by execution of this Letter Agreement, agrees to indemnify and hold harmless the Landlord with respect to any damage, claim and expense, including reasonable counsel fees, which may arise as a result of or in connection with the Tenant's making of the said improvements, including but not limited to any municipal or other governmental fines, violations or orders. SILVERMAN, COLLURA & CHERNIB, P.C. John Newman, Esq. August 22, 1995 Page 2 I would appreciate it if you would arrange for your client to countersign a copy of this letter to acknowledge the foregoing. Very truly yours, SILVERMAN, COLLURA & CHERNIS, P.C. By: /s/ Peter R. Silverman ---------------------- Peter R. Silverman Consented and Agreed to: 180 JAMAICA CORP., TENANT By: /s/ [ILLEGIBLE] ---------------------------- STAMAR REALTY CORP., LANDLORD By: /s/ [ILLEGIBLE] ---------------------------- PRS/cz cc: Domenic Gatto Nathan Schlenker William McVeigh James Beatty EX-10.12 20 BOARD OF EDUCATION SERIAL #0070 7/19 REVISED February 22, 1979 Exhibit 10.12 Serial No. 0070 BOARD OF EDUCATION [SEAL] CITY OF NEW YORK CONTRACT PROPOSAL Sealed bids will be received by the Director of the Bureau of Supplies of the Board of Education of the City of New York, at his office. Room 513, 44-36 Vernon Blvd., Long Island City, New York, 11101. Until 10:00 A.M., on Wednesday, February 28, 1979 Bids will be publicly opened and read at 10:00 A.M. on the date and place stated above. FOR THE TRANSPORTATION OF HANDICAPPED PUPILS FOR THE PERIOD FROM SEPTEMBER 1979 THROUGH JUNE 1982 1. Name of Bidder Amboy Bus, Inc. ............................................................. Address of Bidder 36A-6 St., Garden City, N.Y. 11040 ........................................................... 2. Page Number(s) Containing Bid Prices: ............................................................................. ............................................................................. ............................................................................. ............................................................................. ............................................................................. TABLE OF CONTENTS CONTRACT TRANSPORTATION OF HANDICAPPED PUPILS FOR THE PERIOD FROM SEPTEMBER 1979 THROUGH JUNE 1982 Page General Instructions for Bidders.......................................... Form to be Used...................................................... 1 Presentation of Bids................................................. 1 Bid Opening.......................................................... 1 Late Bids............................................................ 1 Bid Deposit or Bid Bond.............................................. 1 Verification......................................................... 2 Quotation............................................................ 2 Additional Information............................................... 2 Equal Employment Opportunities....................................... 2 Withdrawal of Bids................................................... 3 Ability to Perform................................................... 4 Financial Statement.................................................. 4 Equipment............................................................ 4 Insurance and Performance Bond....................................... 5 Award................................................................ 7 Notice of Award...................................................... 7 Return of Bid Deposit................................................ 7 Bid Certification.................................................... 8 Individual Verification.............................................. 11 Corporate Verification............................................... 12 Schedule of Items, Specifications and Bid Blank: Page I. Intent and Scope .................................................. 13 II. Period of Contract ................................................ 13 III. Number of Days of Service ......................................... 13 IV. Period of Operation ............................................... 14 V. Payment ........................................................... 14 VI. Items ............................................................. 15 VII. Transportation of Pupils .......................................... 15 VIII. Schedule of Vehicles .............................................. 15 IX. Vehicle Specifications ............................................ 16 X. Vehicle Safety Requirements ....................................... 17 XI. Spare Vehicles and Vehicle Performance Monitoring ................. 18 XII. Use of Vehicles ................................................... 19 XIII. Increase or Decrease in the Number of Vehicles .................... 20 XIV. Facilities and Maintenance ........................................ 23 XV. Gasoline .......................................................... 23 XVI. Records to be Transmitted ......................................... 23 XVII. Vehicle Operator Standards ........................................ 23 XVIII. Operational Supervision ........................................... 25 XIX. Escorts ........................................................... 26 XX. Audit of Invoices and Financial Records ........................... 29 XXI. Liquidated Damages ................................................ 29 General Terms and Conditions Page Definitions ........................................................ 1 1. Subject Matter .................................................. 2 2. Contract ........................................................ 2 3. Interpretation .................................................. 2 4. Modifications ................................................... 2 5. Compliance With Laws ............................................ 3 6. Non-Assignment of Contract ...................................... 3 7. Cancellation .................................................... 3-4-5 8. Notices ......................................................... 5 9. No Estoppel ..................................................... 5 10. Claims - Limitation of Action ................................... 6 11. Maintenance of Records .......................................... 6 12. Discrimination .................................................. 6-7 13. Equal Employment Opportunity Requirements for Non-Construction Contractors, Vendors and Suppliers ............ 8 thru 13 14. Indemnification ................................................. 14 15. Workmen's Compensation .......................................... 14 16. Prevention of Delay, Suspension or Strikes ...................... 14 17. Inspectors ...................................................... 14 18. Rejection of Vehicles ........................................... 15 19. Payments ........................................................ 15 20. Acceptance of Final Payment ..................................... 15 21. Comptroller's Certificate ....................................... 16 22. Reserved Rights ................................................. 16 Page 23. Anti-Trust ...................................................... 16 24. Merger .......................................................... 16 25. Venue ........................................................... 16 Signature Page ...................................................... 17 Affidavit of Acknowledgement of Contract - (By Board of Education) ........................................................ 18 Affidavit of Acknowledgement of Contract ( By an Individual) ........ 19 Affidavit of Acknowledgement of Contract (By a Corporation) ......... 20 Appropriation - Certificates of Unexpended Balance .................. 21 Performance Bond .................................................... 22-23 BOARD OF EDUCATION CITY OF NEW YORK NOTICE: The attention of the bidder is particularly called to the fact that, unless the bid is made in strict conformity with the directions given in this proposal as provided for herein, the bid may be rejected. PROPOSAL FOR BIDS FOR THE TRANSPORTATION OF HANDICAPPED PUPILS FOR THE PERIOD FROM SEPTEMBER 1979 THROUGH JUNE 1982 (Serial No. 0070) GENERAL INSTRUCTIONS FOR BIDDERS FORM TO BE USED Bidder must submit his bid upon the blank forms included herein, which set forth the schedule of items, quantities, specifications and form of Contract. The forms provide for quotations for extended and regular service, and each bidder is required to bid on both for each item bid upon. Partial item bids will not be accepted. PRESENTATION OF BID The person, firm or corporation making a bid shall furnish such bid in a sealed envelope to the Director of the Bureau of Supplies or his designated representative at the place herein mentioned on or before the day and time herein named, and the envelope shall be endorsed on the face thereof with the name of the person, firm or corporation making such bid, the date of its presentation and the title of the services for which such bid is made. BID OPENING At the time and place herein stated, the bids received will be publicly opened and read by the Director of the Bureau of Supplies or his duly designated representative. The Board of Education reserves the right to waive any formalities in a bid if it is deemed to be in the best interests of the Board to do so. LATE BIDS Bids which arrive after the time stated for the opening of bids cannot be accepted. This includes bids sent by mail, which, if so sent, are sent at the risk of the bidder, and will not be considered if they arrive after the time stated for the bid opening. BID DEPOSIT OR BID BOND Every bid shall be accompanied by a bid bond or by a deposit in the amount of two (2) times the daily rate for regular service per vehicle for each vehicle in all items bid. Such deposit shall consist of a certified check upon a state or national bank or trust company or a check of such bank or trust company signed by a duly authorized officer thereof, drawn to the order of the Comptroller of the City of New York. -1- The bid deposit shall be enclosed in a sealed envelope within the envelope containing the bid. Receipt for the bid deposit will not be given, as bids will be publicly opened and read, and the amount of bid deposits publicly announced at the time of opening of bids. VERIFICATION Each bid shall be verified by the oath in writing of the party or parties making it, that the several matters stated therein are in all respects true. If the bidder is a corporation, the verification shall be made by an officer of such corporation with knowledge of the facts and having authority to make such a sworn statement. QUOTATION The bidder shall insert the prices he proposes to furnish for each item in the schedules herein contained or annexed, as well as all other information required on the bid blank. ADDITIONAL INFORMATION Further information, interpretation or clarification relative to the terms or conditions of the Contract should be requested in writing prior to the submission of the bid from the Director or duly designated representative of the Bureau of Pupil Transportation at 28-11 Queens Plaza North, Long Island City, New York, 11101. EQUAL EMPLOYMENT OPPORTUNITIES The particular attention of bidders is called to the section entitled "Equal Employment Opportunities and Practices" on Pages 8 through 13 of the General Terms and Conditions. The provisions and terms therein will be strictly enforced by the Board of Education. It is recommended that you contact the Director of the Office of Equal Opportunity, Room 641, 110 Livingston St., Brooklyn, N.Y. 11201 for forms and other information that his office would require in the event of possible consideration of award to your company. -2- WITHDRAWAL OF BIDS A. After the opening of bids, a request by a bidder to the Board of Education for consent to the withdrawal of his bid because of error made by said bidder, will be considered only under the following terms and conditions: - 1. Request to withdraw bid must be in writing, addressed to the Director of the Bureau of Supplies and must give reasons for the request. 2. Request must be sent by registered mail and must be post-marked not later than 48 hours following the opening of bids. 3. All requests will be referred to the Board of Review. 4. Contractors requesting consent to the withdrawal of bids shall appear and testify before the Board of Review and shall make available to the Board of Review all work sheets, summary sheets, and other data requested by the Board of Review as pertinent to its inquiry. Failure to appear or to make available data as requested by the Board of Review will result in refusal of consent to the withdrawal of bids. 5. After the Board of Review has considered a request by a bidder to withdraw its bid after an award has been made by the Board of Education, the Board of Education may grant such request in any case which it deems just and proper, but such request shall be made and such consent to withdraw shall be accepted by the bidder upon the express conditions that said bidder shall be excluded from bidding again on the readvertisement of bids for the same item or proposal. Should any bidder request the withdrawal of more than one bid in any twelve month period, he shall be disqualified from bidding on Board of Education work for a period of one (1) year from the date of the second request. B. If the Contract award is not made within forty-five days after the date of bid opening, a bidder has the right to withdraw his bid, provided such withdrawal is made prior to Contract award. Such withdrawal must be in writing and shall be filed with the Secretary of the Board of Education and the Director of the Bureau of Supplies. A withdrawal of bid pursuant to this paragraph is not subject to the provisions stated in paragraph "A" above. -3- ABILITY TO PERFORM Upon demand of the Director of the Bureau of Pupil Transportation, any bidder for this Contract shall furnish testimonials or evidence in such form as the Director may indicate, as to his financial ability, prior experience, past performance, ability to perform (which includes permitting investigation and evaluation by the Board of bidder's facilities, equipment, personnel), etc. No award will be made to a bidder who shall fail to submit testimonials, setting forth the facts required to be set forth, or to a bidder whose statements set forth in such testimonials are found to be untrue. Any statement or declaration made by the bidder which shall be found to be untrue will be sufficient cause for rejecting his bid and forfeiting his bid deposit to the Board. The Director will determine whether the evidence of ability to perform is satisfactory and will recommend awards only when such evidence is deemed satisfactory, and reserves the right to reject bids where evidence is submitted, or investigation and evaluation is determined by the Director, to indicate inability of the bidder to perform. FINANCIAL STATEMENT The bidder must submit with its bid a balance sheet and profit and loss statement of its operations for the past three annual tax periods or for the number of tax years which the bidder has been in business, with a certification by an independent Certified Public Accountant licensed by the State of New York. The individual, firm, or corporation employed to prepare the financial statements will have no interests in the bid and must so certify. Each bidder shall submit a statement under oath disclosing and clearly identifying all its stockholders owning 5% or more of the outstanding equity, its officers, partners, creditors, and every person, firm or corporation who has any interest directly or indirectly in the bid or the bidder at the time the bid is submitted; and shall report to the Director any change in control or ownership during the period of this Contract within 5 days. If the bidder has not been in business within the past three (3) years, the bidder shall submit a satisfactory certified financial statement outlining its qualifications to perform satisfactorily. EQUIPMENT The bidder must submit with his bid the following data if such information is available at the time of bid, in connection with each vehicle intended to be used for transportation of pupils: 1. Make, year of manufacture and identification number of each vehicle. 2. Pupil seating capacity. 3. Name of owner of each vehicle. The bidder shall supply satisfactory evidence that he will have the required number of vehicles prior to the beginning of the Contract period or beginning of service. Such evidence may be a signed statement from an acceptable vehicle manufacturer, dealer, or rental corporation to the effect that he will furnish the required number of vehicles. If the vehicles are leased or rented, the vehicle operator (driver) cannot be the owner. -4- A successful bidder must furnish this data with reference to each vehicle being furnished and used for the transportation of pupils under the Contract both at the inception of the Contract and for any additional vehicle acquired thereafter. The successful bidder must also inform the Board of Education of any vehicle withdrawn from service or replaced during the life of the Contract. INSURANCE AND PERFORMANCE BOND The bidder must submit, with his bid, certifications from acceptable insurors to the effect that said insurors will furnish to the bidder public liability insurance, property damage coverage and a performance bond as follows: 1. Public Liability for bodily injury, including death shall be in the amount of $500,000.00 for each person and $5,000,000.00 for each accident. Property damage coverage shall be in the amount of $50,000.00 to cover the claim of one person and $100,000.00 to cover the claim of two or more people for each accident. These policies shall be endorsed to include the Board of Education and City of New York, as named insureds. A copy of said policies shall be supplied to the Director of the Bureau of Pupil Transportation upon request. This written proof must be issued by a company licensed by the Superintendent of Insurance of the State of New York to do business in New York. 2. Performance Bond to cover the faithful performance of the Contract in the amount of the Contract where required. This written proof must be issued by a company licensed by the Superintendent of Insurance of the State of New York to do business in New York. The amount of the initial performance bond to be provided, when required, by the successful bidder for the first year of the Contract shall be one hundred and eighty times the daily rate for regular service per vehicle for all vehicles for which the Contract is awarded. This performance bond shall guarantee the full and faithful performance for the initial first year period of such Contract as may be awarded to bidder. The initial performance bond shall be filed with the Secretary of the Board of Education by the day set for the execution of the Contract. Thereafter, the contractor shall provide an equal and identical bond guaranteeing performance for each additional year beyond the operation of the first year of said Contract by April 1, 1980, and 1981 respectively. Inability or failure on the part of the contractor to obtain the bond guaranteeing performance as required herein on or before April 1, as stated above, shall be deemed sufficient cause for the cancellation of the balance of the Contract. -5- 3. Waiver of Performance Bond. (a) Any bidder who initially receives an award of Contract for fifteen (15) or fewer vehicles is not required to furnish a performance bond, nor shall there by any retainage withheld by the Board of Education. (b) Any bidder who initially receives an award of Contract for sixteen (16) to twenty-five (25) may elect between the following alternatives: 1. File a performance bond as stated herein; or 2. Authorize the Board of Education to retain 10% of each payment made to the contractor from the first five (5) months payments of each year of the contract in an interest bearing account to assure full and faithful performance of this Contract. This retainer shall be paid to the contractor with interest at the conclusion of each one (1) year period of full and faithful performance under this Contract. 4. During the period of the Contract, if there is an increase in the total number of vehicles furnished by one contractor to more than fifteen (15), but less than twenty-six (26), then the contractor shall comply with the terms and conditions outlined in 3(b) above. During the period of the Contract, if there is an increase in the total number of vehicles furnished by one contractor to more than twenty-five (25), then the contractor shall immediately notify the Director and shall furnish a performance bond as required herein for those vehicles in excess of twenty-five (25) within twenty (20) days and must furnish such performance bond for the remaining portion of the Contract period for those vehicles in excess of twenty-five (25) in accordance with the conditions stated herein. 5. For the purposes of 3 and 4 above, corporate bidders who are subject to common control as determined by the Board based upon an analysis of: (a) ownership of the corporations' assets, (b) coincidence of corporate officers and directors, and (c) such other factors as the Board determines to be relevant, are deemed to be one bidder. -6- AWARD The award of Contract, if made, will be made according to law, as soon after the opening of bids as practicable, by item, to the lowest responsible bidder offering the lowest weighted average daily rate per vehicle for extended and regular service as specified in each item. The Board of Education reserves the right to reject any or all bids. No award of Contract shall be binding until the Contract has been duly approved by the New York State Department of Education, the Comptroller of the City of New York and the Financial Control Board. NOTICE OF AWARD Mailing to the bidder of a notice from the Secretary of the Board of Education that, at a meeting of the Board of Education, held on the day specified in such notice, awards were made for the services herein specified, shall be sufficient notice to the bidder of the acceptance by the Board of the bids on items on which the bidder was the successful bidder as stated in such resolution. RETURN OF BID DEPOSIT After the award of contract, the Comptroller shall return all the bid deposits received to the persons, firms, or corporations submitting the same, except the bid deposit made by the bidder whose bid has been accepted. The successful bidder must sign the proposed contract and execute the affidavit of verification in quadruplicate within five days after receipt of notice by mail of the award of Contract to him for any of the items herein bid upon. If the successful bidder shall sign the Contract and execute the affidavit of verification or sworn statement and furnish the required policies of insurance and performance bond, as required or elected within the time aforesaid, the amount of his bid deposit will be returned to him, unless otherwise provided. -7- BID CERTIFICATION BID TO THE BOARD OF EDUCATION OF THE CITY OF NEW YORK Made by Name of Bidder _________________________________________________________________ (Individual, firm or corporation) Place of Business of Bidder ____________________________________________________ Date of Bid _________________________________ Telephone No. ____________________ If Bidder is an individual or partnership, state here: Name of Individual or Partners Residence of Individual or Partners 1.______________________________________________________________________________ 2.______________________________________________________________________________ 3.______________________________________________________________________________ If Bidder is a corporation, fill in the following blanks: Organized under the laws of the State of _______________________________________ Name and Residence of President ________________________________________________ ________________________________________________________________________________ Name and Residence of Secretary ________________________________________________ Name and Residence of Treasurer ________________________________________________ The bidder above mentioned declares and certifies: First: That the said bidder is of lawful age and the only one interested in this bid, and that no one other than hereinabove named has any interest in this bid, or in the contract proposed to be entered into. Second: By submission of this bid, each bidder and each person signing on behalf of any bidder certifies, and in the case of a joint bid each party thereto certifies as to its own organization, under penalty of perjury, that to the best of its knowledge and belief - (1) The prices in this bid have been arrived at independently without collusion, consultation, communication, or agreement for the purpose of restricting competition, as to any matter relating to such prices with any other bidder or with any competitor; (2) Unless otherwise required by law, the prices which have been quoted in this bid have not been knowingly disclosed by the bidder and will not knowingly be disclosed by the bidder prior to opening, directly or indirectly, to any other bidder or to any competitor; and -8- BID CERTIFICATION BID TO THE BOARD OF EDUCATION OF THE CITY OF NEW YORK Made by Name of Bidder Amboy Bus Inc. ----------------------------------------------------------------- (Individual, firm or corporation) Place of Business of Bidder 36-A 6th St., Garden City Park, N.Y. 11040 ---------------------------------------------------- Date of Bid Feb. 28 1979 Telephone No. 516-747-2248 --------------------------------- --------------------- If Bidder is an individual or partnership, state here: Name of Individual or Partners Residence of Individual or Partners 1.______________________________________________________________________________ 2.______________________________________________________________________________ 3.______________________________________________________________________________ If Bidder is a corporation, fill in the following blanks: Organized under the laws of the State of New York -------------------------------------- Name and Residence of President Michael Gatto 10 Emerson Dr. ------------------------------------------------ Morganville, N.J. 07751 - -------------------------------------------------------------------------------- Name and Residence of Secretary Same as above ----------------------------------------------- Name and Residence of Treasurer Same as above ----------------------------------------------- The bidder above mentioned declares and certifies: First: That the said bidder is of lawful age and the only one interested in this bid, and that no one other than hereinabove named has any interest in this bid, or in the contract proposed to be entered into. Second: By submission of this bid, each bidder and each person signing on behalf of any bidder certifies, and in the case of a joint bid each party thereto certifies as to its own organization, under penalty of perjury, that to the best of its knowledge and belief - (1) The prices in this bid have been arrived at independently without collusion, consultation, communication, or agreement for the purpose of restricting competition, as to any matter relating to such prices with any other bidder or with any competitor; (2) Unless otherwise required by law, the prices which have been quoted in this bid have not been knowingly disclosed by the bidder and will not knowingly be disclosed by the bidder prior to opening, directly or indirectly, to any other bidder or to any competitor; and -8- (3) No attempt has been made or will be made by the bidder to induce any other person, partnership or corporation to submit or not to submit a bid for the purpose of restricting competition. Third: That no Councilman of the City of New York, member of the Board of Education of the City of New York, or any officer or employee or person whose salary is payable in whole or in part from the treasury of the City of New York is directly or indirectly interested in this bid or in the supplies, materials, equipment, work or labor to which it relates, or in any portion of the profits. Fourth: That said bidder is not in arrears to the City of New York or the Board of Education of the City of New York upon debt, contract, or taxes and is not a defaulter as surety or otherwise, upon any obligations to the City of New York, and has not been declared not responsible, or disqualified, by any agency of the City of New York, or State of New York, nor is there any proceeding pending relating to the responsibility or qualification of the bidder to receive public contract, except (None) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (If none, bidder will insert "none") Fifth: That said bidder has carefully examined the standard form of contract proposal, including the instructions to bidders, specifications, and the schedule of bid items, and will, if successful, perform all its terms, covenants and conditions, and will furnish and deliver at the prices bid, within the time stated, all the materials, supplies, apparatus, goods, wares, merchandise, services or labor named and described therein for which bid is made. Sixth: The bidder expressly undertakes and agrees, if successful, to comply fully with any and all applicable laws, orders, or regulations, of any federal, state or municipal authority or agency. The undersigned, if any individual bidder, or if the bidder be a firm, partnership or corporation, the undersigned executing this document as a member, partner, director or officer and on behalf of such firm, partnership or corporation, expressly warrants and represents that neither he, nor any member, partner, director or officer of said firm, partnership or corporation has, prior to the date of execution of this bid, been called before a grand jury, head of a state department, temporary state commission or other state agency, head of a city department, or other city agency, to testify in an investigation concerning any transaction or contract had with the State of New York, any political subdivision thereof, a public authority or with any public department, agency or official of the State of New York or of any political subdivision thereof, or of a public authority or any fire district, and refused to sign a waiver of immunity against subsequent criminal prosecution or to answer any relevant question concerning such transaction or contract. If there has been a refusal to sign a waiver or to answer, the bidder must state the time and place of such refusal on the bid form submitted. -9- The amount of the bid deposit or bid bond furnished with this bid is the sum of eleven thousand four hundred and fifty dollars 00/00 Dollars ($11,450) ---------------------------------------------------- --------- Signature Michael Gatto ---------------------------------------------------------------------- (Individual, firm or corporation) By Amboy Bus Inc., 36-A 6th St., Garden City Park, N.Y. 11040 ----------------------------------------------------------------------------- (Where bidder is corporation add:) Attest: Michael Gatto - -------------------------------- (Secretary (Seal) (Please note that affidavit of verification on following pages must be executed) Notes: 1. Where bidder is a firm, the bid must be signed in the name of the firm by a member thereof, who must sign his own name immediately thereunder, as A. & B. Co., By C.A., Partner. 2. Where the bidder is a corporation, each bid must be signed in the name of the corporation by some duly authorized officer or agent thereof having knowledge of the matters stated in the bid, and such officer or agent shall also subscribe his own name, as: A.B. Company, by C.D., President. The seal of the corporation should also be affixed. 3. An individual doing business under a trade name must present the bid in such individual's correct name. The style "Thomas Jonas, doing business as (d/b/a) Celestial Bus Co." may be used. 4. Each bid must be verified by the bidder submitting same by execution of one of the following proper forms. -10- INDIVIDUAL VERIFICATION County of Richmond ) State of New York ) ss: Michael Gatto, being duly sworn, deposes and says; he is the person who executed the foregoing bid, that deponent has read the declarations contained in said bid and knows the contents thereof; that the same are true to deponent's own knowledge. /s/ Michael Gatto --------------------------------------------- (Signature of person verifying bid) Subscribed and sworn to before me this 27th day of February, 1979 Paul Lafata Notary Public, State of New York No. 24-7401823 /s/ Paul Lafata Qualified in Kings County - -------------------------------------- Certificate Filed in New York County Commission Expires March 30, 1080 - - - - - 0- - - - BY A FIRM OR PARTNERSHIP County of ) State of New York ) ss: ____________________________________________, being duly sworn, says: I am a member of _______________________________________________________, the firm described in and which executed the foregoing bid. I subscribed the name of the said firm thereto on behalf of the firm and the several matters therein stated are in all respects true. ____________________________________ (Signature of person verifying bid) Subscribed and sworn to before me this day of ____________________________________ -11- CORPORATE VERIFICATION County of Richmond ) State of New York ) ss: Michael Gatto, being duly sworn, says: I am the president of Amboy Bus Inc. the corporation whose name is subscribed to and which executed the foregoing bid. I reside at 109 Emerson Dr., Morganville, N.J. 07751 I have knowledge of the several matters therein stated and they are in all respects true. /s/ Michael Gatto ---------------------------------- (Signature of person verifying bid) Subscribed and sworn to before me this 27th day of February 1979 Paul Lafata Notary Public, State of New York No. 24-7401823 /s/ Paul Lafata Qualified in Kings County - -------------------------------------- Certificate Filed in New York County Commission Expires March 30, 1080 - - - - - 0 - - - - - The officer taking the acknowledgement shall enter his title, the date of expiration of his commission, etc. IMPORTANT NOTE: Those found making intentionally false or misleading statements are liable for prosecution for perjury. -12- SCHEDULE OF ITEMS, SPECIFICATIONS AND BID BLANK FOR THE TRANSPORTATION OF HANDICAPPED PUPILS FOR THE PERIOD SEPTEMBER 1979 TO JUNE 1982 I. INTENT AND SCOPE This Contract is intended to cover requirements for the transportation of handicapped pupils whose transportation is provided by the Board of Education of the City of New York, and for such other uses as provided for herein. II. PERIOD OF CONTRACT The time for the performance of the work herein scheduled is for the period of three (3) years beginning with the first official scheduled public school day in September, 1979 and ending with the last official scheduled public school day in June, 1982. Thereafter, the Contract may be extended for one or more additional years in conformance with the requirements of the State Education Law and the regulations of the Commissioner of Education of the State of New York. III. NUMBER OF DAYS OF SERVICE The contractor must conform to the public school calendar and time schedules of all the different schools involved in the item(s) bid upon, including daily time schedules. The public school calendar shall be furnished prior to the opening of each school year. It is the responsibility of the contractor to adhere to this calendar at all times unless notified otherwise by the Director of the Bureau of Pupil Transportation (hereinafter the "Director"). This shall include responsibility for adhering to any special schedules or shortened schedules. The Board reserves the right to change the school hours or days of attendance of any or all grades, or of any or all schools any time prior to the letting of the Contract and at any time thereafter. No change in compensation will be made for such adjustments, unless they necessitate the use of additional vehicles by the bidder. -13- IV. PERIOD OF OPERATION Extended and regular service shall be provided pursuant to the terms and conditions of this Contract. Extended service shall be defined as being provided by those vehicles that are available for the transportation of pupils beginning with the initial pick-up time of 7:00 A.M. and concluding with the delivery of the last pupil to his or her home on the return trip. Regular service shall be defined as being provided by those vehicles that are available for the transportation of pupils beginning with the initial pick-up time of 7:00 A.M., and delivery to school for the morning session which will commence no later than 9:00 A.M. In addition, a regular vehicle shall pick up pupils for the homeward trip no earlier than 2:00 P.M. and no later than 3:30 P.M., and shall complete its service with the delivery of the last pupil to his or her home. Vehicles providing regular service shall be assigned runs not exceeding two (2) hours for intraborough operation, of two and one half (2 1/2) hours for inter-borough operation and runs extending beyond New York City limits, from the time of the initial pickup for the homeward trip. V. PAYMENT Payment will be made based upon the daily rate per vehicle quoted by the contractor for the number of vehicles and the number of days for the type of service provided by the contractor for each vehicle. The Board reserves the right to adjust the number of extended and regular vehicles required to be provided within any item upon five (5) days notice to the contractor. However, in no event will the Board adjust the use of vehicles so as to reduce the extended use of vehicles other than buses below ten percent (10%) of the total number of such vehicles originally awarded to any contractor, or the extended use of buses below twenty-five percent (25%) of the total number of buses originally awarded to any contractor. In no event will the contractor be paid for days on which the vehicles are not operating pursuant to this Contract except for those days upon which the contractor was scheduled to provide service and schools were ordered closed by the Chancellor or Community Superintendents due to weather conditions or other emergency situations. Invoices shall be submitted at the end of each calendar month for the number of vehicles and the number of days on which services were rendered during the preceding month. No adjustment in compensation will be made other than for: (1) assessment of liquidated damages, (2) assessment of expenses arising from default pursuant to paragraph 7(c) of the General Terms and Conditions of this Contract, (3) charges for additional use of the vehicle, (4) charges for escort service when the contractor provides such, and (5) increases or decreases in the number of vehicles or extended service. Charges for additional use of the vehicle shall be defined as the requirement that the contractor pick up its first pupil prior to 7:00 A.M. or any pupil after 3:30 P.M. for the homeward trip. Such a requirement may result from the scheduling by the Bureau of Pupil Transportation. Additional charges for use of extended service vehicles shall be at an hourly rate equal to ten percent (10%) of the daily rate for extended service vehicles. Charges for less than one hour in additional service will be pro-rated. The Board of Education reserves the right to deduct two per cent (2%) from the prices quoted herein if payment is made within thirty days from the date the -14- Board shall have received the invoice accompanied by acceptable proof of delivery. The discount herein provided for shall not be a consideration in determination of award. VI. ITEMS The contractor shall complete the item(s) bid upon first. At the discretion of the Director the vehicle may be assigned for a secondary use outside of the item bid upon in accordance with the provisions of Section XII entitled, Use of Vehicles, but within the hours contracted for the specific vehicle. VII. TRANSPORTATION OF PUPILS The pupils who will require transportation under this Contract are to be provided with curb-to-curb service and/or additional service in accordance with the provisions of Section XII. On the trip to school each child will be picked up at the curb at a point as close to the front entrance to his home as possible. In the unusual case where, because the child lives on a dead-end street or because of traffic regulations, it is impossible for the vehicle to pick up at the curb in front of the pupil's home, the pick-up and drop-off point will be at the nearest intersecting street to the street on which the child resides. On the homeward trip, the pupil will be discharged from the vehicle at the same point from which the child was picked up unless instructed otherwise by the Director. Vehicles will load and unload at the school at the point designated by the Principal of the school. Except in an emergency, no pupil will be required to transfer from one vehicle to another vehicle either on the trip to school or on the homeward trip. VIII. SCHEDULE OF VEHICLES The Bureau of Pupil Transportation will prepare the vehicle schedules to be operated by each vehicle to be used under this Contract. The schedule will show the name, address, and the time of the initial pick up, name, address, sequence of pick up for each additional pupil on the route, the school and its address, and the scheduled arrival at each school. On the return trip the schedule will indicate the departure time from the school and the sequence in which the children will be delivered to their homes. These schedules will be subject to frequent changes as the school schedule or session is altered, or as schools or pupils' names and addresses are added to or deleted from the transportation lists. The contractor will be required to comply with the changes in the schedule within the time frame stipulated by the Bureau of Pupil Transportation. The contractor shall not alter the schedule or the vehicle servicing such schedule without prior approval of the Director. A copy of such schedule shall be furnished to the Principal of each school. Vehicles must not leave a pick-up point until the scheduled time and shall not wait past the schedule time unless the operator sees a pupil approaching to board the vehicle for the trip to school. No vehicle shall leave the school at dismissal time until all students are aboard. Contractors are not to permit their employees to make stops at unauthorized locations. If a toll is involved it will be the responsibility of the contractor to pay such toll at his own expense. -15- IX. VEHICLE SPECIFICATIONS All vehicles to be used and all transportation operations must comply with the regulations of the New York State Department of Education, the New York State Department of Transportation, the New York State Department of Motor Vehicles, as well as with all applicable laws and regulations of any agency of the federal government, State of New York and the City of New York. Four different type vehicles are required to perform the services under this Contract. In addition to complying with all governmental laws and regulations the vehicles must also comply with the following standards: 1. "Standard school buses" must have a minimum seating capacity for thirty-six handicapped students with seat belts, excluding the driver and escort. Any vehicle with the capacity of more than sixteen pupils is deemed to be a bus. 2. "Hydraulic lift buses" shall be designed so that an escort can assist the pupil in a wheelchair into and out of the vehicle by use of the lift without discomfort or danger to the pupil and so that the escort can securely anchor the wheelchair to the vehicle. The contractor must be able safely to accommodate various types of wheelchairs. The minimum capacity with seat belts must be eight wheelchair passengers and eight ambulatory passengers. These seating configurations are subject to adjustment by removal or addition of seats as required by the Director of the Bureau of Pupil Transportation. 3. "Mini-bus station wagons" must have a minimum seating capacity of fourteen (14) for vehicles acquired prior to January 1, 1979 and a seating capacity of fifteen (15) for vehicles acquired after January 1, 1979. 4. "Mini-bus or station wagons equipped with ramps to accommodate wheelchairs" must have a minimum capacity for four wheelchair passengers and minimum seating capacity for four ambulatory passengers and must be so equipped so that the escort can securely anchor the wheelchairs to the vehicles. The contractor must be able to accommodate safely various types of wheelchairs. These seating configurations are subject to adjustment by the removal or addition of seats as required by the Director. No standees will be permitted at any time on any vehicle used in the performance of this Contract. -16- All vehicles being used in performance of this Contract that were manufactured more than five years prior to the date of execution of this Contract shall be equipped with two-way radios. Vehicles shall be given a number suitable for identification purposes. Such numbers shall be not less than four inches high displayed on both sides, front and rear of vehicles. Also displayed on each vehicle shall be the name and address of the contractor providing the service in letters not less than three inches high. Numbers and letters shall be applied with black paint. The run number, which will be supplied to the contractor by the Bureau of Pupil Transportation, shall be placed inside the side front window of the vehicle and shall be sufficiently large so that it can be clearly seen from a distance of not less than fifteen feet. The run number shall not obscure the driver's vision. The color of all vehicles used in the performance on the Contract shall be National School Bus chrome yellow. X. VEHICLE SAFETY REQUIREMENTS The interior of each vehicle shall be cleaned and swept or vacummed at least once a day. The exterior shall be washed weekly and kept as clean as possible, weather and other conditions permitting. All vehicles shall be equipped with individual safety belts for each passenger carried. Such safety belt shall conform to the motor vehicle code of the State of New York. All vehicles shall be equipped with an all purpose fire extinguisher, dry chemical or CO 2 type, rated at least 10-B:c, equipped with a calibrated or marked guage. The fire extinguisher shall be mounted in automotive bracket located in the driver's front compartment in full view and easily accessible. All vehicles shall be equipped with a first aid kit in a dust proof medical container easily removable, located in the driver's front compartment which shall contain the following items: 2 bandages (1" by 10 yards) 6 sterile gauze pads (3" by 3") 1 adhesive tape (1" by 25 yards) 12 plastic bandaid strips 1 pair scissors 2 triangular bandages with 2 safety pins (approximately 40" by 30" by 54") 3 single units of sterile eye pads (one per unit) When a vehicle operator is not in his seat and pupils are in the vehicle, the motor must be shut off, ignition key removed, the brakes set and the front wheels turned against the curb. If the vehicle is parked and the motor shut off for any reason, the ignition key must be removed and the brakes set with wheels turned towards the curb. -17- To protect against carbon monoxide concentration or buildup, no idling of the motor is permitted while: (1) awaiting school dismissal; (2) loading or unloading pupils at school; (3) parked or not moving for an excessive length of time. XI. SPARE VEHICLES AND VEHICLE PERFORMANCE MONITORING The contractor will provide all of the vehicles necessary to do all of the work as contracted for in the item(s) contained in his Contract. The contractor must have available sufficient approved vehicles and qualified personnel to enable him to dispatch and place spare vehicles into operation promptly if, when and where necessary to ensure continuous uninterrupted service in the event one or more of the vehicles in regular use cannot function. The contractor shall provide one spare vehicle for every twenty (20) vehicles of a specific type contracted for. If a contractor provides between sixteen (16) and twenty (20) vehicles of a specific type, then it must provide one spare vehicle for each type. In the event a contractor provides less than fifteen (15) vehicles of any specific type, then the contractor shall document to the satisfaction of the Director that it has access to one spare vehicle for each type. For these purposes, corporate bidders who are subject to common control as determined by the Board based on an analysis of: (a) ownership of the corporations' assets, (b) coincidence of corporate officers and directors, and (c) such other factors as the Board determines to be relevant, are deemed to be one contractor. The maximum number of spare vehicles required to be available and provided by one contractor shall not exceed ten vehicles for any specific type of vehicle. Vehicles must be staffed with personnel qualified to handle emergency service. Spare vehicles must be located at strategic points during the hours that pupils are being transported under this Contract. The person on the spare vehicle shall also act as expeditor, whose responsibilities, beside performing emergency service shall include, but not be limited to the following: 1. Dispatching or expediting vehicles to ensure a smooth operating fleet. 2. Prompt dispatching of spare vehicles in the event of breakdown of vehicles. 3. Maintaining a log in a form approved by the Director, in which he will enter reports of disruptions of service or delays. A transcript of such log shall be furnished to the Director at the end of each school week. -18- All maintenance or spare vehicles of a contractor providing 20 or more vehicles shall be equipped with two-way radios and shall have continually open contact with contractor's garage. In addition, the contractor shall assign its other vehicles equipped with two-way radios among its routes so that the contractor can dispatch the vehicles expeditiously to replace vehicles with breakdowns, after these vehicles have completed their regular run. All equipment and personnel referred to herein shall be supplied by the contractor and maintained by the contractor at his own expense. A list of equipment and personnel used for this service shall be submitted to the Director. The contractor shall ensure direct telephone access to the contractor's garage during the hours of operation. Answering services shall not qualify as direct telephone access. The Bureau of Pupil Transportation will supply the contractor with parent telephone numbers of each pupil. As a vehicle varies from its schedule at any time for more than one hour, the contractor shall telephone parents of the pupils involved in the delay. The contractor shall have available sufficient telephone accessibility to handle problems and inquiries properly. The contractor is responsible for monitoring operator and escort performance in the field and to resolve problems with parents. Field supervision shall include but is not limited to the following: 1. Spot checking operator and escort performance at specific pick-up points and at schools. 2. Riding a specific run where problems have occurred. 3. Providing on-the-job training to operators and escorts. 4. Resolving problems between the contractor's personnel and school officials or parents. 5. Assisting expediting vehicles and continuing service where bus breakdowns occur. XII. USE OF VEHICLES Passengers other than pupils assigned by the Bureau of Pupil Transportation shall not be carried in the vehicles used under this Contract while they are being used to transport pupils except as otherwise stated or as authorized in writing by the Director. In the event that a school principal requests permission for parents or other adults to ride on the vehicle to maintain order, such permission may be granted by the Director only, and the contractor will be notified accordingly. The vehicles contract for extended service are subject to use for field trips, special events, emergency situations, or any other use as prescribed by the Director. The use of the vehicles for such purposes may only be for hours that will not interfere with the schedules established for the pupils transported to and from school under the Contract. Use of these vehicles shall not be restricted to physically handicapped, mentally retarded, emotionally disturbed or other classifications of pupils, nor shall use of the vehicles for such purposes be limited to schools specified herein. The vehicles under Contract for extended service -19- shall provide transportation services to any other public agency or private organization upon instruction of the Director. In the case of field trips and other special trips where the routes are not provided by the Director, these routes shall be established by the contractor in advance, using the most efficient routing for the vehicle. When vehicles are used for field trips, the pupil groups will be accompanied by one or more adults. At least one of these adults will be a teacher. If the route requested by a teacher in charge requires that a toll be paid, or if the teacher should request the operator to park the vehicle in an area where a parking fee is charged, it will be the responsibility of the teacher to pay such toll or parking fee. Operators are not to be reimbursed by the teacher for any other reason. Operator will not solicit tips or gratuities. XIII. INCREASE OR DECREASE IN THE NUMBER OF VEHICLES A. Decrease. At any time during the period of the Contract the number of vehicles required may be reduced and the schedules may be adjusted due to change in pupil population, or change in policy or directive adopted by the Board of Education, the City of New York, the State Education Department, and/or the Financial Control Board, or other factors; provided, however, that in no event shall the total number of any type of vehicle originally awarded to a contractor be reduced: (1) by more than ten percent (10%) of the total number of any type of vehicle originally awarded in the first year of this Contract; (2) in the second year of this Contract, by more than twenty percent (20%) of the total number of any type of vehicle originally awarded; and (3) in the third year of this Contract by more than thirty percent (30%) of the total number of any type of vehicle originally awarded. Compensation to the contractor shall be reduced to the number of vehicles actually used in the performance of this Contract, and the Board of Education shall not be liable for payments for any vehicles eliminated to the extent provided above. Upon determination by the Director that there is a decrease in the number of vehicles required for a specific type of service (service area and type of vehicle) during the period of this Contract, the Board of Education reserves the right to reduce the number of vehicles for a specific type of service as follows: (1) If the total number of vehicles at the time of decrease does not exceed the total number of vehicles originally contracted for, such reduction shall apply to the contractor who quoted the highest weighted average daily rate per vehicle and shall apply subsequently to the contractors who quoted the next highest weighted average daily rates per vehicle until all necessary reductions are made. -20- (2) If the total number of vehicles at the time of the decrease exceeds the number of vehicles originally contracted for, such reduction shall first be made from the additional vehicles contracted for during the performance of this Contract and shall apply first to the highest weighted average daily rate per vehicle, and subsequently to the contractors who quoted the next highest weighted average daily rates per vehicle until all necessary reductions are made. After the reduction of these additional vehicles is exhausted, the Director may reduce the number of vehicles originally contracted for in accordance with XIII.A(1) above. B. Increase. If at any time during the period of the Contract the number of vehicles required for a specific type of service increases, the Board of Education reserves the right to increase the number of vehicles for a specific type of service as follows: (1) If the total number of vehicles at the time of the increase is the total number or in excess of the total number of vehicles originally contracted for, the increase shall first be offered to that contractor who quoted the lowest weighted average daily rate per vehicle. Opportunity to furnish such vehicles as the initial offeree cannot furnish may then be offered to the next contractor with the next lowest weighted average daily rate per vehicle. If no contractors providing a specific type of service are found willing to supply additional service of the same type, then the Board may offer the opportunity to provide the additional vehicles to a contractor in any adjacent borough in the manner set forth. The initial offer will be made to that contractor with the lowest weighted average daily rate for that type of vehicle for which none of the successful bidders for that type of service were willing to provide additional vehicles as provided above. (2) If the total number of vehicles at the time of the increase is less than the total number of vehicles originally contracted for, and there is a subsequent need for these vehicles, the contracts who had their number of vehicles reduced shall be afforded the right of first refusal for reinstatement of the use of these vehicles in inverse order to that by which they were reduced pursuant to XIII.A above. All additional vehicles provided throughout the entire period of the Contract must comply with all the terms, conditions and specifications of the Contract set forth herein. The contractor will be compensated for such additional vehicles as provided for herein. -21- C. Notice and Liability. The contractor shall be notified at least five (5) school days in advance of the date the above changes are effective. If the contractor is willing to furnish the required additional vehicles, he shall confirm such agreement in writing to the Director within five (5) business days of receipt of the offer. If the above changes, when effective, terminate the need for any part of the services rendered by a particular contractor, the Board of Education and the City of New York (or any political or governmental subdivision thereof) shall not be liable for any damages or cost of the contractor as a consequence thereof. -22- XIV. FACILITIES AND MAINTENANCE The bidder shall have sufficient storage and access to maintenance facilities with sufficient equipment and trained personnel to satisfy New York State Department of Transportation requirements. The facilities shall be subject to periodic inspection and approval by the Board of Education during the period of the Contract. The contractor shall provided a program of preventive maintenance which meets the approval of the Director and shall maintain records as evidence that the vehicles are receiving acceptable periodic maintenance. The Board of Education reserves the right to demand withdrawal from service of any vehicle which in the opinion of the inspectors of the Bureau of Pupil Transportation presents a hazard to the safe transportation of pupils. XV. GASOLINE All gasoline required will be provided by the contractor at his own expense. XVI. RECORDS TO BE TRANSMITTED The contractor shall submit, on Tuesday of each week, a list of the names and addresses of pupils to be transported on the contractor's vehicles, but who have not appeared for transportation for the entire preceding week. A record of vehicles incorporating a Daily Record of Crews (operators and escorts) used each day for the transportation of pupils under this Contract shall be maintained in duplicate on forms to be prescribed by the Director, and the contractor shall furnish to the Director the duplicate copies by Wednesday of each week. The contractor shall supply such other information or documentation as may be requested by the Director. XVII. VEHICLE OPERATOR STANDARDS To protect the safety and welfare of pupils, the contractor shall only employ persons of good moral character to serve as vehicle operators. The contractor shall send all applications for employment to the Director, and follow procedures established by the Director for submission of the fingerprint record and medical certificate for each applicant. The contractor shall certify to the Director that he has checked the references of the applicant and that to the best of his knowledge and belief the applicant is a person of good moral character. No operator shall be employed on Board of Education work until his references and fingerprint record have been approved by the Director, and his medical certificate has been approved by both the Director and Medical Director. -23- Vehicle operators shall have valid appropriate operator's licenses for the vehicles they operate, and must be competent, reliable and between the ages of 21 and 65. Operators shall be physically fit and properly qualified by experience, driving record and training to perform their duties. The contractor shall certify to the Director that he has reviewed New York State Department of Motor Vehicles driver abstract records to determine the fitness and driving record of its operators. All vehicle operators shall be examined by a licensed physician. The results of the physical examination shall be immediately reported to the Director and Medical Director of the Board of Education on forms approved by the New York State Department of Education and provided by the Director. These forms shall constitute the medical certificate. The written report of the physician shall be considered by the Medical Director in determining the fitness of the driver. Each operator who is to be initially employed shall be examined within the four weeks prior to the beginning of service. Each operator shall receive an annual physical examination which shall include a tubercular test. The results of this examination and the tubercular test shall be recorded on forms approved by the New York State Department of Education and provided by the Director. These examinations shall be at no cost to the Board of Education. Section 156.13(d)(2) of the Regulations of the New York State Commissioner of Education shall be complied with in full and states: "Each school bus driver initially employed by a Board of Education or transportation contractor subsequent to July 1, 1973, shall have received at least two hours of instruction on school bus safety practices. Each driver of a vehicle transporting handicapped pupils exclusively who was initially employed subsequent to January 1, 1976, shall have received an additional hour of instruction concerning the special needs of a handicapped pupil. During the first year of employment, each driver shall complete a course of instruction in school bus safety practices approved by the Commissioner, which shall include two hours of instruction concerning the special needs of a handicapped pupil. All school bus drivers shall receive a minimum of two hours or refresher instruction in school bus safety at least two times a year, at sessions conducted prior to the first day of school and prior to February 1st of each year. Refresher courses for drivers of vehicles transporting handicapped pupils exclusively shall also include instructions relating to the special needs of a handicapped pupil." Each contractor must utilize instructors approved by the New York State Education Department for conducting the training sessions for drivers. All training programs must be approved by the New York State Education Department and the Bureau of Pupil Transportation before the program -24- is offered. In addition, all new vehicle operators must have a total of twenty hours of classroom instruction prior to driving on any Board of Education business. All vehicle operators having two or more accidents while driving on Board of Education business must also attend an accident repeater course conducted by a defensive driving specialist. Certification will be required from the contractor stating that each operator has received appropriate training as specified in this Contract. If the Director determines that an operator's competency falls below acceptable standards, or that any operator has made an unauthorized stop or an unauthorized change in established route for which the operator may or may not have accepted additional remuneration from other than his employer, or that the driver has a previous record of careless or unsafe driving, the contractor, upon receiving written notice from the Director to that effect, shall not again employ this operator on any part of the work to be performed hereunder, or on any part of any work the contractor may perform for the Board of Education under any other contract. Vehicle operators must be dressed in uniform attire provided by the contractor and wear a photo identification badge which clearly shows the operator's name, company's name, and operator's identification number assigned by the contractor. The identification badge should be visible from a distance of ten feet. XVIII. OPERATIONAL SUPERVISION The requirements entitled "Bus Company and Bus Driver Responsibilities" contained in Pupil Transportation Handbook No. 1, "School Bus Information for Drivers, Escorts, Schools and Parents of Handicapped Children," dated April of 1977 and drafted by the Bureau of Pupil Transportation is incorporated herein by reference and is made part of this Contract as if fully set forth herein in its entirety. In addition to the requirements set forth in Pupil Transportation Handbook No. 1, operators must drive the scheduled route assigned to them at least one time prior to start of school. If at any time during the school year a new operator is assigned to a schedule route, that operator must drive the schedule before being permitted to transport students on that schedule. All operators employed in the transportation of handicapped pupils shall be given permanent route assignments at the commencement of each school year. All accidents involving vehicles operating under this Contract shall be reported to the Director immediately. The emergency drills required by the State Education Law shall include practice and instruction in the location, use and operation of the emergency door, fire extinguisher, first aid equipment, and use of the windows as a means of escape in case of fire or accident. Drills shall include situations which might result from both fire and accidents. Such instruction -25- and the conduct of drills shall be given by a member or members of the teaching staff as arranged between the contractor and the principal of each school. No emergency drills shall be conducted when vehicles are on routes. The Director shall be notified of arrangements for, and execution of, emergency drills. The contractor and operator shall make arrangements for emergency drills so as to minimize disruptions in service. XIX. ESCORTS The contractor shall provide escort service in addition to the operator to the extent required by the Board. A. The Board may determine to: (1) employ escorts directly, (2) contract separately for the employment of escorts with the contractor herein or with a separate contractor, or (3) require the contractor to provide escort service in addition to the operator. Should the Board determine to employ escorts directly, or contract separately with the contractor or with a separate contractor to provide escort service, the Board and/or the contractor providing the escort service, as the case may be, shall assume sole responsibility for any claims made for acts of negligence, carelessness or incompetence perpetrated by the escorts or by the employer of the escorts in connection with performance or failure to perform of such escorts or employers of escorts; and shall indemnify and hold harmless the contractor herein, if a separate contractor, from the contractor providing the escort service from all suits, actions, damages or costs of every kind and description, as may arise under the terms of this contract or otherwise, to which the contractor herein may be subjected because of such negligence, carelessness or incompetence. In addition, should the Board determine to employ escorts directly, or contract separately for the provision of escort service with a contractor other than the contractor herein, the provisions of B. through E. herein, reference to escort service in Paragaph XXI of the Specifications, and any other reference to escort service in this contract other than as provided in Paragraph XIX (A), shall be deemed to be of no force and effect with respect to the contractor herein. Should the Board determine to require the contractor to provide escort service in addition to the operator, (1) the contractor shall be compensate in the manner provided herein in the amount of forty dollars ($40) per day per escort providing service on a vehicle in regular service and sixty dollars ($60) per day per escort providing service on a vehicle in extended service, with the daily rate per escort increased by ten (10%) percent in each of the second and third years of this Contract, (establishing the rate as forty-four dollars and sixty-six dollars in the second year, and forty-eight dollars and seventy-two dollars in the third year), which amount shall be in addition to any and all other compensation to which the contractor is entitled under the terms of this Contract, and (2) all references to escort service in provisions B. through E. below. -26- Paragraph XXI of the Specifications, and any other reference to escort service in this contract other than the first two options described above, shall be of full force and effect with respect to the contractor herein. B. Standards. To provide for the safety and welfare of children, the contractor shall only employ persons of good moral character to serve as escorts. Escorts must be competent, reliable, over twenty-one years of age, physically fit and properly qualified to perform their duties. The contractor shall send all applications for employment to the Director and follow procedures established by the Director for submission of the fingerprint record and medical certificate for each applicant before the date the escort services are to be provided; allowing sufficient time for review and approval by the Director and Medical Director. The contractor will certify that he has checked the references of the applicant and to the best of his knowledge and belief the applicant is a person of good moral character. No escort shall be employed on Board of Education work until the references and fingerprint record have been approved by the Director, and the medical certificate has been approved by the Medical Director and the Director. Each regular or substitute escort shall be examined by a licensed physician. A report concerning the physical examination shall be submitted immediately on the forms prescribed to the Director and the Medical Director of the Board of Education. The physical examination shall include, as a minimum, those requirements specified on the prescribed physical examination report. The written report of the physician shall be considered by the Medical Director to determine the fitness of the escort to perform the duties set forth herein. Each escort who is to be initially employed shall be examined within the four weeks prior to the beginning of service. Each escort shall receive an annual physical examination. In no case shall the interval between physical examinations exceed a twelve month period. This examination will be at no additional cost to the Board of Education. The result of this examination and of an annual tubercular test shall be recorded on forms approved by the Director. These forms shall constitute the medical certificate. The Board of Education specifically reserves the right to reject any person who fails to meet the minimum physical requirements as specified on the medical certificate. If the Director determines that an escort's performance is unsatisfactory, the contractor, upon receiving written notice from the Director of such unsatisfactory performance shall not employ this escort on any work performed for the Board of Education. -27- C. Training and Instruction. All escorts shall attend five one and one-half hour training sessions for a total of seven and one-half hours each year concerning the transportation of handicapped pupils. The training sessions shall be scheduled by the contractor with the approval of the Director, and are to be held at an hour and location convenient to the contractor and the escorts. The contractor shall furnish the premises required at his own cost and expense, and shall not be entitled to any additional compensation from the Board for these training sessions. All training programs must be approved by the Director before being offered. D. Identification. Escorts shall wear uniform attire supplied by the contractor. Escort shall wear a photo identification badge on the outside of his or her uniform which shows clearly the name, escort identification number assigned by the contractor, and the name of the contractor which employs the escort. The identification badge should be visible from a distance of ten feet. E. Responsibilities. The section entitled "Escort Responsibilities" contained in Pupil Transportation Handbook No. 1, entitled "School Bus Information for Drivers, Escorts, Schools and Parents of Handicapped Children," dated April, 1977 is incorporated herein by reference as if it is set forth herein in its entirety. Pupil Transportation Handbook No. 1 is available upon request from the Director of Pupil Transportation. -28- XX. AUDIT OF INVOICES & FINANCIAL RECORDS Invoices will be audited for payment after each month in which the services are rendered. The contractor hereby consents to an audit of any and all financial records relating to this Contract by the Department of Audit and Control. During the period of the Contract and upon the request of the Department of Audit and Control, the Office of Auditor General of the New York City Board of Education, the Comptroller of the City of New York or the Department of Investigation of the City of New York, the contractor shall furnish information and documents as specified by any of these agencies, including but not limited to the contractor's income tax forms filed with the City, State and Federal government for the term of this Contract. XXI. LIQUIDATED DAMAGES In view of the difficulty of ascertaining the loss which the Board or City will suffer by reason of these defaults on the part of the contractor, the following sums are hereby agreed upon, fixed and determined by the parties hereto as the liquidated damages the Board or City will suffer by reason of said delay and default, and not by way of penalty, and such liquidated damages may be imposed in the amounts provided below upon the following findings of the Director or his or her designee: A. One and one-half times the appropriate daily rate per vehicle paid to the contractor shall be deducted from the subsequent month's payment due the contractor for the following: 1. Each failure to provide the number of vehicles required each day to convey to and from the school the number of pupils specified. 2. Each vehicle providing extended service which does not service a field trip or provide the services required by Section XII (Use of Vehicles), on the schedule established in advance either by the Director or a school or the community school district office. -29- B. The appropriate daily rate per vehicle shall be deducted from the subsequent month's payment due the contractor for the following: 1. Each day that the contractor permits an employee to service a route for whom the required medical certificate, fingerprint record and applications for employment were not submitted to and approved by the Bureau of Pupil Transportation. 2. Each time an escort is not provided on a vehicle, if required. 3. Each time it is found that the contractor did not provide telephone access from the time the first vehicle is scheduled to leave the garage until the last vehicle returns to the garage at the end of the day. 4. Each time a vehicle has an expired or null Public Service Commission sticker. 5. Each time an accident is not reported to the Director within twenty-four (24) hours. 6. Each time an operator is found guilty of commiting a moving violation of the New York State Vehicle and Traffic Law while transporting pupils under this Contract. C. One half the appropriate daily rate per vehicle paid to the contractor shall be deducted from the subsequent month's payment due the contractor for the following: 1. Each vehicle transporting a greater number of pupils than the vehicle's permissible pupil seating capacity. 2. Each vehicle furnished that has a pupil seating capacity less than required by the Contract terms. 3. Each vehicle each day a child has been unilaterally excluded from transportation by a contractor, operator or escort without the consent of the Director. 4. Each vehicle failing to hold an emergency drill as required. 5. Each time the operator requires a school to dismiss pupils prior to the normal close of the school session except where required by special circumstances specified by the Director. 6. Each vehicle which does not comply with structural and safety provisions for the vehicle, including but not limited to seat belts, padded seats, high back seats, and operable wheel chair brackets. -30- D. One third the appropriate daily rate per vehicle paid to the contractor shall be deducted from the subsequent month's payment due the contractor because of the following: 1. Each operator or escort who has not received the proper training, instruction, and/or refresher courses as specified herein within the time period agreed upon by the Director and contractor. 2. Each vehicle which arrives after the time a session is due to start. 3. Each vehicle that arrives at the school more than thirty minutes prior to the start of the session. 4. Each vehicle operator who does not have on his or her person an appropriate operator's license. 5. Each time the contractor fails to notify a parent that the vehicle is more than one hour behind schedule, unless no telephone number has been provided or the Bureau of Pupil Transportation is contacted before the hourly limit has expired and agrees that the contractor need not call every parent. E. One sixth of the appropriate daily rate per vehicle paid to the contractor shall be deducted from the subsequent month's payment due the contractor for the following: 1. Each time the contractor, operator or escort does not notify the parents of pupils on the vehicle of changes in schedules or pick-up or drop-off locations. 2. Each vehicle that makes an unauthorized stop or an unauthorized change in an established route or schedule. 3. Each vehicle failing to have a fire extinguisher. 4. Each vehicle failing to have a first aid kit. 5. Each time an operator fails to remove ignition keys, turns wheels to curb, and set brakes when and as required while pupils are on the vehicle. 6. Each vehicle for each scheduled stop not served. -31- 7. Each vehicle with an operator or escort not wearing uniform attire or visibly displaying an identification badge with the required information. 8. Each day the contractor fails to provide the information on forms required as set forth herein. 9. Each vehicle that arrives at the school or departs from the school after the time scheduled, unless required to do so by the Bureau of Pupil Transportation. 10. Each vehicle the contractor changes on a run, where it is not a change resulting from a breakdown or a scheduled maintenance. 11. Each operator who fails to assist in the conduct of an emergency drill. 12. Each operator who fails to make available a vehicle providing extended service to a scheduled class in transportation safety. 13. Each time a vehicle is not in compliance with the identification requirement of Section IX, Vehicle Specifications. 14. Each time a vehicle over five (5) years old is not equipped with a two-way radio. 15. Each failure to perform any other duties as set forth in the Bureau of Pupil Transportation Handbook No. 1. -32- GENERAL TERMS AND CONDITIONS WITNESSETH That pursuant to all applicable State and Local Laws and all By-Laws, resolutions, rules and regulations of the Board of Education and the City of New York and its various departments, and in consideration of the agreements hereinafter undertaken by each of the parties hereto with the other, the parties hereto do hereby convenant and agree for themselves and for their respective successors and legal representatives as follows: DEFINITIONS Wherever the following words, names or titles appear in this Contract, they shall have the following meanings: (a) "THE BOARD" means the Board of Education (BOE) of the City of New York and the party of the first part of this Contract. (b) "THE CONTRACTOR" means the party of the second part to this Contract. (c) "THE DIRECTOR" means the Director of the Bureau of Pupil Transportation delegated by the Board to supervise the work of this Contract. (d) "THE CITY" means the City of New York. (e) "THE COMPTROLLER" and "THE TREASURER'" means the Comptroller and the Treasurer of the City of New York respectively. (f) "THE SECRETARY", "ASSISTANT SECRETARY" and "EXECUTIVE DIRECTOR" mean the following officers and employees of the Board of Education respectively: the Secretary, assistant Secretary of the Board of Education and Executive Director of the Division of Business and Administration. (g) "APPROVED", "REQUIRED", "DIRECTED", "SPECIFIED", "DESIGNATED" or "DEEMED NECESSARY", unless otherwise expressed, means approved, required, directed, specified, designated, or deemed necessary, as the case may be, by the Director. (h) "WORK" or "SERVICES" means all services to be furnished or done by or on the part of the contractor. (i) "COMPLETION" means full and complete compliance with every requirement of the Contract as attested by the Director. (j) "SPECIFICATIONS" shall mean the combined proposal for bids and specifications, and amendments thereto, and all of the directions and requirements applying to the service as hereinbefore detailed and designated under specifications. (k) The term "ITEM" as used herein, shall be defined as each separate unit or group of vehicles upon which a contractor may bid. -1- 1. SUBJECT MATTER The contractor shall provide at its own cost and expense sufficient plant, equipment and working capital to provide for the transportation of pupils in accordance with the terms, conditions, and specifications set forth herein. The contractor shall accept as full compensation for its faithful performance of this Contract the sums certified by the Director in accordance with the provisions of the Contract, and said sums shall be the amount at which the Contract was awarded to the Contractor at the public bidding. 2. CONTRACT The Proposal for Bids, Instructions to Bidders, Bid, Schedules and Specifications are and shall be a part of this Contract. In case of variance between the specifications, bid and Contract, if any, the specifications shall be controlling. 3. INTERPRETATION Any doubt as to the meaning of the terms of the Contract or any obscurity as to the wording of the terms will be explained in writing, upon request, by the Director and all directions and explanations required, alluded to, or necessary to complete any of the provisions of the Contract and to give them due effect will be given by the Director in writing upon request. The interpretation of the Director shall be final and binding upon all parties. To prevent all disputes and litigations, the Director shall, in all cases, determine the quality of the services which are to be delivered and paid for under this Contract, and shall determine all questions in relation to said services, their quality, delivery and condition, and shall in all cases decide every question which may arise relative to the execution of this Contract on the part of the contractor, and the Director's estimate or decision shall be final and conclusive upon the contractor. 4. MODIFICATIONS The Board may, from time to time, request changes in the scope of the services to be performed by the contractor hereunder. However, no term, provision or condition of this Contract shall be deemed waived by the Board unless such waiver shall be in writing with the approval of an authorized representative of the Board subscribed thereon. 5. COMPLIANCE WITH LAWS The contractor shall comply with all applicable laws, ordinances, and codes of Federal, State and Local governments. It is the intent and understanding of the parties hereto that each and every provision of law required by law to be inserted in this Contract shall be deemed to be inserted herein. It is further agreed that if, through mistake or otherwise, any such provision is not inserted, or is not inserted in correct form, that this Contract shall forthwith be amended upon notice to the Contractor by such insertion so as to comply strictly with the law. -2- 6. NON-ASSIGNMENT OF CONTRACT The contractor will give personal attention to the faithful performance of this Contract. The contractor will not assign, transfer, convey, sublet or otherwise dispose of this Contract or its right, title or interest in or to the same or any part thereof without the previous consent of the Director or the Director's designee endorsed thereon; and the contractor will not assign by power of attorney or otherwise, any of the monies to become due and payable under this Contract unless by and with the previous consent in writing of the Board or its designee endorsed thereon. If the contractor shall, without such previous written consent, assign, transfer, convey, sublet or otherwise dispose of this Contract or of its right, title or interest therein, or any of the monies to become due under this Contract, to any other person, firm or corporation, this Contract may, at the option of the said Board, be canceled and terminated, and the Board and the City shall thereupon be relieved and discharged from any and all liabilities and obligations to the contractor arising from such Contract, and to its assignee or transferee; provided that nothing herein contained shall be construed to hinder, prevent or affect an assignment by the contractor for the benefit of its creditors made pursuant to the statutes of the State of New York, and no right under this Contract, or to any monies to become due hereunder, shall be asserted against the Board or the City in a law or in equity, by reason of any so-called assignment of this Contract, or any part thereof, or of any monies to become due hereunder, unless authorized as aforesaid. 7. CANCELLATION A. If the contractor engages in repetitive or persistent violations of the conditions or covenants of this Contract, the Director may seek to have the contractor declared in default by the Board of Review pursuant to Article 8 of the Board's By-laws. In the event the Board of Review shall determine the contractor to be in default, the Director shall notify the contractor that its Contract is terminated. Such action by the Director may be based upon any of the following: (1) Failure of the contractor to provide any portion of the services specified herein; (2) Action by the Contractor to subcontract, encumber, assign, or transfer this Contract, either in whole or in part, otherwise than as specified herein; (3) Failure to notify the Director of increases in the total number of vehicles as required by the "Insurance and Performance Bond" provisions of the Proposal for Bids; or (4) Violation by the Contractor of any of the conditions or covenants of this Contract or execution of this Contract in bad faith. -3- B. Upon the refusal of a person, when called before a grand jury, governmental department, commission, agency, or any other body which is empowered to compel the attendance of witnesses and examine them under oath, to testify in an investigation or to answer any relevant questions concerning any transaction or contract entered into with the State, or any political subdivision thereof, or a public authority or with any public department, agency or official of the State or a political subdivision thereof, when immunity has been granted to the witness against subsequent use of such testimony, or any evidence derived therefrom, in any subsequent criminal proceeding: (1) such person, or any firm, partner, director, or corporation of which he is a member, partner, director or officer shall be disqualified for a period of five (5) years after such refusal from submitting bids for or entering into or obtaining any contracts, leases, permits or licenses with the City or submitting bids for or entering into or obtaining any contracts, leases, permits, or licenses which will be paid out of any monies under the control of or collected by the City, and/or shall be subject to such other action appropriate under the circumstances, and (2) any and all such existing contracts, leases, permits or licenses made with or obtained by any such person or firm, partnership, or corporation of which he is a member, partner, director or officer may be cancelled or terminated by the City of the Board or be subject to such action appropriate under the circumstances, without incurring any penalty or damages on account of such cancellation or termination, but any monies owing for goods delivered, work done, or rentals, permits or license fees due, prior to the cancellation or termination shall be paid. C. In the event of termination of this Contract by reason of default of the contractor, the Director shall have the power in the manner prescribed by law to obtain the undelivered services, or such part thereof as it may deem advisable, and to charge the expense thereof to the contractor. The expense so charged and the liquidated damages for delay herein provided for shall be deducted and paid by the BOE out of such monies that may then be due or may thereafter become due to the contractor under or by virtue of this Contract or any part thereof. In case such expense and liquidated damages hereunder shall exceed the sum owing for services rendered at the time of termination of this Contract, then the contractor shall pay the amount of such excess to the BOE on notice from the BOE of the amount of such excess and in case such expense and liquidated damages shall be less than the sum which would have been payable under this Contract if the same had been completed by the contractor, then the contractor shall forfeit all claims to the difference to the BOE. In the event of the BOE undertaking to secure the services or any part thereof under this section of the Contract, the certificate of the director as to the amount of services secured, the cost, and the excess cost, if any, of completing this Contract, and the amount of liquidated damages hereunder, shall be binding and conclusive upon the contractor, his assignee, and all other claimants. -4- 8. NOTICES The residence or place of business given in the Contract is hereby designated as the place where all notices, letters or other communications addressed to the contractor shall be served, mailed or delivered. Any notice letter or other communication addressed to the contractor and delivered at the above-named place, or sealed in a post-paid wrapper and deposited in any post office box regularly maintained by the post-office, shall be deemed sufficient service thereof upon the contractor. The place named may be changed at any time by an instrument in writing, executed and acknowledged by the contractor, and delivered to the Director. Nothing herein contained shall be deemed to preclude or render inoperative service of any notice, letter or other communication upon the contractor personally. Whenever in the trial of any action growing out of this Contract it shall be necessary or required to prove the service of a notice as herein prescribed, an affidavit executed at the time of service showing the service in the manner herein required to have been made by the person making the affidavit shall be presumptive evidence of such service upon first proving that the affiant is dead or insane, or that with due diligence, his attendance cannot be compelled. 9. NO ESTOPPEL Neither the BOE nor the City, nor any department or officer thereof, shall be precluded or estopped by any return or certificate made or given by the Director, or other officer, inspector, assignee or appointee of the BOE or the City, under any provision of this Contract, from at any time (either before or after the final completion and acceptance of the work or services and payment therefore, pursuant to any such return or certificate) showing the true and correct amount and character of the work done and supplies furnished by the contractor, or any other person under this Contract, or from showing at any time that any such return or certificate is untrue or incorrect, or improperly made in any particular, or that the work or services or any part thereof do not in fact conform to the specifications; and neither the BOE nor the City shall be precluded or estopped notwithstanding any such return or certificate and payment in accordance therewith, from demanding and recovering from the contractor such damages or other loss as it may sustain by reason of its failure to comply with the specifications. 10. CLAIMS - LIMITATION OF ACTION No action shall be maintained by the contractor, his successors or assignees, against the Board of any claim based upon or arising out of this Contract or out of anything done in connection with this Contract unless such action shall be commenced within six (6) months after the date of filing of the voucher for final payment hereunder in the appropriate office of the Board, or within six (6) months of the termination of this Contract, or within six (6) months of the required completion date for the services performed hereunder, whichever is sooner. None of the provisions of Article 2 of the Civil Practice Law and Rules shall apply to any action against the Board arising out of this Contract. -5- 11. MAINTENANCE OF RECORDS The contractor shall, until six (6) years after completion of its services hereunder or six (6) years after date of termination of this Contract, maintain and retain complete and correct books and records relating to all aspects of the contractor's obligations hereunder, including, without limitation, accurate cost and accounting records specifically identifying the costs incurred by the contractor in performing such obligations (such as payroll expense, and all other related records necessary to assure a proper accounting of funds, including property, personnel records, cash receipts and disbursements, journals and ledgers). Records must be maintained as a separate set of books so as to identify clearly the expenses applicable to the specific Contract and be distinguishable from all other costs not incurred under this Contract. The contractor shall make available to the Office of the Auditor General of the BOE or such agencies as the BOE may designate for review and audit, all books, records or materials deemed necessary by the BOE to substantiate the validity of claims made under the Contract at all reasonable times that the BOE shall from time-to-time request. They shall be maintained in such a fashion as to permit clear identification of costs incurred under this Contract or any amendment thereto. 12. DISCRIMINATION In connection with the performance of work under this Contract, the contractor agrees as follows: a) The contractor will not discriminate against any employee or applicant for employment because of race, creed, color, age, sex, national origin, handicap, marital status, religion or political beliefs or affiliations. The contractor will take action to ensure that applicants are employed, and that employees are treated during employment, without regard to the foregoing categories. Such action shall include but not be limited to the following: employment; upgrading; demotions or transfer; recruitment or recruitment advertising; layoff or termination; rates of pay or other forms of compensation; and selection for training, including apprenticeship. The contractor agrees to post in conspicuous places, available to employees and applicants for employment, notices to be provided by the Board setting forth the provisions of this nondiscrimination clause. b) The contractor shall not discriminate against any employee or applicant for employment on the basis of sex pursuant to Title IX of the Education Amendments of 1972 (20 United States Code Annotated, Section 1681 et seq.). -6- c) The contractor will, in all solicitations or advertisements for employees placed by or on behalf of the contractor, state that all qualified applicants will receive consideration for employment without regard to race, creed, color, age, sex, or national origin. d) The contractor will send to each labor union or representative of workers with which it has a collective bargaining agreement or other contract or understanding, a notice to be provided by the Board advising the said labor union or workers' representatives of the contractor's commitments under this section, and shall post copies of the notice in conspicuous places available to employees and applicants for employment. e) The contractor will comply with all provisions of law prohibiting discrimination because of race, creed, color, age, sex, or national origin. f) The contractor will comply with all provisions of Executive Order No. 11246 of September 24, 1965, and of the rules, regulations, and relevant orders of the Secretaries of Labor and Health, Education and Welfare created thereby. The contractor will furnish all information and reports required by Executive Order No. 11246 of September 24, 1965, and by the rules, regulations, and orders of said Secretaries issued pursuant thereto, and will permit access to its books, records, and accounts by the Board and the Secretaries for purposes of investigation to ascertain compliance with such rules, regulations and orders. In the event of the contractor's compliance with the nondiscrimination clause of this Contract, or with any of the said rules, regulations or orders, this Contract may be cancelled in whole or in part and the contractor may be declared ineligible for further Government contracts in accordance with procedures authorized in Executive Order No. 11246 of September 24, 1965, and such other sanctions may be imposed and remedies invoked as provided in the said Executive Order or by rule, regulation or order of the Secretaries of Labor and Health, Education, and Welfare, or as otherwise provided by law. -7- 13. EQUAL EMPLOYMENT OPPORTUNITY REQUIREMENTS FOR NON-CONSTRUCTION CONTRACTORS, VENDORS AND SUPPLIERS The attention of all bidders is particularly directed to the various orders rules, regulations and procedures set forth in the contract documents with respect to identifying and eliminating both overt and covert discriminatory employment practices. I. Policy It is the policy of the Board of Education, City of New York, in accordance with the Labor Law of the State of New York and other applicable laws, to provide equal opportunity for all qualified persons, to prohibit discrimination in employment because of race, creed, color, age, sex, national origin, handicap, marital status, religion or political beliefs or affiliations and to promote the full realization of equal opportunity through an affirmative, continuing program of compliance by all contractors, suppliers and vendors doing business with the Board of Education and their subcontractors. II. Implementation The Director of the Office of Equal Opportunity shall be responsible for the implementation and administration of this policy. He or she shall be directly responsible to the Deputy Chancellor of the Board of Education and shall be responsible for issuing all orders, rules, regulations and procedures as may be deemed necessary or convenient for carrying out and implementing the policy set forth in Section 1. III. Definition of terms for the purpose of these Orders, Rules and Procedures A. Non-Construction Contract Any Agreement, or commitment by the Board of Education, to purchase or lease supplies, equipment or services. The term "Non-Construction Contract" excludes contracts of the Board of Education related to the erection, construction, reconstruction, rehabilitation, alteration, conversion, extension, repair or demolition of buildings or improvements to real property, with the exception of supplies, equipment and materials therefore, and work, labor or services relating to architectural, engineering or consultant services. B. Contractor C. Employee of Non-Construction Contractor Any Person or entity employing workers, who bids for, or who is awarded a non-construction contract. -8- D. Minority Group Members Blacks, Hispanics (non-European), Asian-Americans and American Indians. E. Program of Affirmative Action A detailed, result-oriented set of written procedures which when implemented with conscientious effort results in compliance with the equal opportunity policy herein, through full utilization and equal treatment of minority group members and women at all levels in all segments of contractor's workforce. An effective program of affirmative action shall include, but not necessarily be limited to, the following ingredients: 1. Development or reaffirmation of the contractor's equal employment opportunity policy; 2. Dissemination of the policy; 3. Responsibility for implementation; 4. A survey and analysis of employment at all levels and in all categories and aspects the contractor or subcontractor is deficient in the utilization of minority group members and women; 5. Establishment of goals and timetables toward the attainment of which the contractor's or subcontractor's good faith effort must be directed to remedy any identifiable underutilization of minority group members and women; 6. An analysis of employment policies and practices, including but not limited to seniority systems, recruitment training, promotion, insurance, and job benefits, and their effects upon minority group members and women; 7. Corrective actions taken, or to be taken, toward the elimination of any employment policy or practice having a discriminatory effect on minority group members and women. F. Goals and Timetables Projected levels of achievement resulting from an analysis by the contractor or subcontractor of its deficiencies, and of what it can reasonably do to remedy them within a specified time frame. -9- [ILLEGIBLE] job classification than would reasonably be expected by their availability in the appropriate labor force. IV. Bidding and Awarding of Contracts A. Pre-Award Conference Prior to the award of contract to the apparent low bidder and if requested in writing by the Director of the Office of Equal Opportunity (hereinafter referred to as the "Director"), such bidder shall attend a pre-award conference to be held in the Office of Equal Opportunity of the Board of Education for the purpose of acquainting him or her with the statutory and contractual requirements and what specific measures shall constitute an acceptable program of affirmative action. B. Program of Affirmative Action Prior to the award of contract to the lowest responsible bidder and upon demand, the low bidder must submit to the Director a detailed written Program of Affirmative Action (hereinafter referred to as "P.A.A."). In the event the low bidder fails to submit an acceptable P.A.A. within the allotted time stipulated in the demand, the Director may recommend that the low bid be rejected, the amount of the bid deposit, if any, be forfeited, and that the low bidder be disqualified from bidding on Board of Education work for a period of one year. The P.A.A. shall: 1. Apply to all Board of Education non-construction contracts except that, with regard to contracts, sub-contracts or purchase orders under $25,000, the Director is authorized to make such modifications as may be appropriate in the individual case; 2. Encompass all phases of the employment process, including evaluation of job classifications to ensure job relatedness, recruitment, selection, validity of examinations, retention, layoffs, seniority, assignments, training, promotion, salary and benefits; 3. Be considered by the Board of Education in its determination as to whether a numerical low bidder will be judged the lowest responsible bidder entitled to award thereof. The Director shall be the sole judge of the program's acceptability; -10- 4. In addition to the above, fulfill the requirements of subdivisions (a) through (g) of this section: (a) The P.A.A. shall include measurable goals, reasonable timetables and specific programs to be implemented by the contractor to identify and eliminate deficiencies in employment practices with respect to the underutilization of minority group members and women in the contractor's workforce and a projection of the minority utilization in the contractor's workforce for the life of the contract and for at least a one year period succeeding its completion. This statement and projection shall include present and projected (1) rates of hiring and promotion of minority group members and women in specific job categories at each wage rate within each level of employment and according to major organizational unit, and (2) percentages of minority group and women utilization in specific job categories at each wage rate within each level of employment and according to major organizational units, within the contractor's workforce. (b) The P.A.A. shall include all of the contractor's facilities within New York City as well as those facilities located elsewhere within the continental limits of the United States. (c) The P.A.A. shall specify the union(s) or other employee organizations to which the contractor's employees belong and shall include commitments to good faith efforts to effect equal employment opportunity changes directly or indirectly, in programs by such unions or organizations to recruit, train, qualify or otherwise select members if such changes are deemed necessary. The P.A.A. shall also include a copy of any agreement with an employee association which affects employment policies and practices. (d) The P.A.A., or portion thereof, shall be submitted in such format as shall be specified by the Director of the Office of Equal Opportunity. (e) The P.A.A. shall include a commitment to submit to the Director a separate P.A.A., of the form and substance specified in subdivisions (a) through (g) hereof, for each subcontractor prior to its approval by the Board of Education. Every subcontract made by a non-construction contractor shall also contain these rules, regulations and orders in their entirety or their incorporation by reference. -11- (f) The P.A.A. shall include written evidence or other proof which shows that minority entrepreneurs have been solicited and given an equal opportunity to submit proposals and that such proposals have been given equal consideration for award. (g) Unless exempted by the Board of Education, no specified commitment, including goals for minority group employment and adoption of equal employment practices, contained in the P.A.A., if any, of the contractor or subcontractor. V. Compliance Inspection Report A. Prior to the award of contract to the lowest responsible bidder and upon demand, the low bidder must submit to the Director of Equal Opportunity, a Compliance Inspection Report. The completed Compliance Inspection Report must be returned to the Office of Equal Opportunity within twelve (12) calendar days from the effective date stated on the Requisition for Information accompanying the Report form. Failure to submit the Compliance Inspection Report within the period of time specified above may result in a rejection of the bid and the disqualification of the bidder from bidding on the Board of Education work for a period of one year. B. The Compliance Inspection Report shall be submitted in a form provided by or approved by the Director, and shall indicate and furnish explanations for any current or anticipated departures, from the total labor force projections, or minority group labor force projections in the contractor's or subcontractor's P.A.A., or from planned corrective action relating to employment policies as stated in the P.A.A. VI. Contractor's Implementation Good faith efforts must be made to implement these affirmative action steps during the performance of the contract. The effectiveness of the affirmative action program shall be measured by the extent of progress made toward an equitable participation which reflects the appropriate available minority and female workforce and the lack of such progress shall be a factor considered in determining whether there have been good faith efforts to implement the program. VII. Sanctions and Remedies A. It is agreed that if the contractor does not comply with the equal opportunity provisions herein stated, as solely determined by the Board of Education, the said contract may be cancelled, -12- terminated, or suspended in whole or in part and the contractor may be declared ineligible for further Board of Education contracts and/or subject to such other sanctions as may be imposed and remedies involved by the Board of Education in its discretion. B. Prime contractors shall be responsible for the compliance of their subcontractors. Failure of its subcontractor to comply with the provisions hereof or with affirmative action contractual provisions, shall be grounds for the imposition of sanctions and remedies against a prime contractor. Such sanctions and remedies include the authority of the Director to halt scheduled payments to contractors who consistently fail to comply with the provisions hereof. C. No sanctions or remedies shall be imposed on a bidder, contractor or subcontractor without affording such bidder, contractor or subcontractor an opportunity for a compliance review. The purpose of the compliance review is to enable the Board of Education's Policy of Equal Employment Opportunity. The bidder, contractor or subcontractor shall be allowed at least twelve (12) calendar days to present such evidence. If at the end of such period compliance is not reached, and the Director maintains his or her position of non-compliance, the bidder, contractor or subcontractor may appeal to the Board of Review of the Board of Education. Conformity to technical rules of evidence at the Board of Review hearing shall not be required. The determination of such Board of Review appeal shall be final and conclusive, subject only to judicial review. D. Each of the foregoing sections or subdivisions hereof shall be construed to be independent of all other sections and subdivisions unless the contrary is clearly indicated by the text. For further information concerning these rules, regulations or procedures contractors may consult with the Office of Equal Opportunity of the Board of Education. -13- 14. [ILLEGIBLE] The contractor shall be responsible for any claims made against the Board of Education for acts of negligence, carelessness or incompetence perpetrated by the contractor, or anyone employed by the contractor, in connection with providing or failing to provide the services described herein, and the contractor shall protect, indemnify and hold harmless the Board from all suits, actions, damages or costs of every kind and description to which it shall be subjected by reason of injury to person, or property, or wrongful death because of such negligence, carelessness, or incompetence. 15. WORKMEN'S COMPENSATION If this Contract be of such a character that the employees engaged thereon are required to be insured by the provisions of Chapter 615 of the Laws of 1922, known as the Workmen's Compensation Law, as it has been or may be amended, the person, firm or corporation making or performing the same shall secure compensation for the benefit of, and keep insured during the life of this Contract, such employees, in compliance with the provisions of said law. Prior to starting service under this Contract, the contractor shall file with the Director a certificate showing compliance with the provisions of said law. Such insurance shall be kept during the life of said Contract. 16. PREVENTION OF DELAY, SUSPENSION OR STRIKES Because of the public nature of the services involved, and because of the essential public services performed, the contractor shall not act in any manner, nor employ labor or means, nor do anything by way of omission or commission that would in any way cause or result in a suspension, or delay of or strike affecting the work or any services to be performed hereunder. Any violation by the contractor of this requirement may, upon certification of the Director that the contractor's act or failure to act demonstrated a lack of good faith, effort to assure the performance of the conditions or covenants of this Contract, be considered as proper and sufficient cause for finding the contractor to be in default in the manner set forth in this Contract. 17. INSPECTORS The Director may assign inspectors to inspect vehicles furnished under this Contract, and such inspector or inspectors shall have the right at any and all times to inspect the vehicles used or proposed to be used under this Contract; to inspect the driver's license, vehicle registration, and proof of insurance; and to require drivers and escorts to produce proper identification. Such inspectors are authorized and empowered to reject and forbid the use of all vehicles or any part thereof offered under or in fulfillment of this Contract for the reason that the same do not comply with the specifications. -14- 18. REJECTION OF VEHICLES Any vehicle furnished or offered to be furnished under this Contract for the transportation of pupils which is rejected by an inspector as not conforming to the specifications, the rules and regulations of the New York State Department of Transportation or to the rules and regulations of the New York State Education Department, shall be immediately removed, and vehicles for the transportation of pupils which do conform shall be furnished in place thereof. 19. PAYMENTS If the contractor shall well and faithfully perform and fulfill this Contract and keep every covenant on its part herein contained, the Board shall then pay or cause to be paid to the contractor, subject to the provisions of the specifications, the amounts due the contractor as the services are provided. The Board and the Comptroller may at all times reserve and retain out of said payments, all sums as by the terms hereof, or of any law of the State of New York, or of any local law of the City of New York, now in effect or hereafter enacted, the Board or the City may be authorized to collect, reserve or retain. The contractor shall not be entitled to demand or receive payment for the services rendered, or any portion thereof, except in the manner set forth in this Contract, upon certification by the Director of compliance by the contractor with each and every one of the stipulations herein mentioned provided that nothing herein contained be construed to affect the right hereby reserved by the Board and the Comptroller to refuse to pay any part or all of the amount certified should the said certificate be found or known to be inconsistent with the terms of this Contract, or otherwise improbably given. The contractor will not ask, demand, sue for or recover any sum whatsoever for any services delivered under this Contract, either as extra compensation or otherwise, beyond the amount payable for the services which shall be actually supplied at the price herein agreed upon and fixed. 20. ACCEPTANCE OF FINAL PAYMENT The acceptance by the contractor or by any person claiming under the Contract of the final payment as audited by the Comptroller, whether such payment be made pursuant to any judgment or order of any court or otherwise, shall operate and shall be a release of the Board from all claims of and liability to the contractor and to the contractor's representatives and assigns for anything done, furnished for or relating to the work or vehicles furnished, or for any neglect of the Board or of any person relating to or affecting the work done or vehicles furnished hereunder. -15- 21. COMPTROLLER'S CERTIFICATE The Comptroller will endorse hereon during the Contract period his certificates that there are appropriations or funds applicable thereto sufficient to pay the estimated expense of executing this Contract during the respective fiscal periods. 22. RESERVED RIGHTS The rights, powers, privileges and remedies reserved to the Board and to the City by this Contract are cumulative and shall be in addition to and not in derogation of any other rights or remedies which the City and the Board may have at law or in equity with respect to the subject matter of this Contract, and a waiver thereof at any time or in any instance shall not affect any other time or instance. 23. ANTI-TRUST The contractor hereby assigns, sells and transfers to the Board and the City all right, title and interest in and to any claims and causes of actions arising under the anti-trust laws of New York State or of the United States relating to the particular goods or services purchased or procured by the City or Board under this Contract. 24. MERGER This Contract contains all the terms and conditions agreed upon by the parties hereto, and no other Contract oral or otherwise, regarding the subject matter of this Contract shall be deemed to exist or to bind any of the parties hereto, or to vary any of the terms contained herein. 25. VENUE All actions or special proceedings involving disputes relating to this contract shall be brought in New York County. -16- THIS CONTRACT shall bind and inure to the benefit of the parties hereto and their successors, heirs, administrators, executors, or assigns. IN WITNESS WHEREOF, The Board, by and through its Secretary or Assistant Secretary, and the contractor have executed this Contract in quadruplicate, one copy of which is to remain with the Board, one to be filed with the Comptroller, the third to be delivered to the contractor, and the fourth to be filed with the New York State Department of Education. THE BOARD OF EDUCATION OF THE CITY OF NEW YORK By, [ILLEGIBLE] --------------------------------------- Assistant Secretary Amboy Bus Inc. --------------------------------------- (Name of individual, firm or corporation) By, /s/ Michael Gatto Pres --------------------------------------- (Member of firm or officer of corporation) Address___________________________________ (Where Contractor is corporation, add:) (Seal) Attest: /s/ Michael Gatto -17- AFFIDAVIT OF ACKNOWLEDGEMENT OF CONTRACT (BY BOARD OF EDUCATION) State of New York ) County of Kings ) SS: On this 23 day of July, 1979 before me personally came Beatrice Steinberg to me known, who being by me duly sworn, did depose and say: I, the ________ Assistant Secretary of the Board of Education of the City of New York, designated by said Board for the purpose of signing this Contract pursuant to the By-Laws of the Board of Education, said Board of Education being designated in and having authorized the execution of the above Contract, and signed my name thereto in accordance with said By-Laws. /s/ Julius Kaplan ------------------------------------------- Commissioner of Deeds, The City of New York Julius Kaplan Commissioner of Deeds City of New York 2-1760 Certificate Filed in Kings County Commission Expires May 1, 1981 -18- AFFIDAVIT OF ACKNOWLEDGEMENT OF CONTRACT - - - -0- - - - (BY AN INDIVIDUAL) State of New York ) ) SS: County of Kings ) On this________________day of _____________, 1979 before me personally came________________ to me known and known to me, to be the same person described in and who executed the foregoing Contract, and acknoweledged to me that he had executed same. ___________________________________________ Commissioner of Deeds, The City of New York - - - -0- - - - (BY A PARTNERSHIP) State of New York ) ) SS: County of Kings ) On this________________day of _____________, 1979 before me personally came________________ to me known and known to me to be a member of _______________________, the firm described in and which executed the foregoing Contract and he acknowledged to me that he subscribed the name of said firm thereto on behalf of said firm for the purposes therein mentioned. ___________________________________________ Commissioner of Deeds, The City of New York -19- (BY A CORPORATION) State of New York ) ) SS: County of Kings ) On this day 19th day of July, 1979 before me personally came Michael Gatto to me known, who, being by me duly sworn, did say, for himself, that he resides in the City of Morganville, and is the President of Amboy Bus Inc., the corporation described in and which executed the foregoing Contract, that he knows the corporate seal of said Corporation, that the seal affixed to the foregoing Contract is such corporate seal and was affixed thereto by order of the Board of Directors of said Corporation, and that by like order he thereto signed his name and official designation. /s/ Michael Gatto ----------------------------- /s/ Josephine Viti - ----------------------------- Josephine Viti Notary Public, State of New York No. 24-4666814 Qualified in Kings County Commission Expires March 30, 1980. -20- APPROPRIATION CERTIFICATES OF UNEXPENDED BALANCE In conformity with the provisions of the State Education Law, it is hereby certified that the estimated expense of executing the within Contract until June 30, ________will approximate as follows: __________________________________ $________________________________________ CODE _______________________________________ BOARD OF EDUCATION EXECUTIVE DIRECTOR DIRECTOR OF BUSINESS AND ADMINISTRATION - - - - 0- - - - COMPTROLLER'S CERTIFICATE THE CITY OF NEW YORK_____________________ Pursuant to the provisions of Section 93 C-3.0 of Chapter 5 of the Administrative Code of the City of New York, I hereby certify that there remains unapplied and unexpended a balance of the appropriation applicable to this Contract sufficient to pay the estimated expense of executing the same until June 30, vis: __________________________________ $________________________________________ _______________________________________ Comptroller - - - - 0- - - - - SECRETARY'S CERTIFICATE I hereby certify that this Contract is based upon specifications which comply with the terms and conditions of the budget. _______________________________________ Secretary -21- PERFORMANCE BOND KNOW ALL MEN BY THESE PRESENTS, THAT we, _______________________________ ________________________________________________________________________________ hereinafter referred to as the 'Principal', and ________________________________ ________________________________________________________________________________ hereinafter referred to as the 'Surety' are held and firmly bound to the BOARD OF EDUCATION OF THE CITY OF NEW YORK, hereinafter referred to as the 'Board', or to its successors and assigns, in the penal sum of____________________Dollars, lawful money of the United States, for the payment of which said sum of money well and truly to be made, we, and each of us, bind ourselves, our heirs, executors, administrators, successors and assigns, jointly and severally, firmly by these presents. WHEREAS, the Principal is about to enter, or has entered, into a Contract in writing with the Board for transportation of pupils, a copy of which Contract is annexed to and hereby made a part of this bond as though herein set forth in full; NOW, THEREFORE, the conditions of this obligation are such that if the principal, his or its representatives or assigns, during the period beginning on the first day of September 197___ and ending on the 30th day of June 197___ shall well and faithfully perform the conditions of said Contract and all modifications, amendments, additions and alterations therein with respect to performance by the Principal during said period and shall indemnify and save harmless the Board from all cost and damages which it may suffer by reason of failure so to do and shall fully reimburse and repay the Board for all outlay and expense which the Board may incur in making good any such default with respect to performance by Principal during the period of this bond, then this obligation shall be void, otherwise the same to remain in full force and effect. The Surety, for value received, hereby stipulates and agrees, if requested to do so by the Board, fully to perform and complete the work to be performed under the Contract pursuant to the terms, conditions and covenants thereof, during the period of this bond if for any cause the Principal fails or neglects to fully perform and complete such work. The Surety further agrees to commence such work within five (5) days after written notice thereof from the Board. The Surety, for value received, for itself and its successors and assigns, hereby stipulates and agrees that the obligation of said Surety and its bond shall in no way be impaired or affected by any modification, omission, addition or change in or to the Contract or the work to be performed during the period of this bond, or by any payment thereunder, before the time required therein, or by any waiver or any provisions thereof, or by any assignment, subletting other transfer thereof of any work to be performed or any moneys due to or to become due thereunder, and said Surety does hereby waive notice of any and all such extensions, modifications, omissions, additions, changes, payments waivers, assignments, subcontracts and transfers, and hereby expressly stipulates and agrees that any and all things done and omitted to be done by and in relation to assignees, subcontractors, and other transferees shall have the same effect as to said Surety as though done or omitted to be done by or in relation to said Principal. -22- IN WITNESS WHEREOF, the Principal and the Surety have hereunto set their hand and seals, and such of them as are corporations have caused their corporate seals to be hereunto affixed and these presents to be signed by their proper officers. this day of , 19 (Seal) ________________________________ Principal (Seal) By ________________________________ ________________________________ Surety By ________________________________ (Seal) ________________________________ Surety By ________________________________ -23- SCHEDULE OF ITEMS AND BID BLANK INTRODUCTION Area of Service This section on the bid blank form describes geographic areas of service. Type of Vehicle This section on the bid blank form identifies vehicle type as defined in Section IX Bid Calculations Some of the items on the attached bid sheets are grouped. For those items which are grouped, submit only one set of quotations for extended and regular service for any item within the specific group. The quotation submitted for the specific group will apply to as many items as the number entered in the column headed "Number of Items Being Bid.' For all items, both those being grouped and those which are not grouped, enter the daily rate per vehicle for both extended service and regular service for each item bid upon. In computing the weighted average daily rate per vehicle, multiply the percent extended service by the daily rate for extended service, then add the percent regular service multiplied by the daly rate for regular service. Weighted average daily rate per vehicle is computed by bidder based on information in columns, A, B, C, and D. The weighted average daily rate per vehicle is to be computed by the contractor. The weighted average daily rate per vehicle shall be the basis for the award and for subsequent increases or decreases in the number of vehicles. -1- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: schools within Manhattan and homes of pupils living within Manhattan TYPE OF VEHICLE: Mini-bus Station Wagon BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- WH-MW-1 through 14 14 5 ______ 10% $_________ 90% $_________ $_________ ______ $_________ $_________ $_________
-2- SCHEDULE OF ITEM AND BID BLANK AREA OF SERVICE: Service between: schools within Manhattan and homes of pupils living within Mahattan. TYPE OF VEHICLE: Standard School Bus BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- WM-SB-1 through 17 17 5 ______ 25% $_________ 75% $_________ $_________ WM-SB-18 1 7 ______ 25% $_________ 75% $_________ $_________
-3- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: schools within Manhattan and homes of pupils living within any of the other four boroughs and/or Manhattan when their scheduled trips to Manhattan schools begin in one of the other four boroughs. TYPE OF VEHICLE: Mini-bus Station Wagon BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- BM-MW-1 through 13 13 5 ______ 10% $_________ 90% $_________ $_________ ______ $_________ $_________ $_________
-4- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: schools within Manhattan and homes of pupils living within any of the other four boroughs and/or Manhattan when their scheduled trips to Manhattan schools begin in one of the other four boroughs. TYPE OF VEHICLE: Standard School Bus BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- M-SB-1 through 3 3 5 ______ 25% $_________ 75% $_________ $_________ M-SB-4 1 8 ______ 25% $_________ 75% $_________ $_________
-5- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: schools within Manhattan and homes of pupils living within Manhattan TYPE OF VEHICLE: Hydraulic Lift Bus BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- WM-HL-1 through 2 2 5 ______ 10% $_________ 90% $_________ $_________ WM-HL-3 1 9 ______ 10% $_________ 90% $_________ $_________
-6- AREA OF SERVICE: Service between: schools within Manhattan and homes of pupils living within any of the other four boroughs and/or Manhattan when their scheduled trips to Manhattan schools begin in one of the other four boroughs. TYPE OF VEHICLE: Hydraulic Lift Bus BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- BM-HL-1 1 1 ______ 10% $_________ 90% $_________ $_________ ______ $_________ $_________ $_________
-7- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: schools within Manhattan and homes of pupils living within Manhattan TYPE OF VEHICLE: Mini-bus Station Wagon with Ramp BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- WH-RM-1 1 8 ______ 10% $_________ 90% $_________ $_________ ______ $_________ $_________ $_________
-8- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: schools within the Bronx and homes of pupils living within the Bronx. TYPE OF VEHICLE: Mini-bus Station Wagon BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- WBX-MW-1 through 14 14 5 ______ 10% $_________ 90% $_________ $_________ WBX-MW-15 1 9 ______ 10% $_________ 90% $_________ $_________
-9- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: schools within Manhattan and homes of pupils living within any of the other four boroughs and/or Manhattan when their scheduled trips to Manhattan schools begin in one of the other four boroughs. TYPE OF VEHICLE: Mini-bus Station Wagon with Ramp BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- BH-RM-1 1 4 ______ 10% $_________ 90% $_________ $_________ ______ $_________ $_________ $_________
-10- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: schools within the Bronx and homes of pupils living within any of the other four boroughs and/or the Bronx when their scheduled trips to Bronx schools begin in one of the other four boroughs. TYPE OF VEHICLE: Mini-bus Station Wagon BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- BMX-MW-1 through 5 5 5 ______ 10% $_________ 90% $_________ $_________ ______ $_________ $_________ $_________
-11- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: Schools within the Bronx and homes of pupils living within the Bronx. TYPE OF VEHICLE: Standard School Bus BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- WBX-SB-1 through 31 31 5 ______ 25% $_________ 75% $_________ $_________ WBX-SB-32 1 9 ______ 25% $_________ 75% $_________ $_________
-12- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: schools within the Bronx and homes of pupils living within any of the other four boroughs and/or the Bronx when their scheduled trips to Bronx schools begin in one of the other four boroughs. TYPE OF VEHICLE: Standard School Bus BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- BHX-SB-1 1 1 ______ 25% $_________ 75% $_________ $_________ ______ $_________ $_________ $_________
-13- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: schools within the Bronx and homes of pupils living within the Bronx. TYPE OF VEHICLE: Hydraulic Lift Bus BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- WBX-HL-1 through 4 4 5 ______ 10% $_________ 90% $_________ $_________ WBX-HL-5 1 4 ______ 10% $_________ 90% $_________ $_________
-14- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: schools within the Bronx and homes of pupils living within any of the other four boroughs and/or the Bronx when their scheduled trips to Bronx schools begin in one of the other four boroughs. TYPE OF VEHICLE: Hydraulic Lift Bus BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- BBX-HL-1 1 2 ______ 10% $_________ 90% $_________ $_________ ______ $_________ $_________ $_________
-15- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: Schools within the Bronx and homes of pupils living within any of the other four boroughs and/or the Bronx when their scheduled trips to Bronx schools begin in one of the other four boroughs. TYPE OF VEHICLE: Mini-bus Station Wagon with Ramp BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- BBX-RW-1 1 1 ______ 10% $_________ 90% $_________ $_________ ______ $_________ $_________ $_________
-16- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: Schools within Westchester County and homes of pupils living within the five boroughs. TYPE OF VEHICLE: Mini-bus Station Wagon BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- BWC-MW-1 1 1 ______ 10% $_________ 90% $_________ $_________ ______ $_________ $_________ $_________
-17- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: Schools within Queens and homes of pupils living within Queens. TYPE OF VEHICLE: Mini-bus Station Wagon BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- BQ-MW-1 through 35 35 5 ______ 10% $_________ 90% $_________ $_________ BQ-MW-36 1 7 ______ 10% $_________ 90% $_________ $_________
-18- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: Schools within Queens and homes of pupils living within any of the other four boroughs and/or Queens when their scheduled trips to Queens schools begin in one of the other four boroughs. TYPE OF VEHICLE: Mini-bus Station Wagon BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- BQ-MW-1 through 17 17 5 ______ 10% $_________ 90% $_________ $_________ BQ-MW-18 1 6 ______ 10% $_________ 90% $_________ $_________
-19- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: Schools within Queens and homes of pupils living within Queens. TYPE OF VEHICLE: Standard School Bus BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- WQ-SB-1 through 35 35 5 5 25% $242.00 75% $229.00 $232.25 WQ-SB-36 1 7 ______ 25% $_________ 75% $_________ $_________
-20- BID CALCULATIONS Some of the items on the attached bid sheets are grouped. For those items which are grouped, submit only one set of quotations for extended and regular service for any item within the specific group. The quotation submitted for the specific group will apply to as many items as the number entered in the column headed "Number of Items Being Bid." For all items, both those being grouped and those which are not grouped, enter the daily rate per vehicle for both extended service and regular service for each item bid upon. In computing the weighted average daily rate per vehicle, multiply the percent extended service by the daily rate for extended service, then add the percent regular service multiplied by the daily rate for regular service. Weighted average daily rate per vehicle is computed by bidder based on information in columns, A, B, C, and D. The weighted average daily rate per vehicle is to be computed by the contractor. The weighted average daily rate per vehicle shall be the basis for the award and for subsequent increases or decreases in the number of vehicles. -21- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: Schools within Nassau County and homes of pupils living within Queens. TYPE OF VEHICLE: Mini-bus Station Wagon with Ramp BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- WNC-RW-1 1 5 ______ 10% $_________ 90% $_________ $_________ ______ $_________ $_________ $_________
-22- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: Schools within Nassau County and homes of pupils living within boroughs other than Queens and/or Queens when their scheduled trips begin in one of the other four boroughs TYPE OF VEHICLE: Mini-bus Station Wagon with Ramp BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- BNC-RW-1 1 1 ______ 10% $_________ 90% $_________ $_________ ______ $_________ $_________ $_________
-23- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: Schools within Nassau County and homes of pupils living within Queens. TYPE OF VEHICLE: Mini-bus Station Wagon BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- WNC-MW-1 1 3 ______ 10% $_________ 90% $_________ $_________ ______ $_________ $_________ $_________
-24- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: Schools within Nassau County and homes of pupils living within boroughs other than Queens and/or Queens when their scheduled trips begin in one of the other four boroughs TYPE OF VEHICLE: Mini-bus Station Wagon BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- BNC-MW-1 1 2 ______ 10% $_________ 90% $_________ $_________ ______ $_________ $_________ $_________
-25- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: Schools within Staten Island and homes of pupils living within Staten Island. TYPE OF VEHICLE: Mini-bus Station Wagon with Ramp BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- WSI-RW-1 1 5 ______ 10% $_________ 90% $_________ $_________ WSI-RW-2 1 7 ______ 10% $_________ 90% $_________ $_________
-26- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: Schools within Staten Island and homes of pupils living within any of the other four boroughs and/or Staten Island when their scheduled trips to Staten Island schools begin in one of the other four boroughs. TYPE OF VEHICLE: Mini-bus Station Wagon with Ramp BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- BSI-RW-1 1 2 ______ 10% $_________ 90% $_________ $_________ ______ $_________ $_________ $_________
-27- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: Schools within Staten Island and homes of pupils living within Staten Island. TYPE OF VEHICLE: Standard School Bus BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- WSI-SB-1 through 8 8 5 ______ 25% $_________ 75% $_________ $_________ WSI-SB-9 1 6 ______ 25% $_________ 75% $_________ $_________
-28- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: Schools within Staten Island and homes of pupils living within Staten Island. TYPE OF VEHICLE: Hydraulic Lift Bus BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- WSI-HL-1 1 2 ______ 10% $_________ 90% $_________ $_________ ______ $_________ $_________ $_________
-29- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: Schools within Staten Island and homes of pupils living within Staten Island. TYPE OF VEHICLE: Mini-bus Station Wagon BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- WSI-MW-1 through 5 5 5 ______ 10% $_________ 90% $_________ $_________ WSI-MW-6 1 8 ______ 10% $_________ 90% $_________ $_________
-30- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: Schools within Brooklyn and homes of pupils living within any of the other four boroughs and/or Brooklyn when scheduled trips to Brooklyn schools begin in one of the other four boroughs. TYPE OF VEHICLE: Mini-bus Station Wagon with Ramp BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- BBK-RW-1 1 2 ______ 10% $_________ 90% $_________ $_________ ______ $_________ $_________ $_________
-31- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: Schools within Brooklyn and homes of pupils living within any of the other four boroughs and/or Brooklyn when their scheduled trips to Brooklyn schools begin in one of the other four boroughs. TYPE OF VEHICLE: Hydraulic Lift Bus BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- BBK-HL-1 1 1 ______ 10% $_________ 90% $_________ $_________ ______ $_________ $_________ $_________
-32- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: Schools within Brooklyn and homes of pupils living within Brooklyn. TYPE OF VEHICLE: Hydraulic Lift Bus BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- WBK-HL-1 through 8 8 5 ______ 10% $_________ 90% $_________ $_________ WBK-HL-9 1 7 ______ 10% $_________ 90% $_________ $_________
-33- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: Schools within Brooklyn and homes of pupils living within any of the other four boroughs and/or Brooklyn when their scheduled trips to Brooklyn schools begin in one of the other four boroughs. TYPE OF VEHICLE: Mini-bus Station Wagon BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- BBK-MW-1 through 6 6 5 ______ 10% $_________ 90% $_________ $_________ BBK-MW-7 1 6 ______ 10% $_________ 90% $_________ $_________
-34- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: Schools within Brooklyn and homes of pupils living with Brooklyn. TYPE OF VEHICLE: Standard school bus BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- WBK-SB-1 through 53 53 5 ______ 25% $_________ 75% $_________ $_________ WBK-SB-54 1 6 ______ 25% $_________ 75% $_________ $_________
-35- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: Schools within Queens and homes of pupils living within any of the other four boroughs and/or Queens when their scheduled trips to Queens schools begin in one of the other four boroughs. TYPE OF VEHICLE: Mini-bus Station Wagon with Ramp BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- BQ-RW-1 1 2 ______ 10% $_________ 90% $_________ $_________ ______ $_________ $_________ $_________
-36- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: Schools within Brooklyn and homes of pupils living within Brooklyn. TYPE OF VEHICLE: Mini-bus Station Wagon BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- WBK-MW-1 through 19 19 5 ______ 10% $_________ 90% $_________ $_________ WBK-MW-20 1 6 ______ 10% $_________ 90% $_________ $_________
-37- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: Schools within Queens and homes of pupils living within any of the other four boroughs and/or Queens when their scheduled trips to Queens schools begin in one of the other four boroughs. TYPE OF VEHICLE: Hydraulic Lift Bus BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- BQ-HL-1 1 2 ______ 10% $_________ 90% $_________ $_________ ______ $_________ $_________ $_________
-38- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: Schools within Queens and homes of pupils living within Queens. TYPE OF VEHICLE: Mini-bus Station Wagon with Ramp BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- WQ-RW-1 through 5 5 5 ______ 10% $_________ 90% $_________ $_________ WQ-RW-6 1 9 ______ 10% $_________ 90% $_________ $_________
-39- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: Schools within Queens and homes of pupils living within any of the other four boroughs and/or Queens when their scheduled trips to Queens schools begin in one of the other four boroughs. TYPE OF VEHICLE: Standard School Bus BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- BQ-SB-1 1 5 ______ 25% $_________ 75% $_________ $_________ ______ $_________ $_________ $_________
-40- SCHEDULE OF ITEMS AND BID BLANK AREA OF SERVICE: Service between: Schools within Queens and homes of pupils living within Queens. TYPE OF VEHICLE: Hydraulic Lift Bus BID CALCULATION:
(A) X (B) (A) (B) (C) (D) +(C) X (D) DAILY RATE DAILY RATE NO. OF NO. OF PER VEHICLE PER VEHICLE WEIGHTED NO. OF VEHICLES ITEMS PERCENT FOR PERCENT FOR AVERAGE ITEMS IN EACH BEING EXTENDED EXTENDED REGULAR REGULAR DAILY RATE ITEM NUMBER(S) IN GROUP ITEM BID SERVICE SERVICE SERVICE SERVICE PER VEHICLE - ------------- -------- -------- ------ -------- ----------- ------- ----------- ----------- WQ-HL-1 through 5 5 5 ______ 10% $_________ 90% $_________ $_________ WQ-HL-6 1 6 ______ 10% $_________ 90% $_________ $_________
-41- EX-10.13 21 BOARD OF EDUCATION SERIAL #8108 EX-10.13 Contract Proposal Serial No. 8101 BOARD OF EDUCATION [SEAL] CITY OF NEW YORK CONTRACT PROPOSAL Sealed bids will be received by the Director of the Bureau of Supplies of the Board of Education of the City of New York, at his office. Room 513, 44-36 Vernon Blvd., Long Island City, New York, 11101. Until 10:00 A.M., on MONDAY, JULY 2, 1979 Bids will be publicly opened and read at 10:00 A.M. on the date and place stated above. FOR THE TRANSPORTATION OF HANDICAPPED PUPILS FOR THE PERIOD FROM SEPTEMBER 1979 THROUGH JUNE 1982 - -------------------------------------------------------------------------------- 1. Name of Bidder [ILLEGIBLE] Transportation, Inc. --------------------------------------------------------- Address of Bidder Suite 810 1407 Broadway N.Y.C., N.Y. 10018 --------------------------------------------------------- 2. Page Number(s) Containing Bid Prices: ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ IMPORTANT NO-BID RESPONSE FORM IT IS NOT NECESSARY FOR THE BIDDERS WHO ARE SUBMITTING BIDS ON THE PRODUCT(S) AND/OR SERVICES SPECIFIED HEREIN TO RETURN THIS FORM. FAILURE OF NON-BIDDERS TO COMPLETE AND RETURN THIS FORM WILL RESULT IN THEIR AUTOMATICALLY BEING DROPPED FROM OUR BIDDERS' LIST FOR THE PRODUCT(S) AND/OR SERVICES SPECIFIED HEREIN. The New York City Board of Education is committed to programs and policies that will result in the procurement of supplies, equipment and services that meet the quality standards required by our educational institutions at the lowest possible prices consistent with those standards. An important aspect of achieving this goal is to promote competitive bidding among as great a number of qualified bidders as possible. However, the preparation and mailing of Bid Request Packages is time-consuming and expensive. In instances where bidders fail to respond, or notify the Board of Education of their future intentions, the preparation and mailing of the Bid Request Package represents an unnecessary expense to the Board of Education. All bidders who respond with a "No Bid" response, or choose not to bid, are requested to provide the information requested below and return this form, in the envelope provided, in time for the bid opening. FAILURE TO RETURN THIS COMPLETED FORM WILL RESULT IN THEIR AUTOMATICALLY BEING DROPPED FROM OUR BIDDER'S LIST FOR THE PRODUCT(S) AND/OR SERVICES SPECIFIED HEREIN. To be reinstated on the bidder's list the bidder must forward a written request for consideration which will be reviewed by the Board of Education. - -------------------------------------------------------------------------------- REASONS FOR NOT BIDDING AT THIS TIME: _________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ DO YOU WISH TO RECEIVE BID REQUESTS FOR THIS PARTICULAR PRODUCT OR SERVICE IN THE FUTURE? ( ) YES ( ) NO *BIDDER NAME AND ADDRESS: _____________________________________________________ ________________________________________________________________________________ SIGNED:___________________ TITLE:___________________ DATE:____________________ BID SERIAL NO. 8108 DATE OF BID OPENING_________________ *PLEASE CHECK HERE ( ) IF THIS ADDRESS IS A CORRECTION OF THE MAILING ADDRESS TO WHICH THIS BID PROPOSAL WAS ORIGINALLY MAILED. ALL PROSPECTIVE BIDDERS PLEASE NOTE THE FOLLOWING: BID DEPOSIT OR BID BOND Your attention is directed to Section _____ on Page 1 on the General Instructions to Bidders entitled "BID DEPOSIT OR BID BOND". In the event the Bid Deposit to be submitted with bid is in the form of a check, said check MUST BE CERTIFIED. Bids that are not executed in strict accordance with this section shall be rendered informal and not read at bid opening. WRITTEN AGREEMENT & ANTI-TRUST CLAUSES The written agreement contains all the terms and conditions agreed upon by the parties hereto, and no other agreement, oral or otherwise, regarding the subject matter of this agreement shall be deemed to exist or to bind any of the parties hereto, or to vary any of the terms contained herein. The vendor (contractor) hereby assigns, sells and transfers to the City of New York, all right, title and interest in and to any claims and causes of action arising under the antitrust laws of New York State or of the United States relating to the particular goods or services purchased or procured by the City under this contract. PARTICIPATION IN AN INTERNATIONAL BOYCOTT a. The contractor agrees that neither the contractor nor any substantially-owned affiliated company is participating or shall participate in an international boycott in violation of the provisions of the Export Administration Act of 1969, as amended, or the regulations of the Untied States Department of Commerce promulgated thereunder. b. Upon the final determination by the Commerce Department or any other agency of the United States as to, conviction of the contractor or substantially-owned affiliated company thereof, participation in an international boycott in violation of the provisions of the Export Administration Act of 1969, as amended, or of the regulations promulgated thereunder, the Comptroller may, at his option, render forfeit and void this contract. c. The contractor shall comply, in all respects, with the provisions of Section 343 - 10.0 of the Administrative Code of the City of New York and the rules and regulations issued by the Comptroller thereunder. III B PRICE CERTIFICATION CLAUSE (REVISED 11/13/78) The bidder certifies that the prices, warranties, conditions, benefits, and terms quoted herein are at least equal or more favorable to the Board of Education of the City School District of the City of New York than the prices, warranties, conditions, benefits and terms currently quoted by the bidder to any customers for the same or a substantially similar quantity and type of item(s) or services as described herein. This certification shall not apply to prices, warranties, conditions, benefits and terms under contracts in effect between the bidder and other customers at the date of submission of the within bid, except as provided herein. The successful bidder (hereinafter called the "Contractor") further certifies that during the period between the bid submission date and the completion of the term of this contract, should he offer prices, warranties, conditions, benefits, and terms more favorable than those quoted herein, or provide changed prices, warranties, conditions, benefits and terms more favorable than those quoted herein under a contract in effect at the bid submission date with any customer, for the same or a substantially similar quantity and type of item(s) or services, then the contractor shall immediately thereafter notify the Board of Education, Bureau of Supplies. Regardless whether such notice is sent by the contractor or received by the Board of Education, this contract shall be deemed amended retroactively to the effective date of more favorable treatment, to provide the more favorable prices, warranties, conditions, benefits, and terms. The Board of Education shall have the right and option to decline any such amendment. If the contractor is of the opinion that an apparently more favorable price, warranty, benefit, condition and term quoted, offered or provided to a customer is not more favorable treatment, the contractor shall immediately notify the Director of the Bureau of Supplies of the Board of Education in writing setting forth in detail the reasons why it believes the apparently more favorable treatment is not in fact more favorable treatment. The Director of the Bureau of Supplies after consideration of the written explanation may, in his sole discretion, decline to accept the explanation and thereupon, the contract shall be deemed amended retroactively to the effective date of the more favorable treatment, to provide the more favorable prices, warranties, conditions, benefits, and terms to the Board of Education. The contractor further certifies that when the terms and conditions of the within contract provide for the written submission by the contractor of a request for revision of prices, warranties, conditions, benefits and terms, such requested revised prices, warranties, conditions, benefits and terms will be at least equal to or more favorable to the Board of Education of the City School District of the City of New York than the prices, warranties, conditions, benefits, and terms offered by the contractor to any customer for the same or substantially similar quantity and type of item(s) and services as of the effective date of the revision. The contractor hereby authorizes the inspection, review and copying of contracts and documents that pertain or relate to the performance of this clause of the contract. The contractor shall be obliged to keep the contracts and documents referred to in the above paragraph during the effective period of this contract and for a period of three years after the final payment of this contract. III C Revised April 30, 1979 Form CE 8 - Standard Form of Contract Proposal, Page IX, Section 9A Entitled "Grounds for Disqualification or Cancellation" is hereby deleted and replaced by the following: INVESTIGATIONS Upon the refusal of a person, when called before a Grand Jury, Governmental Department, a commission, agency or any other body which is empowered to compel the attendance of witnesses and examine them under oath, to testify concerning a transaction, contract, lease, permit or license entered into with the City of New York (City), The State, or any political subdivision thereof, or a public authority or with any public department, agency or official of the State or a political subdivision thereof, upon being advised that neither his or her statement nor any information or evidence derived from such statement will be used against that person in any subsequent criminal proceeding; (A) Such person, or any firm, partnership, corporation or other entity related to the aforesaid testimony of which he or she was at the time of the testimony a member, partner, director, officer, fiduciary, principal or employee may be disqualified for a period not to exceed five years after such refusal from submitting bids for or entering into or obtaining any contract, lease, permit or license with or from the City or submitting bids for or entering into or obtaining any contract, lease, permit or license which will be paid in whole or in part out of monies under the control of or collected by the City, and (B) Any and all such existing City contracts, leases, permits or licenses that said refusal to testify concerned may be cancelled or terminated by the City or the contracting agency and/or be subject to such other action appropriate under the circumstances thereto, in the discretion of the City for cause after a hearing, without the City incurring any penalty or damages on account of such cancellation or termination, but any monies owing for goods delivered, work done, rentals, permit or license fees due, prior to the cancellation or termination, shall be paid by the City. (C) The term license or permit as used herein shall be defined as a license, permit, franchise or concession not granted as a matter or right. (D) Any disqualification, cancellation or termination hereunder shall be made by the City Commissioner or agency head who is or would be a party to the contract, lease, permit or license that is the subject of the aforesaid disqualification, cancellation and/or termination, after a hearing upon not less than two (2) days written notice to the parties involved. III D TABLE OF CONTENTS CONTRACT TRANSPORTATION OF HANDICAPPED PUPILS FOR THE PERIOD FROM SEPTEMBER 1979 THROUGH JUNE 1982 Page General Instructions for Bidders .......................................... Form to be Used ........................................................... 1 Presentation of Bids ...................................................... 1 Bid Opening ............................................................... 1 Late Bids ................................................................. 1 Bid Deposit or Bid Bond ................................................... 1 Verification .............................................................. 2 Quotation ................................................................. 2 Additional Information .................................................... 2 Equal Employment Opportunities ............................................ 2 Withdrawal of Bids ........................................................ 3 Ability to Perform ........................................................ 4 Financial Statement ....................................................... 4 Equipment ................................................................. 4 Insurance and Performance Bond ............................................ 5 Award ..................................................................... 7 Notice of Award ........................................................... 7 Return of Bid Deposit ..................................................... 7 Bid Certification ......................................................... 8 Individual Verification ................................................... 11 Corporate Verification .................................................... 12 Schedule of Items, Specifications and Bid Blank: Page I. Intent and Scope .......................................... 13 II. Period of Contract ........................................ 13 III. Number of Days of Service ................................. 13 IV. Period of Operation ....................................... 14 V. Payment ................................................... 14 VI. Items ..................................................... 15 VII. Transportation of Pupils .................................. 15 VIII. Schedule of Vehicles ...................................... 15 IX. Vehicle Specifications .................................... 16 X. Vehicle Safety Requirements ............................... 17 XI. Spare Vehicles and Vehicle Performance Monitoring ......... 18 XII. Use of Vehicles ........................................... 19 XIII. Increase of Decrease in the Number of Vehicles ............ 20 XIV. Facilities and Maintenance ................................ 23 XV. Gasoline .................................................. 23 XVI. Records to be Transmitted ................................. 23 XVII. Vehicle Operator Standards ................................ 23 XVIII. Operational Supervision ................................... 25 XIX. Escorts ................................................... 26 XX. Audit of Invoices and Financial Records ................... 29 XXI. Liquidated Damages ........................................ 29 XXII. Employee Protection Provisions ............................ 33 General Terms and Conditions Page Definitions......................................................... 1 1. Subject Matter.................................................. 2 2. Contract........................................................ 2 3. Interpretation.................................................. 2 4. Modifications................................................... 2 5. Compliance With Laws............................................ 3 6. Non-Assignment of Contract...................................... 3 7. Cancellation.................................................... 3-4-5 8. Notices......................................................... 5 9. No Estoppel .................................................... 5 10. Claims - Limitations of Action.................................. 6 11. Maintenance of Records.......................................... 6 12. Discrimination.................................................. 6-7 13. Equal Employment Opportunity Requirement for Non-Construction Contractors, Vendors and Suppliers............. 8 thru 13 14. Indemnification................................................. 14 15. Workmen's Compensation.......................................... 14 16. Prevention of Delay, Suspension of Strikes...................... 14 17. Inspectors...................................................... 14 18 Rejection of Vehicles........................................... 15 19. Payments........................................................ 15 20. Acceptance of Final Payment..................................... 15 21. Reserved Rights................................................. 16 Page 22. Anti-Trust...................................................... 16 23. Merger.......................................................... 16 24. Venue........................................................... 16 Performance Bond.................................................... 17-18 BOARD OF EDUCATION CITY OF NEW YORK NOTICE: The attention of the bidder is particularly called to the fact that, unless the bid is made in strict conformity with the directions given in this proposal as provided for herein, the bid may be rejected. PROPOSAL FOR BIDS FOR THE TRANSPORTATION OF HANDICAPPED PUPILS FOR THE PERIOD FROM SEPTEMBER 1979 THROUGH JUNE 1982 (SERIAL NO. 8108) GENERAL INSTRUCTIONS FOR BIDDERS FORM TO BE USED Bidder must submit his bid upon the blank form included herein, which set forth the schedule of items quantities, specifications and form on Contract. The forms provide for quotations for extended and regular service, and each bidder is required to bid on both for each item bid upon. Partial item bids will not be accepted. PRESENTATION OF BIDS The person, firm or corporation making a bid shall furnish such bid in a sealed envelope of the Director of the Bureau of Supplies or his designated representative at the place herein mentioned on or before the day and time herein named, and the envelope shall be endorsed on the face thereof with the name of the person, firm or corporation making such bid, the date of its presentation and the title of the services for which such bid is made. BID OPENING At the time and place herein stated, the bids received will be publicly opened and read by the Director of the Bureau of Supplies or his duly designated representative. The Board of Education reserves the right to waive any formalities in a bid if it is deemed to be in the best interests of the Board to do so. LATE BIDS Bids which arrive after the time stated for the opening of bids cannot be accepted. This includes bids sent by mail, which, if so sent, are sent at the risk of the bidder, and will not be considered if they arrive after the time stated for the bid opening. BID DEPOSIT OR BID BOND Every bid shall be accompanied by a bid bond or by a deposit in the amount of two (2) times the daily rate for regular service per vehicle for each vehicle in all items bid. Such deposit shall consist of a certified check upon a state or national bank or trust company or a check of such bank or trust company signed by a duly authorized officer thereof, drawn to the order of the Comptroller of the City or New York. - 1 - The bid deposit shall be enclosed in a sealed envelope within the envelope containing the bid. Receipt for the bid deposit will not be given, as bids will be publicly opened and read, and the amount of bid deposits publicly announced at the time of opening of bids. VERIFICATION Each bid shall be verified by the oath in writing of the party or parties making it, that the several matters stated therein are in all respects true. If the bidder is a corporation, the verification shall be made by an officer of such corporation with knowledge of the facts and having authority to make such a sworn statement. QUOTATION The bidder shall insert the prices he proposes to furnish for each item in the schedules herein contained or annexed, as well as all other information required on the bid blank. ADDITIONAL INFORMATION Further information, interpretation or clarification relative to the terms or conditions of the Contract should be requested in writing prior to the submission of the bid from the Director or duly designated representative of the Bureau of Pupil Transportation at 28-11 Queens Plaza North, Long Island City, New York, 11101. EQUAL EMPLOYMENT OPPORTUNITIES The particular attention of bidders is called to the section entitled "Equal Employment Opportunities and Practices" on Pages 8 through 13 of the General Terms and Conditions. The provisions and terms therein will be strictly enforced by the Board of Education. It is recommended that you contact the Director of the Office of Equal Opportunity Room 641, 110 Livingston St., Brooklyn, N. Y. 11201 for forms and other information that his office would require in the event of possible consideration of award to your company. - 2 - WITHDRAWAL OF BIDS A. After the opening of bids, a request by a bidder to the Board of Education for consent to the withdrawal of his bid because of error made by said bidder, will be considered only under the following terms and conditions:- 1. Request to withdraw bid must be in writing, addressed to the Director of Bureau of Supplies and must give reasons for the request. 2. Request must be sent by registered mail and must be post-marked not later than 48 hours following the opening of bids. 3. All requests will be referred to the Board of Review. 4. Contractors requesting consent to the withdrawal of bids shall appear and testify before the Board of Review and shall make available to the Board of Review all work sheets, summary sheets and other data requested by the Board of Review as pertinent to its inquiry. Failure to appear or to make available data as requested by the Board of Review will result in refusal to consent to the withdrawal of bids. 5. After the Board of Review has considered a request by a bidder to withdraw its bid after an award has been made by the Board of Education, the Board of Education may grant such request in any case which it deems just and proper, but such request shall be made and such consent to withdraw shall be accepted by the bidder upon the express conditions that said bidder shall be excluded from bidding again on the readvertisement of bids for the same item or proposal. Should any bidder request the withdrawal of more than one bid in any twelve month period, he shall be disqualified from bidding on Board of Education work for a period of one (1) year from the date of the second request. B. If the Contract award is not made within forty-five days after the date of the bid opening, a bidder has the right to withdraw his bid, provided such withdrawal is made prior to Contract award. Such withdrawal must be in writing and shall be filed with the Secretary of the Board of Education and the Director of the Bureau of Supplies. A withdrawal of bid pursuant to this paragraph is not subject to the provisions stated in paragraph "A" above. - 3 - ABILITY TO PERFORM Upon demand of the Director of the Bureau of Pupil Transportation, any bidder for this Contract shall furnish testimonials or evidence in such form as the Director may indicate, as to his financial ability, prior experience, past performance, ability to perform (which includes permitting investigation and evaluation by the Board of bidder's facilities, equipment, personnel), etc. No award will be made to a bidder who shall fail to submit testimonials, setting forth the facts required to be set forth, or to a bidder whose statements set forth in such testimonials are found to be untrue. Any statement or declaration made by the bidder which shall be found be untrue will be sufficient cause for rejecting his bid and forfeiting his bid deposit to the Board. The Director will determine whether the evidence of ability to perform is satisfactory and will recommend awards only when such evidence is deemed satisfactory, and reserves the right to reject bids where evidence is submitted, or investigation and evaluation is determined by the Director, to indicate inability of the bidder to perform. FINANCIAL STATEMENT The bidder must submit with its bid a balance sheet and profit and loss statement of its operations for the past three annual tax periods or for the number of tax years which the bidder has been in business, with a certification by an independent Certified Public Accountant licensed by the State of New York. The individual, firm, or corporation employed to prepare the financial statement will have no interests in the bid and must so certify. Each bidder shall submit a statement under oath disclosing and clearly identifying all its stockholders owning 5% or more of the outstanding equity, its officers, partners, creditors, and every person, firm or corporation who has any interest directly or indirectly in the bid or the bidder at the time the bid is submitted; and shall report to the Director any change in control or ownership during the period of this Contract within 5 days. If the bidder has not been in business within the past three (3) years, the bidder shall submit a satisfactory certified financial statement outlining its qualifications to perform satisfactorily. EQUIPMENT The bidder must submit with his bid the following data if such information is available at the time of bid, in the connection with each vehicle intended to be used for transportation of pupils: 1. Make, year of manufacture and identification number of each vehicle. 2. Pupil seating capacity. 3. Name of owner of each vehicle. The bidder shall supply satisfactory evidence that he will have the required number of vehicles prior to the beginning or the Contract period or beginning of service. Such evidence may be a signed statement from an acceptable vehicle manufacturer, dealer, or rental corporation to the effect that he will furnish the required number of vehicles. If the vehicles are leased or rented, the vehicle operator (driver) cannot be owner. - 4 - A successful bidder must furnish this date with reference to each vehicle being furnished and used for the transportation of pupils under the Contract both at the inception of the Contract and for any additional vehicle acquired thereafter. The successful bidder must also inform the Board of Education of any vehicle withdrawn from service or replaced during the life of the Contract. INSURANCE AND PERFORMANCE BOND The bidder must submit, with his bid, certifications from acceptable insurors to the effect that said insurors will furnish to the bidder public liability insurance, property damage coverage and a performance bond as follows: 1. Public Liability for bodily injury, including death shall be in the amount of $500,000.00 for each person and $5,000,000.00 for each accident. Property damage coverage shall be in the amount of $50,000.00 to cover the claim of one person and $100,000.00 to cover the claim of two or more people for each accident. These policies shall be endorsed to include the Board of Education and City of New York, as named insureds. A copy of said policies shall be supplied to the Director of the Bureau of Pupil Transportation upon request. This written proof must be issued by a company licensed by the Superintendent of Insurance of the State of New York to do business in New York. 2. Performance Bond to cover the faithful performance of the Contract in the amount of the Contract where required. This written proof must be issued by a company licensed by the Superintendent of Insurance of the State of New York to do business in New York. The amount of the initial performance bond to be provided, when required, by the successful bidder for the first year of the Contract shall be one hundred and eighty times the daily rate for regular service per vehicle for all vehicles for which the Contract is awarded. This performance bond shall guarantee the full and faithful performance for the initial first year period of such Contract as may be awarded to bidder. The initial performance bond shall be filed with the Secretary of the Board of Education with the acknowledgement of the notice of award. Thereafter, the contractor shall provide an equal and identical bond guaranteeing performance for each additional year beyond the operation of the first year of said Contract by April 1, 1980, 1981, and 1982 respectively. Inability or failure on the part of the contractor to obtain the bond guaranteeing performance as required herein on or before April 1, as state above, shall be deemed sufficient cause for cancellation of the balance of the Contract. - 5 - 3. Waiver of Performance Bond. (a) Any bidder who initially receives an award of Contract for fifteen (15) or fewer vehicles is not required to furnish a performance bond, nor shall there be any retainage withheld by the Board of Education. (b) Any bidder who initially receives an award of Contract for sixteen (16) to twenty-five (25) may elect between the following alternatives: 1. File a performance bond as stated herein; or 2. Authorize the Board of Education to retain 10% of each payment made to the contractor from the first five (5) months payments of each year of the contract in an interest bearing account to assure full and faithful performance of this Contract. This retainer shall be paid to the contractor with interest at the conclusion of each one (1) year period of full and faithful performance under this Contract. 4. During the period of the Contract, if there is a increase in the total number of vehicles furnished by one contractor to more than fifteen (15), but less than twenty-six (26), then the contractor shall comply with the terms and conditions outlined in 3(b) above. During the period of the Contract, if there is a increase in the total number of vehicles furnished by one contractor to more than twenty-five (25), then the contractor shall immediately notify the Director and shall furnish a performance bond as required herein for those vehicles in excess of twenty five (25) within twenty (20) days and must furnish such performance bond for the remaining portion of the Contract period for those vehicles in excess of twenty-five (25) in accordance with the conditions stated herein. 5. For the purposes of 3 and 4 above, corporate bidders who are subject to common control as determined by the Board based upon an analysis of: (a) ownership of the corporations' assets, (b) coincidence of corporate officers and directors, and (c) such other factors as the Board determines to be relevant, are deemed to be one bidder. - 6 - AWARD The award of Contract, if made, will be made according to law, as soon after the opening of bids as practicable, by item, to the lowest reponsible bidder offering the lowest weighted average daily rate per vehicle for extended and regular service as specified in each item. The Board of Education reserves the right to reject any or all bids. No award of Contract shall be binding until the Contract had been duly approved by the New York State Department of Education and the Financial Control Board. NOTICE OF AWARD The mailing by the Board of Education of the City of New York to the undersigned bidder at the address herein specified of the NOTICE OF AWARD OR ACCEPTANCE OF BID for any of the items for which this bid is submitted shall constitute a Contract between the Board of Education and the undersigned to furnish and deliver the items set forth in said NOTICE OF AWARD OR ACCEPTANCE OF BID. The successful bidder will acknowledge receipt by him of the notice of award or acceptance of bid within five days after receipt on the form to be provided to him, and shall submit with said acknowledgement an executed copy of the participation agreement (as set forth in XXII 4.) and the performance bond where required. Purchase orders will be issued when and as required. RETURN OF BID DEPOSIT After the award of Contract, the Comptroller shall reimburse the amount of bid deposits received to the persons, firms, or corporation submitting the same, except the bid deposit made by the bidder whose bid has been accepted. The amount of the bid deposit of the successful bidder will be reimbursed to him after acknowledgement from him of receipt of notice of award of Contract, and submission of the participation agreement and performance bond where required. - 7 - BID TO THE BOARD OF EDUCATION OF THE CITY OF NEW YORK Made by Name of Bidder _________________________________________________________________ (Individual, firm or corporation) Place of Business of Bidder ____________________________________________________ Date of Bid _________________________________ Telephone No.____________________ If Bidder is an individual or partnership, state here: Name of Individual or Partners Residence of Individual or Partners 1.______________________________________________________________________________ 2.______________________________________________________________________________ 3.______________________________________________________________________________ If Bidder is a corporation, fill in the following blanks: Organized under the laws of the State of _______________________________________ Name and Residence of President ________________________________________________ ________________________________________________________________________________ Name and Residence of Secretary_________________________________________________ ________________________________________________________________________________ Name and Residence of Treasurer_________________________________________________ ________________________________________________________________________________ The bidder above mentioned declares and certifies: First: That the said bidder is of lawful age and the only one interested in this bid, and that no one other than hereinabove named has any interested in this bid, or in the contract proposed to be entered into. Second: By submitting of this bid, each bidder and each person signing on behalf of any bidder certifies, and in the case of a joint bid each party thereto certifies as to its own organization, under penalty of perjury, that to the best of its knowledge and belief - (1) The prices in this bid have been arrived at independently without collusion, consultation, communication, or agreement for the purpose of restricting competition, as to any matter relating to such prices with any other bidder or with any competitor; (2) Unless otherwise required by law, the prices which have been quoted in this bid have not been knowingly disclosed by the bidder and will not knowingly be disclosed by the bidder prior to opening, directly or indirectly, to any other bidder or to any competitor; and - 8 - (3) No attempt has been made or will be made by the bidder to induce any other person, partnership or corporation to submit or not to submit a bid for the purpose of restricting competition. Third: That no Councilman of the City of New York, member of the Board of Education of the City of New York, or any officer or employee or person whose salary is payable in whole or in part from the treasury of the City of New York is directly or indirectly interested in this bid or in the supplies, materials, equipment, work or labor to which it relates, or in any portion of the profits. Fourth: That said bidder is not in arrears to the City of New York or the Board of Education of the City of New York upon debt, contract, or taxes and is not a defaulter as surety or otherwise, upon any obligations to the City of New York, and has not been declared not responsible, or disqualified, by any agency of the City of New York, or State of New York, nor is there any proceeding pending relating to the responsibility or qualification of the bidder to receive public contract, except ________________________________________________________________________________ ________________________________________________________________________________ (if none, bidder will insert "none") Fifth: That said bidder has carefully examined the standard form of contract proposal, including the instructions to bidders, specifications, and the schedule of bid items, and will, if successful, perform all its terms, covenants and conditions, and will furnish and deliver at the prices bid, within the time stated, all the materials, supplies, apparatus, goods, wares, merchandise, services, or labor named and described therein for which bid is made. Sixth: The bidder expressly undertakes and agrees, if successful, to comply fully with any and all applicable laws, orders, or regulations, of any federal, state or municipal authority or agency. The undersigned, if an individual bidder, or if the bidder be a firm, partnership or corporation, the undersigned executing this document as a member, partner, director or officer and on behalf of such firm, partnership or corporation, expressly warrants and represents that neither he, nor any member, partner, director or officer of said firm, partnership or corporation has, prior to the date of execution of this bid, been called before a grand jury, head of a state department, temporary state commission or other state agency, head of a city department, or other city agency, to testify in an investigation concerning any transaction or contract had with the State of New York, any political subdivision thereof, a public authority or with any public department, agency or official of the State of New York or of any political subdivision thereof, or of a public authority or any fire district, and refused to sign a waiver of immunity against subsequent criminal prosecution or to answer any relevant question concerning such transaction or contract. If there has been a refusal to sign a wavier or to answer, the bidder must state the time and place of such refusal on the bid form submitted. - 9 - The amount of the bid deposit or bid bond furnished with this bid is the sum of _______________________________Dollars ($________________________________ Signature_______________________________________________________________________ (Individual, firm or corporation) By______________________________________________________________________________ (Where bidder is corporation add:) Attest: ____________________________________ Secretary (Seal) (Please note that affidavit of verification on following pages must be executed) Notes: 1. Where bidder is a firm, the bid must be signed in the name of the firm by a member thereof, who must sign his own name immediately thereunder, as A. & B. Co., By C.A., Partner. 2. Where the bidder is a corporation, each bid must be signed in the name of the corporation by some duly authorized officer or agent thereof having knowledge of the matters stated in the bid, and such officer or agent shall also subscribe his own name, as: A. B. Company, by C. D., President. The seal of the corporation should also be affixed. 3. An individual doing business under a trade name must present the bid in such individual's correct name. The style "Thomas Jonas, doing business as (d/b/a) Celestial Bus Co." may be used. 4. Each bid must be verified by the bidder submitting same by execution of one of the follower proper forms. - 10 - INDIVIDUAL VERIFICATION County of ) State of New York ) ss: ______________________, being duly sworn, deposes and says; he is the person who executed the foregoing bid, that deponent has read the declarations contained in said bid and knows the contents thereof; that the same are true to deponent's own knowledge. ____________________________________ (Signature of person verifying bid) Subscribed and sworn to before me this day of ___________________________________________ -----0----- BY A FIRM OR PARTNERSHIP County ) State of New York ) ss: ______________________________, being duly sworn, says: I am a member of ________________________________________________________, the firm described in and which executed the foregoing bid. I subscribed the name of the said firm thereto on behalf of the firm and several matters therein stated are in all respects true. ____________________________________ (Signature of person verifying bid) Subscribed and sworn to before me this day of ________________________________________ - 11 - CORPORATE VERIFICATION County of ) State of New York ) ss: _________________________________, being duly sworn, says: I am the ____________________ of _________________________________________ the corporation whose name is subscribed to and which executed the foregoing bid. I reside at ____________________________________________________________________ I have knowledge of the several matters therein stated and they are in all respects true. ____________________________________ (Signature of person verifying bid) Subscribed and sworn to before me this day of ___________________________________________ -----0----- The officer taking the acknowledgement shall enter his title, the date of expiration of his commission, etc. IMPORTANT NOTE: Those found making intentionally false or misleading statements are liable for prosecution for perjury. - 12 - SCHEDULE OF ITEMS, SPECIFICATIONS AND BID BLANK FOR THE TRANSPORTATION OF HANDICAPPED PUPILS FOR THE PERIOD OF SEPTEMBER 1979 TO JUNE 1982 I. INTENT AND SCOPE This Contract is intended to cover requirements for the transportation of handicapped pupils whose transportation is provided by the Board of Education of the City of New York, and for such other uses as provided for herein. II. PERIOD OF CONTRACT The time for the performance of the work herein scheduled is for the period of three (3) years beginning with the first official scheduled public school day in September, 1979 and ending with the last official scheduled public school day in June, 1982. Thereafter, the Contract may be extended for one or more additional years in conformance with the requirements of the State Education Law and the regulations of the Commissioner of Education of the State of New York. III. NUMBER OF DAYS OF SERVICE The contractor must conform to the public school calendar and time schedules of all the different schools involved in the item(s) bid upon, including daily time schedules. The public school calendar shall be furnished prior to the opening of each school year. It is the responsibility of the contractor to adhere to this calendar at all times unless notified otherwise by the Director of the Bureau of Pupil Transportation (hereinafter the "Director"). This shall include responsibility for adhering to any special schedules or shortened schedules. The Board reserves the right to change the school hours or days of attendance of any or all grades, or of any or all schools any time prior to the letting of the Contract and at any time thereafter. No change in compensation will be made for such adjustments, unless they necessitate the use of additional vehicles by the bidder. - 13 - IV. PERIOD OF OPERATION Extended and regular service shall be provided pursuant to the terms and conditions of this Contract. Extended service shall be defined as being provided by those vehicles that are available for the transportation of pupils beginning with the initial pick-up time of 7:00 A.M. and concluding with the delivery of the last pupil to his or her home on the return trip. Regular service shall be defined as being provided by those vehicles that are available for the transportation of pupils beginning with the initial pick-up time of 7:00 A.M., and delivery to school for the morning session which will commence no later than 9:00 A.M. In addition, a regular vehicle shall pick up pupils for the homeward trip no earlier than 2:00 P.M. and no later than 3:30 P.M., and shall complete its service with the delivery of the last pupil to his or her home. Vehicles providing regular service shall be assigned runs not exceeding two (2) hours for intraborough operation, of two and one half (2 1/2) hours for interborough operation and runs extending beyond New York City limits, from the time of the initial pick-up for the homeward trip. V. PAYMENT Payment will be made based upon the daily rate per vehicle quoted by the contractor for the number of vehicles and the number of days for the type of service provided by the contractor for each vehicle. The Board reserves the right to adjust the number extended and regular vehicles required to be provided within any item upon five (5) days notice to the contractor. However, in no event will the Board adjust the use of vehicles so as to reduce the extended use of vehicles other than buses below ten percent (10%) of the total number of such vehicles originally awarded to any contractor, or the extended use of buses below twenty-five percent (25%) of the total number of buses orignally awarded to any contractor. In no event will the contractor be paid for days on which the vehicles are not operating pursuant to this Contract except for those days upon which the contractor was scheduled to provide service and schools were ordered closed by the Chancellor or Community Superintendents due to weather conditions or other emergency situations. Invoices shall be submitted at the end of each calendar month for the number of vehicles and the number of days on which services were rendered during the preceding month. No adjustment in compensation will be made other than for: (1) assessment of liquidated damages, (2) assessment of expenses arising from default pursuant to paragraph7(c) of the General Terms and Conditions of this Contract, (3) charges for additional use of the vehicle, (4) charges for escort service when the contractor provides such, and (5) increases or decreases in the number of vehicles or extended service. Charges for additional use of the vehicle shall be defined as the requirement that the contractor pick up its first pupil prior to 7:00 A.M. or any pupil after 3:30 P.M. for the homeward trip. Such a requirement may result from the scheduling by the Bureau of Pupil Transportation. Additional charges for use of extended service vehicles shall be at an hourly rate equal to ten percent (10%) of the daily rate for extended service vehicles. Charges for less than one hour in additional service will be pro-rated. The Board of Education reserves the right to deduct two per cent (2%) from the prices quoted herein if payment is made within thirty days from the date the - 14 - The discount herein provided for shall not be a consideration in determination of award. VI. ITEMS The contractor shall complete the item(s) bid upon first. At the discretion of the Director the vehicle may be assigned for a secondary use outside of the item bid upon in accordance with the provisions of Section XII entitled, Use of Vehicles, but within the hours contracted for the specific vehicle. VII. TRANSPORTATION OF PUPILS The pupils who will require transportation under this Contract are to be provided with curb-to-curb service and/or additional service in accordance with the provisions of Section XII. On the trip to school each child will be picked up at the curb at a point as close to the front entrance to his home as possible. In the unusual case where, because the child lives on a dead-end street or because of traffic regulations, it is impossible for the vehicle to pick up at the curb in front of the pupil's home, the pick-up and drop-off point will be at the nearest intersecting street to the street on which the child resides. On the homeward trip, the pupil will be discharged from the vehicle at the same point from which the child was picked up unless instructed otherwise by the Director. Vehicles will load and unload at the school at the point designated by the Principal of the school. Except in an emergency, no pupil will be required to transfer from one vehicle to another vehicle either on the trip to school or on the homeward trip. VIII. SCHEDULE OF VEHICLES The Bureau of Pupil Transportation will prepare the vehicle schedules to be operated by each vehicle to be used under this Contract. The schedule will show the name, address, and the time of the initial pick up, name, address, sequence of pick up for each additional pupil on the route, the school and its address, and the scheduled arrival at each school. On the return trip the schedule will indicate the departure time from the school and the sequence in which the children will be delivered to their homes. These schedules will be subject to frequent changes as the school schedule or session is altered, or as schools or pupils' names and addresses are added to or deleted from the transportation lists. The contractor will be required to comply with the changes in the schedule within the time frame stipulated by the Bureau of Pupil Transportation. The contractor shall not alter the schedule or the vehicle servicing such schedule without prior approval of the Director. A copy of such schedule shall be furnished to the Principal of each school. Vehicles must not leave a pick-up point until the scheduled time and shall not wait past the scheduled time unless the operator sees a pupil approaching to board the vehicle for the trip to school. No vehicle shall leave the school at dismissal time until all students are aboard. Contractors are not to permit their employees to make stops at unauthorized locations. If a toll is involved it will be the responsibility of the contractor to pay such toll at his own expense. - 15 - IX. VEHICLE SPECIFICATIONS All vehicles to be used and all transportation operations must comply with the regulations of the New York State Department of Education, the New York State Department of Transportation, the New York State Department of Motor Vehicles, as well as with all applicable laws and regulations of any agency of the federal government, State of New York and the City of New York. Four different type vehicles are required to perform the services under this Contract. In addition to complying with all governmental laws and regulations the vehicles must also comply with the following standards: 1. "Standard school buses" must have a minimum seating capacity for thirty-six handicapped students with seat belts, excluding the driver and escort. Any vehicle with the capacity of more than sixteen pupils is deemed to be a bus. 2. "Hydraulic lift buses" shall be designed so that an escort can assist the pupil in a wheelchair into and out of the vehicle by use of the lift without discomfort or danger to the pupil and so that the escort can securely anchor the wheelchair to the vehicle. The contractor must be able safely to accommodate various types of wheelchairs. The minimum capacity with seat belts must be eight wheelchair passengers and eight ambulatory passengers. These seating configurations are subject to adjustment by removal or addition of seats as required by the Director of the Bureau of Pupil Transportation. 3. "Mini-bus station wagons" must have a minimum seating capacity of fourteen (14) for vehicles acquired prior to January 1, 1979 and a seating capacity of fifteen (15) for vehicles acquired after January 1, 1979. 4. "Mini-bus or station wagons equipped with ramps to accommodate wheelchairs" must have a minimum capacity for four wheelchair passengers and minimum seating capacity for four ambulatory passengers and must be so equipped so that the escort can securely anchor the wheelchairs to the vehicles. The contractor must be able to accommodate safely various types of wheelchairs. These seating configurations are subject to adjustment by the removal or addition of seats as required by the Director. No standees will be permitted at any time on any vehicle used in the performance of this Contract. - 16 - All vehicles being used in performance of this Contract that were manufactured more than five years prior to the date of execution of this Contract shall be equipped with two-way radios. Vehicles shall be given a number suitable for identification purposes. Such numbers shall be not less than four inches high displayed on both sides, front and rear of the vehicles. Also displayed on each vehicle shall be the name and address of the contractor providing the service in letters not less than three inches high. Numbers and letters shall be applied with black paint. The run number, which will be supplied to the contractor by the Bureau of Pupil Transportation, shall be placed inside the side front window of the vehicle and shall be sufficiently large so that it can be clearly seen from a distance of not less than fifteen feet. The run number shall not obscure the driver's vision. The color of all vehicles used in the performance of this Contract shall be National School Bus chrome yellow. X. VEHICLE SAFETY REQUIREMENTS The interior of each vehicle shall be cleaned and swept or vacuumed at least once a day. The exterior shall be washed weekly and kept as clean as possible, weather and conditions permitting. All vehicles shall be equipped with individual safety belts for each passenger carried. Such safety belts shall conform to the motor vehicle code of the State of New York. All vehicles shall be equipped with an all purpose fire extinguisher, dry chemical or CO 2 type, rated at least 10-B:c, equipped with a calibrated or marked gauge. The fire extinguisher shall be mounted in automotive bracket located in the driver's front compartment in full view and easily accessible. All vehicles shall be equipped with a first aid kit in a dust proof medical container easily removable, located in the driver's front compartment which shall contain the following items: 2 bandages (1" by 10 yards) 6 sterile gauze pads (3" by 3") 1 adhesive tape (1" by 25 yards) 12 plastic bandaid strips 1 pair scissors 2 triangular bandages with 2 safety pins (approximately 40" by 30" by 54") 3 single units of sterile eye pads (one per unit) When a vehicle operator is not in his seat and pupils are in the vehicle, the motor must be shut off, ignition key removed, the brakes set and the front wheels turned against the curb. If the vehicle is parked and the motor shut off for any reason, the ignition key must be removed and the brakes set with the wheels turned towards the curb. - 17 - To protect against carbon monoxide concentration or buildup, no idling of the motor is permitted while: (1) awaiting school dismissal : (2) loading or unloading pupils at school; (3) parked or not moving for an excessive length of time. XI. SPARE VEHICLES AND VEHICLE PERFORMANCE MONITORING The contractor will provide all of the vehicles necessary to do all of the work as contracted for in the item(s) contained in his Contract. The contractor must have available sufficient approved vehicles and qualified personnel to enable him to dispatch and place spare vehicles into operation promptly if, when and where necessary to ensure continuous uninterrupted service in the event one or more of the vehicles in regular use cannot function. The contractor shall provide one spare vehicle for every twenty (20) vehicles of a specific type contracted for. If a contractor provides between sixteen (16) and twenty (20) vehicles of a specific type, then it must provide one spare vehicle for each type. In the event a contractor provides less than fifteen (15) vehicles of any specific type, then the contractor shall document to the satisfaction of the Director that it has access to one spare vehicle for each type. For these purposes, corporate bidders who are subject to common control as determined by the Board based on an analysis of: (a) ownership of the corporations' assets, (b) coincidence of corporate officers and directors, and (c) such other factors as the Board determines to be relevant, are deemed to be one contractor. The maximum number of spare vehicles required to be available and provided by one contractor shall not exceed ten vehicles for any specific type of vehicle. Vehicles must be staffed with personnel qualified to handle emergency service. Spare vehicles must be located at strategic points during the hours that pupils are being transported under this Contract. The person on the spare vehicle shall also act as expeditor, whose responsibilities, beside performing emergency service shall include, but not be limited to the following: 1. Dispatching or expediting vehicles to ensure a smooth operating fleet. 2. Prompt dispatching of spare vehicles in the event of breakdown of vehicles. 3. Maintaining a log in a form approved by the Director, in which he will enter reports of disruptions of service or delays. A transcript of such log shall be furnished to the Director at the end of each school week. - 18 - The maintenance of spare vehicles of a contractor providing 20 or more vehicles shall be equipped with two-way radios and shall have continually open contact with contractor's garage. In addition, the contractor shall assign its other vehicles equipped with two-way radios among its routes so that the contractor can dispatch the vehicles expeditiously to replace vehicles with breakdowns, after these vehicles have completed their regular run. All equipment and personnel referred to herein shall be supplied by the contractor and maintained by the contractor at his own expense. A list of equipment and personnel used for this service shall be submitted to the Director. The contractor shall ensure direct telephone access to the contractor's garage during the hours of operation. Answering services shall not qualify as direct telephone access. The Bureau of Pupil Transportation will supply the contractor with parent telephone numbers of each pupil. As a vehicle varies from its schedule at any time for more than one hour, the contractor shall telephone parents of the pupils involved in the delay. The contractor shall have available sufficient telephone accessibility to handle problems and inquiries properly. The contractor is responsible for monitoring operator and escort performance in the field and to resolve problems with parents. Field supervision shall include but is not limited to the following: 1. Spot checking operator and escort performance at specific pick-up points and at schools. 2. Riding a specific run where problems have occurred. 3. Providing on-the-job training to operators and escorts. 4. Resolving problems between the contractor's personnel and school officials or parents. 5. Assisting expediting vehicles and continuing service where bus breakdowns occur. XII. USE OF VEHICLES Passengers other than pupils assigned by the Bureau of Pupils Transportation shall not be carried in the vehicles used under this Contract while they are being used to transport pupils except as otherwise stated or as authorized in in writing by the Director. In the event that a school principal requests permission for parents or other adults to ride on the vehicle to maintain order, such permission may be granted by the Director only, and the contractor will be notified accordingly. The vehicles contracted for extended service are subject to use for field trips, special events, emergency situations, or any other use as prescribed by the Director. The use of the vehicles for such purposes may only be for hours that will not interfere with the schedules established for the pupils transported to and from school under the Contract. Use of these vehicles shall not be restricted to physically handicapped, mentally retarded, emotionally disturbed or other classifications of pupils, nor shall use of the vehicles for such purposes be limited to schools specified herein. The vehicles under Contract for extended service - 19 - shall provide transportation services to any other public agency or private organization upon instruction of the Director. In the case of field trips and other special trips where the routes are not provided by the Director, these routes shall be established by the contractor in advance, using the most efficient routing for the vehicle. When vehicles are used for field trips, the pupil groups will be accompanied by one or more adults. At least one of these adults will be a teacher. If the route requested by a teacher in charge requires that a toll be paid, or if the teacher should request the operator to park the vehicle in an area where a parking fee is charged, it will be the responsibility of the teacher to pay such toll or parking fee. Operators are not to be reimbursed by the teacher for any other reason. Operator will not solicit tips or gratuities. XIII. INCREASE OR DECREASE IN THE NUMBER OF VEHICLES A. Decrease. At any time during the period of the Contract the number of vehicles required may be reduced and the schedules may be adjusted due to change in pupil population, or change in policy or directive adopted by the Board of Education, the City of New York, the State Education Department, and/or the Financial Control Board, or other factors; provided, however, that in no event shall the total number of any type of vehicle originally awarded to a contractor be reduced: (1) by more than ten percent (10%) of the total number of any type of vehicle originally awarded in the first year of this Contract; (2) in the second year of this Contract, by more than twenty percent (20%) of the total number of any type of vehicle originally awarded; and (3) in the third year of this Contract by more than thirty percent (30%) of the total amount of any type of vehicle originally awarded. Compensation to the contractor shall be reduced to the number of vehicles actually used in the performance of this Contract, and the Board of Education shall not be liable for payments for any vehicles eliminated to the extent provided above. Upon determination by the Director that there is a decrease in the number of vehicles required for a specific type of service (service area and type of vehicle) during the period of this Contract, the Board of Education reserves the right to reduce the number vehicles for a specific type of service as follows: (1) If the total number of vehicles at the time of decrease does not exceed the total number of vehicles originally contracted for, such reduction shall apply to the contract who quoted the highest weighted average daily rate per vehicle and shall apply subsequently to the contractors who quoted the next highest weighted average daily rates per vehicle until all necessary reductions are made. - 20 - (2) If the total number vehicles at the time of decrease exceeds the number of vehicles originally contracted for, such reduction shall first be made from the additional vehicles contracted for during the performance of this Contract and shall apply first to the highest weighted average daily rate per vehicle, and subsequently to the contractors who quoted the next highest weighted average daily rates per vehicle until all necessary reductions are made. After the reduction of these additional vehicles is exhausted, the Director may reduce the number of vehicles originally contracted for in accordance with XIII.A(1) above. B. Increase. If at any time during the period of the Contract the number of vehicles required for a specific type of service increase, the Board of Education reserves the right to increase the number of vehicles for a specific type of service as follows: (1) If the total number of vehicles at the time of the increase is the total number or in excess of the total number of vehicles originally contracted for, the increase shall first be offered to that contractor who quoted the lowest weighted average daily rate per vehicle. Opportunity to furnish such vehicles as the initial offeree cannot furnish may then be offered to the next contractor with the next lowest weighted average daily per vehicle. If no contractors providing a specific type of service are found willing to supply additional service of the same type, then the Board may offer the opportunity to provide the additional vehicles to a contractor in any adjacent borough in the manner set forth. The initial offer will be made to that contractor with the lowest weighted average daily rate for that type of vehicle for which none of the successful bidders for that type of service were willing to provide additional vehicles as provided above. (2) If the total number of vehicles at the time of the increase is less than the total number of vehicles originally contracted for, and there is a subsequent need for these vehicles, the contractors who had their number of vehicles reduced shall be afforded the right of right refusal for reinstatement of the use of these vehicles in inverse order to that by which they were reduced pursuant to XIII.A above. All additional vehicles provided throughout the entire period of the Contract must comply with all the terms, conditions, and specifications of the Contract set forth herein. The contractor will be compensated for such additional vehicles provided for herein. - 21 - C. Notice and Liability. The contractor shall be notified at least five (5) school days in advance of the date the above changes are effective. If the contractor is willing to furnish the required additional vehicles, he shall confirm such agreement in writing to the Director within five (5) business days of receipt of the offer. If the above changes, when effective, terminate the need for any part of the services rendered by a particular contractor, the Board of Education and the City of New York (or any political or governmental subdivision thereof) shall not be liable for any damages or cost of the contractor as a consequence thereof. - 22 - XIV. FACILITIES AND MAINTENANCE The bidder shall have sufficient storage and access to maintenance facilities with sufficient equipment and trained personnel to satisfy New York State Department of Transportation requirements. The facilities shall be subject to periodic inspection and approval by the Board of Education during the period of the Contract. The contractor shall provide a program of preventive maintenance which meets the approval of the Director and shall maintain records as evidence that the vehicles are receiving acceptable periodic maintenance. The Board of Education reserves the right to demand withdrawal from service of any vehicle which in the opinion of the inspectors of the Bureau of Pupil Transportation presents a hazard to the safe transportation of pupils. XV. GASOLINE All gasoline required will be provided by the contractor at his own expesense. XVI. RECORDS TO BE TRANSMITTED The contractor shall submit, on Tuesday of each week, a list of the names and addresses of pupils to be transported on the contractor's vehicles, but who have not appeared for transportation for the entire preceding week. A record of vehicles incorporating a Daily Record of Crews (operators and escorts) used each day for the transportation of pupils under this Contract shall be maintained in duplicate on forms to be prescribed by the Director, and the contractor shall furnish to the Director the duplicate copies by Wednesday of each week. The contractor shall supply such other information or documentation as may be requested by the Director. XVII. VEHICLE OPERATOR STANDARDS To protect the safety and welfare of pupils, the contractor shall only employ persons of good moral character to serve as vehicle operators. The contractor shall send all applications for employment to the Director, and follow procedures established by the Director for submission of the fingerprint record and medical certificate for each applicant. The contractor shall certify to the Director that he has checked the references of the applicant and that to the best of his knowledge and belief the applicant is a person of good moral character. No operator shall be employed on Board of Education work until his references and fingerprint record have been approved by the Director, and his medical certificate has been approved by both the Director and Medical Director. - 23 - Vehicle operators shall have valid appropriate operator's licenses for the vehicles they operate, and must be competent, reliable and between the age of 21 and 65. Operators shall be physically fit and properly qualified by experience, driving record and training to perform their duties. The contractor shall certify to the Director that he reviewed New York State Department of Motor Vehicles driver abstract records to determine the fitness and driving record of its operators. All vehicle operators shall be examined by a licensed physician. The results of the physical examination shall be immediately reported to the Director and Medical Director of the Board of Education on forms approved by the New York State Department of Education and provided by the Director. These forms shall constitute the medical certificate. The written report of the physician shall be considered by the Medical Director in determining the fitness of the driver. Each operator who is to be initially employed shall be examined within the four weeks prior to the beginning of service. Each operator shall receive an annual physical examination which shall include a tubercular test. The results of this examination and the tubercular test shall be recorded on forms approved by the New York State Department of Education and provided by the Director. These examinations shall be at no cost to the Board of Education. Section 156.13(d)(2) of the Regulations of the New York State Commissioner of Education shall be complied with in full and states: "Each school bus driver initially employed by a Board of Education or transportation contractor subsequent to July 1, 1973, shall have received at least two hours of instruction on school bus safety practices. Each driver of a vehicle transporting handicapped pupils exclusively who was initially employed subsequent to January, 1, 1976, shall have received an additional hour of instruction concerning the special needs of a handicapped pupil. During the first year of employment, each driver shall complete a course of instruction in school bus safety practices approved by the Commissioner, which shall include two hours of instruction concerning the special needs of a handicapped pupil. All school bus drivers shall receive a minimum of two hours of refresher instruction in school bus safety at least two times a year, at sessions conducted prior to the first day of school and prior to February 1st of each year. Refresher courses for drivers of vehicles transporting handicapped pupils exclusively shall also include instructions relating to the special needs of a handicapped pupil." Each contractor must utilize instructors approved by the New York State Education Department for conducting the training sessions for drivers. All training programs must be approved by the New York State Education Department and the Bureau of Pupil Transportation before the program - 24 - is offered. In addition, all new vehicle operators must have a total of twenty hours of classroom instruction prior to driving on any Board of Education business. All vehicle operators having two or more accidents while driving on Board of Education business must also attend an accident repeater course conducted by a defensive driving specialist. Certification will be required from the contractor stating that each operator has received appropriate training as specified in this Contract. If the Director determines that an operator's competency falls below acceptable standards, or that any operator has made an unauthorized stop or an unauthorized change in established route for which the operator may or may not have accepted additional remuneration from other than his employer, or that the driver has a previous record of careless or unsafe driving, the contractor, upon receiving written notice from the Director to that effect, shall not again employ this operator on any part of the work to be performed hereunder, or on any part of any work the contractor may perform for the Board of Education under any other contract. Vehicle operators must be dressed in uniform attire provided by the contractor and wear a photo identification badge which clearly shows the operator's name, company's name, and operator's identification number assigned by the contractor. The identification badge should be visible from a distance of ten feet. XVIII. OPERATIONAL SUPERVISION The requirements entitled "Contract Carrier and Driver Responsibility" contained in Bureau of Pupil Transportation Handbook No. 3, Policy and Procedures Manual Common Carrier and School Bus Information for Pupils in Grades K through 6," dated August, 1978 and drafted by the Bureau of Pupil Transportation is incorporated herein by reference and is made part of this Contract as if fully set forth herein in its entirety. In addition to the requirements set forth in Pupil Transportation Handbook No. 3, operators must drive the scheduled route assigned to them at least one time prior to start of school. If at any time during the school year a new operator is assigned to a scheduled route, that operator must drive the schedule before being permitted to transport students on that schedule. All operators employed in the transportation of pupils shall be given permanent route assignments at the commencement of each school year, except that, there shall be one job "pick" for all operators (drivers), mechanics, dispatchers (who may be employed as drivers or dispatches) and escorts (matrons-attendants) appearing on the industry-wide Master Seniority Lists, to be held in the month of October each year. All accidents involving vehicles operating under this Contract shall be reported to the Director immediately. The emergency drills required by the State Education Law shall include practice and instruction in the location, use and operation of the emergency door, fire extinguisher, first aid equipment, and use of the windows as a means of escape in case of fire or accident. Drills shell include situations which might result from both fire and accidents. Such instruction -25- and the conduct of drills shall be given by a member or members of the teaching staff as arranged between the contractor and the principal of each school. No emergency drills shall be conducted when vehicles are on routes. The Director shall be notified of arrangements for, and execution of, emergency drills. The contractor and operator shall make arrangements for emergency drills so as to minimize disruptions in service. XIX. ESCORTS The contractor shall provide escort service in addition to the operator to the extent required by the Board. A. The Board may determine to: (1) employ escorts directly, (2) contract separately for the employment of escorts with the contractor herein or with a separate contractor, or (3) require the contractor to provide escort service in addition to the operator. Should the Board determine to employ escorts directly, or contract separately with the contractor or with a separate contractor to provide escort service, the Board and/or the contractor providing the escort service, as the case may be, shall assume sole responsibility for any claims made for acts of negligence, carelessness or incompetence perpetrated by the escorts or by the employer of the escorts in connection with performance or failure to perform of such escorts or employers of escorts; and shall indemnify and hold harmless the contractor herein, if a separate contractor, from the contractor providing the escort service from all suits, actions, damages or costs of every kind and description, as may arise under the terms of this contract or otherwise, to which the contractor herein may be subjected because of such negligence, carelessness or incompetence. In addition, should the Board determine to employ escorts directly, or contract separately for the provision of escort service with a contractor other than the contractor herein, the provisions of B. through E. herein, references to escort service in Paragraph XXI of the Specifications, and any other reference to escort service in this contract other than as provided in Paragraph XIX (A), shall be deemed to be of no force and effect with respect to the contractor herein. Should the Board determine to require the contractor to provide escort service in addition to the operator, (1) the contractor shall be compensated in the manner provided herein in the amount of forty dollars ($40) per day per escort providing service on a vehicle in regular service and sixty dollars ($60) per day per escort providing service on a vehicle in extended service, with the daily rate per escort increased by ten (10%) percent in each of the second and third years of this Contract, (establishing the rate as forty-four dollars and sixty-six dollars in the second year, and forty-eight dollars and seventy-two dollars in the third year), which amount shall be in addition to any and all other compensation to which the contractor is entitled under the terms of this Contract, and (2) all references to escort service in provisions B. through E. below, -26- Paragraph XXI of the Specifications, and any other reference to escort service in this contract other than the first two options described above, shall be of full force and effect with respect to the contractor herein. B. Standards. To provide for the safety and welfare of children, the contractor shall only employ persons of good moral character to serve as escorts. Escorts must be competent, reliable, over twenty-one years of age, physically fit and properly qualified to perform their duties. The contractor shall send all applications for employment to the Director and follow procedures established by the Director for submission of the fingerprint record and medical certificate for each applicant before the date the escort services are to be provided; allowing sufficient time for review and approval by the Director and Medical Director. The contractor will certify that he has checked the references of the applicant and to the best of his knowledge and belief the applicant is a person of good moral character. No escort shall be employed on Board of Education work until the references and fingerprint record have been approved by the Director, and the medical certificate has been approved by the Medical Director and the Director. Each regular or substitute escort shall be examined by a licensed physician. A report concerning the physical examination shall be submitted immediately on the forms prescribed to the Director and the Medical Director of the Board of Education. The physical examination shall include, as a minimum, those requirements specified on the prescribed physical examination report. The written report of the physician shall be considered by the Medical Director to determine the fitness of the escort to perform the duties set forth herein. Each escort who is to be initially employed shall be examined within the four weeks prior to the beginning of service. Each escort shall receive an annual physical examination. In no case shall the interval between physical examinations exceed a twelve month period. This examination will be at no additional cost to the Board of Education. The result of this examination and of an annual tubercular test shall be recorded on forms approved by the Director. These forms shall constitute the medical certificate. The Board of Education specifically reserves the right to reject any person who fails to meet the minimum physical requirements as specified on the medical certificate. If the Director determines that an escort's performance is unsatisfactory, the contractor, upon receiving written notice from the Director of such unsatisfactory performance shall not employ this escort on any work performed for the Board of Education. -27- C. Training and Instruction. All escorts shall attend five one and one-half hour training sessions for a total of seven and one-half hours each year concerning the transportation of handicapped pupils. The training sessions shall be scheduled by the contractor with the approval of the Director, and are to be held at an hour and location convenient to the contractor and the escorts. The contractor shall furnish the premises required at his own cost and expense, and shall not be entitled to any additional compensation from the Board for these training sessions. All training programs must be approved by the Director before being offered. D. Identification. Escorts shall wear uniform attire supplied by the contractor. Escort shall wear a photo identification badge on the outside of his or her uniform which shows clearly the name, escort identification number assigned by the contractor, and the name of the contractor which employs the escort. The identification badge should be visible from a distance of ten feet. E. Responsibilities. The section entitled "Escort Responsibilities" contained in Pupil Transportation Handbook No. 1, entitled "School Bus Information for Drivers, Escorts, Schools and Parents of Handicapped Children," dated April, 1977 is incorporated herein by reference as if it is set forth herein in its entirety. Pupil Transportation Handbook No. 1 is available upon request from the Director of Pupil Transportation. -28- XX. AUDIT OF INVOICES & FINANCIAL RECORDS Invoices will be audited for payment after each month in which the services are rendered. The contractor hereby consents to an audit of any and all financial records relating to this Contract by the Department of Audit and Control. During the period of the Contract and upon the request of the Department of Audit and Control, the Office of Auditor General of the New York City Board of Education, the Comptroller of the City of New York or the Department of Investigation of the City of New York, the contractor shall furnish information and documents as specified by any of these agencies, including but not limited to the contractor's income tax forms filed with the City, State and Federal government for the term of this Contract. XXI. LIQUIDATED DAMAGES In view of the difficulty of ascertaining the loss which the Board or City will suffer by reason of these defaults on the part of the contractor, the following sums are hereby agreed upon, fixed and determined by the parties hereto as the liquidated damages the Board or City will suffer by reason of said delay and default, and not by way of penalty, and such liquidated damages may be imposed in the amounts provided below upon the following findings of the Director or his or her designee: A. One and one-half times the appropriate daily rate per vehicle paid to the contractor shall be deducted from the subsequent month's payment due the contractor for the following: 1. Each failure to provide the number of vehicles required each day to convey to and from the school the number of pupils specified. 2. Each vehicle providing extended service which does not service a field trip or provide the services required by Section XII (Use of Vehicles), on the schedule established in advance either by the Director or a school or the community school district office. -29- B. The appropriate daily rate per vehicle shall be deducted from the subsequent month's payment due the contractor for the following: 1. Each day that the contractor permits an employee to service a route for whom the required medical certificate, fingerprint record and applications for employment were not submitted to and approved by the Bureau of Pupil Transportation. 2. Each time an escort is not provided on a vehicle, if required. 3. Each time it is found that the contractor did not provide telephone access from the time the first vehicle is scheduled to leave the garage until the last vehicle returns to the garage at the end of the day. 4. Each time a vehicle has an expired or null Public Service Commission sticker. 5. Each time an accident is not reported to the Director within twenty-four (24) hours. 6. Each time an operator is found guilty of commiting a moving violation of the New York State Vehicle and Traffic Law while transporting pupils under this Contract. C. One half the appropriate daily rate per vehicle paid to the contractor shall be deducted from the subsequent month's payment due the contractor for the following: 1. Each vehicle transporting a greater number of pupils than the vehicle's permissible pupil seating capacity. 2. Each vehicle furnished that has a pupil seating capacity less than required by the Contract terms. 3. Each vehicle each day a child has been unilaterally excluded from transportation by a contractor, operator or escort without the consent of the Director. 4. Each vehicle failing to hold an emergency drill as required. 5. Each time the operator requires a school to dismiss pupils prior to the normal close of the school session except where required by special circumstances specified by the Director. 6. Each vehicle which does not comply with structural and safety provisions for the vehicle, including but not limited to seat belts, padded seats, high back seats, and operable wheel chair brackets. -30- D. One third the appropriate daily rate per vehicle paid to the contractor shall be deducted from the subsequent month's payment due the contractor because of the following: 1. Each operator or escort who has not received the proper training, instruction, and/or refresher courses as specified herein within the time period agreed upon by the Director and contractor. 2. Each vehicle which arrives after the time a session is due to start. 3. Each vehicle that arrives at the school more than thirty minutes prior to the start of the session. 4. Each vehicle operator who does not have on his or her person an appropriate operator's license. 5. Each time the contractor fails to notify a parent that the vehicle is more than on hour behind schedule, unless no telephone number has been provided or the Bureau of Pupil Transportation is contracted before the hourly limit has expired and agrees that the contractor need not call every parent. E. One sixth of the appropriate daily rate per vehicle paid to the contractor shall be deducted from the subsequent month's payment due the contractor for the following: 1. Each time the contractor, operator or escort does not notify the parents of pupils on the vehicle of changes in schedules or pick-up or drop-off locations. 2. Each vehicle that makes an unauthorized stop or an unauthorized change in an established route or schedule. 3. Each vehicle failing to have a fire extinguisher. 4. Each vehicle failing to have a first aid kit. 5. Each time an operator fails to remove ignition keys, turns wheels to curb, and set brakes when and as required while pupils are on the vehicle. 6. Each vehicle for each scheduled stop not served. -31- 7. Each vehicle with an operator or escort not wearing uniform attire or visibly displaying an identification badge with the required information. 8. Each day the contractor fails to provide the information on forms required as set forth herein. 9. Each vehicle that arrives at the school or departs from the school after the time scheduled, unless required to do so by the Bureau of Pupil Transportation. 10. Each vehicle the contractor changes on a run, where it is not a change resulting from a breakdown or a scheduled maintenance. 11. Each operator who fails to assist in the conduct of an emergency drill. 12. Each operator who fails to make available a vehicle providing extended service to a scheduled class in transportation safety. 13. Each time a vehicle is not in compliance with the identification requirement of Section IX, Vehicle Specifications. 14. Each time a vehicle over five (5) years old is not equipped with a two-way radio. 15. Each failure to perform any other duties as set forth in the Bureau of Pupil Transportation Handbook No. 1. -32- XXII. EMPLOYEE PROTECTION PROVISIONS 1. Priority in Hiring and Master Seniority Lists: There shall be established two industry-wide Master Senority Lists. One list shall be composed of all operators (drivers), mechanics and dispatchers and the other list shall be composed of escorts (matrons-attendants) who were employed as of February 9, 1979 under a contract between their employers and the Board for the transportation of school children in the City of New York, who are furloughed or become unemployed as a result of loss of contract or any part thereof by their employers, or as the result of a reduction in service directed by the Board during the term of the contract, in accordance with their date of entry into the industry. All operators (drivers), mechanics, dispatchers and escorts (matrons-attendants) on the Master Seniority Lists who participated in the Division 1181 A.T.U.-New York Employees Pension Fund and Plan as of February 9, 1979 and who do not exercise their option to withdraw from the Fund and Plan shall continue to participate in such Pension Plan. Any existing contractor or individual who conducted business as a sole proprietor, or as a member of a partnership or who held a controlling interest in a corporation that performed service pursuant to contract expiring in June, 1979 (contractor) shall give priority in employment in September, 1979 or thereafter on the basis of position on the Master Seniority List of any additional or replacement operators, mechanics and dispatchers beyond those performing service as of February 9, 1979 consistent with the number of employees required by the specifications of the contract expiring June, 1979 for the number of vehicles providing service to the Board as of February 9, 1979 to individuals from the Master Seniority List until such list is exhausted. Any new contractors, i.e. those who did not provide service pursuant to contract expiring June, 1979 (new contractor), shall give priority in employment in September, 1979 or thereafter on the basis of seniority to every operator (driver), mechanic and dispatcher performing service pursuant to such contract starting from the first employee from the Master Seniority List until such list is exhausted. Should the Board determine to require the contractor to provide escort service in addition to the operator, and in the event that all escorts (matrons-attendants) on the Master Seniority List, who were members of Local 1181-1061 as of February 9, 1979, are not employed as escorts by contractors for the beginning of service in September of 1979, than said escorts shall be employed in order of their position on the Master Seniority List, and escorts who are not members of Local 1181-1061 and who were employed as of February 9, 1979 shall be replaced by members of Local 1181-1061 in inverse order of seniority and shall be added to the Master Seniority List in order of seniority following the members of Local 1181-1061, if any, who remain on the List. -33- 2. Compensation All operators (drivers), mechanics, dispatchers and escorts (matrons-attendants) on the industry-wide Master Seniority Lists shall be employed and paid on a full-time basis based upon the wage scale received from prior employer under pupil transportation contracts. The contractor shall compensate operators (drivers), mechanics and dispatchers and escorts (matrons-attendants) who appear on the Master Seniority Lists and who are employed pursuant to contracts to be awarded as follows for the term of the contract; (a) operators (drivers) and dispatchers at a daily rate of pay, including any COLA, for each day of service not less than that paid by the NYCTA on July 5, 1979 to its surface drivers (bus) operators. (b) mechanics at a daily rate of pay, including any COLA, for each day of service, not less than that paid by the NYCTA on July 5, 1979 to its bus maintenance personnel performing similar duties. (c) escorts (matrons-attendants) at a daily rate of pay not less than $37.085 for each day of service plus that percentage of the COLA paid to operators effective July of 1979 that reflects the proportion of the escorts' pay to that of operators, should the Board require the contractor to provide escort service. Such operators (drivers) and escorts (matrons-attendants) shall be available for extended service, without additional compensation, which shall be defined as performance within the particular job category (i.e. drivers as drivers, and escorts (matrons-attendants) as escorts (matrons-attendants) within the eight (8) hour work day within the spread provided for in the collective bargaining agreement covering said employees, if any. 3. Welfare Contributions by the contractor for providing welfare benefits to operators (drivers), mechanics, dispatchers and escorts (matrons-attendants), in the event the contractor employs escorts, who appear on the Master Seniority List shall be no less than $82 per employee per month on a twelve month basis during each year of the contract. 4. Pensions The contractor shall sign an agreement with Division 1181-A.T.U.-New York Employees Pension Fund and Plan to participate in such plan on behalf of all operators (drivers), mechanics, dispatchers and escorts (matrons-attendants), in the event the contractor employs escorts who appear on the Master Seniority Lists and who participated in the Fund and Plan as of February 9, 1979. This requirement shall not be interpreted to require a contractor to enter into a collective -34- bargaining agreement with the union nor shall it prohibit the contractor from entering into a collective bargaining agreement with the union. The contractor shall file a copy of the executed agreement with the Trustees of the Fund and Plan to participate in said Fund and Plan and with the Secretary of the Board with the acknowledgement of the Notice of Award. The contractor shall contribute $27.15 per week per operator (driver), mechanic and dispatcher on the Master Seniority List, and participating in the Plan and Fund as of February 9, 1979, for forty weeks each year for the term of the contract, or such greater amount as may be required, based on contributions by contractors on behalf of the majority of employees participating in the Fund and Plan pursuant to a collective bargaining agreement with Local 1181-1061. The contractor shall withhold $10 a week from each operator, mechanic and dispatcher for forty weeks each year for the term of the contract, or such greater amount as may be required based on contributions of a majority of the operators (drivers) mechanics or dispatchers contributing to the Fund and Plan. Should the Board require the contractor to provide escort service, then the contractor shall contribute $23.15 per week per escort (matrons-attendant) for forty weeks each year for the term of the contract, or such greater amount as may be required based on contributions by contractors on behalf of the majority of employees participating in the Fund and Plan pursuant to a collective bargaining agreement with Local 1181-1061. The contractor shall withhold $8 a week from each escort, (matron-attendant) for forty weeks each year for the term of the contract, or such greater amount as may be required based on contributions of the majority of the escorts contributing to the Fund and Plan. The contractor shall pay all such amounts to the Fund and Plan within seven days after the end of each payroll period. 5. In addition to any other remedies provided in the contract between the Board and the contractor, such a default and/or termination, if the contractor is found to be in violation of the foregoing employee protection provisions, then the Director of the Bureau of the Pupil Transportation, within thirty (30) days of written notice, shall withhold the appropriate amounts from the first payment thereafter due to the contractor and pay it directly to the Division 1181 A.T.U.-New York Employees Pension Fund for the benefit of the employees affected and to the appropriate Welfare Fund for the benefit of the employees affected. In the event any contractor willfully fails to comply, the Board of Education shall act to cancel such contractor's contract; provided, however, that the Board shall not be required to act so as to cause a disruption of service. -35- 6. Contractors providing a total of five vehicles or less pursuant to all contracts with the Board for the transportation of pupils shall not be subject to the foregoing provisions with respect to operators (drivers), mechanics and dispatchers. Escorts (matrons-attendants) shall not be included in the exclusion provided in this paragraph six (6). 7. For the purpose of XXII. corporate bidders who are subject to common control as determined by the Board upon an analysis of: (a) ownership of the corporations' assets, (b) coincidence of corporate officers and directors, and (c) such other factors as the Board determines to be relevant, are deemed to be one bidder. -36- GENERAL TERMS AND CONDITIONS WITNESSETH That pursuant to all applicable State and Local Laws and all By-Laws, resolutions, rules and regulations of the Board of Education and the City of New York and its various departments, and in consideration of the agreements hereinafter undertaken by each of the parties hereto with the other, the parties hereto do hereby covenant and agree for themselves and for their respective successors and legal representatives as follows: DEFINITIONS Wherever the following words, names or titles appear in this Contract, they shall have the following meanings: (a) "THE BOARD" means the Board of Education (BOE) of the City of New York and the party of the first part of this Contract. (b) "THE CONTRACTOR" means the party of the second part to this Contract. (c) "THE DIRECTOR" means the Director of the Bureau of Pupil Transportation delegated by the Board to supervise the work of this Contract. (d) "THE CITY" means the City of New York. (e) "THE COMPTROLLER" and "THE TREASURER" means the Comptroller and the Treasurer of the City of New York respectively. (f) "THE SECRETARY", "ASSISTANT SECRETARY" and "EXECUTIVE DIRECTOR" mean the following officers and employees of the Board of Education respectively: the Secretary, Assistant Secretary of the Board of Education and Executive Director of the Division of Business and Administration. (g) "APPROVED", "REQUIRED", "DIRECTED", "SPECIFIED", "DESIGNATED" or "DEEMED NECESSARY", unless otherwise expressed, means approved, required, directed, specified, designated, or deemed necessary, as the case may be, by the Director. (h) "WORK" or "SERVICES" means all services to be furnished or done by or on the part of the contractor. (i) "COMPLETION" means full and complete compliance with every requirement of the Contract as attested by the Director. (j) "SPECIFICATIONS" shall mean the combined proposal for bids and specifications, and amendments thereto, and all of the directions and requirements applying to the service as hereinbefore detailed and designated under specifications. (k) The term "ITEM", as used herein, shall be defined as each separate unit or group of vehicles upon which a contractor may bid. -1- 1. SUBJECT MATTER The contractor shall provide at its own cost and expense sufficient plant, equipment and working capital to provide for the transportation of pupils in accordance with the terms, conditions, and specifications set forth herein. The contractor shall accept as full compensation for its faithful performance of this Contract the sums certified by the Director in accordance with the provisions of the Contract, and said sums shall be the amount at which the Contract was awarded to the Contractor at the public bidding. 2. CONTRACT The Proposal for Bids, Instructions to Bidders, Bid, Schedules and Specifications are and shall be a part of this Contract. In case of variance between the specifications, bid and Contract, if any, the specifications shall be controlling. 3. INTERPRETATION Any doubt as to the meaning of the terms of the Contract or any obscurity as to the wording of the terms will be explained in writing, upon request, by the Director and all directions and explanations required, alluded to, or necessary to complete any of the provisions of the Contract and to give them due effect will be given by the Director in writing upon request. The interpretation of the Director shall be final and binding upon all parties. To prevent all disputes and litigations, the Director shall, in all cases, determine the quality of the services which are to be delivered and paid for under this Contract, and shall determine all questions in relation to said services, their quality, delivery and condition, and shall in all cases decide every question which may arise relative to the execution of this Contract on the part of the contractor, and the Director's estimate or decision shall be final and conclusive upon the contractor. 4. MODIFICATIONS The Board may, from time to time, request changes in the scope of the services to be performed by the contractor hereunder. However, no term, provision or condition of this Contract shall be deemed waived by the Board unless such waiver shall be in writing with the approval of an authorized representative of the Board subscribed thereon. 5. COMPLIANCE WITH LAWS The contractor shall comply with all applicable laws, ordinances, and codes of Federal, State and Local governments. It is the intent and understanding of the parties hereto that each and every provision of law required by law to be inserted in this Contract shall be deemed to be inserted herein. It is further agreed that if, through mistake or otherwise, any such provision is not inserted, or is not inserted in correct form, that this Contract shall forthwith be amended upon notice to the Contractor by such insertion so as to comply strictly with the law. -2- 6. NON-ASSIGNMENT OF CONTRACT The contractor will give personal attention to the faithful performance of this Contract. The contractor will not assign, transfer, convey, sublet or otherwise dispose of this Contract or its right, title or interest in or to the same or any part thereof without the previous consent of the Director or the Director's designee endorsed thereon; and the contractor will not assign by power of attorney or otherwise, any of the monies to become due and payable under this Contract unless by and with the previous consent in writing of the Board or its designee endorsed thereon. If the contractor shall, without such previous written consent, assign, transfer, convey , sublet or otherwise dispose of this Contract or of its right, title or interest therein, or any of the monies to become due under this Contract, to any other person, firm or corporation, this Contract may, at the option of the said Board, be cancelled and terminated, and the Board and the City shall thereupon be relieved and discharged from any and all liabilities and obligations to the contractor arising from such Contract, and to its assignee or transferee; provided that nothing herein contained shall be construed to hinder, prevent or affect an assignment by the contractor for the benefit of its creditors made pursuant to the statutes of the State of New York, and no right under this Contract, or to any monies to become due hereunder, shall be asserted against the Board or the City in a law or in equity, by reason of any so-called assignment of this Contract, or any part thereof, or of any monies to become due hereunder, unless authorized as aforesaid. 7. CANCELLATION A. If the contractor engages in repetitive or persistent violations of the conditions or covenants of this Contract, the Director may seek to have the contractor declared in default by the Board of Review pursuant to Article 8 of the Board's By-laws. In the event the Board of Review shall determine the contractor to be in default, the Director shall notify the contractor that its Contract is terminated. Such action by the Director may be based upon any of the following: (1) Failure of the contractor to provide any portion of the services specified herein; (2) Action by the Contractor to subcontract, encumber, assign, or transfer this Contract, either in whole or in part, otherwise than as specified herein; (3) Failure to notify the Director of increases in the total number of vehicles as required by the "Insurance and Performance Bond" provisions of the Proposal for Bids; or (4) Violation by the Contractor of any of the conditions or covenants of this covenants of this Contract or execution of this Contract in bad faith. -3- B. Upon the refusal of a person, when called before a grand jury, governmental department, commission, agency, or any other body which is empowered to compel the attendance of witnesses and examine them under oath, to testify in an investigation or to answer any relevant questions concerning any transaction or contract entered into with the State, or any political subdivision thereof, or a public authority or with any public department, agency or official of the State or a political subdivision thereof, when immunity has been granted to the witness against subsequent use of such testimony, or any evidence derived therefrom, in any subsequent criminal proceeding: (1) such person, or any firm, partner, director, or corporation of which he is a member, partner, director or officer shall be disqualified for a period of five (5) years after such refusal from submitting bids for or entering into or obtaining any contracts, leases, permits or licenses with the City or submitting bids for or entering into or obtaining any contracts, leases, permits, or licenses which will be paid out of any monies under the control of or collected by the City, and/or shall be subject to such other action appropriate under the circumstances, and (2) any and all such existing contracts, leases, permits or licenses made with or obtained by any such person or firm, partnership, or corporation of which he is a member, partner, director or officer may be cancelled or terminated by the City or the Board or be subject to such action appropriate under the circumstances, without incurring any penalty or damages on account of such cancellation or termination, but any monies owing for goods delivered, work done, or rentals, permits or license fees due, prior to the cancellation or termination shall be paid. C. In the event of termination of this Contract by reason of default of the contractor, the Director shall have the power in the manner prescribed by law to obtain the undelivered services, or such part thereof as it may deem advisable, and to change the expense thereof to the contractor. The expense so charged and the liquidated damages for delay herein provided for shall be deducted and paid by the BOE out of such monies that may then be due or may thereafter become due to the contractor under or by virtue of this Contract or any part thereof. In case such expense and liquidated damages hereunder shall exceed the sum owing for services rendered at the time of termination of this Contract, then the contractor shall pay the amount of such excess to the BOE on notice from the BOE of the amount of such excess and in case such expense and liquidated damages shall be less than the sum which would have been payable under this Contract if the same had been completed by the contractor, then the contractor shall forfeit all claims to the difference to the BOE. In the event of the BOE undertaking to secure the services or any part thereof under this section of the Contract, the certificate of the Director as to the amount of services secured, the cost, and the excess cost, if any, of completing this Contract, and the amount of liquidated damages hereunder, shall be binding and conclusive upon the contractor, his assignee, and all other claimants. -4- 8. NOTICES The residence or place of business given in the Contract is hereby designated as the place where all notices, letters or other communications addressed to the contractor shall be served, mailed or delivered. Any notice letter or other communication addressed to the contractor and delivered at the above-named place, or sealed in a post-paid wrapper and deposited in any post office box regularly maintained by the post-office, shall be deemed sufficient service thereof upon the contractor. The place named may be changed at any time by an instrument in writing, executed and acknowledged by the contractor, and delivered to the Director. Nothing herein contained shall be deemed to preclude or render inoperative service of any notice, letter or other communication upon the contractor personally. Whenever in the trial of any action growing out of this Contract it shall be necessary or required to prove the service of a notice as herein prescribed, an affidavit executed at the time of service showing the service in the manner herein required to have been made by the person making the affidavit shall be presumptive evidence of such service upon first proving that the affiant is dead or insane, or that with due diligence, his attendance cannot be compelled. 9. NO ESTOPPEL Neither the BOE nor the City, nor any department or officer thereof, shall be precluded or estopped by any return or certificate made or given by the Director, or other officer, inspector, assignee or appointee of the BOE or the City, under any provision of this Contract, from at any time (either before or after the final completion and acceptance of the work or services and payment therefore, pursuant to any such return or certificate) showing the true and correct amount and character of the work done and supplies furnished by the contractor, or any other person under this Contract, or from showing at any time that any such return or certificate is untrue or incorrect, or improperly made in any particular, or that the work or services or any part thereof do not in fact conform to the specifications; and neither the BOE nor the City shall be precluded or estopped notwithstanding any such return or certificate and payment in accordance therewith, from demanding and recovering from the contractor such damages or other loss as it may sustain by reason of its failure to comply with the specifications. 10. CLAIMS - LIMITATION OF ACTION No action shall be maintained by the contractor, his successors or assignees, against the Board on any claim based upon or arising out of this Contract or out of anything done in connection with this Contract unless such action shall be commenced within six (6) months after the date of filing of the voucher for final payment hereunder in the appropriate office of the Board, or within six (6) months of the termination of this Contract, or within six (6) months of the required completion date for the services performed hereunder, whichever is sooner. None of the provisions of Article 2 of the Civil Practice Law and Rules shall apply to any action against the Board arising out of this Contract. -5- 11. MAINTENANCE OF RECORDS The contractor shall, until six (6) years after completion of its services hereunder or six (6) years after date of termination of this Contract, maintain and retain complete and correct books and records relating to all aspects of the contractor's obligations hereunder, including, without limitation, accurate cost and accounting records specifically identifying the costs incurred by the contractor in performing such obligations (such as payroll expense, and all other related records necessary to assure a proper accounting of funds, including property, personnel records, cash receipts and disbursements, journals and ledgers). Records must be maintained as a separate set of books so as to identify clearly the expenses applicable to the specific Contract and be distinguishable from all other costs not incurred under this Contract. The contractor shall make available to the Office of the Auditor General of the BOE or such agencies as the BOE may designate for review and audit, all books, records or materials deemed necessary by the BOE to substantiate the validity of claims made under the Contract at all reasonable times that the BOE shall from time-to-time request. They shall be maintained in such a fashion as to permit clear identification of costs incurred under this Contract or any amendment thereto. 12. DISCRIMINATION In connection with the performance of work under this Contract, the contractor agrees as follows: a) The contractor will not discriminate against any employee or applicant for employment because of race, creed, color, age, sex, national origin, handicap, marital status, religion or political beliefs or affiliations. The contractor will take action to ensure that applicants are employed, and that employees are treated during employment, without regard to the foregoing categories. Such action shall include but not be limited to the following: employment; upgrading; demotions or transfer; recruitment or recruitment advertising; layoff or termination; rates of pay or other forms of compensation; and selection for training, including apprenticeship. The contractor agrees to post in conspicuous places, available to employees and applicants for employment, notices to be provided by the Board setting forth the provisions of this nondiscrimination clause. b) The contractor shall not discriminate against any employee or applicant for employment on the basis of sex pursuant to Title IX of the Education Amendments of 1972 (20 United States Code Annotated, Section 1681 et seq.). -6- c) The contractor will, in all solicitations or advertisement for employees placed by or on behalf of the contractor, state that all qualified applicants will receive consideration for employment without regard to race, creed, color, age, sex, or national origin. d) The contractor will send to each labor union or representative of workers with which it has a collective bargaining agreement or other contract or understanding, a notice to be provided by the Board advising the said labor union or workers' representatives of the contractor's commitments under this section, and shall post copies of the notice in conspicuous places available to employees and applicants for employment. e) The contractor will comply with all provisions of law prohibiting discrimination because of race, creed, color, age, sex, or national origin. f) The contractor will comply with all provisions of Executive Order No. 11246 of September 24, 1965, and of the rules, regulations, and relevant orders of the Secretaries of Labor and Health, Education and Welfare created thereby. The contractor will furnish all information and reports required by Executive Order No. 11246 of September 24, 1965, and by the rules, regulations, and orders of said Secretaries issued pursuant thereto, and will permit access to its books, records, and accounts by the Board and the Secretaries for purposes of investigation to ascertain compliance with such rules, regulations and orders. In the event of the contractor's compliance with the nondiscrimination clause of this Contract, or with any of the said rules, regulations or orders, this Contract may be cancelled in whole or in part and the contractor may be declared ineligible for further Government contracts in accordance with procedures authorized in Executive Order No. 11246 of September 24, 1965, and such other sanctions may be imposed and remedies invoked as provided in the said Executive Order or by rule, regulation or order of the Secretaries of Labor and Health, Education, and Welfare, or as otherwise provided by law. -7- 13. EQUAL EMPLOYMENT OPPORTUNITY REQUIREMENTS FOR NON-CONSTRUCTION CONTRACTORS, VENDORS AND SUPPLIERS The attention of all bidders is particularly directed to the various orders, rules, regulations and procedures set forth in the contract documents with respect to identifying and eliminating both overt and convert discriminatory employment practices. I. Policy It is the policy of the Board of Education, City of New York, in accordance with the Labor Law of the State of New York and other applicable laws, to provide equal opportunity for all qualified persons, to prohibit discrimination in employment because of race, creed, color, age, sex, national origin, handicap, marital status, religion or political beliefs or affiliations and to promote the full realization of equal opportunity through an affirmative, continuing program of compliance by all contractors, suppliers and vendors doing business with the Board of Education and their subcontractors. II. Implementation The Director of the Office of Equal Opportunity shall be responsible for the implementation and administration of this policy. He or she shall be directly responsible to the Deputy Chancellor of the Board of Education and shall be responsible for issuing all orders, rules, regulations and procedures as may be deemed necessary or convenient for carrying out and implementing the policy set forth in Section 1. III. Definition of terms for the purpose of these Orders, Rules and Procedures A. Non-Construction Contract Any Agreement, or commitment by the Board of Education, to purchase or lease supplies, equipment or services. The term "Non-Construction Contract" excludes contracts of the Board of Education related to the erection, contruction, reconstruction, rehabilitation, alteration, conversion, extension, repair or demolition of buildings or improvements to real property, with the exception of supplies, equipment and materials therefore, and work, labor or services relating to architectural, engineering or consultant services. B. Contractor C. Employee of Non-Construction Contractor Any Person or entity employing workers, who bids for, or who is awarded a non-construction contract. -8- D. Minority Group Members Blacks, Hispanics (non-European), Asian-Americans and American Indians. E. Program of Affirmative Action A detailed, result-oriented set of written procedures which when implemented with conscientious effort results in compliance with the equal opportunity policy herein, through full utilization and equal treatment of minority group members and women at all levels in all segments of contractor's workforce. An effective program of affirmative action shall include, but not necessarily be limited to, the following ingredients: 1. Development or reaffirmation of the contractor's equal employment opportunity policy; 2. Dissemination of the policy; 3. Responsibility for implementation; 4. A survey and analysis of employment at all levels and in all categories and aspects the contractor or subcontractor is deficient in the utilization of minority group members and women; 5. Establishment of goals and timetables toward the attainment of which the contractor's or subcontractor's good faith effort must be directed to remedy any identifiable underutilization of minority group members and women; 6. An analysis of employment policies and practices, including but not limited to seniority systems, recruitment training, promotion, insurance, and job benefits, and their effects upon minority group members and women; 7. Corrective actions taken, or to be taken, toward the elimination of any employment policy or practice having a discriminatory effect on minority group members and women. F. Goals and Timetables Projected levels of achievement resulting from an analysis by the contractor or subcontractor of its deficiencies, and of what it can reasonably do to remedy them within a specified time frame. - 9 - G. Having fewer minority group members and women in a particular job classification than would reasonably be expected by their availability in the appropriate labor force. IV. Bidding and Awarding of Contracts A. Pre-Award Conference Prior to the award of contract to the apparent low bidder and if requested in writing by the Director of the Office of Equal Opportunity (hereinafter referred to as the "Director"), such bidder shall attend a pre-award conference to be held in the Office of Equal Opportunity of the Board of Education for the purpose of acquainting him or her with the statutory and contractual requirements and what specific measures shall constitute an acceptable program of affirmative action. B. Program of Affirmative Action Prior to the award of contract to the lowest responsible bidder and upon demand, the low bidder must submit to the Director a detailed written Program of Affirmative Action (hereinafter referred to as "P.A.A."). In the event the low bidder fails to submit an acceptable P.A.A. within the allotted time stipulated in the demand, the Director may recommend that the low bid be rejected, the amount of the bid deposit, if any, be forfeited, and that the low bidder be disqualified from bidding on Board of Education work for a period of one year. The P.A.A. shall: 1. Apply to all Board of Education non-construction contracts except that, with regard to contracts, sub-contracts or purchase orders under $25,000, the Director is authorized to make such modifications as may be appropriate in the individual case; 2. Encompass all phases of the employment process, including evaluation of job classifications to ensure job relatedness, recruitment, selection, validity of examinations, retention, layoffs, seniority, assignments, training, promotion, salary and benefits; 3. Be considered by the Board of Education in its determination as to whether a numerical low bidder will be judged the lowest responsible bidder entitled to award thereof. The Director shall be the sole judge of the program's acceptability; - 10 - 4. In addition to the above, fulfill the requirements of subdivisions (a) through (g) of this section: (a) The P.A.A. shall include measurable goals, reasonable timetables and specific programs to be implemented by the contractor to identity and eliminate deficiencies in employment practices with respect to the underutilization of minority group members and women in the contractor's workforce and a projection of the minority utilization in the contractor's workforce for the life of the contract and for at least a one-year period succeeding its completion. This statement and projection shall include present and projected (1) rates of hiring and promotion of minority group members and women in specific job categories at each wage rate within each level of employment and according to major organizational unit, and (2) percentages of minority group and women utilization in specific job categories at each wage rate within each level of employment and according to major organizational units, within the contractor's workforce. (b) The P.A.A. shall include all of the contractor's facilities within New York City as well as those facilities located elsewhere within the continental limits of the United States. (c) The P.A.A. shall specify the union(s) or other employee organizations to which the contractor's employees belong and shall include commitments to good faith efforts to effect equal employment opportunity changes directly or indirectly, in programs by such unions or organizations to recruit, train, qualify or otherwise select members if such changes are deemed necessary. The P.A.A. shall also include a copy of any agreement with an employee association which affects employment policies and practices. (d) The P.A.A., or portion thereof, shall be submitted in such format as shall be specified by the Director of the Office of Equal Opportunity. (e) The P.A.A. shall include a commitment to submit to the Director a separate P.A.A., of the form and substance specified in subdivisions (a) through (g) hereof, for each subcontractor prior to its approval by the Board of Education. Every subcontract made by a non-construction contractor shall also contain these rules, regulations and orders in their entirety or their incorporation by reference. - 11 - (f) The P.A.A. shall include written evidence or other proof which shows that minority entrepreneurs have been solicited and given an equal opportunity to submit proposals and that such proposals have been given equal consideration for award. (g) Unless exempted by the Board of Education, no specific commitment, including goals for minority group employment and adoption of equal employment practices, contained in the P.A.A., if any, of the contractor or subcontractor. V. Compliance Inspection Report A. Prior to the award of contract to the lowest responsible bidder and upon demand, the low bidder must submit to the Director of Equal Opportunity, a Compliance Inspection Report. The completed Compliance Inspection Report must be returned to the Office of Equal Opportunity within twelve (12) calendar days from the effective date stated on the Requisition for Information accompanying the Report form. Failure to submit the Compliance Inspection Report within the period of time specified above may result in a rejection of the bid and the disqualification of the bidder from bidding on Board of Education work for a period of one year. B. The Compliance Inspection Report shall be submitted in a form provided by or approved by the Director, and shall indicate and furnish explanations for any current or anticipated departures from the total labor force projections, or minority group labor force projections in the contractor's or subcontractor's P.A.A., or from planned corrective action relating to employment policies as stated in the P.A.A. VI. Contractor's Implementation Good faith efforts must be made to implement these affirmative action steps during the performance of the contract. The effectiveness of the affirmative action program shall be measured by the extent of progress made toward an equitable participation which reflects the appropriate available minority and female workforce and the lack of such progress shall be a factor considered in determining whether there have been good faith efforts to implement the program. VII. Sanctions and Remedies A. It is agreed that if the contractor does not comply with the equal opportunity provisions herein stated, as solely determined by the Board of Education, the said contract may be cancelled, - 12 - terminated, or suspended in whole or in part and the contractor may be declared ineligible for further Board of Education contracts and/or subject to such other sanctions as may be imposed and remedies involved by the Board of Education in its discretion. B. Prime contractors shall be responsible for the compliance of their subcontractors. Failure of its subcontractor to comply with the provisions hereof or with affirmative action contractual provisions, shall be grounds for the imposition of sanctions and remedies against a prime contractor. Such sanctions and remedies include the authority of the Director to halt scheduled payments to contractors who consistently fail to comply with the provisions hereof. C. No sanctions or remedies shall be imposed on a bidder, contractor or subcontractor without affording such bidder, contractor or subcontractor an opportunity for a compliance review. The purpose of the compliance review is to enable the Board of Education's Policy of Equal Employment Opportunity. The bidder, contractor or subcontractor shall be allowed at least twelve (12) calendar days to present such evidence. If at the end of such period compliance is not reached, and the Director maintains his or her position of non-compliance, the bidder, contractor or subcontractor may appeal to the Board of Review of the Board of Education. Conformity to technical rules of evidence at the Board of Review hearing shall not be required. The determination of such Board of Review appeal shall be final and conclusive, subject only to judicial review. D. Each of the foregoing sections or subdivisions hereof shall be construed to be independent of all other sections and subdivisions unless the contrary is clearly indicated by the text. For further information concerning these rules, regulations or procedures contractors may consult with the Office of Equal Opportunity of the Board of Education. - 13 - 14. INDEMNIFICATION The contractor shall be responsible for any claims made against the Board of Education for acts of negligence, carelessness or incompetence perpetrated by the contractor, or anyone employed by the contractor, in connection with providing or failing to provide the services described herein, and the contractor shall protect, indemnify and hold harmless the Board from all suits, actions, damages or costs of every kind and description to which it shall be subjected by reason of injury to person, or property, or wrongful death because of such negligence, carelessness, or incompetence. 15. WORKMEN'S COMPENSATION If this Contract be of such a character that the employees engaged thereon are required to be insured by the provisions of Chapter 615 of the Laws of 1922, known as the Workmen's Compensation Law, as it has been or may be amended, the person, firm or corporation making or performing the same shall secure compensation for the benefit of, and keep insured during the life of this Contract, such employees, in compliance with the provisions of said law. Prior to starting service under this Contract, the contractor shall file with the Director a certificate showing compliance with the provisions of said law. Such insurance shall be kept during the life of said Contract. 16. PREVENTION OF DELAY, SUSPENSION OR STRIKES Because of the public nature of the services involved, and because of the essential public services performed, the contractor shall not act in any manner, nor employ labor or means, nor do anything by way of omission or commission that would in any way cause or result in a suspension, or delay of or strike affecting the work or any services to be performed hereunder. Any violation by the contractor of this requirement may, upon certification of the Director that the contractor's act or failure to act demonstrated a lack of good faith, effort to assure the performance of the conditions or covenants of this Contract, be considered as proper and sufficient cause for finding the contractor to be in default in the manner set forth in this Contract. 17. INSPECTORS The Director may assign inspectors to inspect vehicles furnished under this Contract, and such inspector or inspectors shall have the right at any and all times to inspect the vehicles used or proposed to be used under this Contract; to inspect the driver's license, vehicle registration, and proof of insurance; and to require drivers and escorts to produce proper identification. Such inspectors are authorized and empowered to reject and forbid the use of all vehicles or any part thereof offered under or in fulfillment of this Contract for the reason that the same do not comply with the specifications. - 14 - 18. REJECTION OF VEHICLES Any vehicle furnished or offered to be furnished under this Contract for the transportation of pupils which is rejected by an inspector as not conforming to the specifications, the rules and regulations of the New York State Department of Transportation or to the rules and regulations of the New York State Education Department, shall be immediately removed, and vehicles for the transportation of pupils which do conform shall be furnished in place thereof. 19. PAYMENTS If the contractor shall well and faithfully perform and fulfill this Contract and keep every covenant on its part herein contained, the Board shall then pay or cause to be paid to the contractor, subject to the provisions of the specifications, the amounts due the contractor as the services are provided. The Board and the Comptroller may at all times reserve and retain out of said payments, all sums as by the terms hereof, or of any law of the State of New York, or of any local law of the City of New York, now in effect or hereafter enacted, the Board or the City may be authorized to collect, reserve or retain. The contractor shall not be entitled to demand or receive payment for the services rendered, or any portion thereof, except in the manner set forth in this Contract, upon certification by the Director of compliance by the contractor with each and every one of the stipulations herein mentioned provided that nothing herein contained be construed to affect the right hereby reserved by the Board and the Comptroller to refuse to pay any part or all of the amount certified should the said certificate be found or known to be inconsistent with the terms of this Contract, or otherwise improperly given. The contractor will not ask, demand, sue for or recover any sum whatsoever for any services delivered under this Contract, either as extra compensation or otherwise, beyond the amount payable for the services which shall be actually supplied at the price herein agreed upon and fixed. 20. ACCEPTANCE OF FINAL PAYMENT The acceptance by the contractor or by any person claiming under the Contract of the final payment as audited by the Comptroller, whether such payment be made pursuant to any judgment or order of any court or otherwise, shall operate and shall be a release of the Board from all claims of and liability to the contractor and to the contractor's representatives and assigns for anything done, furnished for or relating to the work or vehicles furnished, or for any neglect of the Board or of any person relating to or affecting the work done or vehicles furnished hereunder. - 15 - 21. RESERVED RIGHTS The rights, powers, privileges and remedies reserved to the Board and to the City by this Contract are cumulative and shall be in addition to and not in derogation of any other rights or remedies which the City and the Board may have at law or in equity with respect to the subject matter of this Contract, and a waiver thereof at any time or in any instance shall not affect any other time or instance. 22. ANTI-TRUST The contractor hereby assigns, sells and transfers to the board and the City all right, title and interest in and to any claims and causes of actions arising under the anti-trust laws of New York State or of the United States relating to the particular goods or services purchased or procured by the City or Board under this contract. 23. MERGER This Contract contains all the terms and conditions agreed upon by the parties hereto, and no other Contract, oral or otherwise, regarding the subject matter of this Contract shall be deemed to exist or to bind any of the parties hereto, or to vary any of the terms contained herein. 24. VENUE All actions or special proceedings involving disputes relating to this contract shall be brought in New York County. - 16 - PERFORMANCE BOND KNOW ALL MEN BY THESE PRESENTS, THAT we,___________________________________ ________________________________________________________________________________ hereinafter referred to as the 'Principal', and ________________________________ ________________________________________________________________________________ hereinafter referred to as the 'Surety' are held and firmly bound to the BOARD OF EDUCATION OF THE CITY OF NEW YORK, hereinafter referred to as the 'Board', or to its successors and assigns, in the penal sum of __________ Dollars, lawful money of the United States, for the payment of which said sum of money well and truly to be made, we, and each of us, bind ourselves, our heirs, executors, administrators, successors and assigns, jointly and severally, firmly by these presents. WHEREAS, the Principal is about to enter, or has entered, into a Contract in writing with the Board for transportation of pupils, a copy of which Contract is annexed to and hereby made a part of this bond as though herein set forth in full; NOW, THEREFORE, the conditions of this obligation are such that if the principal, his or its representatives or assigns, during the period beginning on the first day of September 197_ and ending on the 30th day of June 197_ shall well and faithfully perform the conditions of said Contract and all modifications, amendments, additions and alterations therein with respect to performance by the Principal during said period and shall indemnify and save harmless the Board from all cost and damages which it may suffer by reason of failure so to do and shall fully reimburse and repay the Board for all outlay and expense which the Board may incur in making good any such default with respect to performance by Principal during the period of this bond, then this obligation shall be void; otherwise the same to remain in full force and effect. The Surety, for value received, hereby stipulates and agrees, if requested to do so by the Board, to fully perform and complete the work to be performed under the Contract pursuant to the terms, conditions and covenants thereof, during the period of this bond if for any cause the Principal fails or neglects to fully perform and complete such work, except for a work stoppage by its employees or a strike of its employees authorized by the collective bargaining unit representing such employees. The Surety further agrees to commence such work within twenty (20) days after written notice thereof from the Board. The Surety, for value received, for itself and its Successors and assigns, hereby stipulates and agrees that the obligation of said Surety and its bond shall in no way be impaired or affected by any modification, omission, addition or change in or to the Contract or the work to be performed during the period of this bond, or by any payment thereunder, before the time required therein, or by any waiver or any provisions thereof, or by any assignment, subletting other transfer thereof of any work to be performed or any moneys due to or to become due thereunder, and said Surety does hereby waive notice of any and all such extensions, modifications, omissions, additions, changes, payments, waivers, assignments, subcontracts and transfers, and hereby expressly stipulates and agrees that any and all things done and omitted to be done by and in relation to assignees, subcontractors, and other transferees shall have the same affect as to said Surety as though done or omitted to be done by or in relation to said Principal. - 17 - IN WITNESS WHEREOF, the Principal and the Surety have hereunto set their hand and seals, and such of them as are corporations have caused their corporate seals to be hereunto affixed and these presents to be signed by their proper officers. this day of , 19 (Seal) ___________________________________ Principal (Seal) By ___________________________________ ___________________________________ Surety (Seal) By ___________________________________ ___________________________________ Surety By ___________________________________ - 18 - EX-10.14 22 8TH AMEND. TO CONTRACT FOR SPECIAL ED EX-10.14 Extension and Eighth Amendment of Contract EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES Extension and Eighth Amendment Agreement made and entered into on the date expressed at the end of this document by and between the BOARD OF EDUCATION OF THE CITY OF NEW YORK ("BOE"), 110 Livingston Street, Brooklyn, New York 11201, and the Contractor whose signature appears at the end of this document (the Contractor") W I T N E S S E T H: In consideration of the following stipulations, terms and conditions, the parties to this Extension and Eighth Amendment Agreement agree as follows: W H E R E A S in 1979 the BOE publicly solicited competitive bids for the transportation of special education pupils under Contract Serial No. 0070 and Contract Serial No. 8108; and, W H E R E A S at divers times thereafter from 1982 through 1964, the BOE publicly solicited competitive bids for similar services under Contract Serial Nos. G8805, G8891, G8893, G9301 and G9325, which contracts have incorporated, as of their dates, provisions which are counterparts of the provisions of contracts under Serial Nos. 0070 and 8108 as they then read; and, W H E R E A S the Contractor submitted a bid(s) under one or more of the aforementioned contract serial numbers and was duly awarded a contract(s) including certain Employee Protection Provisions for the transportation of special education pupils; and, W H E R E A S during the period of September 10, 1979 through December 21, 1979, the Contractor did not provide escort services for special education pupils; but, under an emergency contract entered into by and with the BOE, such escort services have been supplied since that time; and, W H E R E A S the New York State Legislature enacted Chapter 737 of the Laws of 1979 ("Chapter 737") and the parties have desired to amend the Contract to implement Chapter 737 and be subject to its terms; and, W H E R E A S the BOE elected fairly and reasonably on the basis of the best interests of the school district not to extend the terms of all contracts under Serial Nos. G8893 and G9301; and, W H E R E A S the original terms of all contracts under Serial Nos. 0070, 8108, G8805, G8891 and G9301 would have expired on June 30, 1982 unless extended, and G9325 would have expired on June 30, 1984 unless extended and Section 305, Paragraph 14 (a) of the State Education Law authorizes extensions and provides a method for appropriate payment increases; and, 1 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES W H E R E A S in 1982 the BOE and the Contractors agreed to amend and extend all Serial Nos. 0070, 8108, G8805, G8891, G9301 and G9325 contracts through June 30, 1984; and, W H E R E A S in 1984 the BOE and the Contractors agreed to amend and extend further all Serial Nos. 0070, 8108, G8805, G8891, G9301 and G9325 contracts through June 30, 1987; and, W H E R E A S in 1987 the BOE and the Contractors agreed to amend and extend further all Serial Nos. 0070, 8108, G8805, G8891, G9301 and G9325 contracts through June 30, 1990; and, W H E R E A S in 1990 the BOE and the Contractors agreed to amend and extend further all Serial Nos. 0070, 8108, G8805, G8891, G9301 and G9325 contracts through June 30, 1993; and, W H E R E A S in 1993 the BOE and the Contractors agreed to amend and extend further all Serial Nos. 0070, 8108, G8805, G8891, G9301 and G9325 contracts through June 30, 1996; and, W H E R E A S in 1994 the BOE publicly solicited competitive bids for the transportation of special education pupils under Contract Serial Nos. 7165, 7200 and 7291 whose original terms shall expire on June 30, 1997, unless extended; and, W H E R E A S in 1995 the City of New York, the BOE, the Contractors, and delegates of the Amalgamated Transit Union, Local Division 1181-1061, the Transit Workers Union, Local 100, and various other labor organizations that represent school bus workers entered into negotiations to deal with the increasing costs of school bus service in the face of markedly diminished City and school district financial resources; and, the City of New York, the BOE, the Contractors, and the labor organizations reached an accord that averted the possibility of school bus service interruptions and that produced significant prospective cost savings for the City and the BOE; and, W H E R E A S the said accord reached among the City of New York, the BOE, the Contractors, and delegates of the Amalgamated Transit Union, Local Division 1181-1061, the Transit Workers Union, Local 100, and various other labor organizations calls for modification to the terms, conditions and specifications of existing extension and amendment agreements under Serial Nos. 0070, 8108, G8805, G8891, G9301 and G9325 and all contracts under Serial Nos. 7165, 7200 and 7291 to take effect during the current term periods of such extension and amendment agreements and contracts starting as of July 1, 1995 or September 1, 1995, 2 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES depending upon the particular contract or agreement serial number; and, W H E R E A S the BOE now determines that all contracts under Serial Nos. 0070, 8108, G8805, G8891 and G9325 should be still further amended and extended through June 30, 2000, and that all contracts under 7165, 7200, and 7291 should be initially amended and extended through June 30, 2000, and the Contract does hereby so agree, acknowledge and stipulate; and, W H E R E A S in 1991, the BOE Office of Auditor General ("OAG") commenced a currently continuing review and audit of annual rate increases paid to contractors during the school years 1986-87 through 1994-95 pursuant to provisions in previous and existing Extension and Amendment Agreements as allowed by State Education Law ss.305, Sub-division 14(a); and this audit has resulted in the release of preliminary findings which proposed various adjustments to the daily rates per vehicle of many Contractors as well as the recovery of alleged overpayments from some of the Contracts; and, W H E R E A S some of the contractors have instigated litigation in the Supreme Court of the State of New York in New York County under the Index No. 20841/92 (IAS Part 17, Justice Goodman) to prevent the BOE from acting upon the OAG's findings to adjust daily vehicles rates prospectively and to recover alleged overpayments, which litigation is still pending either judicial resolution or settlement, and which the Contractor does hereby agree, confess, acknowledge and stipulate that he/she/it has been apprised fully of such litigation; and, W H E R E A S the parties mutually desire to make this extension agreement and amendment to the aforesaid contracts as heretofore amended and extended ("the Contract"); N 0 W T H E R E F 0 R E, the parties whose names and signatures appear at the end of this document do hereby further agree and covenant as follows: (A) (1) TERM OF EXTENSION AGREEMENT. All references to the termination of the Contract, by whatever terminology, shall be deemed hereafter to read "June 30, 2000, unless further extended;" provided however, that if, prior to 5:00 P.M. on December 19, 1995, the Contractor shall have exercised an option to terminate the Contract as of June 30, 1996, the Contract shall so terminate; and, provided further, that if the Contractor has not, in December 1995, exercised the option to terminate, then if prior to 5:00 PM on December 19, 1996, the Contractor shall have exercised an option to 3 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES terminate the Contract as of June 30, 1997, the Contract shall so terminate; and provided further that if the Contractor shall not have exercised an option to terminate, then if prior to 5:00 PM on December 19, 1997, the Contractor shall have exercised an option to terminate the Contract as of June 30, 1998, the Contractor shall so terminate; and provided further that if the Contractor shall not have exercised an option to terminate, then if prior to 5:00 PM on December 19, 1998, the Contractor shall have exercised an option to terminate the Contract as of June 30, 1999, the Contractor shall so terminate; and, provided still further, that the Contractor's aforementioned December option to terminate effective June 30th next succeeding may be exercised by a Contractor only if the Contractor demonstrates that its insurance premiums including any Automobile Insurance Plan (AIP) surcharges and excess pass-along costs for the minimum liability coverage required by the Contract will have increased as of January 1, 1995 more than six-percent (6%) over the January 1, 1994 premiums, and as of January 1, 1996 more than seven percent (7%) over the January 1, 1995 premiums and as of January 1, 1997, more than (7%) over the January 1, 1996, premiums and as of January 1, 1998, more than (7%) over the January 1, 1997 premiums. (2) To be effective the Contractor's Notice of Exercise of the Option to Terminate must be received at the Office of the Director of the Office of Pupil Transportation, in writing signed by the Contractor, by the date and time specified. (3) If the Contractor fails to comply strictly with the above requirements the Contract shall continue without interruption. (B) ARTICLE V - A entitled, "PAYMENT DURING PERIOD OF EXTENSION," is hereby amended to read as follows for the period of this Extension and Amendment Agreement: V - A. PAYMENT DURING PERIOD OF EXTENSION (1) Notwithstanding the provisions of Article V, during this Extension Period the daily rate per vehicle will be deemed to be augmented each year according to the following formulae subject to the Director's approval of all or any portion(s) of the Contractor's claims in the below described annual Cost Justification Financial Statements: (a) (1) For Contracts under Serial Nos. 0070, 8108, G8805, G8891 and G9325, during the Fourteenth Extension Year of July 1, 1995 through June 30, 1996, each Contractor's daily rates per vehicle 4 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES shall be equal to ninety-eight-and-one-half per cent (98.5%) of the daily rates per vehicle provided in extension and amendment agreements of the Contracts which are in effect for the Extension Year of July 1, 1994 through June 30, 1995. (2) For Contracts under Serial Nos. 7165, 7200, and 7291, during the Second Contract Year of July 1, 1995 through June 30, 1996, each Contractor's daily rates per vehicle and per escort shall be equal to ninety-eight and one-half percent (98.5%) of the daily rates per vehicle and per escort as originally quoted by the Contractor in 1994. (b) (1) For Contracts under Serial Nos. 0070, 8108, G8805, G8891 and G9325, during the Fifteenth Extension Year of July 1, 1996 through June 30, 1997, each Contractor's daily rates per vehicle shall be deemed to be augmented by an amount not to exceed whichever of the following represents the least amount of actual increase: (i) the same percentage by which the Consumer Price Index as of May 1996 shall have increased over the Consumer Price Index as of May 1995; (ii) two-and-two-tenths per cent (2.2%) over the base daily rates per vehicle paid during the Extension Year of July 1, 1995 through June 30, 1996; or, (iii) the amount in dollars expressed as a percentage by which each Contractor's actual costs during the Extension Year of July 1, 1995 through June 30, 1996 shall have increased over each Contractor's actual costs during the Extension Years of July 1, 1993 through June 30, 1994. (2) For Contracts under Serial Nos. 7165, 7200, and 7291, during the Third Contract Year of July 1, 1996 through June 30, 1997, each Contractor's daily rates per vehicle and per escort shall resume equality to one hundred percent (100%) of the daily rates per vehicle and per escort as originally quoted by each such Contractor in 1994. (c) (1) For Contracts under Serial Nos. 0070, 8108, G8805, G8891 and G9325, during the Sixteenth Extension Year of July 1, 1997 through June 30, 1998, each Contractor's daily rates per vehicle shall be deemed to be augmented by an amount not to exceed whichever of the following represents the least amount of actual increase: (i) the same percentage 5 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES by which the Consumer Price Index as of May 1997 shall have increased over the Consumer Price Index as of May 1996; (ii) two-and-six-tenths percent (2.6%) over the base daily rates per vehicle paid during the Extension Year of July 1, 1996 through June 30, 1997; or (iii) the amount in dollars expressed as a percentage by which each Contractor's actual costs during the Extension Year of July 1, 1996 through June 30, 1997 shall have increased over each Contractor's actual costs during the Extension Year of July 1, 1995 through June 30, 1996, plus the percentage of each Contractor's actual cost increases from the Extension Year of July 1, 1995 through June 30, 1996 over the Extension Year of July 1, 1993 through June 30, 1994 to the extent that such percentage exceeded two-and-two-tenths percent (2.2%) and was consequently disallowed for the Extension Year of July 1, 1996 through June 30, 1997. (1) (2) For Contracts under Serial Nos. 7165, 7200, and 7291, during the First Extension Year of July 1, 1997 through June 30, 1998, each Contractor's daily rates per vehicle and per escort shall be deemed to be augmented by an amount not to exceed whichever of the following represents the least amount of actual increase: (i) the same percentage by which the Consumer Price Index as of May 1997 shall have increased over the Consumer Price Index as of May 1996; (ii) two-and-six-tenths percent (2.6%) over the base daily rates per vehicle paid during the Contract Year of July 1, 1996 through June 30, 1997; or (iii) the amount in dollars expressed as a percentage by which each Contractor's actual costs during the Contract Year of July 1, 1996 through June 30, 1997 shall have increased over each Contractor's actual costs during the Contract Year of July 1, 1995 through June 30, 1996. (d) (1) For Contracts under Serial Nos. 0070, 8108, G8805, G8891 and G9325, during the Seventeenth Extension Year of July 1, 1998 through June 30, - ---------- (1) This "cost carry-forward" is allowed only for that percentage of the Contractor's cost increases from the Fourteenth over the Twelfth Extension Years that exceeded two-and-two-tenths percent (2.2%) and it is allowed due to such a low fixed rate hike cap. 6 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES 1999, each Contractor's daily rates per vehicle shall be deemed to be augmented by an amount not to exceed whichever of the following represents the lesser amount of actual increase: (i) the same percentage by which the Consumer Price Index as of May 1998 shall have increased over the Consumer Price Index as of May 1997; or, (ii) the amount in dollars expressed as a percentage by which each Contractor's actual costs during the Extension Year of July 1, 1997 through June 30, 1998 shall have increased over each Contractor's actual costs during the Extension Year of July 1, 1996 through June 30, 1997, plus each of the percentages of each Contractor's actual cost increases from (a) the Fifteenth Extension Year (July 1, 1996 through June 30, 1997) over the Fourteenth Extension Year (July 1, 1995 through June 30, 1996) to the extent that such exceeds two-and-six tenths percent (2.6%)(2) and (b) the Fourteenth Extension Year (July 1, 1995 through June 30, 1996) over the Twelfth Extension Year (July 1, 1993 through June 30, 1994) to the extent that such exceeds two-and-two-tenths percent (2.2%)(3). (2) For Contracts under Serial Nos. 7165, 7200 and 7291, during the Second Extension Year from July 1, 1998 through June 30, 1999, each Contractor's daily rates per vehicle and per escort shall be deemed to be augmented by an amount not to exceed whichever of the following represents the lesser amount of actual increase: (i) the same percentage by which the Consumer Price Index as of May 1998 shall have increased over the Consumer Price Index as of May 1997; or, (ii) the amount in dollars expressed as a percentage by which each - ---------- (2) This "cost carry-forward" is allowed only for that percentage of the Contractor's cost increases from the Fifteenth over the Fourteenth Extension Years that exceed two-and-six-tenths percent (2.6%), and it is allowed due to such a low fixed rate hike cap. (3) As in Note 1, the second "cost carry-forward" is allowed due to such a low fixed rate hike cap but only to the extent that the Contractor's cost increases beyond two-and-two tenths percent (2.2%) shall not as yet have been absorbed by the rate augmentation for the Sixteenth Extension Year. 7 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES Contractor's actual costs during the Extension Year from July 1, 1997 through June 30, 1998 shall have increased over each Contractor's actual costs during the Contract Year from July 1, 1996 through June 30, 1997. (e) (1) For Contracts under Serial Nos. 0070, 8108, G8805, G8891 and G9325, during the Eighteenth Extension Year of July 1, 1999 through June 30, 2000, each Contractor's daily rates per vehicle shall be deemed to be augmented by an amount not to exceed whichever of the following represents the lesser amount of actual increase: (i) the same percentage by which the Consumer Price Index as of May 1999 shall have increased over the Consumer Price Index as of May 1998; or, (ii) the amount in dollars expressed as a percentage by which each Contractor's actual costs during the Extension Year from July 1, 1998 through June 30, 1999 shall have increased over each Contractor's actual costs during the Extension Year of July 1, 1997 through June 30, 1998. (2) For Contracts under Serial Nos. 7165, 7200, and 7291, during the Third Extension Year from July 1, 1999 through June 30, 2000, each Contractor's daily rates per vehicle and per escort shall be deemed to be augmented by an amount not to exceed whichever of the following represents the lesser amount of actual increase: (i) the same percentage by which the Consumer Price Index as of May 1999 shall have increased over the Consumer Price Index as of May 1998; or, (ii) the amount in dollars expressed as a percentage by which each Contractor's actual costs during the Extension Year from July 1, 1998 through June 30, 1999 shall have increased over each Contractor's actual costs during the Extension Year from July 1, 1997 through June 30, 1998. (2) Notwithstanding the foregoing payment increase provisions, where there is a decrease in the regional consumer price index for the New York, New York-Northeastern, New Jersey area as based upon the index for all urban consumers (CPI-U) during the preceding twelve month period, the amount to be paid to the Contractor in the succeeding extension year 8 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES will reflect that decrease in a manner satisfactory to the New York State Commissioner of Education. (3) Definitions. The definitions below control the meanings of the described terms wherever they appear in this Contract. These definitions add to and supplement any definitions or instructions expressed in the original Contract and, as such, do not supersede, revoke, replace, revise or limit any similar or analogous provisions in the original Contract. (a) For Contracts under Serial Nos. 0070, 8108, G8805, G8891 and G9325, the following Extension Year definitions shall apply: (i) "Fourteenth Extension Year" means July 1, 1995 through June 30, 1996. (ii) "Fifteenth Extension Year" means July 1, 1996 through June 30, 1997. (iii) "Sixteenth Extension Year" means July 1, 1997 through June 30, 1998. (iv) "Seventeenth Extension Year" means July 1, 1998 through June 30, 1999. (v) "Eighteenth Extension Year" means July 1, 1999 through June 30, 2000. (b) For Contracts under Serial Nos. 7165, 7200, and 7291, the following Contract Year and Extension Year definitions shall apply: (i) The term "Contract Year" means each annual period during the original term of the Contract from July lst of a given year through June 30th of the next year, i.e., "Second Contract Year" means July 1, 1995 through June 30, 1996 and "Third Contract Year" means July 1, 1996 through June 30, 1997. (ii) "First Extension Year" means July 1, 1997 through June 30, 1998. (iii) "Second Extension Year" means July 1, 1998 through June 30, 1999. 9 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES (iv) "Third Extension Year" means July 1, 1999 through June 30, 2000. (c) The term "Consumer Price Index," as of a given date, is defined as that statistic of the United States Department of Labor or its successor agency which the New York State Education Department deems as the "regional consumer price index for the New York, New York-Northeastern, New Jersey area, based upon the index for all urban consumers (CPI-U)," according to Section 305, Paragraph 14(a) of the State Education Law or as the same may be updated, revised or otherwise changed during the life of this Extension and Eighth Amendment Agreement. (d) The term "contractor's average cost per vehicle per day" for a given extension year is defined as a Contractor's "total net allowable costs" for that extension year divided by the total number of "vehicle days". The term "total net allowable costs" is limited to those expenses determined by the BOE to be related directly to transportation services provided to the BOE pursuant to this Contract. The term "vehicle days" is defined as the total number of "authorized vehicles" the Contractor actually operates multiplied by the number of school days, which number is hereby fixed at 183 school days per extension year (220 school days per extension year for 12 month contracts) for the term of this Extension and Amendment Agreement.(4) The term "authorized vehicles" is defined as the total number of contract and additional vehicles, but - ---------- (4) The numbers 183 (ten month contracts) and 220 (twelve month contracts) represent average numbers of school days per extension year for the three extension years preceding the instant Extension and Amendment Agreement, i.e., 1992-93, 1993-94 and 1994-95 Extension Years. These averages shall be reviewed every three (3) years during this Extension and Amendment Agreement and such further extension and amendment agreements thereafter, if any. Whereupon a triennial review finds that one or both average numbers of school days per extension year have changed as based upon the fluctuation of actual school days per annum, the affected fixed number(s) of school days shall be revised up or down accordingly for the next extension year(s), but only if the change in the affected average number(s) at least equals two (2) school days. In each subsequent triennial review, if any, the effects of changes in the numbers of school days from the preceding triennial review(s) shall be viewed cumulatively. 10 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES excluding spare vehicles, that the Contractor has been granted expressly by the Director. If the Director grants the Contractor additional vehicles after December 15 of a given extension year, such additional vehicles shall not be counted among the "authorized vehicles" until the start of the succeeding extension year, if indeed the Contractor continues to furnish such additional vehicles during the succeeding extension year.(5) (e) The term "Cost Justification Financial Statement" is defined as a written accountant's review report prepared by a Certified Public Accountant (CPA) or Public Accountant (PA) licensed by the State of New York, except as otherwise noted herein. This review report shall state that a review was performed in accordance with AICPA standards and that the information in the financial statements is the representation of management, and it describes the nature of the review as distinct from an audit. The report shall give the limited assurance that, based on the review, the CPA/PA is not aware of any material modifications that should be made to the financial statement in order for it to be in conformity with generally accepted accounting principles. In addition, the Certified Public Accountant or Public Accountant preparing a report or review must state that he or she has studied the cost justification manual supplied by - ---------- (5) This exclusion of additional vehicles granted after each December 15th shall not apply to any vehicles that the Contractor obtains by way of assignment or other transfer of contract, if such is approved by the BOE. Except for the one-and-one half percent (1.5%) daily rate reduction for the 1995-96 Extension Year, the annual rate augmentation, if any, for each additional vehicle granted after December 15th of a given extension year shall not become effective until the succeeding extension year, whereupon any such rate augmentation shall commence (without retroactivity) cumulatively with the following extension year's rate increase, if any. For cost justification purposes, the Contractor shall not add or combine any costs associated with additional vehicles granted after each December 15th into the Contractor's other operating costs for that extension year but shall begin to add or combine such costs (without retroactivity) into other operating costs only at the outset of the succeeding extension year, i.e., each such additional vehicle shall be treated for cost justification purposes as if it had been initially granted to the Contractor effective July 1st of the given following extension year. 11 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES the Board and has applied the standards contained in the Board's manual to the development of the Cost Justification Financial Statement. Contractors who have not had a CPA audited report done for any purpose within two (2) years prior to the commencement date of this Extension Agreement, shall be required to submit a certified audited statement by a CPA for its first cost justification financial statement under this Extension Agreement. In addition, the accountant must have no interest in this Contract or the Contractor and must so certify in writing. The financial statement will utilize a form prescribed by the Director as approved by the State Education Department. (4) Cost Justification Financial Statements. Section 305 of the State Education Law requires the Contractor to substantiate any cost increases which he/she claims to justify annual payment increases during the term of this Extension and Eighth Amendment Agreement. In consultation with the BOE Office of Auditor General, the Director of the Office of Pupil Transportation (OPT) shall determine whether to approve all or any portion(s) of the claims in each of the Contractors' annual Cost Justification Financial Statements as described immediately below: (a) To substantiate any payment increases received under this Article V - A during the Extension Year of July 1, 1996 through June 30, 1997, the Contractor must submit by September 30,. 1996 a cost justification financial statement by an independent Certified Public Accountant or Public Accountant which details total costs incurred by the Contractor for all of its operations and, separately, for its operations under this Contract for the Extension Years 1995-96 and for 1993-1994. (b) To substantiate any payment increases received under this Article V - A during the Extension Year of July 1, 1997 through June 30, 1998, the Contractor must submit by September 30, 1997 (i) a cost justification financial statement by an independent Certified Public Accountant or Public Accountant which details the total costs incurred by the Contractor for all of its operations and, separately, for its operations under this Contract for the Extension Years 1996-1997 and 1995-1996, and (ii) an additional cost justification financial statement by an independent Certified Public Accountant or Public Accountant which details the total costs incurred by the 12 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES Contractor for all of its operations and, separately, for its operations under this Contract for Extension Years 1995-96 and 1993-1994 (to account for a cost carry-forward, if any) (c) To substantiate any payment increases received under this Article V - A during the Extension Year of July 1, 1998 through June 30, 1999, the Contractor must submit by September 30, 1998, (i) a cost justification financial statement by an independent Certified Public Accountant or Public Accountant which details the total costs incurred by the Contractor for all of its operations and, separately, for its operations under this Contract, for the Extension Years 1997-1998 and 1996-1997, and (ii) an additional cost justification financial statement by an independent Certified Public Accountant or Public Accountant which details the total costs incurred by the Contractor for all of its operations and, separately, for its operations under this Contract for Extension Years 1996-97, 1995-1996 and 1993-1994, (to account for a cost carry-forward, if any). (d) To substantiate any payment increases received under this Article V - A during the Extension Year of July 1, 1999 through June 30, 2000, the Contractor must submit by September 30, 1999, a cost justification financial statement by an independent Certified Public Accountant or Public Accountant which details the total costs incurred by the Contractor for all of its operations and, separately, for its operations under this Contract for the Extension Years 1998-1999 and 1997-1998. (e) In each annual cost justification financial statement, the Contractor will treat costs for escorts separately from all other costs. As a minimum, the Contractor will supply in each annual cost justification financial statement all data required by the New York State Education Department related to this Contract, and the submittal shall include, but is not necessarily limited to, New York State Education Department approved cost justification forms. The Contractor must supply promptly any and all additional cost data as required by the BOE or the State Education Department. (f) Until six (6) years after completion of its services hereunder, or six (6) years after the date of termination of this Extension and Amendment Agreement, whichever 13 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES shall occur later, the Contractor shall retain and maintain complete and correct books and records related to all aspects of the Contractor's obligations hereunder. Records must be maintained separately, so as to identify clearly the expenses applicable to the Contract, all previous extension and amendment agreements and this Extension and Amendment Agreement and be distinguishable from all other costs not incurred under the Contract, all previous extension and amendment agreements and this Extension and Amendment Agreement. Except as provided in this subparagraph, all other provisions of the Contract as amended that relate to the retainage and maintenance of records shall remain in full force and effect. (g) To be eligible to "carry forward" unabsorbed cost increases arising from cost growth, if any, greater than the two-and-two-tenths percent (2.2%) fixed cap during the 1996-97 Extension Year and the two-and-sixth-tenths percent (2.6%) fixed cap during the 1997-98 Extension Year of Contract Serial Nos. 0070, 8108, G8805, G8891, and G9325, the Contractor must meet eligibility conditions and must adhere to rules, procedures and definitions expressed in Appendix A. The said eligibility conditions, rules, procedures and definitions for the allowance of a "cost carry-forward" of such unabsorbed cost increases under Contract Serial Nos. 0070, 8108, G8805, G8891, and G9325 are hereby incorporated by this reference into this Extension and Amendment Agreement as hereby incorporated by this reference into this Extension and Amendment Agreement as if set forth herein in their entirety, and a copy of the said eligibility conditions, rules, procedures and definitions is hereto annexed as "Appendix A". (5) Required Analysis of Costs. To determine the allowable increase in costs for the extension year, as specified in Section V-A 1 of this agreement, the following analysis of the Cost Justification Financial Statement must be undertaken: Step 1: Divide the total applicable annual operating costs by the number of vehicle days for both the base year and the year previous to the base year to determine the average daily cost per vehicle for each of those years. The base year is the year immediately preceding the extension year. 14 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES Step 2: Subtract the average daily cost per vehicle for the year previous to the base year from the average daily cost per vehicle for the base year to determine the increase in the average daily cost per vehicle. Step 3: Divide the increase in the average daily cost per vehicle by the average daily cost per vehicle for the year previous to the base year to determine the percent increase in the average daily cost per vehicle. Step 4: Compare the percent increase in the average daily cost per vehicle to the percentage by which the Consumer Price Index as of May of the base year shall have increased over the Consumer Price Index as of May of the year previous to the base year and to the appropriate annual caps in the increase as stipulated in Section V-A 1 of this agreement. Whichever is the least of the three percentages will be the allowable increase applied to the daily rate for the extension year. Step 5: Only for Contract Serial Nos. 0070, 8108, G8805, G8891 and G9325 for the rate augmentations in the Sixteenth and Seventeenth Extension Years, repeat steps 1 to 4 for any allowable cost increases accrued during the period of Twelfth to Fourteenth Extension Years and, when appropriate, any allowable cost increases accrued during the Fifteenth to Sixteenth Extension Years. Determine the percent increase in the average daily cost per vehicle from the Twelfth to Fourteenth Extension Years and, when appropriate, from the Fifteenth to Sixteenth Extension Years. If the percent increase in the average daily cost resulting in step 3 is insufficient to justify fully the Consumer Price Index increment in Step 4 or any applicable fixed cap, add the percent increase of the Twelfth to Fourteenth Extension Years, if any, to the percent increase in Step 3. If there is any percent increase in the average daily cost per vehicle still unabsorbed, such increase may be carried forward to the Seventeenth Extension Year. 15 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES For the Seventeenth Extension Year only, also add the unabsorbed increase of the Fifteenth to Sixteenth Extension Years, if any, to the percent increase in Step 3. (6) Allowable Cost Increases. Only increases in "net allowable costs" will justify augmentation of the daily vehicle rate from one extension year to the next. "Allowable costs" are limited by the following: costs not attributable to the Contractor's operations pursuant to this Contract, costs which are not ordinary and/or reasonable, costs which are not documented, and costs disallowed by the New York State Education Department and/or BOE auditors are not permitted to justify increases of the daily rate per vehicle. The Director and Office of Auditor General shall have the right, power and authority to prescribe standardized miscellaneous cost categories for all contractors. (7) Access to Subcontractors. If with the approval of the Director, the Contractor subcontracts any portion of the services under this Contract, the Contractor must include in any such subcontract agreement a provision which allows full and unimpeded access by the BOE, the New York State Education Department or the New York City Office of the Comptroller to the books and records of a subcontractor for inspection, audit and copying purposes. The Contractor agrees and covenants to render all necessary assistance to obtain any requested documents from subcontractors. The Contractor's inability to obtain requested documentation from any such entities will not excuse a failure to provide the documentation as a means to justify payment increases. (8) Absence of Cost Justification Financial Statement. The Contractor's failure to submit an annual Cost Justification Financial Statement by the deadline date as above expressed will result in the forfeiture of any increase later justified for the period from the service start date to the day the statement is received at the Office of Pupil Transportation, unless the Director determines that reasonable circumstances exist to excuse the Contractor's late submittal. (9) Cost Increase Surety Bond. If the Contractor desires to receive the annual daily vehicle rate(s) augmentation in advance of the "final" results of the BOE audit of each year's Cost Justification Financial Statement (5), the Contractor must post by September 30th of each Extension Year a surety payment bond to insure the refund of any overpayments or debts the BOE 16 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES deems to be due and owing from the Contractor. Each bond must insure expressly against the Contractor's inability to justify claims in each annual Cost Justification Financial Statement to the extent of all payment increases the BOE will make to the Contractor during each prospective Extension Year. Each bond must be issued by a company licensed to do business in New York State by the Superintendent of Insurance. The coverage period of each bond must extend from September 1st of each Extension Year until such date as the Contractor receives from the BOE "final written notice of the results of the audit of each year's Cost Justification Financial Statement. Each bond must extend to the BOE a claim submittal period of at least ninety (90) days beyond the date of the Contractor's receipt of the "final" audit result notice for the purpose of recouping any overpayments based on the Contractor's inability to justify all or any portion of each annual increase. Each bond must name both the BOE and the City of New York as the insured parties. To calculate the amount of a bond, use the following formula: the daily rate per vehicle for each contract item (i.e., for a given Extension Year) multiplied by the total number of vehicles for each contract item (i.e., for a given Extension Year excluding spare and maintenance vehicles) multiplied by 180 days and multiplied again by the percentage of payment increase as reflected either by the Consumer Price Index for the month of May of each succeeding Extension Year or the maximum cap for a given Extension Year, whichever is less; then, add to this figure an amount equal to the Base Escort Daily Compensation Rate (i.e., for a given Extension Year) multiplied by the total number of vehicles for each contract item (i.e., for a given Extension Year excluding spare and maintenance vehicles) multiplied by 180 days and multiplied again by the percentage of payment increase as reflected either by the Consumer Price Index for the month of May of each succeeding Extension Year or the maximum cap for a given Extension Year, whichever is less. (a) Exemption from Cost Increase Surety Bond. If the Contractor provides a performance bond, letter of credit or a cash performance deposit for a given prospective Extension Year, the Contractor may forego the requirements in this Paragraph (B) (9), provided that the Contractor submits by September 30th of each Extension Year a written consent that the BOE may deduct such amounts of money as the BOE deems to be properly due and owing from the Contractor from any money to be earned by the Contractor under any Contract at any time. The verified consent will be on a form approved and supplied 17 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES by the Director. A Contractor who is not required to provide a Performance Bond or Letter of Credit because it provides 15 or fewer vehicles pursuant to this agreement, may choose to either present the BOE with the aforedescribed cost increase Surety Bond or consent to have the increase in payments coming due to it withheld until the approval of its cost justification statement. (b) Retroactive Payments. (i) Contractors will be entitled to receive retroactive payment increases without any interest only after the date of approval and to the extent of such approval of the cost justification statement, and the Contractor will not be entitled to receive retroactive payment in one lump sum but only in monthly installments to be determined at the Director's sole discretion. (ii) Should any retroactive payments promised by the foregoing language of Paragraph 9 be deemed or found to be illegal or otherwise improper due to being in violation of any Federal, State, New York City or BOE law, rule, regulation, by-law or official written policy (e.g., the BOE "Standard Operating Procedures for Financial Management Centers"), then the BOE, its employees or agents cease to have any and all obligations to pay same and contractor's obligations hereunder remain unchanged. (iii) The Contractor hereby agrees and covenants to refrain from any litigation and to release, hold harmless and indemnify the BOE and the City of New York (including reasonable attorney fees) concerning any claims, actions or special proceedings by the Contractor or any other party arising from denial(s) or postponement(s) of any payment increase(s) or any portion(s) thereof due to the Contractor's failure to meet the express terms, conditions and deadlines of this paragraph 9. (10) Adjustments to Later Payments. Based on the BOE's audit of the Contractor's annual statements and financial records, the BOE may make any necessary adjustments in any later payments which become due and owing to the Contractor during a given Extension Year to compensate for any excesses of payments over cost increases. (11) Refund of Overpayment. The Contractor further agrees and covenants to refund any and all additional monies due to the 18 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES BOE within thirty (30) days of the final audit report, if the amount of each year's payment excess over allowable cost increase is greater than any payments due and owing for the balance of a given Extension Year, except where a refund is obtained from the bond herein described (12) In the event of any apparent inconsistencies between any other provisions of the Contract and this Article V - A, the provisions of this Article V - A will prevail. (C) For Contracts under Serial Nos. 7165, 7200, and 7291, there is no separate daily rate for escort service. Therefore, during the First, Second and Third Extension Years of Contracts under Serial Nos. 7165, 7200 and 7291, there shall be no special or separate increases in any payment or allowance for escorts other than that expressed herein above at Paragraph (B). Regarding only Contracts under Serial Nos. 0070, 8108, G8805, G8891 and G9325, Article XIX entitled, "Escorts," as amended previously, is hereby amended further so that subparagraph A, subdivision (2), as numbered by the First Amendment Agreement, shall read as follows for the balance of the Contract term: "(2) However, the parties agree that, for only so long as and only to the extent that the New York City Administrative Code requires the BOE to utilize escorts on special education runs, the Contractor will continue to provide such escorts and substitute escorts in addition to vehicle operator, as hereinafter allowed, through June 30, 2000, and that: "(a) Escort Compensation. Except for overtime, the BOE will compensate the Contractor for each full day for each escort who provides actual service under this Contract in an amount to be calculated in the following manner subject to the Director's approval of all or any portion of the Contractor's claims in each of the below described annual Escort Cost Justification Financial Statements: "(i) During the Fourteenth Extension Year, the "Base Escort Daily Compensation Rate" shall be equal to ninety-eight-and-one-half percent (98.5%) of the Base Escort Daily Compensation Rate provided as of June 30, 1995, or such lesser amount that represents the audited and approved decrease from the Base Escort Daily Compensation Rate paid to the contractor during the Thirteenth Extension Year. Also, the BOE will pay "Wage Accrual Compensation" in the exact amount the Contractor actually paid 19 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES either to or for escorts during the Fourteenth Extension Year, if any, and only when known after a BOE audit and which was required to be paid. No contractor may receive as Wage Accrual Compensation an amount in the aggregate which is more than ten percent (10%) above the total reimbursed costs for wage accruals as of June 30, 1995. "(ii) During the Fifteenth Extension Year, the BOE will increase the "Base Escort Daily Compensation Rate" in an amount to be derived by application of subparagraph (b) hereinafter, or such lesser amount that represents the audited and approved increase over the Base Escort Daily Compensation Rate paid to the contractor during the Fourteenth Extension Year. Also, the BOE will pay "Wage Accrual Compensation" in the exact amount the Contractor actually paid either to or for escorts during the Fifteenth Extension Year, if any, and only when known after a BOE audit and which was required to be paid. No contractor may receive as Wage Accrual Compensation an amount in the aggregate which is more than ten percent (10%) above the total reimbursed costs for wage accruals as of June 30, 1996. "(iii) During the Sixteenth Extension Year, the BOE will increase the "Base Escort Daily Compensation Rate" in an amount to be derived by application of subparagraph (b) hereinafter, or such lesser amount that represents the audited and approved increase over the Base Escort Daily Compensation Rate paid to the contractor during the Fifteenth Extension Year. Also, the BOE will pay "Wage Accrual Compensation" in the exact amount the Contractor actually paid either to or for escorts during the Sixteenth Extension Year, if any, and only when known after a BOE audit and which was required to be paid. No contractor may receive as Wage Accrual Compensation an amount in the aggregate which is more than ten percent (10%) above the total reimbursed costs for wage accruals as of June 30, 1997. "(iv) During the Seventeenth Extension Year, the BOE will increase the "Base Escort Daily Compensation Rate" in an amount to be derived by application of subparagraph (b) hereinafter, or such 20 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES lesser amount that represents the audited and approved increase over the Base Escort Daily Compensation Rate paid to the contractor during the Sixteenth Extension Year. Also, the BOE will pay "Wage Accrual Compensation" in the exact amount the Contractor actually paid either to or for escorts during the Seventeenth Extension Year, if any, and only when known after a BOE audit and which was required to be paid. No contractor may receive as Wage Accrual Compensation an amount in the aggregate which is more than ten percent (10%) above the total reimbursed costs for wage accruals as of June 30, 1998. "(v) During the Eighteenth Extension Year, the BOE will increase the "Base Escort Daily Compensation Rate" in an amount to be derived by application of subparagraph (b) hereinafter, or such lesser amount that represents the audited and approved increase over the Base Escort Daily Compensation Rate paid to the contractor during the Seventeenth Extension Year. Also, the BOE will pay "Wage Accrual Compensation" in the exact amount the Contractor actually paid either to or for escorts during the Eighteenth Extension Year, if any, and only when known after a BOE audit and which was required to be paid. No contractor may receive as Wage Accrual Compensation an amount in the aggregate which is more than ten percent (10%) above the total reimbursed costs for wage accruals as of June 30, 1999. "(b) Annual Increase of the Base Escort Daily Compensation Rate. Except during the Fourteenth Extension Year in which the BOE will reduce the Base Escort Daily Compensation Rate to equal ninety-eight-and-one-half percent (98.5%) of such rate paid as June 30, 1995 each succeeding Extension Year the BOE will augment the amount of the Base Escort Daily Compensation Rate according to the payment increase limits expressed in Article V - A, Paragraph (1) (i.e., Paragraph (B)(l) above), provided the Contractor justifies such increases, if any, through the submittal of a separate annual Escort Cost Justification Financial Statement according to the same terms, conditions and deadlines expressed in Article V - A, Paragraphs (3) through (12) (i.e., Paragraphs (B) (3) through (B) (12) above). This provision does not affect 21 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES payment for overtime escort services, which is governed separately at Article XIX, Paragraph (2) (c) (i.e., Paragraph (C) (2) (c) below). "(c) Payment for Overtime. Where the Contractor actually provides scheduled overtime escort services due to BOE authorization, the BOE will reimburse the Contractor for such services in the exact amount of the costs for overtime wages and statutory fringe benefits. No reimbursement will be permitted for occasional or episodic overtime. "Overtime" is defined as service which exceeds eight (8) hours within any ten (10) hour daily period. The hourly rate for overtime escort services will not exceed one-and-one-half times the regular hourly wage rate. "(d) Monthly Advance Payment for Escort Services. On or about the first school day of each calendar month, the BOB will pay an eligible contractor in advance an amount equal to the anticipated usage of escort service for that month, excluding overtime. For each month's overtime claims, the BOE will pay the Contractor only after receipt and approval of a voucher on a BOB form, which will contain such detail as the BOE may require to confirm the Vendor's claims and which will be subject to BOB audit. " (i) Surety Payment Bond. To receive advance monthly payments, the Contractor must file with the BOE by June 1st of each Extension Year a bond in the amount of the anticipated utilization of escort service for one (1) month. The coverage period for each bond must be from September 1st through August 31st of each prospective year. To calculate the bond amount for one year, use this formula: twenty (20) days multiplied by the total number vehicles (excluding spares) multiplied again by the Base Escort Daily Compensation Rate for a given Extension Year. Each bond must name the BOE and the City of New York as the named insureds. Each bond must insure against any and all acts of commission or omission by the Contractor, any subcontractors, subsidiaries, parent or affiliate entities or any officers, owners, directors, employees, servants, agents, independent contractors or any other parties which cause the failure of proper disbursement to the intended escort beneficiaries, whether any such party acts within or outside the scope of 22 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES employment or contractual performance. Bonds must be issued by a company licensed by the Superintendent of Insurance to do business in New York State. "(ii) Where the BOE makes payments to the Contractor in excess of what is properly due and owing under subparagraph (a), the BOE may recoup such amounts from future payments to the Contractor, request the Contractor to refund such amounts, or take whatever other actions are necessary to retrieve excessive payments. Where the BOE requests the Contractor to make a refund, the Contractor will remit payment within thirty (30) days of the Contractor's receipt of the final audit report. "(iii) Where the Contractor elects to delegate escort services to a subcontractor, the Contractor may direct the BOE to make payments in the full amounts owed under subdivisions (a), (b) and (c) or any portions thereof directly to the subcontractor. The Contractor must make such payment directions in writing on a form approved by the BOE. "(e) Limitation on Wage Accruals. The BOE will compensate the Contractor for wage accruals only if payment of such wage accruals to escorts is mandated by an express provision to that effect in existence prior to the execution of this Extension and Eighth Amendment Agreement as part of a written collective bargaining agreement between the Contractor and a union that represents the Contractor's employees. The BOE will not recognize the establishment of any new wage accrual packages or collective bargaining agreements which provide for such payments if executed after this Extension and Eighth Amendment Agreement. Moreover, the BOE will not make payments based upon any revision of entitlement schedules even if established before execution of this Extension and Eighth Amendment Agreement which would increase any benefits to escorts. No enhancements of wage accrual benefits will be at the BOE's expense either directly or indirectly. "(f) The Contractor must provide all of the escorts necessary to perform all of the work covered by the Contract, including additional and spare vehicles. The Contractor must have sufficient, qualified and approved personnel to enable the Contractor to dispatch substitute escorts promptly if, when and where necessary to ensure 23 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES continuous, uninterrupted and punctual service in each and every instance. The Contractor must operate every vehicle for the transportation of handicapped children in strict adherence to the provisions of Section 19-603, Paragraphs (a) and (b) of the New York City Administrative Code. If the law is amended during the term of this Extension and Eighth Amendment Agreement to eliminate the further requirement of escorts, the Contractor must cease to provide escorts upon five (5) days notice from the BOB to that effect. After the effective date of the notice, the BOB and the City of New York will not be obligated to the Contractor or any other party for the provision of escort services. "(g) Basic, Refresher and Additional Training for Special Education Escorts. The BOE will continue to provide basic and refresher training for all special education escorts, including all instructional staff and educational materials, at no cost to the Contractor. Whereupon the BOE revises basic and/or refresher training courses to include additional subject material and/or fields, the Contractor must cooperate to have all escorts and substitute escorts trained in the additional skills and responsibility, according to BOE training schedules. "(h) Escort Subcontractor. The Contractor may delegate performance of escort services to an acceptable subcontractor; however, the Contractor will remain responsible for all pertinent contractual obligations. The Director will have sole and final discretion to approve or disapprove at any time the Contractor's particular choice of an initial or replacement escort subcontractor. Whereupon the BOE requests new, updated or revised information regarding any subcontractor, the Contractor must supply the data immediately and/or secure the cooperation of the affected subcontractor to make full and prompt disclosure of the requested information. "(i) Annual List of Escorts. By August 31st of each Extension Year or any other time as required by the Director, the Contractor must provide a list of all escorts and substitute escorts to be utilized for special education school bus service during the prospective school year. The list must be on a form to be supplied by OPT and will include, but not be limited to, the following information: the name, social security number and date of original hire of each escort. Whenever a 24 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES change occurs in the escort list, the Contractor will provide updated information on the OPT form(s) not later than the end of the month in which any change occurs." (D) NO DUPLICATION OR MISALLOCATION OF COSTS. To prevent unjust enrichment through misrepresentation or falsification of cost increase claims, the Contractor hereby agrees, consents and covenants to abide in all respects by the following rules for the treatment of fixed, variable or other costs utilized to establish increased expenses from one given Extension Year to the next: (1) Duplication of Costs. Concerning only Contracts under Serial Nos. 0070, 8108, G8805, G8891 and G9325, in the establishment of allowable cost increases under Article V - A (see Paragraph (B), supra) and Article XIX (see Paragraph (C), supra), the Contractor must not commingle, combine, merge or duplicate costs in any manner or to any extent between the two Articles, i.e., costs used to justify increased payments for vehicles and drivers under Article V - A may not be used again to justify increases in the Base Escort Daily Compensation Rate, and vice versa. (2) Allocation of Costs. If the Contractor misallocates any cost item(s), the allocation will be disallowed. Improper allocation or "misallocation" is defined as a transgression of one or more of the following precepts: (a) Only those of the Contractor's fixed, variable or other costs which are directly attributable to the performance and/or administration of BOE pupil transportation contract work will be considered allowable expense items. Costs attributable to a contractor's other operations, whether in the public or private sector, will not be allowed to justify payment increases. (b) Costs must be attributable solely to the specific group of Contracts covered by this Extension Agreement, i.e., Contract Serial Nos. 0070, 7165, 7200, 7291, 8108, G8805, G8891 and G9325. Expenses allocable to BOE pupil transportation contracts other than these eight serial numbers must not appear in any materials presented to justify payment increases under this Extension Agreement. (c) Costs must be attributable solely to the corporate, partnership, sole proprietorship or other entity which constitutes the Contractor. Expenses allocable to a parent or other affiliated entity must not appear on the 25 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES Contractor's cost justification financial statement. Where employees, offices, storage and maintenance facilities or other cost items are shared by several affiliated or unaffiliated entities, all or some of which hold separate BOE transportation contracts, assertions of expense increases must reflect only those percentages of utilization directly allocable to the claimant Contractor. (d) Allocation of costs must be based on the number of vehicle days and not merely the number of vehicles under contract. (e) Such other forms of misallocation of costs as may be determined by the BOE, the New York City Office of the Comptroller or the New York State Education Department, in accordance with the terms and conditions of this Contract. E. AMENDMENTS TO PERFORMANCE SECURITY PROVISIONS. (1) The Extension and Seventh Amendment of Contract for Special Education Pupil Transportation Services is hereby amended at Article (E), Paragraph (2) so that Paragraph 2 (b) of the provisions of the original Contracts, as currently amended and now entitled, "INSURANCE AND PERFORMANCE SECURITY," shall read as follows: "(b) Any contractor who receives an award of contract for 16 to 25 vehicles has the following options available to assure full and faithful performance of the Contract: "(1) Authorize the Board of Education to retain ten percent (10%) of each payment made to the Contractor from the first five (5) months' payments of each year of the Contract in an interest bearing account maintained by the New York City Office of the Comptroller to assure full and faithful performance of the Contract. This retainage shall be paid to the Contractor with interest at the conclusion of each one (1) year period of full and faithful performance of this Contract. "(2) Provide a confirmed irrevocable Letter(s) of Credit from an acceptable financial institution equal in value to ten percent (10%) of the contract value which may be reduced each month by ten per- 26 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES cent (10%) of the monthly payment authorized by the Contractor to be retained by the BOE during the Extension Year from July 1, 1995 through June 30, 1996. Whereupon at any time during this Extension Agreement there shall be any increase(s) or decrease(s) in the Contractor's number of contract and/or additional vehicles beyond five percent (5%) of the Contractor's total fleet (excluding spare and maintenance vehicles), the BOE and the Contractor shall adjust the performance security accordingly to maintain the level at a constant ten percent (10%) of the contract value; and, for each instance of any increases, the Contractor shall furnish additional performance security via confirmed irrevocable Letter(s) of Credit from an acceptable financial institution or written authorization of retainage within thirty (30) days of the award of each increase in the number of vehicles. The amounts retained shall be deposited in an interest bearing account maintained by the New York City Office of the Comptroller with annual reports of the amounts retained and interest earned provided to the Contractor. This retainage will be returned to the Contractor with interest after the conclusion of the full and faithful performance of this Extension Agreement, or whereupon the Contractor replaces the retainage with a confirmed irrevocable Letter(s) of Credit from an acceptable financial institution in an amount equal to ten percent (10%) of the contract value at the time of the conversion. "3 Provide a confirmed irrevocable Letter(s) of Credit from an acceptable financial institution equal in value to ten percent (10%) of the contract value which may be reduced each month by five percent (5%) of the monthly payment authorized by the Contractor to be retained by the BOE during the Extension Years of July 1, 1995 through June 30, 1996 and July 1, 1996 through June 30, 1997. Whereupon at any time during this Extension Agreement there shall be any increase(s) or decrease(s) in the Contractor's number of contract and/or additional vehicles beyond five percent (5%) of the Contractor's total fleet (excluding spare and maintenance vehicles), the BOE and the Contractor shall adjust the performance security accordingly 27 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES to maintain the level at a constant ten percent (10%) of the contract value; and, for each instance of increase, the Contractor shall furnish additional performance security via confirmed irrevocable Letter(s) of Credit from an acceptable financial institution or written authorization of retainage within thirty (30) days of the award of each increase in the number of vehicles. The amounts retained shall be deposited in an interest bearing account maintained by the New York City Office of Comptroller with annual reports of the amounts retained and interest earned provided to the Contractor. This retainage will be returned to the Contractor with interest after the conclusion of the full and faithful performance of this Extension Agreement, or whereupon the Contractor replaces such retainage with a confirmed irrevocable Letter(s) of Credit from an acceptable financial institution in an amount equal to ten percent (10%) of the contract value at the time of the conversion. "(4) Provide a confirmed irrevocable Letter(s) of Credit from an acceptable financial institution equal in value to ten-percent (10%) of the contract value renewable each year at an amount equal to ten percent (10%) of the then current value of the Contract. "(5) Provide any combination of cash security deposit and confirmed irrevocable Letter(s) of Credit from an acceptable financial institution equal to ten percent (10%) of the contract value. Whereupon at any time during this Extension Agreement there shall be any increase(s) or decrease(s) in the Contractor's number of contract and/or additional vehicles beyond five percent (5%) of the Contractor's total fleet (excluding spare and maintenance vehicles), the BOE and the Contractor shall adjust the performance security accordingly to maintain the level at a constant ten percent (10%) of the contract value; and, for each instance of increase, the Contractor shall furnish additional performance security via confirmed irrevocable Letter(s) of Credit from an acceptable financial institution or written authorization for retainage within thirty (30) days of the award of each in- 28 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES crease in the number of vehicles. Any cash security deposit(s) and/or retainage shall be deposited in an interest bearing account maintained by the New York City Office of Comptroller with annual reports of the amounts held and interest earned provided to the Contractor. Any cash security deposit(s) and/or retainage will be returned to the Contractor with interest after the full and faithful performance of this Extension Agreement or whereupon the Contractor replaces any retainage with a confirmed irrevocable Letter(s) of Credit from an acceptable financial institution that brings the performance security into an amount equal to ten percent (10%) of the contract value at the time of conversion." (2) The Extension and Seventh Amendment of contract for Special Education Pupil Transportation Services is hereby amended at Article (E), Paragraph (2) so that Paragraph 2 (c) of the provisions of the original Contracts, as currently amended and now entitled, "INSURANCE AND PERFORMANCE SECURITY," shall read as follows: "(c) Any contractor who receives an award of contract for 26 or more vehicles has the following options available to assure full and faithful performance of the Contract: "(1) Provide a confirmed irrevocable Letter(s) of Credit from an acceptable financial institution equal in value to ten percent (10%) of the contract value which may be reduced each month by ten percent (10%) of the monthly payment authorized by the Contractor to be retained by the BOE during the Extension Year from July 1, 1995 through June 30, 1996. Whereupon at any time during this Extension Agreement there shall be any increase(s) or decrease(s) in the Contractor's number of contract and/or additional vehicles beyond five percent (5%) of the Contractor's total fleet (excluding spare and maintenance vehicles), the BOE and the Contractor shall adjust the performance security accordingly to maintain the level at a constant ten percent (10%) of the contract value; and, for each instance of any increases, the Contractor shall furnish additional performance security via confirmed irrevocable Letter(s) of Credit from an acceptable financial institution or written autho- 29 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES rization of retainage within thirty (30) days of the award of each increase in the number of vehicles. The amounts retained shall be deposited in an interest bearing account maintained by the New York City Office of the Comptroller with annual reports of the amounts retained and interest earned provided to the Contractor. This retainage will be returned to the Contractor with interest after the conclusion of the full and faithful performance of this Extension Agreement, or whereupon the Contractor replaces the retainage with a confirmed irrevocable Letter(s) of Credit from an acceptable financial institution in an amount equal to ten percent (10%) of the contract value at the time of the conversion. "2 Provide a confirmed irrevocable Letter(s) of Credit from an acceptable financial institution equal in value to ten percent (10%) of the contract value which may be reduced each month by five percent (5%) of the monthly payment authorized by the Contractor to be retained by the BOE during the Extension Years of July 1, 1995 through June 30, 1996 and July 1, 1996 through June 30, 1997. Whereupon at any time during this Extension Agreement there shall be any increase(s) or decrease(s) in the Contractor's number of contract and/or additional vehicles beyond five percent (5%) of the Contractor's total fleet (excluding spare and maintenance vehicles), the BOE and the Contractor shall adjust the performance security accordingly to maintain the level at a constant ten percent (10%) of the contract value; and, for each instance of increase, the Contractor shall furnish additional performance security via confirmed irrevocable Letter(s) of Credit from an acceptable financial institution or written authorization of retainage within thirty (30) days of the award of each increase in the number of vehicles. The amounts retained shall be deposited in an interest bearing account maintained by the New York City Office of Comptroller with annual reports of the amounts retained and interest earned provided to the Contractor. This retainage will be returned to the Contractor with interest after the conclusion of the full and faithful performance of this Extension Agreement, or whereupon the Contractor replaces 30 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES such retainage with a confirmed irrevocable Letter(s) of Credit from an acceptable financial institution in an amount equal to ten percent (10%) of the contract value at the time of the conversion. "(3) Provide a confirmed irrevocable Letter(s) of Credit from an acceptable financial institution equal in value to ten percent (10%) of the contract value renewable each year at an amount equal to ten percent (10%) of the then current value of the Contract. "(4) Provide any combination of cash security deposit and confirmed irrevocable Letter(s) of Credit from an acceptable financial institution equal to ten percent (10%) of the contract value. Whereupon at any time during this Extension Agreement there shall be any increase(s) or decrease(s) in the Contractor's number of contract and/or additional vehicles beyond five percent (5%) of the Contractor's total fleet (excluding spare and maintenance vehicles), the BOE and the Contractor shall adjust the performance security accordingly to maintain the level at a constant ten percent (10%) of the contract value; and, for each instance of increase, the Contractor shall furnish additional performance security via confirmed irrevocable Letter(s) of Credit from an acceptable financial institution or written authorization for retainage within thirty (30) days of the award of each increase in the number of vehicles. Any cash security deposit(s) and/or retainage shall be deposited in an interest bearing account maintained by the New York City Office of Comptroller with annual reports of the amounts held and interest earned provided to the Contractor. Any cash security deposit(s) and/or retainage will be returned to the Contractor with interest after the full and faithful performance of this Extension Agreement or whereupon the Contractor replaces any retainage with a confirmed irrevocable Letter(s) of Credit from an acceptable financial institution that brings the performance security into an amount equal to ten percent (10%) of the contract value at the time of conversion." 31 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES (3) The Extension and Seventh Amendment of Contract for Special Education Pupil Transportation Services is hereby amended at Article (e), Paragraph (5) so that Paragraph 5 of the provisions of the original Contracts, as currently amended and now entitled, INSURANCE AND PERFORMANCE SECURITY," shall read as follows: "5. If the Director awards any additional vehicles to the Contractor during this extension periods, making it necessary to provide performance security for the first time or additional performance security, then the Contractor must provide sufficient performance security to cover all additional vehicles (excluding spare and maintenance vehicles) within thirty (30) days of receipt of each award. This condition shall apply to individual or cumulative increases of a contractor's total fleet (excluding spare and maintenance vehicles) equaling at least five (5) vehicles or five percent (5%), whichever is greater." (4) The Extension and Seventh Amendment of Contract for Special Education Pupil Transportation Services is hereby amended at Article (E), Paragraph (7) so that Paragraph 7 of the provisions of the original Contracts, as currently amended and now entitled, "INSURANCE AND PERFORMANCE SECURITY," shall read as follows: "7. For all performance security purposes, contractor entities that are subject to common control as determined by the BOE based upon an analysis of (a) ownership of the corporate, partnership, sole proprietorship or other entity's assets, (b) coincidence of corporate, partnership, sole proprietorship or other entity's owners, partners, managers, officers and/or directors, and (c) such other factors as the BOE shall determine to be relevant, shall be deemed to be one contractor. If the BOE determines contractor entities to be subject to common control, contractors shall be required to provide the appropriate performance security for the number of vehicles operated by all of the corporate entities that are determined to be subject to common control. For the purpose of determining common control and performance security requirements, all BOE pupil transportation contracts shall be considered." 32 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES (F) Section E of the Extension & Seventh Amendment Agreement of Contract Serial Nos. 0070, 8107, 8108, G8805, G8891 and G9325 and is hereby amended to read as follows: "1. Priority in Hiring and Master Seniority Lists: "There shall be established two industry-wide Master Seniority Lists. One list shall be composed of all operators (drivers), mechanics, and dispatchers and the other list shall be composed of escorts (matrons-attendants) who were employed as of June 30, 1995, under a contract between their employers and the Board for the transportation of school children in the City of New York, who are furloughed or become unemployed as a result of loss of contract or any part thereof by their employers, or as the result of a reduction in service directed by the Board during the term of the contract, in accordance with their date of entry into the industry. All operators (drivers), mechanics, dispatchers and escorts (matrons-attendants) on the Master Seniority Lists who participated in the Division 1181 A.T.U. - New York Employees Pension Fund and Plan as of June 30, 1995, and who do not exercise their option to withdraw from the Fund and Plan shall continue to participate in such Pension Plan. "Any existing contractor or individual who conducted business as a sole proprietor, or as a member of a partnership or who held a controlling interest in a corporation that performed service pursuant to contract expiring in June, 1995 (contractor) shall give priority in employment on September, 1995 or thereafter on the basis of position on the Master Seniority List of any additional or replacement operators, mechanics and dispatchers beyond those performing service as of June 30, 1995 consistent with the number of employees required by the specifications of the contract expiring June, 1995 for the number of vehicles providing service to the Board as of June 30, 1995 to individuals from the Master Seniority List until such list is exhausted. "Any new contractors, i.e. those who did not provide service pursuant to contract expiring June, 1995 (new contractor), shall give priority in employment in September, 1995 or thereafter on the basis of seniority to every operator (driver), mechanic and dispatcher performing service pursuant to such contract starting from the first employee from the Master Seniority List until such list is exhausted. 33 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES "Should the Board determine to require the contractor to provide escort service in addition to the operator, and in the event that all escorts (matrons-attendants) on the Master Seniority List, who were employed as of June 30, 1995, are not employed as escorts by contractors for the beginning of service in September of 1995, then said escorts shall be employed in order of their position on the Master Seniority List. "2. Compensation "All operators (drivers), mechanics, dispatchers and escorts (matrons-attendants) on the industry-wide Master Seniority Lists shall be employed and paid on a full-time basis based upon the wage scale received from prior employer under pupil transportation contracts. "The contractor shall compensate operators (drivers), mechanics and dispatchers and escorts (matrons-attendants) who appear on the Master Seniority Lists and who are employed pursuant to contracts to be awarded as follows for the term of the contract: "(a) operators (drivers) and dispatchers at a daily rate of pay, including any COLA, for each day of service, not less than that paid pursuant to any applicable labor collective bargaining agreement. "(b) mechanics at a daily rate of pay, including any COLA, for each day of service, not less than that paid pursuant to any applicable labor collective bargaining agreement. "(c) escorts (matrons-attendants) at a daily rate of pay, including any COLA, for each day of service, not less than that paid pursuant to any applicable labor collective bargaining agreement. "Such operators (drivers) and escorts (matrons-attendants) shall be available for extended service, without additional compensation, which shall be defined as performance within the particular job category (i.e. drivers as drivers, and escorts (matrons-attendants) as escorts (matrons-attendants) ) within the eight (8) hour work day within the spread (8 within 10 34 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES hours) provided for in the collective bargaining agreement covering said employees, if any. "3. Welfare "Contributions by the contractor for providing welfare benefits to operators (drivers), mechanics, dispatchers and escorts (matrons-attendants), in the event the contractor employs escorts, who appear on the Master Seniority List shall be no less than $410 per employee per month on a twelve month basis during each year of the contract. "4. Pensions "The contractor shall sign an agreement with Division 1181 A.T.U. - New York Employees Pension Fund and Plan to participate in such plan on behalf of all operators (drivers), mechanics, dispatchers and escorts (matrons-attendants), in the event the contractor employs escorts who appear on the Master Seniority Lists and who participated in the Fund and Plan as of June 30, 1995. This requirement shall not be interpreted to require a contractor to enter into a collective bargaining agreement with the union nor shall it prohibit the contractor from entering into a collective bargaining agreement with the union. The contractor shall file a copy of the executed agreement with the Trustees of the Fund and Plan to participate in said Fund and Plan and with the Secretary of the Board with the acknowledgment of the Notice of Award. "The contractor shall contribute $48.15 per week per operator (driver), mechanic and dispatcher on the Master Seniority List, and participating in the Plan and Fund as of June 30, 1995, for forty weeks each year for the term of the contract, or such greater amount as may be required, based on contributions by contractors on behalf of the majority of employees participating in the Fund and Plan pursuant to a collective bargaining agreement with Local 1181 - 1061. The contractor shall withhold $23.00 a week from each operator, mechanic and dispatcher participating in said Fund and Plan for forty weeks each year for the term of the contract, or such greater amount as may be required based on contributions of a majority of the operators (drivers), mechanics or dispatchers contributing to the Fund and Plan. "Such contractors who provide escort service, shall contribute $44.15 per week per escort (matron-attendant) for forty weeks each year for the term of the contract, or such greater amount 35 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES as may be required based on contributions by contractors on behalf of the majority of employees participating in the Fund and Plan pursuant to a collective bargaining agreement with Local 1181 - 1061. The contractor shall withhold $18.00 per week from each escort, (matron-attendant) participating in said Fund and Plan and Fund for forty weeks each year for the term of the contract, or such greater amount as may be required based on contributions of the majority of the escorts contributing to the Fund and Plan. "In connection with employees who are on the Master Seniority List and who do not participate in the Local 1181 - 1061 Fund and Plan, they shall not be required to participate in the Plan but shall participate in the collective bargaining agreement, if any, of their employer. "The contractor shall pay all such amounts to the Fund and Plan within seven days after the end of each payroll period. "5. Enforcement "In addition to any other remedies provided in the contract between the Board and the contractor, such as default and/or termination, if the contractor is found to be in violation of the foregoing employee protection provisions regarding the payment of wages, welfare benefit contributions, pension contributions, or other aspects of compensation or benefits, then the Director of the Office of Pupil Transportation, within thirty (30) days of written notice, shall withhold the appropriate amounts from any payments due to the contractor and pay them directly to the applicable union for the benefit of the employees affected, to the Division 1181 A.T.U. - New York Employees Pension Fund or other applicable union pension fund for the benefit of the employees affected or to the appropriate Welfare Fund for the benefit of the employees affected. If the affected employees are not affiliated with any union, then the Board shall investigate on their behalf allegations of employee protection provision violations regarding the payment of wages, welfare benefit or health insurance contributions, pension or similar savings plan contributions, or other aspects of compensation or benefits. Upon a finding of any such violation(s), the Director of the Office of Pupil Transportation shall withhold the appropriate amounts from any payments due to the Contractor and pay them directly to the employees or to such health insurance companies or other institutions as appropriate. 36 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES "In the event any contractor willfully fails to comply, the Board of Education shall act to cancel such contractor's contract; provided, however, that the Board shall not be required to act so as to cause a disruption of service. "6. Contractors providing a total of five vehicles or less pursuant to all contracts with the Board for the transportation of pupils shall not be subject to the foregoing provisions with respect to operators (drivers), mechanics and dispatchers. "Escorts (matron-attendants) shall not be included in the exclusion provided in this paragraph six (6). "7. For the purposes of this section, corporate bidders who are subject to common control as determined by the Board based upon analysis of: "(a) ownership of the corporations' assets, "(b) coincidence of corporate officers and directors, and "(c) such other factors as the Board determines to be relevant, are deemed to be one bidder. "8. The Board may in its sole and unfettered discretion change any date which determines employee protected status, employer status or any other status, which is contained in any employee protection provisions of the Contract. The Master Seniority Lists will be updated to June 30, 1995 as permitted in accordance with pre-existing collective bargaining agreements executed prior to the date of execution of this Contract. Furthermore, the rates quoted herein may not be reflective of current labor rates in effect. The contractor should pay special attention to the fact that many employees on the Master Seniority Lists have been in the industry for many years and therefore may be entitled to substantial wages, pension and welfare benefits and wage accruals. "The date for inclusion on the Master Seniority List is hereby updated to the last school day in June, 1995 as permitted in accordance with pre-existing collective bargaining agreement executed prior to the dare of this Extension Agreement and Amendment Agreement." 37 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES (G) MISCELLANEOUS VEHICLE SPECIFICATIONS AND OPERATIONAL AMENDMENTS. Any terms, conditions and specifications to the contrary notwithstanding, the Contract is hereby amended as follows: (1) Federal Safety Standards. All vehicles used to perform this Contract must meet all of the 1977 Federal Safety Standards, as reflected in Title 49 of the Code of Federal Regulations, Part 571, and particularly, Standard Nos. 105, 111, 220, 221, 222, and 301 (the "1977 Standards") . Violation of this provision to any extent will be grounds for a determination of contractual default. (2) Age and Condition of Vehicles. The vehicles affected by this provision include all originally contracted vehicles, (i.e., "contract vehicles") and all additional and spare vehicles. Except for the age of vehicles, nothing contained in this Paragraph (2) and/or any of its subparagraphs shall be deemed or construed in any manner or to any extent whatsoever to act and/or operate in abrogation or derogation of any other individual or cumulative provisions of the Contract, as heretofore amended and extended. (a) The Contractor shall furnish service, maintenance and repairs of all vehicles used in the performance of this contract in compliance with (i) all manufacturer's guidelines for maintenance, service and repairs, (ii) all Federal and State of New York statutes, regulations, rules, guidelines and policies applicable to service, maintenance and repair of school bus vehicles, (iii) all New York State Department of Transportation and New York State Department of Motor Vehicles policies, rules and regulations; and (iii) Federal and State regulations applicable to maintenance and repair of school bus vehicles, and (iv) all New York State Education Department, policies, rules and regulations applicable to service, maintenance and repair of school bus vehicles. The Contractor shall maintain and, upon demand, shall present to the Director contemporaneously kept, accurate, complete, orderly and written records of the school bus vehicle, maintenance and repair activities performed in accordance with the foregoing. (b) The Director shall have the right to disapprove any vehicles under this Contract and to require the Contractor to furnish an acceptable replacement vehicles in the event that the Director determines in his/her reasonable judgement any such vehicle(s) to be unfit for service. 38 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES (c) The Contractor may continue to use the vehicles that are in service as of the date of the execution of this Extension and Amendment Agreement throughout the term of said Extension and Amendment Agreement, provided each such vehicle is in compliance with subparagraph (a) and (b) hereof. However, any new vehicles that shall be placed into service during the term of this Extension and Amendment Agreement shall be not more than five years old at the time such vehicle is placed into service. Vehicles transferred among contractors that are subject to common control shall not be considered as new vehicles under the preceding sentence. In his/her reasonable discretion, the Director may allow the continued use of any given contractor's vehicles that are in service as of the date of the execution of this Extension and Amendment Agreement upon an assignment of the Contract, if and to the extent any such assignment shall be approved in accordance with the terms and conditions of the Contract, as heretofore amended and extended. (3) List of Vehicles. Before September of each Extension Year or at any other time stated by the Director, the Contractor must provide a list of all vehicles, including spare and maintenance vehicles, to be operated during each Extension Year. Each list must show for every vehicle the year, make, type, seating capacity, registration number, bus number, license plate number, owner, lessee (if applicable), and the expiration date of the New York State Department of Transportation approval sticker. The information must be provided on forms approved and supplied by the BOE, and the Contractor must supply a copy of the title or certificate of registration for each listed vehicle. Whenever any changes occur in the list of vehicles, the Contractor must update the list within ten (10) business days. In addition, the Contractor must provide at the same time written assurance that all vehicles are equipped with two-way radios. (4) Fax Machines. All Contractors must provide to the Director an available number where documents pertaining to pupil transportation may be faxed. (5) Railroad Crossings. Each vehicle used to perform this Extension Agreement must come to a full stop before crossing the track(s) of any railroad and, before crossing any state highway. 39 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES (6) New Laws. Rules. Regulations. By-Laws or School Bus Safety Features. whereupon any Federal, State, Local or Board of Education laws, rules, regulations or by-laws are enacted, updated, revised, amended or otherwise changed in any manner which require the Contractor to undertake any new or revised procedures affecting school bus personnel or operations (i.e., school bus personnel drug or alcohol testing, driver licensing or training procedures, etc.) or the introduction onto vehicles of new safety features or any other equipment (i.e., increased seat-back padding, back-up beepers, stop arms, safety sensors, etc.), the Contractor must comply promptly. The Contractor must assume the full cost of compliance with any new or revised driver, escort and/or operational procedures or for the purchase and installation of new safety features or other equipment in compliance with any such changes and will not be entitled to any additional remuneration from the BOE except as expressly permitted by law. (7) Use of Vehicles. Article XII entitled "Use of Vehicles" in Contract Serial Nos. 0070, 8108, G8805, G8891 and G9325 and Article 35 entitled "Use of Vehicles" in Contract Serial Nos. 7165, 7200 and 7291, are hereby amended by the addition of sixth and seventh unnumbered paragraphs at the end of each such Article to read as follows: "In addition to all other uses of vehicles prescribed in pupil transportation contracts, the Director shall have the right, power and authority to require the Contractor to provide vehicles during the hours between the transportation of pupils to school for the morning sessions and the pick-up of pupils for homeward bound trips for service to other mayoral and/or non-mayoral City of New York agencies and to any other public agencies and/or private organizations; as determined by the Director. While not previously invoked to any great extent during the period of the Contract, the provisions of the third unnumbered paragraph contained in this Article XII are still in full force and effect as stated herein. The Contractor shall be entitled to payment for such services as stipulated in this contract. At no time shall such service interfere with the timely transportation of pupils to and from school." (H) MISCELLANEOUS FINANCIAL AMENDMENTS. Any express terms, conditions and specifications to the contrary notwithstanding, the Contract is hereby amended as follows: (1) Further Amendments. The Contractor hereby agrees and covenants to execute any further amendment to the Contract 40 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES that the New York State Education Department requires to secure the Department's approval of this Extension and Eighth Amendment Agreement and to maintain the continuity of funding. (2) Insurance Cost Increase Provision. Whereupon the Legislature amends the State Education Law to allow the Board of Education to obtain State funding to reimburse the Contractor for any amount of demonstrated and approved increases in the cost of insurance, this Contract will be deemed automatically amended to allow such reimbursement according to the exact terms of any such statutory provision. (a) Interim Insurance Provision. For only so long as the State Education Law does not provide expressly for reimbursement of vehicle insurance and/or escort health and welfare insurance cost increases, the Board of Education agrees and consents for a limited time to a partial or complete suspension of the application of the two percent (2%) prompt payment discount, but only to the for Contract Serial Nos. 0070, 8108, G8805, G8891 and G9325, and only to the extent of the Contractor's annual proof of eligibility. (b) To be eligible for a partial or complete suspension of the two percent (2%) prompt payment discount for each Extension Year regarding vehicle insurance rate increases, the Contractor must meet eligibility conditions and adhere to rules, procedures and definitions for the annual submittal of an "Insurance Rate Increase Claim Statement," as such are expressed in Appendix B. The said eligibility conditions, rules, procedures and definitions for partial or complete suspension of the two percent (2%) prompt payment discount for each Extension Year are hereby incorporated by this reference into this Extension and Amendment Agreement as if set out herein in their entirety, and a copy of the said eligibility conditions, rules, procedures and definitions is hereto annexed as Appendix B. (c) Documentation of Escort Health & Welfare Insurance Rate Increases. To be eligible for a partial or complete suspension of the two percent (2%) prompt payment discount for each Extension Year regarding escort health and welfare insurance rate increases, the Contractor must document to the satisfaction of the Director the amount of escort health and welfare insurance cost and increases actually experienced. The base year for the escort 41 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES health and welfare insurance calculation is January 1, 1990 through December 31, 1990. (i) During the Fourteenth Extension Year, the Contractor must show the difference between all premiums paid for required coverage for the period from January 1, 1995 through December 31, 1995 and the amount paid for such coverage for the period from January 1, 1990 through December 31, 1990. For a complete suspension of the discount, the difference between the two (2) years must be equal to or greater than the value of the two percent (2%) discount for each year as adjusted by the annual percentage of increase provided above in Paragraph (B) of this Extension Agreement and as calculated on a monthly basis at the coverage levels prescribed by the BOE during the balance of the contract period. To the extent that the difference is between zero percent (0%) to two percent (2%), there will be a proportionate reduction in the suspension of the discount. (ii) During the Fifteenth Extension Year, the Contractor must show the difference between all premiums paid for required coverage for the period from January 1, 1996 through December 31, 1996 and the amount paid for such coverage for the period from January 1, 1990 through December 31, 1990. For a complete suspension of the discount, the difference between the two (2) years must be equal to or greater than the value of the two percent (2%) discount for each year as adjusted by the annual percentage of increase provided above in Paragraph (B) of this Extension Agreement and as calculated on a monthly basis at the coverage levels prescribed by the BOE during the balance of the contract period. To the extent that the difference is between zero percent (0%) to two percent (2%), there will be a proportionate reduction in the suspension of the discount. (iii) During the Sixteenth Extension Year, the Contractor must show the difference between all premiums paid for required coverage for the period from January 1, 1997 through December 31, 1997 and the amount paid for such coverage for the period from January 1, 1990 through December 31, 1990. 42 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES For a complete suspension of the discount, the difference between the two (2) years must be equal to or greater than the value of the two percent (2%) discount for each year as adjusted by the annual percentage of increase provided above in Paragraph (B) of this Extension Agreement and as calculated on a monthly basis at the coverage levels prescribed by the BOE during the balance of the contract period. To the extent that the difference is between zero percent (0%) to two percent (2%), there will be a proportionate reduction in the suspension of the discount. (iv) During the Seventeenth Extension Year, the Contractor must show the difference between all premiums paid for required coverage for the period from January 1, 1998 through December 31, 1998 and the amount paid for such coverage for the period from January 1, 1990 through December 31, 1990. For a complete suspension of the discount, the difference between the two (2) years must be equal to or greater than the value of the two percent (2%) discount for each year as adjusted by the annual percentage of increase provided above in Paragraph (B) of this Extension Agreement and as calculated on a monthly basis at the coverage levels prescribed by the BOE during the balance of the contract period. To the extent that the difference is between zero percent (0%) to two percent (2%), there will be a proportionate reduction in the suspension of the discount. (v) During the Eighteenth Extension Year, the Contractor must show the difference between all premiums paid for required coverage for the period from January 1, 1999 through December 31, 1999 and the amount paid for such coverage for the period from January 1, 1990 through December 31, 1990. For a complete suspension of the discount, the difference between the two (2) years must be equal to or greater than the value of the two percent (2%) discount for each year as adjusted by the annual percentage of increase provided above in Paragraph (B) of this Extension Agreement and as calculated on a monthly basis at the coverage levels prescribed by the BOE during the balance of the contract period. To the extent that the difference is 43 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES between zero percent (0%) to two percent (2%), there will be a proportionate reduction in the suspension of the discount. (d) Payment Deadline for Application of Prompt Payment Discount. The Contractor consents, agrees and stipulates that the two percent (2%) prompt payment discount will apply to payments for all services rendered pursuant to this Contract which the BOE makes within six (6) business days after thirty (30) days have elapsed from the date of the BOE's receipt of the Contractor's monthly invoice. (e) Audit and Recovery of Overpayment. Each Insurance Cost Justification Financial Statement will be subject to audit and approval by the BOE. As above provided, the BOE will have the right, power and authority to recover any amounts paid to the Contractor which the BOE determines to be unjustified either by deductions from any later payments which become due and owing to the Contractor. (g) Limitation on Discount Suspension. The Contractor consents, agrees and stipulates that the suspension of the prompt payment discount will survive only so long as the insurance crisis continues or until the effective date of any amendment of the State Education Law as mentioned above at Paragraph (H) (3) (a). The BOE will have the right, power and authority to cease the suspension of this discount when the insurance crisis abates, as determined at the Director's sole discretion. (h) Contractor's Use of Revenue. The Contractor hereby agrees, covenants and warrants that any funds which the Contractor derives because of the suspension of the two percent (2%) prompt payment discount will be applied only to the payment of insurance premiums and will be used for no other purpose. Whereupon the BOE discovers that the Contractor will have used such funds for other purposes, the Contractor will be disqualified permanently from any future suspension of the prompt payment discount. (i) Limitation on Actions. If, after the BOE will have determined the Contractor not to be entitled to further suspension of the prompt payment discount, there arises litigation at any future time whereby the Contractor attempts to secure the prompt payment discount suspension in perpetuity, the Contractor consents, agrees, stipu- 44 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES lates and covenants not to use or attempt to use this document in any manner to establish that the BOE or the City of New York must suspend the prompt payment discount or pay any amounts thereunder to the Contractor. (3) Fingerprint Processing and Identification Badges. The Contractor hereby agrees, consents and covenants that at the discretion of the Director, all employees of the Contractor including but not limited to principals, shareholders, stockholders, managers, dispatchers, office personnel, and mechanics, will be subject to a fingerprint check. The Contractor also, hereby agrees, consents and covenants that the costs to process fingerprints, criminal background research, other documents and identification badges for any of the above mentioned will not be borne by the Board of Education. Whereupon OPT assumes the responsibility to process fingerprints, criminal background research, other documents and identification badges, the Contractor agrees and covenants to be bound by rules and procedures prescribed by the Director whereby the BOE will defray the associated administrative costs. (4) Vacillation in the Number of Contract and/or Additional Vehicles during Extension Periods. Article XIII entitled, "Increase or Decrease in the Number of Vehicles," is henceforth amended as follows: (a) The current Paragraph C is henceforth redesignated as Paragraph D. A new Paragraph C is added immediately below the current Paragraph B. The new paragraph shall reads as follows: C. Increases and/or Decreases in the Number of Vehicles during Extension Periods. The Board of Education and the Contractor hereby acknowledge and stipulate that the number of vehicles required to serve pupil transportation needs may change often during each school year due to changes in pupil population, default or voluntary surrender of a Contract or changes in policy or directives adopted by the BOE, the City of New York, the State Department and/or Financial Control Board, over the term of an Extension Agreement. "If the Director eliminates any vehicle(s) from the number originally awarded to the Contractor and later offers again a vehicle(s) of the same type(s) 45 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES and geographical service area(s) due to any resumed need, the Contractor shall be entitled to restoration up to and including the number of vehicles of the same type(s) and geographical service area(s) originally awarded pursuant to the procedures specified above in Paragraph B. "The Director shall offer any 'additional' vehicle(s) first to the contractor with the lowest 'current' weighted average daily rate per vehicle and the daily rate per escort in the relevant contractual item, pursuant to the procedures specified above in Paragraph B. Additional vehicles will be offered first to the Contractor will the lowest current daily weighted average plus the daily rate per escort. The ranking will include both those Contractors who are under an extension agreement and those Contractors who are under the terms of Contracts for similar work. "The term "lowest weighted average daily rate per vehicle," plus the daily rate per escort, which is used to determine the order in which contractors are affected by both the decrease provisions of Paragraph A and the increase provisions of Paragraph B concerning both original vehicles and all additional vehicles, shall reflect the current rates paid by the Board of Education at the time of an offer. (5) Pending Litigation. (a) Pertaining only to contracts under Serial Nos. 0070, 8108, G8805, G8891, and G9325, the contractor does hereby acknowledge that he/she is fully aware and apprised of pending litigation cases concerning cost justification which have been consolidated under the caption of A.C. Transportation. Inc., et. al., v. Board of Education of City of New York. et al., Index No. 30841/92 (5. Ct. New York County) (the "litigation"). Subject to the final judicial disposition or settlement of the litigation, the Contractor does hereby consent, agree and covenant that the daily rate(s) per vehicle to be paid by the BOE to the Contractor during the period of the 1995-2000 Extension and Amendment Agreement shall be the daily rate(s) per vehicle approved by the BOE Office of Auditor General and as first decreased and thereafter augmented each Extension Year pursuant to provisions contained herein (the "OAG Rate"), unless the Contractor shall make a written request to the Director to 46 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES be paid the daily rate(s) per vehicle based on such rate(s) paid during the Eleventh Extension Year, as augmented during the Twelfth and Thirteenth Extension Years, decreased during the Fourteenth Extension Year, and thereafter augmented during the Fifteenth, Sixteenth, Seventeenth and Eighteenth Extension Years pursuant to provisions contained herein (the "Contractor's Rate"). (b) To be effective, the Contractor's written request to be paid at a higher daily rate(s) per vehicle must state that the Contractor does consent, agree and covenant to be bound by the terms and conditions of any settlement(s) or final judicial disposition(s) in these pending litigation cases. To be effective, the Contractor's written request must also state that the Contractor shall provide collateral annually in a form and amount acceptable to the BOE Office of Auditor General sufficient to secure the difference(s) each Extension Year between the OAG Rate and the Contractor's Rate (the "Annual Rate Difference"), i.e., the difference(s) between the daily rate(s) per vehicle in fact paid during the Eleventh Extension Year, as augmented during the Twelfth and Thirteenth Extension Years, decreased during the Fourteenth, and augmented during the Fifteenth, Sixteenth, Seventeenth and Eighteenth Extension Years pursuant to provisions contained herein, and such daily rate(s) per vehicle for which has been or shall have been determined to be appropriate by the BOE Office of Auditor General for the Twelfth and Thirteenth Extension Years, decreased during the Fourteenth Extension Years, and augmented during the Fifteenth, Sixteenth, Seventeenth and Eighteenth Extension Years pursuant to provisions contained herein. (c) The BOE shall be required to surrender or release such collateral to the Contractor only on the following conditions: (i) upon the settlement(s) or final judicial disposition(s) of the said litigation cases and upon the Contractor's payment to the BOE of any amounts agreed or determined to be due and owing from the Contractor to the BOE; and, (ii) if and to the extent that a higher daily rate(s) per vehicle than that approved by the BOE Office of Auditor General is sustained upon a final judicial disposition(s) of the litigation. (d) The following forms of collateral are deemed to be acceptable: (i) if the BOE withheld retainage as perfor- 47 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES mance security from the Contractor during the Thirteenth Extension Year and the estimated cumulative performance security retainage amounts for the Fourteenth, Fifteenth, Sixteenth, Seventeenth and Eighteenth Extension Years are equal to or greater than the minimum collateral amounts estimated by the BOE Office of Auditor General for the Fourteenth, Fifteenth, Sixteenth and Seventhteenth and Eighteenth Extension Years, the Contractor may use such retainage for the Fourteenth, Fifteenth, Sixteenth, Seventeenth and Eighteenth Extension Years as collateral, provided the Contractor furnishes a written agreement each year to the Director that such retainage shall be pledged as collateral against any rate reduction(s) and overpayment recovery by the BOE; (ii) if the Contractor's monthly service payments plus performance security retainage for the Fourteenth, Fifteenth, Sixteenth, Seventeenth and Eighteenth Extension Years are equal to or greater than the minimum collateral amounts estimated by the BOE Office of Auditor General for Fourteenth, Fifteenth, Sixteenth, Seventeenth and Eighteenth Extension Years, the Contractor shall provide to the Director a written agreement to receive monthly service payments on or about the twenty-fifth (25th) day following each month of service with no surrender by the BOE of the Two Percent (2%) Prompt Payment Discount if payment shall be delayed by more than thirty (30) days after the BOE's receipt of each monthly invoice, as provided in Article V of the Contract; (iii) the Contractor shall provide a confirmed irrevocable Letter of Credit from an acceptable financial institution for the benefit of the BOE, renewed annually, in an amount minimally equal to the collateral deemed necessary by the BOE Office of the Auditor General; (iv) a surety payment bond on which the BOE shall appear as the insured, issued by an insurer licensed to do business in the State of New York, renewed annually, in an amount minimally equal to the collateral deemed necessary by the BOE Office of Auditor General; (v) the Contractor shall furnish title vested in the BOE to a frozen bank account to be held by the BOE in escrow in an amount minimally equal to the collateral deemed necessary by the BOE Office of Auditor General; or, (vi) in the event that the Contractor does not elect one of the foregoing forms of collateral provided for in this subparagraph (d), the Contractor's daily rate(s) per vehicle shall be reduced to a level(s) approved by the BOE Office of the Auditor General, the disputed difference(s) shall be held by the BOE in escrow for the 48 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES Contractor in an interest bearing account maintained by the Comptroller of the City of New York pending the outcome of the litigation, and such amount shall be payable to the Contractor in accordance with subparagraph (c) hereof. (e) If the Contractor elects under Article (G), Paragraph (5) (d) (vi) above to receive the reduced daily rate(s) per vehicle during the 1995-96 Extension Year, then the amount to be escrowed shall be the difference(s) between 98.5% of the higher daily rate(s) and 98.5% of the reduced daily rate(s) per vehicle to be paid to the Contractor during the 1995-96 Extension Year shall be 98.5% of the reduced daily rate(s). (f) If litigation is unresolved prior to June of the Fourteenth, Fifteenth, Sixteenth, Seventeenth and Eighteenth Extension Years, the BOE shall retain from the Contractor's monthly service payment(s) for June of each Extension Year any underpayment collateral for the year then ended, as determined by the BOE Office of Auditor General. The BOE shall hold such retainage in escrow for the Contractor in an interest bearing account maintained by the Comptroller of the City of New York pending the outcome of the litigation. (I) GENERAL MISCELLANEOUS AMENDMENTS. Any express terms, conditions and specifications to the contrary notwithstanding, the Contract is hereby amended as follows: (1) Cancellation. (a) General Terms and Conditions Section 7 entitled, "Cancellation," is amended so that the Director may seek to have the Contractor declared by the Chancellor's Board of Review to be in default of the Contract either as a whole or merely in one or more "items" of the Contract, i.e., the Contract is divisible into its several "items." Upon a finding of default, the Chancellor's Board of Review will have the right, power and authority to terminate the whole Contract or merely one or more contractual "items." (b) General Terms and Conditions Section 7 entitled, "Cancellation," is amended by the addition of a new paragraph "D" to read as follows: "In the event of significant or repeated safety violations due to acts of commission or omission by the Contractor or by its employees, which result from the Contractor's failure to conduct its operations in accordance with good practices in the pupil transportation business, the BOE 49 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES shall have the right to terminate the contract upon thirty days advance written notice to the Contractor, unless the Contractor can establish to the Director's reasonable satisfaction that the Contractor's record of safety will thereafter be satisfactory in accordance with good industry practices. For purposes of this provision, "safety violations" shall mean significant or repeated violation of safety laws and/or regulations of the United States Department of Transportation, the New York State Department of Transportation, The New York City Department of Transportation, and the BOE Office of Pupil Transportation, provided that prior to terminating this agreement for repeated safety violations the BOE Office of Pupil Transportation shall provide the contractor with notice and an opportunity to cure." (c) General Terms and Conditions Section 7 entitled, "Cancellation," is amended by the addition of a new paragraph "E" to read as follows: "In the event of an indictment of the Contractor, any of its principals, officers, or management employees on the basis of acts of commission or omission involving or affecting the provision of pupil transportation services under any BOE pupil transportation contract(s) including, but not limited to, acts of commission or omission which excessively increase BOE costs of doing business, the BOE will have the right, at the Director's discretion, either to terminate the Contract upon thirty days advance written notice to the Contractor or to require the Contractor to obtain the employment termination and ownership divestiture of the indicted party. Before a final decision on either alternative disposition, the Director will afford the Contractor a personal meeting to allow for a full, open discussion of relevant issues." (d) General Terms and Conditions Section 7 entitled, "Cancellation," is amended by the addition of a new paragraph "F" to read as follows: "Nothing herein shall otherwise limit the rights and remedies of the Director as set forth in this contract." (2) Standards of Professional Conduct and Performance. If the Director promulgates new standards of professional conduct and/or minimum levels of competency or performance for drivers and escorts, the Contractor must ensure that all affected employees are made fully aware of, and act in full compliance with, such new standards. In addition, the Contractor must certify in the manner prescribed by the Director that each and 50 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES every driver, escort and other affected employee has received written notification of such new standards. (3) Advertising on Vehicles. (a) The Contractor hereby agrees and warrants to cooperate fully and completely with the Board of Education regarding the placement of advertisements on the two (2) exterior sides of all vehicles, including all spare vehicles. The Contractor shall not be responsible for any costs, labor or other work associated with the installation, repair, maintenance, replacement and/or removal of advertisements or the repair and/or maintenance of school bus vehicles in relation thereto. In addition, the Contractor must not cause, incur or allow any costs, expenses or other liabilities on its own part concerning anything whatsoever directly or indirectly related to the placement, repair, maintenance and/or removal of advertisements on school bus vehicles or the repair or maintenance of school bus vehicles in connection with such advertisements, and the Contractor shall not demand, nor be entitled to, any compensation from the Board of Education for any such costs, expenses or other liabilities. (b) The Contractor shall allow the Board or the Board's agents, employees, contractors, subcontractors or other representatives to affix any and all such advertisements to the Contractor's vehicles by any means the Board selects including, but not limited to, metal and/or plastic frames and/or direct application, adhesive decals, provided, that the BOE or its agent, contractor and/or subcontractor shall be responsible for the cost to restore the vehicle bodies with respect to any damage upon removal. The Contractor shall cooperate fully to provide access to all of its vehicles under the Contract, including spare vehicles, at such times when they are not in use for Board transportation service including the early morning, midday and evening hours, as the Board or the Board's agents, employees, contractors, subcontractors or other representatives shall schedule with at least three business days advance notice. Whereupon any advertisement or any component part thereof becomes damaged to any extent or destroyed, for any reason whatsoever, and/or whereupon any vehicle sustains damage or requires repairs or maintenance due to any advertisements or any component part thereof, the Contractor shall notify the Board or the Board's designated agents, employees, contractors, subcontractors or other representatives within twenty-four (24) hours by calling an "(800)" telephone number which the Board shall supply to the Contractor. It the Contractor is dissatisfied for any reason 51 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES with any vehicle repairs or maintenance supplied by the Board or the Board's designated agents, employees, contractors, subcontractors or other representatives, the Contractor shall submit any such claim or dispute in writing to the Director of the Office of Pupil Transportation for resolution whose decision shall be final and binding upon the Contractor, except for administrative appeal to the Chancellor's Board of Review pursuant to Section 8.3 of the Board of Education's Bylaws. (c) The Contractor hereby consents, acknowledges and agrees that any and all revenues or other consideration derived from the placement of advertisements on the Contractor's vehicles shall be and remain forever the sole and exclusive property of the Board of Education and not the Contractor. The Contractor further agrees to follow in every respect any and all rules, regulations, requirements, specifications or procedures concerning school bus advertisements that the Board may, in its sole discretion, promulgate in the Board's "SCHOOL BUS CONTRACTOR'S MANUAL OF PROCEDURES AND REQUIREMENTS," as currently or hereafter updated, revised or otherwise changed. (4) Incorporation of More Favorable Terms. As an inducement to the Contractor to execute this Extension and Eighth Amendment Agreement prior to April 15, 1994, the BOE agrees that, if there are any subsequent extension agreements with other contractors for any handicapped student transportation originally awarded under Serial Nos. 0070, 8108, G8805, G8891 and G9325 which contains terms more favorable to the contractors, the BOE will agree to amend the Contract further to incorporate those same more favorable terms. (5) Unlawful or Unenforceable Provisions Void. Whereupon this Extension and Eighth Amendment Agreement is found to contain any unlawful or unenforceable provision(s) which is not essential to continued performance or which is not material to the intent and inducement of the parties, such provision(s) will be deemed of no effect and will, upon application of either party, be stricken from this document without thereafter affecting the binding force of the remainder of this Extension and Eighth Amendment Agreement. (6) Approval and Execution. This Extension and Eighth Amendment Agreement will not become binding or effective upon the Board of Education until the following series of events will have transpired: (a) approval as to form by the BOE Office of Legal Services; (b) authorization by a resolution duly adopted 52 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES by a vote of the Board of Education which will be deemed to be incorporated herein; (c) execution on behalf of the Board of Education by the Chancellor or his/her designee; (d) approval by the New York State Commissioner of Education; (e) initial registration with Comptroller and re-registration with the Comptroller each year thereafter; and, (f) initial approval and subsequent annual re-approval by the New York State Financial Control Board pursuant to the New York State Emergency Act for the City of New York, the rules and regulations of said Board so require. (7) Implementation of the State Education Law. This Extension and Eighth Amendment Agreement is intended to implement the provisions of the New York State Education Law, Section 305, Subdivision 14 and the attendant regulations of the New York State Commissioner of Education. Whereupon there exist any inconsistency between the Board of Education and the State Education Department concerning this statutory provision, the attendant regulations of the Commissioner of Education and/or any formula(e) for reimbursement of funds, this Extension and Eighth Amendment Agreement will be deemed amended automatically to conform to the interpretation of the State Education Department but only for the protection of the Board of Education's interests and only at the Board of Education's option. (8) The Comptroller will endorse hereon during the term of this Contract his/her certificates that there are appropriations or funds applicable thereto sufficient to pay the estimated expense to execute and operate this Contract during the respective fiscal periods. (9) As used herein, the singular will include the plural and vice versa. (10) All other provisions of the Contract as amended by the 1984 Extension Agreement and Fourth Amendment Agreement, by the 1987 Extension Agreement and Fifth Amendment Agreement, and the 1990 Extension and Sixth Amendment Agreement, except those provisions herein noted and revised, will remain in full force and effect. (11) The Contractor does hereby consent and agree to cooperate with the BOE concerning the elimination of the Contractor's payment of Federal, State and local sales, excise and use taxes on purchases, leases and other transfers which the Contractor makes, effects, causes or allows in the performance of the Contract. The particular rules and 53 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES procedures concerning the elimination of such taxes shall be promulgated in the Board's "SCHOOL BUS CONTRACTOR'S MANUAL OF PROCEDURES AND REQUIREMENTS," a draft copy of which shall be circulated to the contractors for comment before final promulgation. Such rules and procedures may include, but are not necessarily limited to, the following: (A) the Contractor's use of the Board's tax exempt status when making, effecting, causing or allowing purchases, leases and other transfers in the performance of the Contract (the Board shall furnish the Contractor with appropriate forms and procedures), provided that the Contractor shall remain the purchases or lessee of its vehicles, goods, commodities, supplies, equipment and so forth; and, (B) the Contractor's cooperation through the production of documentary evidence, as specified by the Board, with any and all attempts by the Board to seek and obtain refunds of any and all Federal, State and local excise, sales and use taxes which the Contractor has paid during the applicable statutory period of limitation for goods, fuel, commodities, services, leases, etc. in the performance of the Contract. Whereupon the Board requires the Contractor to produce documentary evidence in the course of any attempt by the Board to seek and obtain such refunds of taxes, the Board shall pay the Contractor, as consideration for such cooperation, twenty percent (20%) of any refund amount attributable to the Contractor's purchases, leases and other transfers, but only when and after such refund amounts are actually received by the Board. 54 IN WITNESS WHEREOF the parties have executed this Extension Agreement and Eighth Amendment Agreement in septuplicate the year and day below written. For the Board For the Contractor /s/ [ILLEGIBLE] for Amboy Bus Company, Inc. - ----------------------------- ----------------------------------------- CHANCELLOR (Print full name above) 46-81 Metropolitan Avenue ----------------------------------------- Ridgewood, NY 11385 ----------------------------------------- (Print address above) BY: /s/ Michael P. Coneys BY: /s/ Michael Gatto ------------------------- --------------------------------- Approved as to Form Sec. Tres (Sign in ink above - Print name and title below) Michael Gatto ------------------------------------- Sec Tres Michael P. Coneys - ----------------------------- OFFICE OF LEGAL SERVICES DATED: 6/19/96 Subscribed and sworn to me this 26 day of June, 1996 /s/ Marilyn C. Wise ----------------------------------------- Notary Public MARILYN C. WISE Notary Public, State of New York No. 41-6834893 Qualified in Queens County Commission Expires 10/31/97 55 IN WITNESS WHEREOF the parties have executed this Extension Agreement and Eighth Amendment Agreement in septuplicate the year and day below written. For the Board For the Contractor /s/ [ILLEGIBLE] for Staten Island Bus Co. - ----------------------------- ----------------------------------------- CHANCELLOR (Print full name above) 7 North Street ----------------------------------------- Staten Island, New York 10302 ----------------------------------------- (Print address above) BY: /s/ Michael P. Coneys BY: /s/ Michael Gatto ------------------------- --------------------------------- Approved as to Form (Sign in ink above - Print name and title below) Michael Gatto ------------------------------------- Sec Tres Michael P. Coneys - ----------------------------- OFFICE OF LEGAL SERVICES DATED June 19, 1996 Subscribed and sworn to me this 26 day of June, 1996 /s/ Marilyn C. Wise ----------------------------------------- Notary Public MARILYN C. WISE Notary Public, State of New York No. 41-4836893 Qualified in Queens County Commission Expires 10/31/97 55 EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES APPENDIX A Only for Contracts under Serial Nos. 0070, 8108, G8805, G8891 and G9325, where a contractor meets conditions of eligibility may allowable cost increases accrued during the period of the Twelfth to Fourteenth Extension Years be carried forward "below-the-line" to supplement those cost increases which are used to justify an augmentation of the daily rate per vehicle for the Sixteenth and Seventeenth Extension Years. In addition, only for Contracts under Serial Nos. 0070, 8108, G8805, G8891 and G9325 where a contractor meets conditions of eligibility may allowable cost increases accrued the during the period of Fifteenth to Sixteenth Extension Years be carried forward "below-the-line" to supplement those cost increases which are used to justify an augmentation of the daily rate per vehicle for the Seventeenth Extension Year. To be eligible to carry forward such cost increases, a contractor must provide annually a cost increase comparison between the Twelfth and Fourteenth Extension Years and the Fifteenth and Sixteenth Extension Years (when appropriate that identifies all items of cost increase and, separately, the percentage of cost increase if any, to be carried forward and applied to a given subsequent base year. The base year is the year immediately preceding the given subsequent extension year to which the cost increases from the Twelfth to Fourteenth Extension Years and/or the Fifteenth to Sixteenth Extension Years are to be applied. The Board's Auditor General may prescribe additional eligibility conditions as deemed appropriate in his/her sole discretion. The term "below-the-line" is defined to mean that cost increases from the periods of the Twelfth to Fourteenth and Fifteenth to Sixteenth Extension Years, which are carried forward, are deemed as allocated to the period of accrual, i.e., the Twelfth to Fourteenth and Fifteenth to Sixteenth Extension Years, respectively, and not to the subsequent extension year(s) to which they are carried forward and applied both supplementally and "below-the-line" as prior cost increases that have not as yet been absorbed by the lesser of an annual Consumer Price Index increment or a fixed annual rate augmentation cap. Once a cost increase item accrued during the Twelfth to Fourteenth or Fifteenth to Sixteenth Extension Years has been carried forward and applied "below-the-line" to a given base year, it may not be used again in any later base year. i EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES Appendix B (1) Eligibility for Discount Suspension. For contracts under Serial Nos. 0070, 8108, G8805, G8891 and G9325 to be eligible for a suspension of the two percent (2%) prompt payment discount, to which the BOE is otherwise entitled under the provisions of the Contract, the Contractor must demonstrate in an annual "Vehicle Insurance Rate Increase Claim Statement" that increases of insurance premium rates have created unreasonable financial burdens. Each annual "Vehicle Insurance Rate Increase Claim Statement" will be subject to approval at the sole discretion of the Director in consultation with the BOE Office of Auditor General. Eligibility for vehicle insurance also rests on the Contractor's showing that the insurance premiums which reflect annual increases are sufficient to provide minimum levels of coverage required pursuant to the BOE Resolution of September 6, 1985, as amended, and the Contract, as amended. The extent of the discount suspension, if any, is governed by the provisions immediately below at Paragraphs (L) (2) and (3). (2) The term "Vehicle Insurance Rate Increase Claim Statement" is defined as a written accountant's review report prepared by an independent Certified Public Accountant ("CPA") or Public Accountant ("PA") licensed by the State of New York. Each such review report must state (a) that a review was performed in accordance with the standards of the American Institute of Certified Public Accountants ("AICPA"), (b) that the information and data contained in the "Vehicle Insurance Rate Increase Claim Statement" are the representations of the Contractors management, and (c) that it describes the nature of the review as distinct from an audit. Each such review report must furnish at least the limited assurance that, based upon the review, the CPA/PA is not aware of any material modifications that should be made to the "Vehicle Insurance Rate Increase Claim Statement" in order for it to conform to the AICPA's generally accepted accounting principles. Contractor's who have not had a CPA audited report performed for tax, securities or other operation-wide purpose within two (2) years of the commencement date of this Extension and Amendment Agreement must submit a certified and audited "Vehicle Insurance Rate Increase Claim Statement" prepared by an independent CPA for the 1995-96 Extension Year. Furthermore, the CPA or PA who prepares each "Vehicle Insurance Rate Increase Claim Statement" and each review report must state that he/she has studied the cost justification manual supplied by the BOE and has applied the standards contained therein for i EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES the development of the "Vehicle Insurance Rate Increase Claim Statement." Still further, the CPA or PA must have no interest in this Contract, the Contractor or any of the Contractor's parent, subsidiary or other affiliated entities and must so certify in writing. The "Vehicle Insurance Rate Increase Claim Statement" shall utilize form prescribed by the Director as approved by the State Education Department. (3) Documentation of Vehicle Insurance Rate Increases. The Contractor must submit a copy of the full insurance policy and a copy of all invoices from the insurance carrier(s) noting the full amount of premiums which are the subject of any claims. During the 1995-96 and 1996-97 Extension Years, the base year for the vehicle insurance calculation is January 1, 1991, through December 31, 1991. During the 1997-98, 1998-99 and 1999-2000 Extension Years, the base year for the vehicle insurance calculation is January 1, 1994, through December 31, 1994. (a) During the Fourteenth Extension Year, the Contractor must show the difference between all premiums paid for required coverage for the period from January 1, 1995 through December 31, 1995 and the amount paid for such coverage for the period from January 1, 1994 through December 31, 1994. For a complete suspension of the discount, the difference between the two (2) years must be equal to or greater than the value of the two percent (2%) discount for each year as adjusted by the annual percentage of increase provided above in Paragraph (B) of this Extension Agreement and as calculated on a monthly basis at the coverage levels prescribed by the BOE during the balance of the contract period. To the extent that the difference is between zero percent (0%) to two percent (2%), there will be a proportionate reduction in the suspension of the discount. (b) During the Fifteenth Extension Year, the Contractor must show the difference between all premiums paid for required coverage for the period from January 1, 1996 through December 31, 1996 and the amount paid for such coverage for the period from January 1, 1994 through December 31, 1994. For a complete suspension of the discount, the difference between the two (2) years must be equal to or greater than the value of the two percent (2%) ii EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES discount for each year as adjusted by the annual percentage of increase provided above in Paragraph (B) of this Extension Agreement and as calculated on a monthly basis at the coverage levels prescribed by the BOE during the balance of the contract period. To the extent that the difference is between zero percent (0%) to two percent (2%), there will be a proportionate reduction in the suspension of the discount. (c) During the Sixteenth Extension Year, the Contractor must show the difference between all premiums paid for required coverage for the period from January 1, 1997 through December 31, 1997 and the amount paid for such coverage for the period from January 1, 1994 through December 31, 1994. For a complete suspension of the discount, the difference between the two (2) years must be equal to or greater than the value of the two percent (2%) discount for each year as adjusted by the annual percentage of increase provided above in Paragraph (B) of this Extension Agreement and as calculated on a monthly basis at the coverage levels prescribed by the BOE during the balance of the contract period. To the extent that the difference is between zero percent (0%) to two percent (2%), there will be a proportionate reduction in the suspension of the discount. (d) During the Seventeenth Extension Year, the Contractor must show the difference between all premiums paid for required coverage for the period from January 1, 1998 through December 31, 1998 and the amount paid for such coverage for the period from January 1, 1994 through December 31, 1994. For a complete suspension of the discount, the difference between the two (2) years must be equal to or greater than the value of the two percent (2%) discount for each year as adjusted by the annual percentage of increase provided above in Paragraph (B) of this Extension Agreement and as calculated on a monthly basis at the coverage levels prescribed by the BOE during the balance of the contract period. To the extent that the difference is between zero percent (0%) to two percent (2%), there will be a proportionate reduction in the suspension of the discount. iii EXTENSION AND EIGHTH AMENDMENT OF CONTRACT FOR SPECIAL EDUCATION PUPIL TRANSPORTATION SERVICES (e) During the Eighteenth Extension Year, the Contractor must show the difference between all premiums paid for required coverage for the period from January 1, 1999 through December 31, 1999 and the amount paid for such coverage for the period from January 1, 1994 through December 31, 1994. For a complete suspension of the discount, the difference between the two (2) years must be equal to or greater than the value of the two percent (2%) discount for each year as adjusted by the annual percentage of increase provided above in Paragraph (B) of this Extension Agreement and as calculated on a monthly basis at the coverage levels prescribed by the BOE during the balance of the contract period. To the extent that the difference is between zero percent (0%) to two percent (2%), there will be a proportionate reduction in the suspension of the discount. iv EX-10.15 23 BOARD OF EDUCATION SERIAL #9888 SERIAL NO. 9888 BOARD OF EDUCATION [LOGO] CITY OF NEW YORK CONTRACT PROPOSAL Sealed bids will be received by the Directors of the Bureau of Supplies of the Board of Education of the City of New York, at her office, room 513, 44-36 Vernon Blvd., Long Island City, New York 11101 Until 10:00 AM, on Thursday, February 13, 1986. Bids will be publicly opened and read at 11:00 AM on February 13, 1986 in the Auditorium of Willim C. Bryant High School, 48-10 31st Avenue, Long Island City, New York 11103 FOR THE TRANSPORTATION OF OPEN ENROLLMENT PUPILS AND PUPILS ATTENDING REGULAR CLASSES IN PUBLIC AND NON-PUBLIC SCHOOL IN THE CITY OF NEW YORK THE PERIOD FROM SEPTEMBER 1986 THROUGH JUNE 1991 INCLUSIVE. ________________________________________________________________________________ 1. Name of Bidder ___________________________________________________________ Address of Bidder ________________________________________________________ 2. Page Number(s) Containing Bid Prices _____________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ IMPORTANT NO-BID RESPONSE FORM IT IS NECESSARY FOR THE BIDDERS WHO ARE SUBMITTING BIDS ON THE PRODUCT(S) AND/OR SERVICES SPECIFIED HEREIN TO RETURN THIS FORM. FAILURE OF NON-BIDDERS TO COMPLETE AND RETURN THIS FORM WILL RESULT IN THEIR AUTOMATICALLY BEING DROPPED FROM OUR BIDDERS' LIST FOR THE PRODUCT(S) AND/OR SERVICES SPECIFIED HEREIN. The New York City Board of Education is committed to programs and policies that will result in the procurement of supplies, equipment and services that meet the quality standards required by our educational institutions at the lowest possible prices consistent with those standards. An important aspect of achieving this goal is to promote competitive bidding among as great a number of qualified bidders as possible. However, the preparation and mailing of Bid Request Packages is time-consuming and expensive. In instances where bidders fail to respond, or notify the Board of Education of their future intentions, the preparation and mailing of the Bid Request Package represents an unnecessary expense to the Board of Education. All bidders who respond with a "No Bid" response, or choose not to bid, are requested to provide the information requested below and return this form, in the envelope provided, in time for the bid opening. FAILURE TO RETURN THIS COMPLETED FORM WILL RESULT IN THEIR AUTOMATICALLY BEING DROPPED FROM OUR BIDDER'S LIST FOR THE PRODUCT(S) AND/OR SERVICES SPECIFIED HEREIN. To be reinstated on the bidder's list the bidder must forward a written request for consideration which will be reviewed by the Board of Education. ________________________________________________________________________________ REASONS FOR NOT BIDDING AT THIS TIME: _________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ DO YOU WISH TO RECEIVE BID REQUESTS FOR THIS PARTICULAR PRODUCT OR SERVICE IN THE FUTURE? ( ) YES ( ) No *BIDDER'S NAME AND ADDRESS: ____________________________________________________ ________________________________________________________________________________ SIGNED: _______________________ TITLE: _________________ DATE: _________________ BID SERIAL NO.: 9888 ---- *PLEASE CHECK HERE ( ) IF THIS ADDRESS IS A CORRECTION OF THE MAILING ADDRESS TO WHICH THIS BID PROPOSAL WAS ORIGINALLY MAILED. (ii) Serial No. 9888 TABLE OF CONTENTS CONTRACT FOR THE TRANSPORTATION OF OPEN ENROLLMENT PUPILS AND PUPILS ATTENDING REGULAR CLASSES IN PUBLIC AND NON-PUBLIC SCHOOLS IN THE CITY OF NEW YORK FOR THE PERIOD FROM SEPTEMBER 1986 THROUGH JUNE 1991. PAGE General Instructions for Bidders and Bid .............................. 1 1. Form to be Used ................................................... 1 2. Presentation of Bid ............................................... 1 3. Bid Opening ....................................................... 1 4. Bid Deposit or Bid Bond ........................................... 1 5. Late Bids ......................................................... 2 6. Identical Bids .................................................... 2 7. Responsive Bids ................................................... 2 8. Rejection of Bids ................................................. 2 9. Withdrawal of Bid ................................................. 2 10. Verification ...................................................... 3 11. Quotation ......................................................... 3 12. Additional Information ............................................ 3 13. Equal Employment Opportunities .................................... 4 14. Ability to Perform ................................................ 4 15. Financial Statement ............................................... 5 16. Equipment ......................................................... 5 17. Insurance ......................................................... 6 18. Performance Bonds ................................................. 7 19. Cost Factor Form .................................................. 10 20. Award ............................................................. 10 21. Notice of Award ................................................... 10 22. Return of Bid Deposit ............................................. 11 23. Routes ............................................................ 11 24. Time of Sessions .................................................. 11 Bid Certification ..................................................... 12 Individual Verification and Firm or Partnership Verification .......... 15a Corporate Verification ................................................ 15b Cost Factor Form ...................................................... 16 (iii) Serial No. 9888 SCHEDUlE OF ITEMS, SPECIFICATIONS AND BID BLANK FOR THE TRANSPORTATION OF PUPILS FOR THE PERIOD FROM SEPTEMBER 1986 THROUGH JUNE 1991. PAGE 25. Intent and Scope ................................................. 19 26. Period of Contract ............................................... 19 27. Number of Days of Service ........................................ 19 28.A Period of Operation .............................................. 20 28.B Period of Operation - Field Trips ................................ 20 29. Payment .......................................................... 21 30. Items ............................................................ 22 31. Transportation of Pupils ......................................... 22 32. Schedule of Vehicles ............................................. 26 33. Vehicle Specifications ........................................... 26 34. Vehicle Safety Requirements ...................................... 28 35. Spare Vehicles and Vehicle Performance Monitoring ................ 29 36. Use of Vehicles .................................................. 31 37. Increase or Decrease in the Number of Vehicles ................... 32 38. Facilities and Maintenance ....................................... 34 39. Gasoline ......................................................... 34 40. Records to be Transmitted ........................................ 34 41. Vehicle Operator Standards ....................................... 35 42. Operational Supervision .......................................... 37 43. Audit of Invoices and Financial Records .......................... 37 44. Liquidated Damages ............................................... 37 45. Employee Protection Provisions ................................... 43 46. Price Certification .............................................. 46 47. Schedule of Items and Bid Blanks ................................. 47 List of Combination Items and Bid Blanks ......................... 48A-48U Terms and Conditions .................................................. 49 1. Definitions .................................................. 49 2. Subject Matter ............................................... 51 3. Captions ..................................................... 51 4. Interpretation ............................................... 51 5. Modifications ................................................ 52 6. Compliance with Laws ......................................... 52 7. Worker's Compensation ........................................ 52 8. Unlawful Provisions Void ..................................... 52 9. Necessary Approvals .......................................... 52 10. Religious Activity Prohibited ................................ 54 11. Political Activity Prohibited ................................ 54 12. No Personal Liability ........................................ 55 13. Prevention of Delay, Suspension or Strikes ................... 55 14. Inspectors and/or Administrative Personnel ................... 55 (iv) Serial No. 9888 15. Rejection of Vehicles ........................................ 56 16. No Extra Compensation ........................................ 56 17. Invoices and Payments ........................................ 56 18. Cancellation of Funding ...................................... 56 19. No Estoppel .................................................. 57 20. Prior Contractors ............................................ 57 21. Acceptance of Final Payment .................................. 57 22. Claims - Limitation of ....................................... 58 23. Notices ...................................................... 58 24. Waivers ...................................................... 58 25. Cancellation ................................................. 58 26. Investigations ............................................... 59 27. Reports, Inspections and Maintenance of Records .............. 62 28. Non-Assignment of Contract ................................... 63 29. Transfer of Corporate Stock .................................. 63 30. Contractor's Staff ........................................... 64 31. Confidentiality of Records ................................... 64 32. Testimony .................................................... 64 33. Indemnification .............................................. 65 34. Conflict of Interest Prohibited .............................. 65 35. Antitrust Clauses ............................................ 65 36. Merger ....................................................... 66 37. Participation in an International Boycott .................... 66 38. Discrimination ............................................... 66 39. Equal Employment Opportunity Requirements for Non-Construction Contractors, Vendors and Suppliers ........................... 68 40. Supervision .................................................. 74 41. Reserved Rights .............................................. 74 42. Choice of Law, Consent to Jurisdiction and Venue ............. 74 43. Bidders Anti-Apartheid and Export Administration Act and Arms Export Control Act Provision ............................ 75 Acknowledgment by an Individual .............................. 77 Acknowledgment by a Corporation .............................. 78 Acknowledgment by a Partnership .............................. 78 Performance Bond ................................................. 80 (v) Serial No. 9888 BOARD OF EDUCATION CITY OF NEW YORK PROPOSAL FOR BIDS FOR THE TRANSPORTATION OF OPEN ENROLLMENT PUPILS AND PUPILS ATTENDING REGULAR CLASSES IN PUBLIC AND NON-PUBLIC SCHOOLS IN THE CITY OF NEW YORK FOR THE PERIOD FROM SEPTEMBER 1986 THROUGH JUNE 1991 (SERIAL No. 9888) GENERAL INSTRUCTIONS FOR BIDDERS AND BID NOTICE: The attention of the bidder is particularly called to the fact that unless the bid is made in strict conformity with the directions given in this proposal as provided for herein, the bid may be rejected. 1. FORM TO BE USED Bidder Must submit its bid on the blank forms included herein, which set forth the schedule of items, quantities, specifications and form of Contract. 2. PRESENTATION OF BID The person, firm or corporation making a bid shall furnish such bid in a sealed envelope to the Director of the Bureau of Supplies or her designated representative at the place herein mentioned on or before the day and time herein named, and the envelope shall be endorsed on the face thereof with the name of the person, firm or corporation making such bid, the date of its presentation and the title of the services for which such bid is made. All bids once submitted become the property of the Board of Education and may not be returned, except for late bids as noted in Section 5. 3. BID OPENING At the time and place herein stated, the bids received will be publicly opened and read by the Director of the Bureau of Supplies or her duly designated representative. The Board of Education reserves the right to waive any informalities in a bid if it is desired to be in the best interests of the Board to do so. 4. BID DEPOSIT OR BID BOND Every bid shall be accompanied by a bid bond in the full amount of the bid or by a deposit in the amount of $300.00 per vehicle for each vehicle in all items bid. The deposit shall consist of a certified check upon a state or national bank or trust company signed by a duly authorized officer thereof, drawn to the order of the Comptroller of the City of New York. The bid deposit shall be enclosed in a sealed envelope within the envelope containing the bid. Receipt for the bid deposit will not be given, as bids will be publicly opened and read, and the amount of bid deposits publicly announced at the time of the opening of bids. Serial No. 9888 5. LATE BIDS Bids which arrive after the time stated for the opening of bids cannot be accepted. Bids sent by mail are sent at the risk of the bidder, and will not be considered if they arrive after the time stated for the bid opening. 6. IDENTICAL BIDS In cases where two or more responsible bidders have submitted identical bids as to price, the Board will award the Contract pursuant to Board policy, by public drawing. The Board may, in its discretion reject all bids and readvertise for new bids. 7. RESPONSIVE BIDS Bidders are advised that a qualified, conditional or unbalanced bid, (i.e. some prices grossly inflated and others incredibly low), or one at variance with any provision of the Contract documents or one which fails to meet any requirement thereof may be rejected. 8. REJECTION OF BIDS The Board of Education reserves the right to reject any or all bids that do not conform to the bid requirements for ability to perform, financial statements, bidder responsibility, vehicle information, insurance, and performance bonds. 9. WITHDRAWAL OF BID A. 1. After the opening of bids, a request by a bidder to the Board of Education for consent to the withdrawal of its bid because of error made by said bidder, will be considered only under the following terms and conditions: a. Request to withdraw bid must be in writing, addressed to the Director of the Bureau of Supplies and must give reasons for the request. b. Request must be sent by certified mail and must be post-marked not later than 48 hours following the opening of bids. c. All requests will be referred to the Board of Review. d. Contractors requesting consent to the withdrawal of bids shall appear and testify before the Board of Review and shall make available to the Board of Review all work sheets, summary sheets, and other data requested by the Board of Review as pertinent to its inquiry. Failure to appear or to make available data as requested by the Board of Review will result in refusal of consent to the withdrawal of bids. 2 Serial No. 9888 e. After the Board of Review has considered a request by a bidder to withdraw its bid after an award has been made by the Board of Education, the Board of Education may grant such request in any case which it deems just and proper, but such request shall be made and such consent to withdraw shall be made and such consent to withdraw shall be accepted by the bidder upon the express conditions that said bidder shall be excluded from bidding again on the readvertisement of bids for the same item or proposal. Should any bidder request the withdrawal of more than one bid in any twelve month period, the bidder shall be disqualified from bidding on Board of Education work for a period of one (1) year from the date of the second request. B. 1. If the Contract award is not made within forty-five days after the date of bid opening, a bidder may withdraw its bid, provided such withdrawal is made prior to a Contract award. Such withdrawal must be in writing and copies shall be submitted to both the Secretary of the Board of Education and the Director of the Bureau of Supplies. 2. A withdrawal of bid pursuant to this paragraph is not subject to paragraph "A" above. 10. VERIFICATION Each bid shall be verified by the oath signed in writing by the party or parties making it, that the several matters stated therein are in all respects true. If the bidder is a corporation, the verification shall be made by an officer of such corporation with knowledge of the facts and having authority to make such a sworn statement. 11. QUOTATION The bidder shall insert the prices at which it proposes to furnish vehicles for each item in the schedules herein contained as well as all other information required on the bid blank. 12. ADDITIONAL INFORMATION Further information, interpretation or clarification relative to the terms or conditions of the Contract shall be requested in writing, prior to the submission of the bid, from the Director or his or her designee. Such request must be received a minimum of 10 working days prior to the date of bid opening. Any response by the Director will be issued in writing prior to bid opening and mailed to all bidders appearing on the bidder's list maintained by the Bureau of Supplies and all other interested parties who have requested a copy of the bid document. 3 Serial No. 9888 In addition, the Office of Pupil Transportation (OPT) maintains, in the regular course of business, a bulletin board located in the OPT Bureau of Contractual and Regulatory Affairs, 28-11 Queens Plaza North, L.I.C., N.Y. 11101, 3rd floor, room 303, which is open for public inspection to all persons during regular Board business hours, (9 AM to 5 PM - Monday through Friday) where, in addition to all mailings of answers to written inquiries, said responses of the Director will be posted and available for inspection. Posting of the response at the OPT will constitute notice regardless of individual receipt of a copy of the Director's response. 13. EQUAL EMPLOYMENT OPPORTUNITIES The particular attention of bidders is called to the section entitled "Equal Employment Opportunities and Practices" on Pages 68 through 74 of the Terms and Conditions. The provisions and terms therein will be strictly enforced by the Board of Education. It is recommended that you contact the Director of the Office of Equal Opportunity, Room 641, 110 Livingston Street, Brooklyn, N.Y. 11201 for forms and other information that said office would require in the event of possible consideration of award to your company. 14. ABILITY TO PERFORM Each bidder shall furnish evidence as to its financial ability, prior experience, past performance, current and past business and contractual associations, ability to perform, facilities, equipment, majority stockholders, officers and owners. The foregoing evidence shall include but not be limited to the following: (a) Three (3) letters of reference, from three former or present individuals, agencies or organizations to which you have provided service, on letterhead, related to the level and quality of service provided to those individuals, agencies, or organizations. Letters from family members and those parties having a financial interest in the contract are unacceptable. (b) List and description of all local, state and federal contracts related to the provision of transportation services currently in force and to which the bidder was a party within the last five years, including the name of the agency involved, annual amount of contract and nature of contract. (c) Description of any investigation, and/or litigation involving a city, state, or federal agency as well as a private individual, partnership or corporation, within the past three years. No award will be made to a bidder who shall fail to submit evidence, setting forth the facts required to be set forth, or to a bidder whose statements set 4 Serial No. 9888 forth in such evidence are found to be untrue. Any statement or declaration made by the bidder which shall be found to be untrue will be sufficient cause for rejecting its bid and forfeiting its bid deposit to the Board. The Director will determine whether the evidence of ability to perform is satisfactory and will recommend awards only when such evidence is deemed satisfactory, and reserves the right to reject any bid where after investigation and evaluation the Director determines that the evidence of the bidder's ability to perform is not satisfactory. 15. FINANCIAL STATEMENT The bidder must submit with its bid a balance sheet and profit and loss statement of its operations for the past three annual tax periods or the number of tax years (must be indicated) for which the bidder has been in business. The balance sheet and profit loss statement must be certified by an independent Certified Public Accountant licensed by the State of New York, and the individual, firm, or corporation employed to prepare the financial statements must have no interests in the bid, and must so certify. Each bidder shall submit a statement under oath disclosing and clearly identifying all its stockholders owning 5% or more of the outstanding equity, its officers, partners, creditors, and every person, firm or corporation who has any interest directly or indirectly in the bid or the bidder at the time the bid is submitted; and shall report to the Director any change in control or ownership during the period of this Contract within 5 days. If the bidder has not been in business within the past three (3) years, the bidder shall submit a satisfactory financial statement certified by an independent Certified Public Accountant as described above and affidavits outlining its qualifications to perform satisfactorily. Bidders who have an existing transportation contract with the Board of Education and have a financial statement on file must also resubmit a financial statement. 16. EQUIPMENT A. Each bidder, including those which currently have contracts with the Board, must submit with its bid the following data if such information is available at the time of bid, in connection with each vehicle intended to be used for transportation of pupils: 1. Make, year of manufacture and registration number of each vehicle. 2. Vehicle number and plate number of each vehicle. 3. Pupil seating capacity & vehicle type. 5 Serial No. 9888 4. Name of owner of each vehicle. 5. Expiration date of the State Department of Transportation Certificate. B. The bidder shall supply satisfactory evidence that it will have the required type and number of vehicles prior to the beginning of the Contract period or beginning of service. Such evidence may be a signed statement on letterhead, from an acceptable vehicle manufacturer, dealer, or rental corporation to the effect that it will furnish the required type and number of vehicles. If the vehicles are leased or rented, the vehicle operator (driver) cannot be the owner. C. A successful bidder must provide this data with reference to each vehicle being furnished and used for the transportation of pupils under the Contract both at the inception of the Contract and for any additional vehicle acquired thereafter. The successful bidder must also inform the Board of Education of any vehicle withdrawn from service or replaced during the life of the Contract. 17. INSURANCE The bidder must submit with its bid, certifications from insurers acceptable to the Board that said insurers will furnish public liability and property damage insurance to the bidder. The policies shall be filed with the Director with a copy of the Acknowledgement of the Notice of Award at the same time said acknowledgement is submitted to the Secretary of the Board of Education, and shall name the Board of Education and City of New York as additional insureds. The foregoing certifications and policies must be issued by a company licensed by the Superintendent of Insurance of the State of New York to do business in New York. The insurance shall remain in force at all times during the life of this Contract. Renewals shall be filed with the Director at least 30 days prior to the expiration of the current policy. The required minimum limits of coverage are as follows: 1. Public Liability for bodily injury, including death shall be in the amount of $500,000.00 for each person and $5,000,000.00 for each occurrence. 2. Property damage coverage shall be in the amount of $50,000.00 to cover the claim of one person and $100,000.00 to cover the claim of two or more people for each accident. The Contractor shall also maintain during the life of this Contract such additional insurance policies necessary to comply with applicable laws, ordinances or regulations governing the performance of the work, and/or cover any additional vehicles which may be required during the life of this Contract. 6 Serial No. 9888 The Board retains the right to modify the minimum limits of public liability and property damage coverage required under this Contract by a duly approved Resolution of the Board. Should the limits of public liability be increased there shall be no additional compensation. Should the limits of public liability be reduced the Board will be entitled to a credit for any savings to the contractor in premiums, if any. If the vehicles to be used in the performance of this contract are not owned by the bidder, the insurance certificate must be endorsed to include the bidder as well as the Board of Education and the City of New York, as named insureds. Insurance certificates and policies reflecting coverage for only the vehicle owner, who is not the bidder, are not acceptable. 18. PERFORMANCE BOND 1. The bidder shall also, where required, submit with its bid, certifications from acceptable insurers that said insurers will furnish a performance bond. Said certifications and each bond must be issued by a company licensed by the Superintendent of Insurance of the State of New York to do business in New York. Failure of the bidder to obtain certification as required, will cause the bid to be rejected. Performance Bonds for each year of the Contract must be submitted in the manner prescribed herein. The bidder's attention is drawn to the provision requiring the surety's performance to begin within 20 days following a default of the Contract. The amount of the performance bond, when required, for the first year of the Contract shall be one hundred and eighty times the daily rate per vehicle for all vehicles for which the Contract is awarded. This performance bond shall guarantee the full and faithful performance for the first year of the Contract as may be awarded to bidder. By way of example: 25 Vehicles x $220.00 x 180 = $990,000.00 The initial performance bond shall be filed with the Director with a copy of the acknowledgement of the Notice of Award at the same time said acknowledgement is submitted to the Secretary of the Board of Education. Thereafter the contractor shall provide an equal and identical bond guaranteeing performance for each additional year beyond the operation of the first year of said Contract to be filed with the Director by April 1, 1987, April 1, 1988, April 1, 1989, April 1, 1990, for the succeeding year. Failure of the contractor to obtain the bond guaranteeing performance as required herein on or before April 1, as stated above, shall be deemed sufficient cause for the cancellation of the balance of the Contract. 7 Serial No. 9888 In the event that this Contract is extended after its initial term, as provided for in Section 305.14 of the State Education Law, the amount of the performance bond shall be adjusted to reflect any increases in the daily rate paid to a Contractor during the term of the extension. Any late filing of a Performance Bond renewal will be cause for the assessment of Liquidated Damages for each day after April 1, that the bond is not submitted. 2. Performance Bonds and Assurance of Faithful Performance (a) Any bidder awarded a Contract authorizes the Board to deduct from any receivables due the Contractor under this or any other contract any losses and liquidated damages sustained by the Board for the contractor's failure to perform; and authorizes the Board to retain the June payments in 1987, 1988, 1989 and 1990 to guarantee contractor performance for each succeeding year of the Contract. (b) In addition, bidders have the following options available to them to assure faithful performance of this Contract: 1. Any bidder who initially receives an award of Contract for fifteen (15) or fewer vehicles must; A. File a performance bond for all vehicles as stated herein; or B. Authorize the Board of Education to retain ten percent (10%) of each payment made to the contractor from the first five (5) months payment of each year of this Contract. The retainage shall be returned to the contractor with interest after the conclusion of each one year period of full and faithful performance under this contract. 2. Any bidder who initially receives an award of Contract for sixteen (16) to twenty-five (25) vehicles must; A. File a performance bond for all vehicles as stated herein; or B. Post a one time cash payment equal to ten percent (10%) of the Contract value; or C Provide a confirmed, irrevocable letter of credit from an acceptable financial institution equal to ten percent (10%) of the Contract value. 8 Serial No. 9888 3. Any bidder who initially receives an award of Contract for twenty-six (26) or more vehicles must; A. File a Performance Bond for all vehicles as stated herein; or B. Post a one time cash payment equal to ten percent (10%) of the Contract value and, in addition the Contractor authorizes the Board of Education to retain five percent (5%) of each payment made to the Contractor from the first five (5) months payments of each year of the Contract, to be maintained in an interest bearing account, to assure full and faithful performance of the Contract. This retainage shall be returned to the Contractor with interest after the conclusion of each one (1) year of full and faithful performance under this Contract; or C. Provide a confirmed, irrevocable letter of credit from an acceptable financial institution equal to ten percent (10%) of the contract value, and in addition the Contractor authorizes the Board of Education to retain five percent (5%) of each payment made to the Contractor from the first five (5) months payments of each year of this Contract. This retainage shall be returned to the Contractor with interest after the conclusion of each one (1) year period of full and faithful performance under this Contract. (c) Performance bonds provided shall be in strict accordance with the sample bond attached. For Contractors posting a cash payment, or letter of credit, the "contract value" shall be arrived at by multiplying the Daily Rate per vehicle by the number of vehicles awarded times 184. Cash payment shall be certified check or bank money order payable to Board of Education, City of New York and the payment or letter of credit shall be delivered to the Director of the Office of Pupil Transportation as provided for in Section 21 herein. Cash payments posted under sub-paragraphs (b) 1. and (b) 2. hereof shall be non-interest-bearing and shall be refunded to the Contractor after September 15, 1987, and before October 15, 1987, if the Contractor is well and faithfully performing the contract. 3. During the period of the Contract, if there is an increase in the total number of vehicles furnished by one Contractor to more than fifteen(15), but less than twenty-six (26), then the Contractor shall comply with the terms and conditions outlined in 2(b) 2 above. 9 Serial No. 9888 4. During the period of the Contract, if there is an increase in the total number of vehicles furnished by one Contractor to more than twenty five (25), then the contractor shall immediately notify the Director and shall comply with the terms and conditions outlined in 2(b) 3 above. 5 For the purpose of 1, 2, 3, and 4 above, corporate bidders who are subject to common control as determined by the Board based upon an analysis of: (a) ownership of the corporation's assets; (b) coincidence of corporate officers and directors; and (c) such other factors as the Board determines to be relevant, are deemed to be one bidder. 19. COST FACTOR FORM Pursuant to New York State Education Law Section 156.1, all successful bidders shall submit, by October 15, 1986, the Cost Factor Form as provided herein. The statement must be completed by an independent Certified Public Accountant detailing reasonable contractual transportation costs used in computing the bid amount(s). 20. AWARD The award of Contract, if made, will be made according to law, as soon after the opening of bids as practicable by item, to the lowest responsible bidder offering the lowest daily rate per vehicle in each item. In addition, the Board reserves the right to reject any and all bids if the Board elects to further extend existing agreements covering the work being bid. The Board of Education or the New York State Commissioner of Education may reject any or all bids. No award of contract shall be binding upon the Board of Education until the contract has been duly approved by the Board of Education, NYS Education Department, the NYC Department of Investigation and the Financial Control Board, if required by the regulations of said Board. The approval of the New York State Education Department shall be a condition subsequent as described in the Terms and Conditions of this Contract. 21, NOTICE OF AWARD The mailing by the Board of Education of the City of New York to the undersigned bidder at the address herein specified of the NOTICE OF AWARD OR ACCEPTANCE OF BID for any of the items for which this bid is submitted shall constitute a contract between the Board of Education and the undersigned to furnish and deliver the items set forth in said NOTICE OF AWARD OR ACCEPTANCE OF BID. The successful bidder will acknowledge receipt of the Notice of Award or Acceptance of Bid within five days after receipt of the form provided and at the same time shall submit to the Director with a copy of said acknowledgement the performance bond and/or cash payment or letter of credit where required. Purchase orders will be issued when and as required. 10 Serial No. 9888 22. RETURN OF BID DEPOSIT After the award of Contract, the Comptroller shall reimburse the bid deposits received to the persons, firms, or corporations submitting the same, except for the bid deposits of the bidders whose bids have been accepted. The bid deposits of the successful bidders will be reimbursed after acknowledgment from him/her of receipt of notice of award of Contract, and submission of the performance bond and/or cash payment or letter of credit where required, or retained pending the initiation of service. 23. ROUTES The routes which were being served at the time this Contract Proposal was prepared are compiled in a separate volume entitled, "List of Routes". The "List of Routes" may be examined by prospective bidders at the Office of Pupil Transportation, 28-11 Queens Plaza North, Long Island City, New York, third floor, Monday through Friday, 9:00 A.M. to 4:00 P.M. The bidders attention is drawn to the fact that the "List of Routes" is subject to change and the actual routes and numbers of students and sites to be serviced at the opening of school may vary considerably from those served at the time this proposal was prepared. The contractor is responsible for the preparation of the actual runs to be serviced from the list of routes provided by the Director, and there shall be no reliance by the Contractor on the "List of Routes" as the actual routes to be serviced. A copy of the appropriate list will be forwarded to the successful bidder(s) at the time of award of Contract. 24. TIME OF SESSIONS Time schedules in existence for all schools presently serviced are set forth in the List of Routes. Public schools generally adhere to the following sessions: All Grades - 8:40 A.M. to 3:00 P.M. The Board reserves the right to adjust the time schedules and to establish part-time, split, or multiple sessions for any school(s). The contractor shall be required to transport pupils so as to service all sessions established by the Board for each public school and each principal for each non-public school. All requests by a principal of a public school or non-public school to modify the time of sessions must be approved by the Board and/or Director of the Office of Pupil Transportation. 11 BID CERTIFICATION BID TO THE BOARD OF EDUCATION OF THE CITY OF NEW YORK Made by Name of Bidder _________________________________________________________________ (Individual, Firm or Corporation) Place of Business of Bidder ____________________________________________________ Date of Bid _______________________ Telephone __________________________________ If Bidder is an individual or partnership, state here: Name of Individual or Partners Residence of Individual or Partners 1. _____________________________________________________________________________ 2. _____________________________________________________________________________ 3. _____________________________________________________________________________ If Bidder is a corporation, complete the following: Organized under the laws of the State of _______________________________________ Name and Residence of President ________________________________________________ ________________________________________________________________________________ Name and Residence of Secretary ________________________________________________ ________________________________________________________________________________ Name and Residence of Treasurer ________________________________________________ ________________________________________________________________________________ The bidder, above mentioned, declares and certifies: First: That the said bidder is of lawful age and the only one interested in the bid, and that no one other than herein above named has any interest in this bid, or in the contract proposed to be entered into. Second: By submission of this bid, each bidder and each person signing on behalf of any bidder certifies, and in the case of a joint bid each party thereto certifies as to its own organization, under penalty of perjury, that to the best of its knowledge and belief- (1) The prices in this bid have been arrived at independently without collusion, consultation, communication, or agreement for the purpose 12 Serial No. 9888 of restricting competition, as to any matter relating to such prices with any other bidder or with any competitor; (2) Unless otherwise required by law, the prices which have been quoted in this bid have not been knowingly disclosed by the bidder and will not knowingly be disclosed by the bidder prior to opening, directly or indirectly, to any other bidder or to any competitor; and (3) No attempt has been made or will be made by the bidder to induce any other person, partnership or corporation to submit or not to submit a bid for the purpose of restricting competition. Third: That no Councilman of the City of New York, member of the Board of Education of the City of New York, or any officer or employee or person whose salary is payable in whole or in part from the treasury of the City of New York is directly or indirectly interested in this bid or in the supplies, materials, equipment, services, work or labor to which it relates, or in any portion of the profits. Fourth: That said bidder is not in arrears to the City of New York or the Board of Education of the City of New York upon debt, contract, or taxes and is not a defaulter as surety or otherwise, upon any obligations to the City of New York, and has not been declared not responsible, or disqualified, by any agency of the City of New York, or State of New York, nor is there any proceeding pending relating to the responsibility or qualification of the bidder to receive public contract, except ________________________________________________________________________________ ________________________________________________________________________________ (if none, bidder must insert "None") Fifth: That said bidder has carefully examined the standard form of Contract proposal, including the instructions to bidders, specifications, and the schedule of bid items, and will, if successful, perform all its terms, covenants and conditions, and will furnish and deliver at the prices bid, within the time stated, all the materials, supplies, apparatus, goods, wares, merchandise, services and/or labor named and described therein for which the bid is made. Sixth: The bidder expressly undertakes and agrees, if successful, to comply fully with any and all applicable Federal, State and/or municipal laws, and the orders, or regulations, of any federal, state and/or municipal authority or agency. Seventh: The undersigned, if an individual bidder, or if the bidder be a firm, partnership or corporation, the undersigned executing this document as a member, partner, director or officer and on behalf of such firm, partnership or corporation, expressly warrants and represents that neither he/she, nor any member, partner, director or officer of said firm, partnership or corporation has, prior to the date of execution of this bid, been called before a grand 13 Serial No. 9888 jury, head of a state department, temporary state commission or other state agency, head of a city department, or other city agency, to testify in an investigation concerning any transaction or contract had with the State of New York, any political subdivision thereof, a public authority or with any public department, agency or official of the State of New York or of any political subdivision thereof, or of a public authority or any fire district, and refused to sign a waiver of immunity against subsequent criminal prosecution or to answer any relevant question concerning such transaction or contract. If there has been a refusal to sign a waiver or to answer, the bidder must state the time and place of such refusal below. NAME(S) DATE PLACE - ------- ---- ----- ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ Eighth: There are listed below any present or previous connection of the bidder or any owner, officer, partner, director, stockholder, or employee of the bidder with the Board of Education as an employee, vendor or Contractor, or an employee of a vendor or Contractor. Drivers who are employed by the contractor in no position or function other than driver need not be listed. NAME(S) CONNECTION/CAPACITY DATE(S) - ------- ------------------- ------- ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 14 Serial No. 9888 Ninth: The bidder offers to provide the services at the prices entered on the written bid blanks and, if the bidder's offer is accepted, will well and faithfully perform all the requirements of the Contract at those prices. The amount of the bid deposit or bid bond furnished with this bid is the sum of __________________________________________Dollars ($______). It is a (cross out one) bid deposit/bid bond. Serial No.: ____________________ Signature______________________________________________________________________. (Individual, Firm or Corporation) Where bidder is corporation add: By ____________________________________________________________________________. Attest: _______________________________ Secretary (Seal) (Please note that the applicable affidavit of verification on the following pages must be executed.) NOTE: 1. Where bidder is a firm, the bid must be signed in the name of the firm by a member thereof, who must sign his/her own name immediately thereunder, as A. & B. Co., by C. A., Partner. 2. Where the bidder is a corporation, each bid must be signed in the name of the corporation by a duly authorized officer or agent thereof having knowledge of the matters stated in the bid, and such officer or agent shall also subscribe his/her own name, as: A.B. Company, by C.D., President. The seal of the corporation must also be affixed. 3. An individual doing business under a trade name must present the bid in such individual's correct name. The style "Thomas Jones, doing business as (d/b/a) Celestial Bus Co." may be used. 4. Each bid must be verified by the bidder submitting same by execution of one of the following proper forms. 15 Serial No. 9888 INDIVIDUAL VERIFICATION County of ) State of ) ss: ________________________, being duly sworn, deposes and says; he/she is the person who executed the foregoing bid, that deponent has read the declarations contained in said bid and knows the contents thereof; that the same are true to deponent's own knowledge. ___________________________________ (Signature of person verifying bid) Subscribed and sworn to before me this day of ______________________________________ - - - - - - - 0 - - - - - - - FIRM OR PARTNERSHIP VERIFICATION County of ) State of ) ss: ____________________________, being duly sworn, says: I am a member of _______________________, the firm described in and which executed the foregoing bid. I subscribed the name of said firm thereto on behalf of the firm and the several matters therein stated are in all respects true. ___________________________________ (Signature of person verifying bid) Subscribed and sworn to before me this day of ______________________________________ If notarized outside the State of New York, County Clerk's certificate must be attached. 15A Serial No. 9888 CORPORATE VERIFICATION County of ) State of ) ss: _______________________, being duly sworn, says: I am the _________________________ of ______________________, the corporation whose name is subscribed to and which executed the foregoing bid. I reside at_____________________________________________________________________ I have knowledge of the several matters therein stated and they are in all respects true. ___________________________________ (Signature of person verifying bid) Subscribed and sworn to before me this day of ______________________________________ If notarized outside the State of New York, County Clerk's certificate must be attached. - - - - - - - 0 - - - - - - - The officer taking the acknowledgment shall enter his/her title, the date of expiration of his/her commission, etc. IMPORTANT NOTE: Those found making intentionally false or misleading statements are liable for prosecution. 15B Serial No. 9888 Contract Year ________ The University of the State of New York THE STATE EDUCATION DEPARTMENT BUREAU OF EDUCATIONAL MANAGEMENT SERVICES ALBANY, NEW YORK 12230 PHONE: 518-474-3384 COST FACTOR FORM FOR DETERMINATION OF REASONABLE CONTRACTUAL TRANSPORTATION COST VEHICLE PUPIL SEATING CAPACITY (check one only) [ ] 5 - 20 Note: Use separate worksheet for each State Education Department [ ] 21 - Up group included in Bureau of Educational Management Services contract. School District New York City Contractor_____________________________ Amount of Contract $______________________ No. of Buses_________________________ (for vehicle group checked above only) Total No. of Students Transported ____ Total Daily Mileage ______ No. of Days of Service _____ (for vehicle group checked above only) PART I Summary of Contract Costs TOTAL COST FOR ITEM ITEM DESCRIPTION SCHOOL YEAR ---- ---------------- -------------- 1. Fuel Contractor supplied fuel for $_____________ vehicles 2. Vehicle Maintenance Tires, tubes, chains, parts, lubricants, garage supplies, bus cleaners, and mechanics wages excluding fringe benefits _____________ 3. Insurance Bodily injury and property damage Insurance coverage on building and contents _____________ 4. Building Costs Building rental, real property taxes, repairs, mortgage principal and interest payments _____________ 5. Utilities Heat, light, power, water and telephone _____________ 6. Licenses Vehicle registration fees _____________ 7. Drivers' Wages Wages excluding fringe benefits _____________ 8. Driver Training Training, recruitment, employment advertising, investigations and physical examinations _____________ 9. Fringe Benefits Pension, health insurance, FICA, Workers' compensation, unemployment insurance, union welfare _____________ 16 Serial No. 9888 TOTAL COST FOR ITEM ITEM DESCRIPTION SCHOOL YEAR ---- ---------------- -------------- 10. Interest Interest Cost on borrowings for acquisition of vehicles and equipment $_____________ 11. Depreciation Depreciation cost for vehicles and other equipment _____________ 12. Management Salaries and other expenses for management and supervision including corporate overhead and terminal management _____________ 13. Other (Specify) Items not included in cost categories 1-12 above ______________________ _____________________________________ ______________________ _____________________________________ ______________________ _____________________________________ _____________ Total $ _____________ _____________ PART II Method of Computing Costs For each of the cost categories used in Part I of the form, please indicate below the method of computation and basis used in arriving at the cost figure. If the cost represents a prorated amount among various contracts or a prorated amount between school contract and charter service operations, the basis for that proration should be noted for each cost item involved. 1. Fuel 2. Vehicle Maintenance 3. Insurance 4. Building Costs 5. Utilities 6. Licenses 17 Serial No. 9888 7. Drivers' Wages 8. Driver Training 9. Fringe Benefits 10. Interest 11. Depreciation 12. Management 13. Other (Specify) If additional space is required separate sheets detailing computations may be attached. 18 Serial No. 9888 SCHEDULE OF ITEMS, SPECIFICATIONS AND BID BLANK FOR THE TRANSPORTATION OF OPEN ENROLLMENT PUPILS AND PUPILS ATTENDING REGULAR CLASSES IN PUBLIC AND NON-PUBLIC SCHOOLS TN THE CITY OF NEW YORK FOR THE PERIOD FROM SEPTEMBER 1986 THROUGH JUNE 1991 25. INTENT AND SCOPE This Contract is intended to cover requirements for the transportation of open enrollment pupils and pupils attending regular classes in public and non-public schools who are eligible for transportation provided by the Board of Education pursuant to the eligibility standards established by the Board, and whose transportation is provided by the Board of Education of the City of New York, and for such other uses as provided for herein. 26. PERIOD OF CONTRACT The term of this Contract shall commence when the Secretary of the Board mails the NOTICE OF AWARD OR ACCEPTANCE OF BID and certain services are required as of that date. The time for the performance of the transportation herein scheduled is for the period beginning with the first officially scheduled public school day in September 1986, or the first day of service requested by the Board to accommodate non-public school service provided pursuant to Chapter 902 of the Laws of 1985, and ending with the last officially scheduled public school day in June 1991 in accordance with the public school calendar. Thereafter, the Contract may be extended for one or more additional years in conformance with the requirements of the State Education Law and the regulations of the Commissioner of Education of the State of New York. 27. NUMBER OF DAYS OF SERVICE A. The Contractor must conform to the public school calendar and daily tine schedules of all the different schools involved in the item(s) bid upon. The public school calendar shall be furnished prior to the beginning of service. It is the responsibility of the contractor to adhere to this calendar at all times, unless notified otherwise by the Director of the Office of Pupil Transportation (hereinafter the "Director"). This shall include responsibility for adhering to any special schedules or shortened schedules. The public school calendar varies from year to year and generally includes 180 to 185 school days; however, the Board reserves the right to change the school hours or days of attendance, including the addition or deletion of days of any or all grades, or of any or all schools any time prior to the letting of the Contract and at any time thereafter. No change in compensation will be made for such adjustments, unless they necessitate the use of additional vehicles by the bidder. B. Contractors shall provide service to non-public schools which are in session on any five of eleven days or holidays during the term of this 19 Serial No. 9888 Contract when public schools are closed. The eleven days per year from which non-public schools may select five days to receive service are: the Wednesday, Thursday and Friday after Labor Day, Rosh Hashannah, Yom Kippur and the week between Christmas day and New Year's day. Contractors shall be notified by the Director a minimum of five (5) days before such service to a non-public school is required. 28A. PERIOD OF OPERATION Regular service, extended service and additional service shall be provided pursuant to the terms and conditions of this Contract. Regular service shall be defined as being provided by those vehicles that are available for the transportation of pupils beginning with the initial pick-up time of 7:00 AM, and delivery to school for the morning session which will commence no later than 9:30 AM. Regular service will conclude with the pick-up of pupils for the homeward trip no earlier than 2:00 PM and no later than 4:30 PM in conformity with the school's dismissal schedule, and shall complete its service with the delivery of the last pupil to his or her home. Extended service shall be defined as mid-day dismissal service between the hours of 9:30 AM and 2:00 PM which is necessary due to clerical half days, Parent/Teacher conferences, special testing, release time for religious instruction or any other reason as designated by the Chancellor or his designee or, an early dismissal for non-public schools which has been approved by the Director. However, if an early dismissal affects all schools serviced by a particular vehicle so that there is no afternoon service provided, the mid-day run shall be the PM run and will not be considered Extended Service. Additional use of the vehicle shall be defined as the requirement that the contractor pick-up its first pupil prior to 7:00 AM or any pupil after 4:30 PM for the homeward trip upon authorization of the Director. 28B. PERIOD OF OPERATION - FIELD TRIPS Field Trip service shall be defined as either a round trip or shuttle service between two (2) points scheduled during the hours of 9:30 AM to 1:30 PM and/or after 4:30 PM for the purpose of educational activities. The Contractor shall provide transportation for field trips and other purposes ("Field Trips") between 9:30 AM and 1:30 PM, and after 4:30 PM, in addition to transportation between pick-up points and schools, to the extent required by the Board. A. The Board may determine to: (1) provide field trips directly, (2) Contract separately for the provision of field trips with the Contractor herein or with a separate Contractor, or (3) require the Contractor to provide field trip service in addition to transportation between pick-up points and schools. Should the Board determine to require the Contractor to provide field trips in addition to transportation between pick-up points and schools, the Contractor shall be compensated in the manner provided 20 Serial No. 9888 herein at the rate of two percent (2%) of its daily rate per vehicle additional for each day of Field Trip Service, in addition to any and all other compensation to which the Contractor is entitled under the terms of this Contract. B. If the Contractor provides Field Trip Service under either option (2) or option (3), above, it shall bill separately for field trips, as directed by the Director, so as to enable the Board to ascertain its costs for field trips as opposed to transportation between pick-up points and schools. 29. PAYMENT A. Payment will be made based upon the daily rate per vehicle quoted by the Contractor for the number of vehicles and the number of days of service provided by the Contractor. The Board reserves the right to increase or decrease the number of vehicles required to be provided upon two (2) days notice to the Contractor. In no event will the Contractor be paid for days on which the vehicles are not operating pursuant to this Contract except for those days upon which the Contractor was scheduled to provide service and schools were ordered closed by the Chancellor or his designee. Invoices shall be submitted at the end of each calendar month for the number of vehicles and the number of days on which services were rendered during the preceding month. Adjustments in compensation will be made for (1) assessment of liquidated damages, (2) charges for increases or decreases in the number of vehicles, (3) assessment of expenses arising from default, and (4) as otherwise provided in the Contract or by law. On days when the public schools are closed and service is required for non-public schools, Contractors are required to reroute vehicles in order to maximize vehicle utilization and will be paid only for vehicles authorized to operate on those dates. B. The Board of Education may deduct two percent (2%) from the prices quoted herein if payment is made within thirty days from the date the Board shall have received the invoice accompanied by acceptable proof of service. The Board shall not be deemed to have received an invoice earlier than the first day of the month the Board is regularly open for business in the month succeeding the month in which the service is rendered. The date of payment shall be the date on the payment check issued by the New York City Office of the Comptroller, on behalf of the Board. The discount herein provided for shall not be a consideration in determination of award. C. Payment for extended service shall be at the regular daily rate plus an additional one percent (1%) of that rate for each vehicle for each day that extended service, as defined herein, is required. 21 Serial No. 9888 Charges for additional use of the vehicle, shall be at an hourly rate equal to ten percent (10%) of the regular service daily rate. Charges for less than one hour in additional service will be prorated. Where field trip service is required, pursuant to option 3 of Section 28B herein, after 4:30 PM the additional service rate shall be in addition to the field trip rate. Payment for field trip service, provided pursuant to option 3 of Section 25B herein, shall be at the regular daily service rate for the vehicle plus two percent (2%). Field trip service, provided pursuant to option 2 of Section 28B herein, shall be paid at the per trip bid for service. 30. ITEMS The Contractor shall complete the item(s) bid upon first. At the discretion of the Director the vehicle may be assigned for a secondary use outside of the item bid upon in accordance with the provisions of Section 36 entitled Use of Vehicles. 31. TRANSPORTATION OF PUPILS A. Buses shall pick up the pupils to be transported at the authorized stops specified in the "List of Routes". The "List of Routes" can be examined at the Office of Pupil Transportation, 28-l1 Queens Plaza North, Long Island City, New York, third floor, Monday through Friday, 9:00 AM to 4:00 PM. Buses shall deliver the pupils to the same locations on return from school; except where traffic regulations prevent same. The authorized stops shall be established by the Director and may be changed by the Director upon five (5) business days notice to the Contractor. The Contractor shall arrange and submit to the Director a schedule of the time of each stop, for each run for each school serviced two (2) business days before any schedule or change in schedule is to be put into effect. After approval of a schedule by the Director, the Contractor shall supply a copy of the approved schedules to the Principal. The Contractor shall report any deviation from the approved schedule to the Director. If the pick-up or delivery time, or the sequence of the stops is altered, the Contractor must notify the Principal and Director five (5) business days in advance of said changes so that the pupils to be transported may be informed. All pupils to be transported pursuant to this Contract will be required to assemble at the designated stops, and stops will be spaced a minimum of a quarter (1/4) of a mile apart. The Contractor will not be required to service any route which is more than five (5) miles in length, measured from the initial stop to the schools services via the shortest driving distance covering the intermediate stops, except for the transportation of open enrollment pupils. No student attending regular classes in public or non-public 22 Serial No. 9888 schools shall be required to travel for more than one (1) hour on either the trip to school or the homeward trip, except for open enrollment pupils and/or when the Director has approved same. A route consists of a number of stops authorized by the Director, from which pupils are to be transported to a designated school for specific school sessions and to which they are to be returned on the homeward trip. The school the pupil attends shall be determinative of what route the pupil is placed upon, and not the pupil's home address or school district in which the pupil resides; however, exceptions may be made at the discretion of the Director. One (1) or more routes may be designated to service an individual school. Buses will utilize the most expeditious route in traveling between the authorized stops and the schools to be serviced. The Contractor shall prepare the run to be traveled by each bus, by merging routes prepared by the Office of Pupil Transportation, however, the Board reserves the right to assume responsibility for the preparation of runs for vehicles upon five (5) business days notice to the contractor. The authorized stops are subject to change as the school session is altered, or as schools or pupils are added to or deleted from the transportation lists. The Contractor will be required to comply with the changes in the stops within the time frame stipulated. The contractor shall not alter the schedule of the vehicle servicing such stops without prior approval from the Director. Vehicles must not leave an authorized stop until the scheduled time and shall not wait past the scheduled time unless the operator sees a pupil approaching to board the vehicle for the trip to school. No vehicle shall leave the school at dismissal time until all students are aboard. Contractors are not to permit its employees to make stops at unauthorized locations. If a toll is involved, it will be the responsibility of the contractor to pay such toll at its own expense. B. All accidents involving pupils on a vehicle, or in boarding or leaving a vehicle, and all other accidents shall be handled as follows: 1. When the severity of the accident warrants, the driver will call 911 and request police and ambulance service. 2. The Contractor shall immediately notify by telephone, school administrators and the Office of Pupil Transportation of the location, extent of the accident, names of pupils involved with a description of their injuries, run number, bus number and schools affected. 23 Serial No. 9888 3. The Contractor shall assist the school administrators in contacting parents and providing them with information on their children, when requested by the school. 4. The Contractor shall prepare accident reports for the State Department of Motor Vehicles, State Department of Education, Office of Pupil Transportation and their insurance company, within 24 hours, using appropriate forms. C. 1. In the case of a vehicle breakdown on the way to school, the driver shall notify the Contractor which, in turn, shall notify the school administrators and the Office of Pupil Transportation immediately. If the breakdown occurs after school closing time, the Contractor is to notify the Office of Pupil Transportation by telephone of the delay. 2. The Contractor may not unilaterally exclude a pupil from transportation. 3. Except in an emergency, or when scheduled by the Director or his designee, no pupil will be required to transfer from one vehicle to another either on the trip to school or on the homeward trip. 4. All drivers employed in the transportation of pupils shall be given permanent run assignments at the commencement of service, subject to union agreement. 5. Drivers must drive the scheduled run permanently assigned to them at least one time prior to the start of service. If at any time during the school year a driver is given a new permanent run assignment, that driver must drive the run before being permitted to transport students on that run. 6. Contractors must make vehicles available to schools for emergency drills as required by the State Education law to be held three times per school year: once within the first five days of school, once between November 1, and December 31, and once between March 1 and April 30. The emergency drills shall include practice and instruction in the location, use and operation of the emergency door, fire extinguisher, first aid equipment, and use of the windows as a means of escape in case of fire or accident. Drills shall include situations which might result from both fire and accidents. Such instruction and the conduct of drills shall be given by a member or members of the teaching staff, with the assistance of the bus driver, as arranged between the Contractor and the principal of each school. No emergency drills shall be conducted when vehicles are on runs. The Director will be notified of arrangements for, and execution of, emergency drills by the schools. The contractor and driver shall make arrangements so as to avoid any disruption in service. 24 Serial No. 9888 D. Driver Duties Driver responsibilities, in addition to carrying out the service requirements listed in A., B. and C. above are as follows: 1. Drivers must be courteous at all times and avoid the use of brusque, impatient, defamatory, abusive, impolite, vulgar or obscene language with pupils, school personnel, parents, or the general public. 2. Drivers shall not allow pupils to enter or leave the vehicle while it is in motion. 3. Drivers shall not allow pupils to thrust any part of their bodies out of open windows, or to throw objects out of windows. 4. In the event of a temporary hindrance (e.g. snow, excavation, etc.), alternative arrangement shall be made for the bus to stop at a place convenient for the students. 5. In the event of an emergency on the vehicle, the driver, after securing the vehicle, shall arrange for emergency and/or medical assistance where necessary. 6. a. If a pupil's behavior on the bus is seriously disruptive or potentially dangerous to self or to others, the driver must ask that such behavior cease. If the pupil continues misbehaving, the driver shall discuss the problem with the principal or teacher in charge. If after intervention by the teacher, the pupil's disruptive behavior continues, a written report must be submitted by the driver to the contractor and the principal and the report forwarded by the company to the Director. b. Incidents involving physical harm while the bus is on route shall be reported immediately to the principal and the Director. All corporal punishment is forbidden. The driver has no authority to exclude a pupil from transportation. 7. Drivers shall be familiar with the vehicle and traffic laws, regulations of the Commissioner of Motor Vehicles and regulations of the State Commissioner of Education pertaining to pupil transportation. 8. Drivers shall make a full stop at all railroad crossings and at state highways before crossing except that no stop need be made at any railroad crossing where a police officer or traffic control signal directs traffic to proceed. 9. The driver is otherwise in charge of the vehicle at all times. 25 Serial No. 9888 E. Identification Drivers shall wear uniform attire supplied by the Contractor, and shall wear photo identification badges on the outside of their uniforms, which show clearly the driver's name, driver identification number assigned by the Contractor, and the name of the Contractor which employs the driver. The identification badge lettering shall be visible from a distance of ten feet. 32. SCHEDULE OF VEHICLES The Contractor shall prepare the run to be travelled by each bus and the time schedule based upon the authorized stops provided to the Contractor by the Director. The Contractor shall schedule buses so as to provide maximum utilization of each vehicle. Contractors must consider the fact that Junior High School and High School pupils are larger than elementary school students, thereby, affecting actual vehicle capacity and routing. This may require scheduling buses for multiple trips to one or more schools for arrivals and dismissals; however pupils shall not be delivered to school more than thirty (30) minutes nor less than five (5) minutes before the start of the session, and shall be transported from school not less than five (5) minutes nor more than thirty (30) minutes after the end of its session. The Board reserves the right to extend the arrival/departure time from thirty (30) to forty (40) minutes upon five (5) days notice to the Contractor. In the event that a vehicle can only be used for one run, pupils must be delivered to and picked up from school as close to the school session time as practicable, and in no instance will the thirty (30) minute grace period be utilized by the Contractor to perform non-Board of Education work. The Contractor will report to the Office of Pupil Transportation any route or run on which 10 or fewer children are transported for five consecutive days. 33. VEHICLE SPECIFICATIONS All vehicles to be used and all transportation operations must comply with the regulations of the New York State Department of Education, the New York State Department of Transportation, the New York State Department of Motor Vehicles, as well as comply with and satisfy all laws, rules and regulations of any agency of the federal government, State of New York and the City of New York that are deemed to be applicable to this Contract by the Board, and shall meet all the 1977 Federal Safety Standards as reflected in Title 49 Code of Federal Regulations 571, and specifically standards No. 105, 111, 220, 221, 222 and 301. Spare vehicles must also comply with the above. Seating Capacity: In addition to complying with applicable governmental laws and regulations as determined by the Board, each school bus trust have a registered minimum 26 Serial No. 9888 seating capacity of sixty-five (65) passengers excluding the driver, and have a capacity for transporting an additional thirteen (13) standee passengers in conformance with Department of Transportation regulations. The Director reserves the right to limit the number of pupils being transported on any bus. Vehicles equipped for handicapped service may be used in the performance of this Contract if the vehicle meets the seating capacity required for a particular route, and it has been demonstrated that it is in the best interests of the Board of Education to allow the use of such vehicles(s), and the Director of the Office of Pupil Transportation has provided prior written consent. The Director, in his sole discretion, may dictate the size of the vehicle (based on passenger capacity) to be used on any given route in the performance of this Contract, within the specified requirements of the Contract. Two-Way Radios: All vehicles being used in performance of this Contract shall be equipped with two-way radios approved and licensed by the Federal Communications Commission operated on assigned frequencies and having ranges such that the base station can contact any vehicle anywhere within the limits of the City of New York. Citizen's Band ("CB") radios may be used if the communication network is adequate to allow contact between the base station and any vehicle anywhere within the limits of the City of New York, and has been approved by the Director. Identification Features: Vehicles shall be given a number suitable for identification purposes. Such numbers shall be not less than for inches high displayed on both sides, front and rear of vehicles. Also displayed on each vehicle shall be the name and address of the Contractor providing the service in letters not less than three inches high. Numbers and letters shall be applied with black paint. The name displayed must be the name of the bidder on the first line of the Bid Certification of this Contract, unless use of a different name is authorized in writing by the Director. If, in an emergency, vehicles must be rented or borrowed on a short term basis, a temporary sign giving the name of the operator in letters no less than three inches high as specified herein shall cover any other name painted on the vehicle. The run number, assigned by the company, shall be placed on both sides of the vehicle inside the first side front windows and shall be sufficiently large so that it can be clearly seen from a distance of not less than fifteen feet. The run number shall not obscure the driver's vision. The color of all vehicles used in the performance of this Contract shall be National School Bus chrome yellow. One month prior to the start of school each year the Contractor shall submit to the Director the list of vehicles that shall be used by the Contractor in the performance of this Contract stating for each vehicle the year, make, 27 Serial No. 9888 type, seating capacity, registration number, bus number, plate number, owner and the expiration date of the State Department of Transportation certificate and indicating if the vehicle is equipped with a two-way radio. This information shall be provided for all Contract, additional and spare vehicles, on forms supplied by the Board and shall have attached a copy of the title or certificate of registration for each vehicle. If at any time during the life of this Contract any change in the above referenced items occurs, this change shall be reported to the Director within 10 days. Safety Features If seat belts or other features or improvements become necessary due to changes in federal, state or local laws, rules or regulations during the term of the Contract, the Contractor, shall promptly comply, and the Contractor, and not the Board, will assure the full cost in connection with said compliance. Posters/Announcements The Contractor agrees to insert, reinsert and maintain posters and announcements in the interiors of the vehicles. The foregoing posters and announcements shall be initially supplied by the Board at no expense to the Contractor, however if said posters and announcements are removed, destroyed or found to be no longer legible, replacements shall be provided by the Board at the Contractor's expense. Exterior Stencils The Contractor agrees to apply and maintain on the exterior of the vehicle, information specified by the Board, other than the vehicle identification information required by federal, state or local laws or regulations or other sections of the Contract. Said information shall be applied directly to the vehicle in black paint, by stencil to be supplied by the Board, in a location specified by the Director. 34. VEHICLE SAFETY REQUIREMENTS All vehicles are to be kept in good operating and physical condition. The interior of each vehicle shall be cleaned and swept or vacuumed at least once a day. The exterior shall be washed weekly and kept as clean as possible, weather and other conditions permitting. Vehicles are not required to be air conditioned, but if they are, the temperature will be maintained at a comfortable level. All vehicles shall be equipped with an all purpose fire extinguisher, dry chemical or CO 2 type, rated at least 10.0-B:c, equipped with a calibrated or marked gauge. The fire extinguisher shall be mounted in an automotive bracket located in the driver's front compartment in full view and easily accessible. 28 Serial No. 9888 All vehicles shall be equipped with a first aid kit in a dust proof medical container easily removable, located in the driver's front compartment which shall contain the following items: 2 bandages (1" by 10 yards) 6 sterile gauze pads (3" by 3") 1 adhesive tape (1" by 25 yards) 12 plastic bandaid strips 1 pair scissors 2 triangular bandages with 2 safety pins (approximately 40" by 30" by 54") 3 single units of sterile eye pads (one per unit) When a vehicle operator is not in his/her seat and pupils are in the vehicle, the motor must be shut off, ignition key removed the brakes set and the front wheels turned against the curb. If the vehicle is parked and the motor shut off for any reason, the ignition key must be removed and the brakes set with wheels turned towards the curb. To protect against carbon monoxide concentration or buildup, no idling of the motor is permitted while; (1) awaiting school dismissal; (2) loading or unloading pupils at school; (3) parked or not moving for an excessive length of time. 35. SPARE VEHICLES AND VEHICLE PERFORMANCE MONITORING All spare vehicles to be used in the performance of the Contract shall meet the vehicle specifications and requirements set forth in Section 33 of this Contract. The Contractor will provide all of the vehicles necessary to do all of the work as contracted for in this Contract. The Contractor must have available sufficient approved vehicles and qualified personnel to enable the Contractor to dispatch and place spare vehicles into operation promptly if, when and where necessary to ensure continuous uninterrupted service in the event one or more of the vehicles in regular use cannot function. The fact that a Contractor has insufficient spare vehicles shall not be an excuse for failure to transport pupils assigned or to perform other duties specified herein. The Contractor shall provide one spare vehicle for every ten (10) vehicles being operated under the Contract. In the event a Contractor provides less than ten (10) vehicles then the Contractor shall document to the satisfaction of the Director that it has access to one spare vehicle. For these purposes, corporate bidders who are subject to common control as determined by the Board based on an analysis of: (a) ownership of the corporation's assets, 29 Serial No. 9888 (b) coincidence of corporate officers and directors, and (c) such other factors as the Board determines to be relevant, shall be deemed in the Board's sole discretion to be one Contractor. The maximum number of spare vehicles required to be available and provided by one Contractor shall not exceed fifteen (15) vehicles. Spare vehicles must be staffed with personnel qualified to handle emergency service. Such personnel must be conversant in the English language. Spare vehicles must be located at strategic points during the hours that pupils are being transported under this Contract. The person on the spare vehicle shall also act as an expeditor, whose responsibilities, besides performing emergency service shall include, but not be limited to the following: 1. Dispatching or expediting vehicles to ensure a smooth operating fleet. 2. Prompt dispatching of spare vehicles in the event of breakdown of vehicles. 3. Maintaining a log in a form approved by the Director, in which will be entered reports of disruptions of service or delays. A transcript of such log shall be furnished to the Director at the end of each school week. All maintenance or spare vehicles of a Contractor shall be equiped with two-way radios or "CB" radios as specified herein, and shall have continually open contact with the Contractor's garage, so that the Contractor can dispatch vehicles expeditiously to replace vehicles with breakdowns, after these vehicles have completed their regular run. All equipment and personnel referred to herein shall be supplied by the Contractor and maintained by the Contractor at its own expense. A list of equipment and personnel used for this service shall be submitted to the Director. The Contractor shall ensure direct telephone access to the Contractor's garage during the hours of operation (from 10 minutes before the time the first vehicle leaves the garage in the morning until the last vehicle returns to the garage in the afternoon). Answering services or machines shall not qualify as direct telephone access. The Contractor shall have available sufficient telephone accessibility to handle problems and inquiries properly and in English, and at all times during the hours of operation. The Contractor is responsible for monitoring operator performance in the field and to resolve problems with parents. 30 Serial No. 9888 The contractor shall provide to the Director the name and phone number of a responsible person available after 5 PM or regular operating hours who may be contacted in the event of an emergency. If a vehicle varies from its schedule, the Contractor shall have available sufficient telephone accessibility to handle problems and inquiries properly. All employees of the Contractor who must deal with pupils, their parents, teachers, school officials or the Office of Pupil Transportaton either in person or by telephone must be able to communicate in English. Field supervision shall include but is not limited to the following: 1. Spot checking operator performance at specific stops and at schools. 2. Riding a specific run where problems have occurred to define and correct problems. 3. Providing on-the-job training to operators. 4. Resolving problems between the Contractor's personnel and school officials or parents. 5. Assisting expediting vehicles and continuing service where bus breakdowns occur. Supervisory activities must be recorded, and records of same must be made available for review upon the request of the Director. 36. USE OF VEHICLES Passengers other than pupils assigned by the Office of Pupil Transportation shall not be carried in the vehicles used under this Contract while they are being used to transport pupils except as otherwise stated or as authorized in writing by the Director. In the event that a school principal requests permission for parents or other adults to ride on the vehicle for a specific reason, such permission may be granted by the Director only, and the Contractor will be notified accordingly. Vehicles may be utilized for field trips, pursuant to Section 28B herein, special events, emergency situations, or any other use as prescribed by the Director, which may only be for hours that will not interfere with the schedules established for the pupils transported to and from school under the Contract. Use of these vehicles shall not be restricted to a classification of pupils, nor shall use of the vehicles for such purposes be limited to schools specified herein. vehicle use shall not be limited to the Board of Education, and the vehicles used in the performance of this Contract at the instruction of the Director shall provide transportation services to any other public agency or private organization. 31 Serial No. 9888 In the case of field trips and other special trips where the routes are not provided by the Director, or the school or Community School District office requesting the trip, these routes shall be established by the Contractor in advance, using the most efficient routing for the vehicle. When vehicles are used for field trips, the pupil groups will be accompanied by one or more adults. At least one of these adults will be a teacher. If the route requested by a teacher in charge requires that a toll be paid, or if the teacher should request the operator to park the vehicle in an area where a parking fee is charged, it will be the responsibility of the teacher to pay such toll or parking fee. Operators are not to be reimbursed by the teacher for any other reason. Operators will not solicit or accept tips or gratuities. 37. INCREASE OR DECREASE IN THE NUMBER OF VEHICLES A. It is foreseen that the need for vehicles may increase or decrease during the Contract period for any number of reasons, including but not limited to a change in pupil population; change in policy or directive adopted by the Board of Education, the City of New York, the State Education Department and/or the State Financial Control Board; default or withdrawal of Contractors providing such service or contracted to provide service; the need for service in an area or item for which there is no original Contractor. However, nothing contained herein shall obligate the Board to offer to the Contractor additional vehicles in unique or peculiar circumstances, unrelated to the usual transportation services contemplated under this Contract, and it shall be at the discretion of the Director whether such work is offered to the Contractor. The recital of occasions for the decreasing and increasing of vehicles does not prevent the Board from considering its costs, its best economic interest and other factors in determining decreases and increases. B. Upon determination by the Director that there is a decrease in the number of vehicles required for a specific type of service during the period of this Contract, the Director reserves the right to reduce the number of vehicles for service provided, that, however, in no event shall the total number of vehicles originally awarded to a Contractor be reduced: (1) In the first year of this Contract by more than twenty percent (20%) of the total number of vehicles originally-awarded; (2) in the second year of this Contract by more than thirty percent (30%) of the total number of vehicles originally awarded; and (3) in the third, fourth, and fifth years of this Contract by more than forty percent (40%) of the total number of vehicles originally awarded. Compensation to the Contractor shall be adjusted to the number of vehicles actually used in the performance of this Contract, and the Board of Education shall not be liable for payments for any vehicles eliminated to the extent provided above. 32 Serial No. 9888 The above percentages shall not apply on days when the public schools are not in session but the Contractor is required to provide service pursuant to Chapter 902 of the Laws of 1985. On those days the Contractor is required to reroute vehicles in order to maximize utilization and will be paid only for vehicles operating on those days. If the above changes, when effective, terminate the need for any part of the services rendered by a particular contractor, the Board of Education and the City of New York (or any political or governmental subdivision thereof) shall not be liable for any damages or cost of the contractor as a consequence thereof. C. If at any time during the period of the Contract the number of vehicles required increases, the Contractor shall provide any and all additional vehicles that are deemed necessary by the Director, but in no event shall the Contractor be required to provide more than twenty percent (20%) above the number of vehicles originally awarded. If the Contractor is willing, at the request of the Director, to furnish vehicles in excess of twenty percent (20%) above the number originally contracted for, the Contractor shall confirm such agreement in writing to the Director within five (5) business days of receipt of the offer. Should the number of vehicles in any item exceed the number of vehicles originally contracted for, and the Director determine that a reduction in the total number of vehicles is necessary, such reduction shall first be made from the additional vehicles contracted for during the performance of this Contract. After the reduction in these vehicles is exhausted, then the Director may reduce the number of vehicles originally contracted for in any item(s). If the number of vehicles in any item is reduced below the number of vehicles originally contracted for, and there is a subsequent need for these vehicles, the Contractor who had its number of vehicles reduced shall be afforded the right of first refusal for any reinstatement of the use of these vehicles. All additional vehicles provided throughout the entire period of the Contract must comply with all the terms, conditions and specifications of the Contract set forth herein. The contractor will be compensated for such additional vehicles as provided for herein. D. When a Contractor defaults, an emergency situation is created given the unknown cost and revenue loss to the Board due to increased absenteeism and requires that alternative transportation be identified on an expedited basis. Therefore, if a Contractor is found in default the Director may offer all the work of the defaulting Contractor to any Contractor having a Contract with the Board for the provision of transportation services to 33 Serial No. 9888 open enrollment pupils and pupils attending regular classes in public and non-public schools. All such vehicles will be treated as additional vehicles and not as Contract vehicles, and the Contractor should pay particular attention to the decrease provision of Section 38C herein, as it relates to additional vehicles. If the Contractor to which these additional vehicles have been offered is willing to furnish same, the Contractor shall confirm such agreement in writing to the Director within five (5) business days of the receipt of the offer. 38. FACILITIES AND MAINTENANCE The bidder shall have sufficient storage and access to maintenance facilities with sufficient equipment and trained personnel to satisfy the New York State Department of Transportation requirements. The facilities shall be subject to periodic inspection and approval by the Board of Education during the period of the Contract. The Contractor shall operate a program of preventive maintenance for every vehicle in accordance with the Department of Transportation requirements and which meets the approval of the Director, and shall maintain records as evidence that the vehicles are receiving acceptable periodic maintenance. The Contractor will withdraw from service any vehicle which in the opinion of the inspectors of the Office of Pupil Transportation presents a hazard to the safe transportation of pupils, and replace it with a vehicle which in the opinion of the inspectors meets the safety standards of this Contract for the safe transportation of pupils. 39. GASOLINE All gasoline required will be provided by the Contractor at its own expense. 40. RECORDS TO BE TRANSMITTED The Contractor shall submit on October 1, December 1, and March 1, of each school year, and upon five (5) days written notice at any other time the Director requests, copies of all current trip cards and run sheets presently in use. The trip cards and run sheets shall contain the bus number, route number, number of pupils transported to each school served, time, location and actual sequence of stops, time of arrival and departure at each school, and the total mileage covered by each bus. A record of vehicles incorporating a Daily Record of Crews used each day for the transportation of pupils under this Contract shall be recorded in duplicate on forms prescribed by the Director, and the Contractor shall maintain the original and provide the duplicate copy to the Director by Wednesday of each week, for the preceding week of service. The Contractor shall also supply by Wednesday of each week a record of field 34 Serial No. 9888 trips served in the previous week; identifying the school served, the destination of the trip, the time of arrival and departure from the site of the trip and the number of the buses used. The Contractor shall supply upon five (5) days written notice, such other information or documentation as may be requested by the Director. 41. VEHICLE OPERATOR STANDARDS To protect the safety and welfare of pupils and for other reasons, the Contractor shall only employ persons of good moral character to serve as vehicle operators. The Contractor shall send all applications for employment to the Director, and follow procedures established by the Director for submission of the fingerprint record and medical certificate for each applicant before the date on which the operator will begin work, allowing sufficient time for review and approval/rejection by the Director and Medical Director. The Contractor shall certify to the Director that he/she has checked into the driving record and references of the applicant for the past three years and that to the best of his/her knowledge and belief the applicant is a person of good moral character. No operator shall be employed on Board of Education work until his/her references and fingerprint record have been approved by the Director, and his/her medical certificate has been approved by the Director and Medical Director. Vehicle operators shall have valid appropriate operator's licenses for the vehicles they operate. Conditional or restricted use licenses are not acceptable except that an operator whose license has been restricted soley on the basis of a lapse of insurance on his/her personal vehicle shall be permitted to operate a vehicle in the performance of this Contract. Vehicle operators must be competent, reliable and at least 21 years of age. Operators shall be physically fit and properly qualified by experience, driving record and training to perform their duties. The Contractor shall certify to the Director that he/she has reviewed New York State Department of Motor Vehicles driver abstract records to determine the fitness and driving record of its operators. All vehicle operators shall submit to an annual examination by a licensed physician who is not the personal physician of the operator. The results of the physical examination shall be immediately reported to the Director and Medical Director of the Board of Education on forms approved by the New York State Department of Education provided by the Director. These forms shall constitute the medical certificate. The written report of the physician shall be considered by the Director in determining the fitness of the driver. Each operator shall meet the physical fitness requirements of Section 156.3 (c) of the Regulations of the NYS Commissioner of Education and Sections 6.11 and 6.12 of the Regulations of the New York State Commissioner of Motor Vehicles. Each operator who is to be initially employed shall be examined within four (4) weeks prior to the beginning of service. 35 Serial No. 9888 Each operator's annual physical examination shall include a tubercular test and test for vision, and the results of these examinations and the tubercular test shall be recorded on the above noted forms. These examinations shall be at no cost to the Board of Education. Section 156.3(d) (2) of the Regulations of the New York State Commissioner of Education shall be complied with in full. It currently states that, each school bus driver initially employed by a Board of Education or transportation contractor subsequent to July 1, 1973, shall have received at least two hours of instruction on school bus safety practices. During the first year of employment, each driver shall complete a course of instruction in school bus safety practices approved by the Commissioner, which shall include two hours of instruction concerning the special needs of a handicapped pupil. All school bus drivers shall receive a minimum of two hours of refresher instruction in school bus safety at least two times a year, at sessions conducted prior to the first day of school and prior to February 1st of each year. Each Contractor must utilize instructors approved by the New York State Education Department for conducting the training sessions for drivers. All training programs must be approved by the New York State Education Department and the Office of Pupil Transportation before the program is offered. In addition, all new vehicle operators must have a total of twenty hours of classroom instruction prior to driving on any Board of Education business. All vehicle operators having two or more accidents while driving on Board of Education business must also attend an accident repeater course conducted by a defensive driving specialist. Certification will be required from the Contractor stating that each operator has received appropriate training as specified in this Contract. Within two weeks of each driver's completion of each training requirement, the Office of Pupil Transportation must receive certification stating that the requirement has been completed, signed by a school bus driver instructor approved by the New York State Education Department. If the Director determines that an operator's competency falls below acceptable standards, or that any operator has made an unauthorized stop or an unauthorized change in an established route for which the operator may or may not have accepted additional remuneration from other than his/her employer, or that the driver has a previous record of careless or unsafe driving, or other grounds endangering pupils or affecting an operator's ability to perform, the contractor, upon receiving written notice from the Director to that effect, shall not again employ this operator on any part of the work to be performed hereunder, or on any part of any work the Contractor may perform for the Board of Education under any other contract. The Contractor shall be responsible for assuring that all drivers employed are able to speak and understand English well enough to communicate with pupils, their parents and school officials; and to summon help, to speak and to understand directions from police and other authorities in case of an emergency. 36 Serial No. 9888 The Contractor understands and agrees that the costs for processing fingerprints of drivers for any reports required by the Board will not be borne by the Board of Education. 42. OPERATIONAL SUPERVISION The requirements entitled "Drivers and Escort Responsibilities" contained in the "Office of Pupil Transportation School Bus Contractor's Manual" dated June, 1982 and drafted by the Office of Pupil Transportation is incorporated herein by reference and is made part of this Contract as if fully set forth herein in its entirety. Subsequent manuals relating to driver qualifications, standards of conduct and levels of proficiency, drafted by the Board shall be incorporated herein by reference as if fully set forth in their entirety. 43. AUDIT OF INVOICES AND FINANCIAL RECORDS Invoices will be audited for payment after each month in which the services are rendered. The Contractor hereby consents to an audit of any and all financial records related to this Contract by the Board, or its agents, the City Comptroller, and the New York State Department of Audit and Control. During the period of the Contract and upon the request of the Department of Audit and Control, the Office of the Auditor General of the New York City Board of Education, the Comptroller of the City of New York or the Department of Investigation of the City of New York, the Contractor shall furnish information and documents as specified by any of these agencies, including but not limited to the Contractor's income tax forms filed with the City, State and Federal government for the term of this Contract. 44. LIQUIDATED DAMAGES A. In view of the difficulty of ascertaining the loss which the Board or City would suffer by reason of these defaults on the part of the contractor, the following sums are hereby agreed upon, fixed and determined by the parties hereto as the liquidated damages the Board or City will suffer by reason of said violation of Contract and not by way of penalty, and such liquidated damages may be imposed upon the finding of the Director or his or her designee that a Contract provision has been violated. B. Liquidated damages may be assessed for every vehicle, for every day, and for every instance of the violation in the amounts noted below. C. One and one-half times the appropriate daily rate per vehicle paid to the Contractor shall be deducted from subsequent payments due the Contractor for each day each of the following violations of the Contract occurs: - Failure to provide service on a day on which schools are required to be open by the Board's official calendar. 37 Serial No. 9888 - Failure to conform to the arrival and dismissal schedules of the schools serviced, as notified by the Office of Pupil Transportation. - Failure to adhere to any special schedules or shortened and lengthened schedules of the schools serviced. - Failure to provide all of the vehicles necessary to do all of the work contracted for. - Failure to comply with the regulations of the New York State Departments of Education, Transportation and Motor Vehicles as well as with any and all laws and regulations of any agency of the Federal Government, State of New York or City of New York. - Failure to service a field trip or provide the services required by Section 36 USE OF VEHICLES on the schedule established in advance either by the Director, a school, or the Community School District Office. - Failure to comply with the minimum vehicle standards as set forth in this contract. - Failure of any vehicle to be properly painted and identified as set forth in this contract. - Failure of any vehicle to have a current and effective Department of Transportation certificate. - Assignment to Board of Education work of any driver disqualified by the Director. - Each time an operator is found guilty of committing a moving violation of the New York State Vehicle and Traffic Law while transporting pupils under this Contract. - Each time a driver allows a pupil to enter or leave the vehicle while it is in motion. - Each time a driver fails to make a full stop before crossing a railroad crossing or a state highway except when a police officer or a traffic control signal or sign directs traffic to proceed. - Exclusion of any pupil from a run by the Contractor or the driver. - Each time a driver is found to use corporal punishment on a pupil. - Each time that pupils are left unattended on a vehicle, except in an emergency. 38 Serial No. 9888 - Failure to follow procedures for reporting of accidents as set forth in the Contract. - Failure to report immediately to the principal and the Office of Pupil Transportation any incident involving physical harm. D. The appropriate daily rate per vehicle paid to the Contractor shall be deducted from subsequent payments due the Contractor for each day each of the following violations of the contract occur: - Failure of the Contractor to have the ability to dispatch spare vehicles promptly. - Failure of the contractor to ensure direct telephone access to the Contractor's garage from ten (10) minutes before the time the first vehicle leaves the garage in the morning until the last vehicle returns to the garage in the afternoon, and to have available a responsible person who can give information in English on the status of each vehicle and the pupils assigned to each run. - Failure of the Contractor to provide enough telephone lines to allow telephone access to the garage or to an authority in a position to take necessary action on behalf of the company. - Failure of the Contractor to provide, to the Director, the name and phone number of a responsible person available after 5 PM (or normal business hours) who may be contacted in the event of an emergency. - Failure of the designated person, or appropriate substitute, to be available in case of an emergency after normal business hours. - Failure of the Contractor to have sufficient storage and access to maintenance facilities with sufficient equipment and trained personnel to satisfy the Board and State of New York Department of Transportation requirements. - Failure of the Contractor to operate a program of preventive maintenance for every vehicle in accordance with the Department of Transportation requirements and which meets the approval of the Director. - Failure of the Contractor to maintain acceptable records as evidence that the vehicles are receiving periodic maintenance in accordance with Department of Transportation and Board requirements. - Failure of any driver to meet any of the vehicle driver requirements set forth in the Contract. 39 Serial No. 9888 - Each driver providing service pursuant to this Contract for whom the required medical certificate, fingerprint record, driving record (abstract), reference letters, and applications for employment were not submitted to and approved by the Office of Pupil Transportation. - Each driver who has not received the proper training, instruction, and/or refresher courses as specified herein within the time period agreed upon by the Director and Contractor. E. One half the appropriate daily rate per vehicle paid to the Contractor shall be deducted from subsequent payments due the Contractor for each day each of the following violations of the Contract occur: - Each vehicle transporting a greater number of pupils than the vehicle's permissible pupil capacity. - Failure of the driver to wait at the pick up point until the scheduled pick up time if he/she has arrived early. - Each unauthorized transfer of a pupil from one vehicle to another vehicle either on the trip to school or on the homeward trip. - Each time a driver allows pupils to thrust any part of their bodies out of open windows of the vehicle. - Failure of a driver to be familiar with the vehicle and traffic laws, regulations of the Commissioner of Motor Vehicles and regulations of the State Commissioner of Education pertaining to Pupil Transportation. - Failure of a driver to have on his or her person an appropriate operator's license. - Failure to have available the minimum number of spare vehicles as required by the Contract. - Failure to have available sufficient qualified personnel to staff spare vehicles during the hours that pupils are being transported under this Contract. - Failure to keep records of the Contractor's supervisory activities as specified in the Contract. F. One-third of the appropriate daily rate per vehicle paid to the Contractor shall be deducted from subsequent payments due the Contractor for each day each of the following violations of the Contract occurs: - Arrival of a vehicle at school more than thirty minutes or less than five minutes before the start of the school session. 40 Serial No. 9888 - Departure from a school less than five minutes after or more than thirty minutes after the end of the school session. - Each vehicle which arrives after the time a session is due to start. - Each time the operator requires a school to dismiss pupils prior to the normal close of the school session except where authorized by special circumstances by the Director. - Failure to comply with changes in the run including additions or deletions of stops. - Altering the run schedule or pickup sequence of the run without notifying the Director or his designee and school principal. - Failure to service each designated stop on each run. - Each time an employee of the Contractor is found to have been unable to communicate effectively in English with pupils, their parents, teacher, schools officials or with the Office of Pupil Transportation. - Failure of the Contractor to require the driver to drive a new run permanently assigned to him or her before being permitted to transport students on that run. - Failure to permanently assign runs to drivers. - Failure to equip all vehicles, as well as all spare or maintenance vehicles, used in the performance of this Contract with a two-way radio capable of communicating with a base station at the Contractor's garage or home. G. One fourth of the daily rate per vehicle paid to the Contractor shall be deducted from subsequent payment due the Contractor for each day each of the following violations of the Contract occurs: - Failure of the Contractor to monitor driver performance in the field. H. One-sixth of the appropriate daily rate per vehicle paid to the Contractor shall be deducted from subsequent payments due the Contractor for each day each of the following violations of the Contract occurs: - Loading or unloading vehicles at the school at any point other than the point designated by the site supervisor or principal of the school. - Picking up pupils prior to 7 AM unless authorized by the Director. 41 Serial No. 9888 - Failure to inform the principal or his/her designee that children's pickup times and drop off times will be changed because of an addition or deletion of stops, or other revisions to a run. - Failure to notify the school and the Office of Pupil Transportation immediately of a breakdown on the way to school. - Failure to notify the Office of Pupil Transportation of a delay due to a breakdown on the way home from school. - Making a stop at an unauthorized location. - Leaving a school at dismissal time before all students have boarded the vehicle. - Failure to maintain a log in a form provided by the Director in which the Contractor will enter reports of disruptions in service or delays and to provide a transcript of this log to the Director at the end of each school week. - Failure to display their number inside the side front windows of the vehicle so that it can clearly be seen from a distance of not less 15 feet. - Failure to keep the interior of a vehicle clean. - Failure to wash the exterior of each vehicle weekly or to keep it clean. - Each time a vehicle is operated in the performance of this Contract without being equipped with an appropriate fire extinguisher. - Each time a vehicle is operated in the performance of this Contract without being equipped with an appropriate first aid kit. - Failure to shut off the motor, to remove the ignition key, set the brakes and turn the wheels to the curb when the driver leaves a parked vehicle. - Anytime passengers other then pupils assigned by the Office of Pupil Transportation are carried in vehicles used in this Contract except as authorized by the Director. - Failure to submit daily crew records by Wednesday of each week as specified in the Contract. - Failure to supply any other information or documentation as may be required by the Director. 42 Serial No. 9888 - Each vehicle with an operator not wearing uniform attire or visibly displaying an identification badge with the required information. - Each operator who fails to assist in the conduct of an emergency drill. - Each operator who fails to make a vehicle available to a scheduled class in transportation safety. - Each failure to perform any other duties as set forth in the Office of Pupil Transportation School Bus Contractor's Manual incorporated herein by reference. - Any other violation of the Contract whatsoever for which no specified liquidated damages are listed. I. Nothing herein shall limit the right of the Board to declare the contractor in default of contract in advance or, in lieu of, or in addition to the assessment of liquidated damages. 45. EMPLOYEE PROTECTION PROVISIONS 1. Priority in Hiring and Master Seniority Lists: There shall be established an industry-wide Master Seniority List. The list shall be composed of all operators (drivers), mechanics and dispatchers who were employed as of June 1, 1986 under a Contract between their employers and the Board for the transportation of school children in the City of New York, who are furloughed or become unemployed as a result of loss of Contract or any part thereof by their employers, or as the result of a reduction in service directed by the Board during the term of the Contract in accordance with their date of entry into the industry. All operators (drivers), mechanics, and dispatchers on the Master Seniority List who participated in the Division 1181 A.T.U. -New York Employees Pension Fund and Plan as of June 1, 1986 and who do not exercise their option to withdraw from the Fund and Plan shall continue to participate in such Pension Plan. Any existing Contractor or individual who conducted business as a sole proprietor, or as a member of a partnership or held a controlling interest in a corporation that performed service pursuant to the Contract expiring in June, 1986 (contractor) shall give priority in employment in September, 1986 or thereafter on the basis of position on the Master Seniority List of any additional or replacement operators, mechanics and dispatchers beyond those performing service as of June 1, 1966 consistent with the number of employees required by the specifications of the contract expiring June, 1986 for the number of vehicles providing service to the Board as of June 1, 1986 to individuals from the Master Seniority List until such list is exhausted. 43 Serial No. 9888 Any new Contractors, i.e. those who did not provide service pursuant to the Contract expiring June, 1986 (new Contractor), shall give priority in employment in September, 1986 or thereafter on the basis of seniority to every operator (driver), mechanic and dispatcher performing service pursuant to such Contract starting from the first employee from the Master Seniority List until such list is exhausted. 2. Compensation All operators (drivers), mechanics and dispatchers on the industry-wide Master Seniority List shall be employed and paid on a full-time basis based upon the wage scale received from prior employer under pupil transportation contracts. The Contractor shall compensate operators (drivers), mechanics and dispatchers and escorts (matrons-attendants) who appear on the Master Seniority Lists and who are employed pursuant to Contracts to be awarded as follows for the term of the contract; (a) operators (drivers) and dispatchers at a daily rate of pay, including any COLA, for each day of service not less than that paid by the NYCTA on July 5, 1979 to its surface drivers (bus) operators; (b) mechanics at a daily rate of pay, including any COLA, for each day of service, not less than that paid by the NYCTA on July 5, 1979 to its bus maintenance personnel performing similar duties. Your attention is called to paragraph number 8 as it affects compensation. Such operators (drivers) shall be available for extended service, without additional compensation, which shall be defined as performance within the particular job category (i.e. drivers as drivers) within the eight (8) hour work day within the spread for the collective bargaining agreement covering said employees, if any. 3. Welfare Contributions by the Contractor for providing welfare benefits to operators (drivers), mechanics, and dispatchers who appear on the Master Seniority List shall be no less than $170.00 per employee per month on a twelve month basis during each year of the Contract. 4. Pensions The Contractor shall sign an agreement with Division 1181 A.T.U. - New York Employees Pension Fund and Plan to participate in such plan on behalf of all operators (drivers), mechanics, and dispatchers who appear on the Master Seniority List and who participated in the Fund and Plan as of June 1, 1986. This requirement shall not be interpreted to require a Contractor to enter into a collective bargaining agreement with the union nor shall it prohibit 44 Serial No. 9888 the Contractor from entering into a collective bargaining agreement with the union. The Contractor shall file a copy of the executed agreement with the Trustees of the Fund and Plan to participate in said Fund and Plan and with the Secretary of the Board with the acknowledgement of the Notice of Award. The Contractor shall contribute $30.15 per week per operator (driver), mechanic and dispatcher on the Master Seniority List, and participating in the Plan and Fund as of June 1, 1986, for forty weeks each year for the term of the Contract, or such greater amount as may be required, based on contributions by Contractors on behalf of the majority of employees participating in the Fund and Plan pursuant to a collective bargaining agreement with Local 1181-1061. The Contractor shall withhold $13 a week from each operator, mechanic and dispatcher for forty weeks each year for the term of the contract, or such greater amount as may be required based upon contributions of a majority of the operators (drivers) mechanics or dispatchers contributing to the Fund and Plan. The Contractor shall pay all such amounts to the Fund and Plan within seven days after the end of each payroll period. 5. In addition to any other remedies provided in the Contract between the Office and the Contractor, such as default and/or termination, if the Contractor is found to be in violation of the foregoing employee protection provisions, then the Director of the Office of Pupil Transportation, within thirty (30) days of the written notice, shall withhold the appropriate amounts from the first payment thereafter due to the Contractor and pay it directly to the Division 1181 A.T.U. - New York employees Pension Fund for the benefit of the employees affected, and to the appropriate welfare Fund for the benefit of the employees affected. In the event any Contractor willfully fails to comply, the Board of Education shall act to cancel such Contractor's Contract; provided, however, that the Board shall not be required to act so as to cause a disruption of service. 6. Contractors providing a total of five vehicles or less pursuant to all contracts with the Board for the transportation of pupils shall not be subject to the foregoing provisions with respect to operators (drivers), mechanics and dispatchers. In addition, field trip service shall not be subject to the foregoing provisions, with respect to operators (drivers), mechanics and dispatchers. 7. For the purposes of 38. corporate bidders who are subject to common control as determined by the Board based upon an 45 Serial No. 9888 analysis of: (a) ownership of the corporation's assets, (b) coincidence of corporate officers and directors, and (c) such other factors as the Board determines to be relevant, are deemed to be one bidder. 8. The Board may in its sole and unfettered discretion change any date which determines employee protected status, employer status or any other status, which is contained in any Employee Protection provisions of the Contract. The Master Seniority List will be updated to June 1, 1986 as permitted in accordance with pre-existing collective bargaining agreements executed prior to the date of the execution of this Contract. Furthermore, the rates quoted herein may not be reflective of the current labor rates in effect. Special attention should be paid by the Contractor to the fact that many employees on the Master Seniority List have been in the industry for many years and therefore may be entitled to substantial wage accruals. 46. PRICE CERTIFICATION 1. The bidder certifies that the prices, warranties, conditions, benefits and terms quoted herein are at least equal or more favorable to the Board of Education of the City School District of the City of New York than the prices, warranties, conditions, benefits and terms currently quoted by the bidder to any customers for the "same or substantially similar quantity and type of item(s) or services as described herein". This certification shall not apply to prices, warranties, conditions, benefits and terms under contracts already in effect at the date of submission of the bid, except as provided herein. 2. The successful bidder (hereinafter called "Contractor") further certifies that during the period between the bid submission date and the completion of the term of this Contract, should he/she offer prices, warranties, conditions, benefits, and terms more favorable than those quoted herein, or provide changed prices, warranties, conditions, benefits and terms more favorable than those quoted herein under a contract in effect at the bid submission date with any customer, be offered for the same or a substantially similar quantity and type of services, then the Contractor shall immediately thereafter notify the Board of Education, Bureau of Supplies. Regardless whether such notice is sent by the Contractor or received by the Board of Education, this Contract shall be deemed amended retroactively to the effective date of more favorable 46 Serial No. 9888 treatment, to provide the more favorable prices, warranties, conditions, benefits, and terms. 3. The Board of Education shall have the right and option to decline any such amendment. 4. If the Contractor is of the opinion that an apparently more favorable price, warranty, benefit, condition, and term quoted, offered or provided to a customer is not more favorable treatment, the Contractor shall immediately notify the Director of the Bureau of Supplies and the Director of the Office of Pupil Transportation of the Board of Education in writing setting forth in detail the reasons why it believes the apparently more favorable treatment is not in fact more favorable treatment. The Director of the Bureau of Supplies after consideration of the written explanation may, in his/her sole discretion, decline to accept the explanation and thereupon, the Contract shall be deemed amended retroactively to the effective date of the more favorable treatment, to provide the more favorable prices, warranties, conditions, benefits, and terms to the Board of Education. 5. The Contractor further certifies that the terms and conditions of the within Contract provide for the written submission by the Contractor of a request for revision of prices, warranties, conditions, benefits and terms, such requested revised prices, warranties, conditions, benefits and terms will be at least equal to or more favorable to the Board of Education of the City School District of the City of New York than the prices, warranties, conditions, benefits and terms offered by the Contractor to any customer for the same or substantially similar quantity and type of item(s) and services as of the effective date of the revision. 6. The Contractor hereby authorizes the inspection, review and copying of contracts and documents that pertain or relate to the performance of this clause of the Contract. 7. The Contractor shall be obliged to keep the contracts and documents referred to in the above paragraph during the effective period of this Contract and for a period of three years after the final payment of this Contract. 47. SCHEDULE OF ITEMS AND BID BLANKS 1) Regular Service For all items being bid, enter the daily rate per vehicle. In computing the total daily cost per Item, multiply the daily rate by the total number of vehicles shown on the bid blank. Award of contract shall be made on the basis of the daily rate per vehicle. The number of pupils set forth in the items are estimated numbers for the purpose of bidding and are not warranted to be actual numbers of pupils. 47 Serial No. 9888 2) Combination Items Combination items are listed on a schedule entitled "List of Combination Items". A Bid on a combination item will be for all items included in the combination item. Award will be made to either the combination item or the items included in the combination item based on the lowest daily cost. No bids for a combination item other than those called for herein will be considered. If a bidder submits a bid on a combination item, bids must also be included on each of the items included in the combination item. The Board of Education reserves the right to reject all bids on items included in combination items and to award the Contract for an area of service to the lowest responsible bidder on the combination item, or, to reject all bids on combination items and award the contract for an area of service to the lowest responsible bidder in each item included in the combination items, if in its opinion either action would be in its interest. 3) Qualified Bids The bidder may submit bids for one or more Items, however, qualified bids will not be accepted. If successful, bidders must be prepared to accept an award of contract for any and all Items bid upon. 48 Serial No. 9888 LIST OF COMBINATION ITEMS COMBINATION ITEM NO. ITEMS INCLUDED IN COMBINATION ITEMS - -------------------- ----------------------------------- M1C M1, M2, M3, M4, M5, M6 Q25C Q25A, Q25B The Board of Education reserves the right to reject all bids on items included in combination items and to award the contract for an area of service to the lowest responsible bidder on the combination item, or, to reject all bids on combination items and award the Contract for an area of service to the lowest responsible bidder in each item included in the combination items, if in its opinion either action would be in its interest. 48-A Serial No. 9888 SCHEDULE OF ITEMS AND BID BLANK ITEM NO.: M-1C AREA OF SERVICE: Manhattan For the transportation to and from school of approximately 7,770 open enrollment pupils and pupils attending regular classes in public and non-public schools in Community School District 1, 2, 3, 4, 5 & 6.
DAILY RATE DAILY RATE NUMBER OF SCHOOLS NUMBER OF ROUTES NUMBER OF STOPS NUMBER OF VEHICLES PER VEHICLE PER ITEM - ----------------- ---------------- --------------- ------------------ ----------- -------- 90 174 1022 59
48-B Serial No. 9888 SCHEDULE OF ITEMS AND BID BLANK ITEM NO.: BK-21 AREA OF SERVICE: Brooklyn For the transportation to and from school of approximately 8,300 open enrollment pupils and pupils attending regular classes in public and non-public schools in Community School District 21.
DAILY RATE DAILY RATE NUMBER OF SCHOOLS NUMBER OF ROUTES NUMBER OF STOPS NUMBER OF VEHICLES PER VEHICLE PER ITEM - ----------------- ---------------- --------------- ------------------ ----------- -------- 51 165 1,765 73
48-L Serial No. 9888 SCHEDULE OF ITEMS AND BID BLANK ITEM NO.: BK-15 AREA OF SERVICE: Brooklyn For the transportation to and from school of approximately 1,600 open enrollment pupils and pupils attending regular classes in public and non-public schools in Community School District 15.
DAILY RATE DAILY RATE NUMBER OF SCHOOLS NUMBER OF ROUTES NUMBER OF STOPS NUMBER OF VEHICLES PER VEHICLE PER ITEM - ----------------- ---------------- --------------- ------------------ ----------- -------- 14 37 331 13
48-J Serial No. 9888 SCHEDULE OF ITEMS AND BID BLANK ITEM NO.: BK-16-32 AREA OF SERVICE: Brooklyn For the transportation to and from school of approximately 600 open enrollment pupils and pupils attending regular classes in public and non-public schools in Community School District 16 & 32.
DAILY RATE DAILY RATE NUMBER OF SCHOOLS NUMBER OF ROUTES NUMBER OF STOPS NUMBER OF VEHICLES PER VEHICLE PER ITEM - ----------------- ---------------- --------------- ------------------ ----------- -------- 3 8 96 3
48-K Serial No. 9888 SCHEDULE OF ITEMS AND BID BLANK ITEM NO.: BK-21 AREA OF SERVICE: Brooklyn For the transportation to and from school of approximately 8,300 open enrollment pupils and pupils attending regular classes in public and non-public schools in Community School District 21.
DAILY RATE DAILY RATE NUMBER OF SCHOOLS NUMBER OF ROUTES NUMBER OF STOPS NUMBER OF VEHICLES PER VEHICLE PER ITEM - ----------------- ---------------- --------------- ------------------ ----------- -------- 51 165 1,765 73
48-L Serial No. 9888 SCHEDULE OF ITEMS AND BID BLANK ITEM NO.: BK-22 AREA OF SERVICE: Brooklyn For the transportation to and from school of approximately 7,300 open enrollment pupils and pupils attending regular classes in public and non-public schools in Community School District 22.
DAILY RATE DAILY RATE NUMBER OF SCHOOLS NUMBER OF ROUTES NUMBER OF STOPS NUMBER OF VEHICLES PER VEHICLE PER ITEM - ----------------- ---------------- --------------- ------------------ ----------- -------- 44 160 1,388 68
48-M Serial No. 9888 SCHEDULE OF ITEMS AND BID BLANK ITEM NO.: Q-24 AREA OF SERVICE: Queens For the transportation to and from school of approximately 5,500 open enrollment pupils and pupils attending regular classes in public and non-public schools in Community School District 24.
DAILY RATE DAILY RATE NUMBER OF SCHOOLS NUMBER OF ROUTES NUMBER OF STOPS NUMBER OF VEHICLES PER VEHICLE PER ITEM - ----------------- ---------------- --------------- ------------------ ----------- -------- 33 59 438 34
48-N Serial No. 9888 SCHEDULE OF ITEMS AND BID BLANK ITEM NO.: Q-25C AREA OF SERVICE: Queens For the transportation to and from school of approximately 6,700 open enrollment pupils and pupils attending regular classes in public and non-public schools in Community School District 25.
DAILY RATE DAILY RATE NUMBER OF SCHOOLS NUMBER OF ROUTES NUMBER OF STOPS NUMBER OF VEHICLES PER VEHICLE PER ITEM - ----------------- ---------------- --------------- ------------------ ----------- -------- 38 103 787 60
48-O Serial No. 9888 SCHEDULE OF ITEMS AND BID BLANK ITEM NO.: Q-25A AREA OF SERVICE: Queens For the transportation to and from school of approximately 3,350 open enrollment pupils and pupils attending regular classes in public and non-public schools in Community School District 25.
DAILY RATE DAILY RATE NUMBER OF SCHOOLS NUMBER OF ROUTES NUMBER OF STOPS NUMBER OF VEHICLES PER VEHICLE PER ITEM - ----------------- ---------------- --------------- ------------------ ----------- -------- 18 49 408 24
* This Item includes only schools North of Northern Blvd. in District 25. 48-P Serial No. 9888 SCHEDULE OF ITEMS AND BID BLANK ITEM NO.: Q-25B AREA OF SERVICE: Queens For the transportation to and from school of approximately 3,200 open enrollment pupils and pupils attending regular classes in public and non-public schools in Community School District 25.
DAILY RATE DAILY RATE NUMBER OF SCHOOLS NUMBER OF ROUTES NUMBER OF STOPS NUMBER OF VEHICLES PER VEHICLE PER ITEM - ----------------- ---------------- --------------- ------------------ ----------- -------- 18 54 384 36
* This Item includes only schools South of Northern Blvd. in District 25. 48-Q Serial No. 9888 SCHEDULE OF ITEMS AND BID BLANK ITEM NO.: Q-26 AREA OF SERVICE: Queens For the transportation to and from school of approximately 4,500 open enrollment pupils and pupils attending regular classes in public and non-public schools in Community School District 26.
DAILY RATE DAILY RATE NUMBER OF SCHOOLS NUMBER OF ROUTES NUMBER OF STOPS NUMBER OF VEHICLES PER VEHICLE PER ITEM - ----------------- ---------------- --------------- ------------------ ----------- -------- 34 102 1,040 47
48-R Serial No. 9888 SCHEDULE OF ITEMS AND BID BLANK ITEM NO.: Q-27A AREA OF SERVICE: Queens For the transportation to and from school of approximately 3,900 open enrollment pupils and pupils attending regular classes in public and non-public schools in Community School District 27 Mainland.
DAILY RATE DAILY RATE NUMBER OF SCHOOLS NUMBER OF ROUTES NUMBER OF STOPS NUMBER OF VEHICLES PER VEHICLE PER ITEM - ----------------- ---------------- --------------- ------------------ ----------- -------- 28 60 373 29
* Service in this Item includes only schools North of Jamaica Bay and does not include schools in the Rockaway peninsula. 48-S Serial No. 9888 SCHEDULE OF ITEMS AND BID BLANK ITEM NO.: Q-29 AREA OF SERVICE: Queens For the transportation to and from school of approximately 5,500 open enrollment pupils and pupils attending regular classes in public and non-public schools in Community School District 29.
DAILY RATE DAILY RATE NUMBER OF SCHOOLS NUMBER OF ROUTES NUMBER OF STOPS NUMBER OF VEHICLES PER VEHICLE PER ITEM - ----------------- ---------------- --------------- ------------------ ----------- -------- 39 100 692 38
48-T Serial No. 9888 SCHEDULE OF ITEMS AND BID BLANK ITEM NO.: Q-30A AREA OF SERVICE: Queens For the transportation to and from school of approximately 298 open enrollment pupils and pupils attending regular classes in public and non-public schools in Community School District 30.
DAILY RATE DAILY RATE NUMBER OF SCHOOLS NUMBER OF ROUTES NUMBER OF STOPS NUMBER OF VEHICLES PER VEHICLE PER ITEM - ----------------- ---------------- --------------- ------------------ ----------- -------- 1 6 101 6
* Vehicles in this Item are designated for service to IS 227Q only and the Board reserves the right to design the routes to be serviced. 48-U Serial No. 9888 TERMS AND CONDITIONS WITNESSETH That pursuant to all applicable State and Local Laws and all By-Laws, resolutions, rules and regulations of the Board of Education and the City of New York and its various departments, and in consideration of the agreements hereinafter undertaken by each of the parties hereto with the other, the parties hereto do hereby covenant and agree for themselves and for their respective successors and legal representatives as follows: 1. Definitions A. Words used in this Contract shall have their ordinary meanings in the English language, except that scientific, technical, specialized or foreign words shall be given their appropriate scientific, technical, specialized or foreign meanings, and definitions specifically provided elsewhere in the Contract shall apply. B. Wherever the following words, names or titles appear in this Contract, they shall have the following meanings: (1) "THE BOARD" means the Board of Education (BOE) of the City School District of the City of New York and the party of the first part of this Contract. (2) "THE CONTRACTOR" means the party of the second part to this Contract. (3) The "CHANCELLOR" means the Chancellor of the Board of Education. (4) "BOARD OF REVIEW", means the Board of Review established by the Board's By-Laws. (5) "THE DIRECTOR" means the Director of the Office of Pupil Transportation delegated by the Board to supervise the work of this Contract. (6) "THE SECRETARY", "ASSISTANT SECRETARY" and "EXECUTIVE DIRECTOR" mean the following officers and employees of the Board of Education respectively: the Secretary, and Assistant Secretary of the Board of Education and the Executive Director of the Division of Business and Administration. (7) "THE CITY" means the City of New York. 49 Serial No. 9888 (8) The "COMPTROLLER" and the "COMMISSIONER OF FINANCE" mean the Comptroller and the Commissioner of Finance of the of the City of New York, respectively. (9) "APPROVED", "REQUIRED", "DIRECTED", "SPECIFIED", "DESIGNATED" or "DEEMED NECESSARY", unless otherwise expressed, mean approved, required, directed, specified, designated, or deemed necessary, as the case may be, by the Chancellor or his designee. (10) "WORK" or "SERVICES" means all services to be furnished or done by or on the part of the Contractor. (11) "COMPLETION" means full and complete compliance with every requirement of the Contract by the Contractor as certified by the Chancellor or his designee. (12) "SPECIFICATIONS" shall mean the combined proposal for bids and specifications, and amendments thereto, and all of the directions and requirements applying to the service as hereinbefore detailed and designated under specifications. (13) The term "ITEM", as used herein, shall be defined as each separate unit or group of vehicles upon which a contractor may bid. (14) The terms "DRIVER" and "OPERATOR" shall be defined as synonymous for the purpose of this Contract, and shall mean any person employed by a Contractor and approved by the Chancellor or his designee, to drive or operate a school bus in the performance of this Contract. (15) "FINAL PAYMENT" means (i) the payment or refund by the Board or City of any monies which exhausts the amount of money made available under the Agreement or (ii) any payment marked "Final Payment". (16) The term "ROUTE", as used herein, shall mean a series of bus stops designated by the Office of Pupil Transportation for an individual school, which, shall not exceed a total one way route length of five miles when measured through all stop points. (17) The terms "RUN" and "SCHEDULE" shall be defined as synonymous for the purpose of the Contract and shall mean the actual course followed by a bus in transporting students to and from school. Runs are constructed by the Contractor, from the stops and routes designated by OPT, and may combine stops and/or routes for several schools in close proximity and may exceed five miles in length. 50 Serial No. 9888 (18) "BIDDER" means an offerer of a price for which a contract will be awarded. (19) The term "CONTRACTOR" means a successful Bidder whose offer has been accepted, and as stated in number (2) above, the party of the second part to this Contract. (20) "CONTRACT" shall mean the advertisement for furnishing and delivering transportation services, proposal for bids, instructions to bidders, bid specifications, schedules, agreements and the resolution of awards approved by the Board of Education which are and shall be a part of this Contract. In case of variance between the specifications, bid and contract, if any, the specifications shall be controlling. 2. Subject Matter The Contractor shall provide at its own cost and expense sufficient plant, equipment and working capital to provide for the transportation of pupils in accordance with the terms, conditions, and specifications set forth herein. The Contractor shall accept as full compensation for its faithful performance of this Contract the sums certified by the Director in accordance with the provisions of the Contract, and said sums shall be in the amount at which the Contract was awarded to the Contractor at the public bidding. 3. Captions The headings of this Contract, the chapters, paragraphs, and subparagraphs of the Contract, and of any attachments, are included solely for convenience and reference, and they shall not be used in any way to interpret this Contract. 4. Interpretation Any doubt as to the meaning of the terms of the Contract or any obscurity as to the wording of the terms will be explained in writing, upon written request, by the Director and all directions and explanations required, alluded to, or necessary to complete any of the provisions of the Contract and to give them due effect will be given by the Director in writing upon written request. The interpretation of the Director shall be final and binding upon all parties. The Chancellor or his designee shall in all cases determine the acceptability of the labor, materials, or services which are delivered pursuant to this contract, including but not limited to their quality, delivery, and condition, and shall in all cases decide every question which may arise relative to the performance of this Contract. The 51 Serial No. 9888 Contractor may not rely upon, and the Board shall not be bound by, any explanations, determinations or other statements by or from the Board which are not in writing and signed by the Chancellor or his designee. 5. Modifications The Board may, from time to time, request changes in the scope of the services to be performed by the Contractor hereunder. However, no term, provision or condition of this Contract shall be deemed waived by the Board unless such waiver shall be in writing and signed by the Chancellor or his designee. 6. Compliance With Laws The Contractor shall comply with all applicable laws, ordinances, and codes of Federal, State and Local governments. It is the intent and understanding of the parties hereto that each and every provision of law required by law to be inserted in this Contract shall be deemed to be inserted herein. It is further agreed that if, through mistake or otherwise, any such provision is not inserted, or is not inserted in correct form, that this Contract shall forthwith be amended upon notice to the Contractor by such insertion so as to comply strictly with the law. 7. Worker's Compensation If this Contract be of such a character that the employees engaged thereon are required to be insured by the provisions of Chapter 615 of the Laws of 1922, known as the Worker's Compensation Law, as it has been or may be amended, the person, firm or corporation making or performing the same shall secure compensation for the benefit of, and keep insured during the life of this Contract, such employees, in compliance with the provisions of said law. Prior to starting service under this Contract, the Contractor shall file with the Director a certificate showing compliance with the provisions of said law. Such insurance shall be kept during the life of said Contract. 8. Unlawful Provisions Void If this Contract contains any unlawful provisions or portions thereof, they shall be deemed deleted from the Contract and the remainder of the Contract shall remain in full force and effect. If the deletion of such provision frustrates the purpose of this Contract, either party may make application to the Board of Review for relief. 9. Necessary Approvals A. This Contract shall not become effective or binding upon the Board until: (1) it shall have been approved as to form by the Office of the 52 Serial No. 9888 Corporation Counsel of the City of New York; (2) it has been authorized by a resolution duly adopted by a vote of the Board; (3) there is subsequent approval of the Contract by the New York State Education Department and the rejection of the Contract at any time by the Department shall extinguish all obligations of the Board herein; (4) it is registered with the Comptroller, and reregistered with the Comptroller from year to year if required; and (5) it is approved and reapproved from year to year by the New York State Financial Control Board if required by the Regulations of said Financial Control Board. B. This agreement is subject to the approval of the Financial Control Board (FCB) if it falls into one of the following categories: (1) Any Program Contract which requires or may reasonably be anticipated to require payment by the City of an amount in excess of $1,000,000. (2) Any Capital Construction Contract which requires or may reasonably be anticipated to require payment by the City or a covered organization of an amount in excess of $5,000,000. (3) Any other contract, including Capital Non-Construction Contracts, other than Long-term Leases and Collective Bargaining Agreements, which require or may reasonably be anticipated to require payment by the City of $5,000,000 or more or in the case of a covered organization, an amount of $1,000,000 or more. (4) Any Long-term Lease. (5) Any Collective Bargaining Agreement or modification thereof as defined and governed by the Collective Bargaining Agreements Review and Approval Procedures adopted by the Control Board on April 23, 1981, and as amended from time to time. (6) (a.) Any amendment to a contract required to be submitted to the Control Board pursuant hereto, other than a Long-term Lease or Collective Bargaining Agreement, which modifies the time or times of payment, or increases the amount required to be paid by the City or a covered organization, and which amendment when considered in the aggregate with all prior unapproved amendments to such contract approved since the last amendment, increases or may reasonably be anticipated to increase the base contract amount by increments of $500,000 in the case of the City, and in the case of a covered organization $500,000 for Capital Construction Contracts and $250,000 for all other contracts. (b.) Any amendment to a contract not initially required to be submitted to the Control Board pursuant hereto, other that a Long-term Lease or Collective Bargaining Agreement, 53 Serial No. 9888 Bargaining Agreement, which amendment, when considered in the aggregate with the base contract increases or may reasonably be anticipated to increase the base contract amount up to and beyond $5,000,000 in the case of the City and, in the case of covered organizations $5,000,000 for Capital Construction Contracts, and $1,000,000 for all other contracts. (c.) All subsequent amendments to a contract not initially required to be submitted to the Control Board pursuant hereto but which has been amended and such amendment was required to be submitted to the Control Board pursuant to Section 2(e) (ii) of the Regulation which subsequent amendments, when considered in the aggregate with all prior unapproved amendments to such contract, increase or may reasonably be anticipated to increase the base contract as approved by increments of $500,000 in the case of the City or, in the case of a covered organization $5,000,000 for Capital Construction Contracts, and $250,000 for all other contracts. (7) (a.) Any amendment to a Long-term Lease as defined in Section 1 (e) (1) or (2) of the Regulations which (a) modifies the term of the lease or renewal period, (b) increases the amount required to be paid by the City or a covered organization as rent or otherwise, (c) decreases the amount to be paid to the City or a covered organization pursuant to such Lease, or (d) modifies the time or amounts of any payments under the lease. Any amendment to a Long-term Lease as defined in Section 1 (e) (3) of the Regulations. 10. Religious Activity Prohibited There shall be no religious worship, instruction, proselytizing, or other religious activity engaged in by the Contractor or its employees in connection with the performance of this Contract. 11. Political Activity Prohibited There shall be no political activity engaged in by the Contractor or its employees while in the performance of this Contract to further the election or defeat of any candidate for public office. In addition, neither the Contractor nor its employees shall engage in the distribution, to any students or their parents, of any handouts, advertisements, pamphlets or any other document or material not required by this Contract or otherwise authorized by the Director 54 Serial No. 9888 while engaged in or in connection with the performance of this Contract. 12. No Personal Liability Neither the members of the Board nor the Chancellor nor any officer, employee, agent or other representative of the Board or of the City shall be personally liable, based upon any theory of law or equity, to the Contractor, or to any party claiming on behalf of or through the Contractor, under this Contract, or by reason of any individual's actions or failure to act in any way connected with this Contract, whether or not the action shall have been within or without an individual's scope of authority. The scope of this provision includes injury to any personal interest (commercial or otherwise), physical injury (including death), property damages, and any pecuniary damages where such injuries or damages result from or arise out of negligence. The Contractor further waives any and all rights to make a claim or commence an action or special proceeding, in law or equity, against any of the aforementioned individuals, and the Contractor hereby assigns its complete right, title, and interest in any such claim, action, or special proceeding to the Board. 13. Prevention of Delay, Suspension or Strikes Because of the public nature of the services involved, and because of the essential public services performed, the contractor shall not act in any manner, nor employ labor or means, nor do anything by way of omission or commission that would in any way cause or result in a suspension, or delay of or strike affecting the work or any services to be performed hereunder. Any violation by the Contractor of this requirement may, upon certification of the Director that the Contractor's act or failure to act demonstrated a lack of good faith effort to assure the performance of the conditions or covenants of this Contract, be considered as proper and sufficient cause for finding the Contractor to be in default in the manner set forth in this Contract. 14. Inspectors and/or Administrative Personnel The Director may assign inspectors or other administrative personnel to inspect vehicles furnished under this Contract, and such inspector or inspectors shall have the right at any and all times to inspect the vehicles used or proposed to be used under this Contract; to inspect the driver's license, vehicle registration, and proof of insurance; and to require drivers to produce proper identification. Such inspectors are authorized and empowered to reject and forbid the use of any and all vehicles or any part thereof offered under or in fulfillment of this Contract for the reason that the same do not comply with the specifications. Inspectors and/or administrative personnel will be allowed access to all of the Contractor's premises and vehicles for 55 Serial No. 9888 the purpose of carrying out vehicle inspections and related functions, and the review and audit of Contractor records for compliance with the terms of this Contract. 15. Rejection of Vehicles Any vehicle furnished or offered to be furnished under this Contract for the transportation of pupils which is rejected by an inspector as not conforming to the specifications, the rules and regulations of the New York State Department of Transportation or Education Department, or those of the Board, shall be immediately removed, and vehicles for the transportation of pupils which do conform shall be furnished in place thereof. 16. No Extra Compensation The Contractor shall not seek, ask for, demand, sue for or recover as extra compensation or otherwise, any sum for labor, materials or services other than the compensation agreed upon and fixed. 17. Invoices and Payments The Contractor shall furnish proof of performance with each invoice and shall comply with all Board requirements concerning the manner in which invoices are to be submitted. If the Contractor shall well and faithfully perform and fulfill this Contract and keep every covenant on its part herein contained, the Board shall then pay or cause to be paid to the Contractor, subject to the provisions of the specifications, the amounts due the contractor as the services are provided. The Board and the Comptroller may at all times reserve and retain out of said payments, all sums as by the terms hereof, or of any law of the State of New York, or of any local law of the City of New York, now in effect or hereafter enacted, the Board or the City may be authorized to collect, reserve or retain. The Contractor shall not be entitled to demand or receive payment for the services rendered, or any portion thereof, except in the manner set forth in this Contract, upon certification by the Director of compliance by the Contractor with each and every one of the stipulations herein mentioned, provided that nothing herein contained be construed to affect the right hereby reserved by the Board and the Comptroller to refuse to pay any part or all of the amount certified should the said certificate be found or known to be inconsistent with the terms of this Contract, or otherwise improperly given. 18. Cancellation of Funding The Services to be provided hereunder are to be paid for, in large part, by means of funding received by the Board from Federal, State or City Sources. The obligation to pay the Contractor shall be subject 56 Serial No. 9888 to the continuing availability of said funding. The Board shall notify the Contractor within five (5) business days from the date the Board receives written notice of the cancellation of such funding, in whole or in part, whereupon the Contractor may cease further performance of this Contract to the extent said performance would not be supported by the funding. However, the Board may, at its option, require completion of performance of this Contract by the Contractor upon giving written assurance, signed by the Chancellor or his designee, within fifteen (15) business days of the date the Board receives written notice of such cancellation, that the completed performance of this Contract shall be supported by other available funds. 19. No Estoppel The Board, City, and their respective departments, divisions and offices, shall not be precluded or estopped by a statement or document issued by or on behalf of the Board or the City, from indicating the true value of services performed and supplies furnished by the Contractor or by any other person pursuant to or as a result of this Contract, or from indicating that any such return or certificate is untrue or incorrect in any, particular or that the services performed and supplies furnished or any part thereof do not in fact conform to the provisions of the Contract. Notwithstanding any such statements or document, or payment in accordance therewith, the Board and the City shall not be precluded or estopped from demanding and recovering from the Contractor such damages as may be sustained by reason of the Contractor's failure to comply with the provisions of this Contract. 20. Prior Contractors The Contractor agrees to be responsible to the Board for any debts owed to the Board by any other transportation Contractor, where the Contractor and the other transportation contractor have, or had at anytime since the date of execution of the previous Contract, substantially the same ownership, and provided that those debts arose under a Contract for the transportation of pupils previously entered into between the Board and the other transportation contractor. Incorporated contractors having substantially the same ownership, inc1udes, but is not necessarily limited to, corporations having 20% of their shares held by the same persons. 21. Acceptance of Final Payment Receipt and negotiation by the Contractor, or by any person claiming under this Contract, of the Final Payment hereunder, notwithstanding whether such payment be made pursuant to any judgement or order of any court, shall constitute a general release of the Board from any and all claims and liability for anything done, furnished, or relating to 57 Serial No. 9888 the labor, materials, or services provided, or for any act of omission or commission of the Board or its agents and employees. Said release shall be effective against the Contractor and the Contractor's representatives, heirs, executors, administrators, successors, and assigns. 22. Claims - Limitation of Action No action at law or equity shall be maintained by the Contractor, its successors or assigns, against the Board on any claim based upon or arising out of this Contract, or out of anything done in connection with this contract, unless such action shall be commenced within six (6) months after the date of filing of the voucher for final payment hereunder or within six (6) months of the required completion date for the services performed hereunder, whichever is sooner. None of the provisions of Article 2 of the Civil Service Practice Law and Rules shall apply to any action against the Board arising out of this contract. 23. Notices The Contractor's address stated on Page 12 of this Contract is hereby designated as the place where all notices, letters or other communications directed to the Contractor shall be served, mailed or delivered. Any notice, letter or other communication directed to the Contractor and delivered to such address, or sealed in a post-paid wrapper and deposited in any post office box regularly maintained by the United States Postal Service, shall be deemed sufficient service thereof upon the Contractor. Said address may be changed at any time by an instrument in writing, executed and acknowledged by the Contractor and delivered to the Chancellor's designee. Nothing herein contained shall be deemed to preclude or render inoperative personal delivery of any notice, letter or other communication, written or oral to the Contractor. Whenever it shall be necessary or required to prove the delivery of any notice, an affidavit describing such delivery shall be conclusive evidence of such delivery. 24. Waivers A. No waiver by the Board of any term or condition hereof shall be effective unless in writing and signed by the Director or his designee. Any waiver shall be specifically limited to its terms, and shall not be deemed applicable to subsequent like circumstances. B. Any purported oral waiver shall be void. 25. Cancellation A. If the Contractor violates any provision of this Contract the 58 Serial No. 9888 Chancellor or his designee may pursue legal or equitable remedies available to the Board. In addition, the Chancellor or his designee may seek to have the Contractor declared in default by the Board of Review pursuant to Article 8 of the Bylaws of the Board of Education. In the event that the Board of Review shall determine the Contractor to be in default, the Board may cancel this Contract and shall thereafter be relieved of all liability hereunder. B. In the event of breach of this Contract by the Contractor, the Board shall have the right to cancel and terminate said Contract, and the Contractor shall be liable to the Board for any additional cost of completion of the within services, the Board's other costs in connection with the termination, reletting and completion of the services. All such costs, along with any liquidated damages provided herein, may be assessed by the Board against the Contractor and deducted by the Board from payments to be made to the Contractor under this or any other Contract at any time entered into between the Contractor and the Board or City. In the event that said costs and liquidated damages exceed all sums owed at the termination date of this Contract, the Contractor shall pay the amount of such excess to the Board upon notice from the Board of said amount, and in the event that said costs and liquidated damages are less than the sum payable under this Contract as if same had been completed by the Contractor, the Contractor shall forfeit all claims to the difference to the Board. If the Board undertakes to secure the services or any part thereof under this section of the Contract, amount of services secured, the cost and excess cost, if any, of completing this Contract, and the amount of liquidated damages hereunder, shall be conclusive and binding upon the Contractor, its assigns and all other claimants. 26. Investigations 1.1 The parties to this agreement agree to cooperate fully and faithfully with any investigation, audit or inquiry conducted by a State of New York (State) or City of New York (City) governmental agency or authority that is empowered directly or by designation to compel the attendance of witnesses and to examine witnesses under oath, or conducted by the Inspector General of a governmental agency that is a party in interest to the transaction, submitted proposal, contract, lease, permit, or license that is the subject of transaction, the investigation, audit or inquiry. 1.2 (a) If any person who has been advised that his or her statement, and any information from such statement, will not be used 59 Serial No. 9888 against him or her in any subsequent criminal proceeding refuses to testify before a grand jury or other governmental agency or authority empowered directly or by designation to compel the attendance of witnesses and to examine witnesses under oath concerning the award of or performance under any transaction, agreement, lease, permit, contract, or license entered into with the Board, the City, the State, or any political subdivision or public authority thereof, or the Port Authority of New York and New Jersey, or any local development corporation within the City, or any public benefit corporation organized under the laws of the State of New York, or; 1.2 (b) If any person refuses to testify for a reason other than the assertion of his or her privilege against self incrimination in an investigation, audit, or inquiry conducted by the Board or a City or State governmental agency or authority empowered directly or by designation to compel the attendance of witnesses and to take testimony under oath, or by the Inspector General of the governmental agency that is a party in interest in, and is seeking testimony concerning the award of, or performance under, any transaction, agreement, lease, permit, contract, or license entered into with the City, the State, or any political subdivision thereof or any local development corporation within the City, then; 1.3 (a) The commissioner or agency head whose agency is a party in interest to the transaction, submitted bid, submitted proposal, contract, lease, permit, or license shall convene a hearing, upon not less than five (5) days written notice to the parties involved to determine if any penalties should attach for the failure of a person to testify. 1.3 (b) If any non-governmental party to the hearing requests an adjournment, the commissioner or agency head who convened the hearing may upon granting the adjournment, suspend any contract, lease, permit, or license pending the final determination pursuant to paragraph 1.5 below without the Board or City incurring any penalty or damages for delay or otherwise. 1.4 The penalties which may attach after a final determination by the commissioner or agency head may include but shall not exceed: (a) the disqualification for a period not to exceed five (5) years from the date of an adverse determination for any person, or any entity of which such person was a member of at the time the testimony was sought, from submitting bids for, or transacting business with, or entering into or 60 Serial No. 9888 obtaining any contract, lease, permit or license with or from the Board or the City, and/or (b) The cancellation or termination of any and all such existing Board or City contracts, leases, permits or licenses that the refusal to testify concerns and that have not been assigned as permitted under this agreement, nor the proceeds of which pledged, to an unaffiliated and unrelated institutional lender for fair value prior to the issuance of the notice scheduling the hearing, without the Board or the City incurring any penalty or damages on account of such cancellation or termination; monies lawfully due for goods delivered, work done, rentals, or fees accrued prior to the cancellation or termination shall be paid by the Board or the City. 1.5 The commissioner or agency head shall consider and address in reaching his or her determination and in assessing an appropriate penalty the factors in paragraphs (a) and (b) below. He or she may also consider, if relevant and appropriate, the criteria established in paragraphs (c) and (d) below in addition to any other information which may be relevant and appropriate; (a) The partys' good faith endeavors or lack thereof to cooperate fully and faithfully with any governmental investigation or audit, including but not limited to the discipline, discharge, or disassociation of any person failing to testify, the production of accurate and complete books and records, and the forthcoming testimony of all other members, agents, assignees or fiduciaries whose testimony is sought. (b) The relationship of the person who refused to testify to any entity that is a party to the hearing, including, but not limited to, whether the person whose testimony is sought has an ownership interest in the entity and/or the degree of authority and responsibility the person has within the entity. (c) The nexus of the testimony sought to the subject entity and its contracts, leases, permits or licenses with the Board or the City. (d) The effect a penalty may have on an unaffiliated and unrelated party or entity that has a significant interest in an entity subject to penalties under 1.4 above, provided that the party or entity has given 61 Serial No. 9888 actual notice to the commissioner or agency head upon the acquisition of the interest, or at the hearing called for in 1.3(a) above gives notice and proves that such interest was previously acquired. Under either circumstance the party or entity must present evidence at the hearing demonstrating the potential adverse impact a penalty will have on such person or entity. 1.6 (a) The term "license" or "permit" as used herein shall be defined as a license, permit, franchise or concession not granted as a matter of right. (b) The term "person" as used herein shall be defined as any natural person doing business alone or associated with another person or entity as a partner, director, officer, principal or employee. (c) The term "entity" as used herein shall be defined as any firm, partnership, corporation, association, or person that receives monies, benefits, licenses, leases, or permits from or through the Board or the City or otherwise transacts business with the Board or the City. (d) The term "member" as used herein shall be defined as any person associated with another person or entity as partner, director, officer, principal or employee. 27. Reports, Inspection and Maintenance of Records A. The Contractor shall promptly provide all reports required by the Board, including without limitation, financial, program, statistical, analytical, narrative and progress reports. Unless otherwise provided herein, the final payment hereunder shall not be made until all reports have been submitted and approved by the Board. B. The contractor shall, until six (6) years after completion of its services hereunder or six (6) years after date of termination of this Contract, whichever is later, maintain and retain complete and correct books and records relating to all aspects of the Contractor's obligations hereunder, including, without limitation, accurate cost and accounting records specifically identifying the expenses incurred by the Contractor in performing such obligations, including, without limitation, the following costs: payroll expense, and all other related records necessary to assure a proper accounting of funds, including property, personal records, cash receipts and disbursements, journals and ledgers. Records must be maintained separately, so as to identify clearly the expenses applicable to this Contract and 62 Serial No. 9888 be distinguishable from all other costs not incurred under this Contract. C. The Contractor shall make its staff, premises, books, records, operations, and Services provided under this contract, and those of its subcontractors, available to the Board and to any person, agency or entity designated by the Board, at any time, for program audit, fiscal audit, inspection, observation, sampling, visitation and evaluation, and shall render all assistance and cooperation for said purposes. D. In its record keeping the Contractor shall also comply with all federal, state and local laws and regulations pertaining to such records, including, without limitation, the regulations of the Comptroller, and shall require its subcontractors to do likewise. E. In the event that any Federal, state or local government agency, or other public or private agency conducts an audit of any of the Contractor's operations, within five (5) working days after receipt by the Contractor of notice of the commencement of such audit the Contractor shall give notice of such commencement to the Board; and within five (5) working days after receipt by the Contractor of a copy of any resulting interim or final audit report, the Contractor shall supply one copy thereof to the Board. 28. Non-Assignment of Contract The Contractor shall give its personal attention to the faithful performance of this Contract. Contractor covenants that it will not assign, transfer, convey, sublet or otherwise dispose of this Contract or its right, title or interest therein or its power to execute such Contract, to any other person or corporation without the previous written consent of the Chancellor or his designee. If the Contractor in any way violates the terms of this provision, the Board shall have the right to cancel and terminate this Contract, and the Board shall thereupon be relieved from all liability hereunder. Nothing contained herein shall be construed to affect an assignment by the Contractor for the benefit of its creditors made pursuant to the statutes of the State of New York. No right under this Contract, or to any monies due or to become due hereunder, shall be asserted against the Board or the City in law or in equity by reason of a purported assignment of this Contract, or any part thereof, or of any monies due or to become due hereunder, unless authorized as aforesaid. 29. Transfer of Corporate Stock The Contractor agrees that it will notify the Director of any change in corporate officers, directors or managing agents, or the 63 Serial No. 9888 organization of the corporation including but not limited to, a change in corporate voting power, transfer or sale of corporate assets, transfer or sale of corporate stock over 3% or any other action which may effect the interests of the Board as a party to this Contract. 30. Contractor's Staff The Contractor shall employ or contract for the services of only competent workmen, consultants, independent contractors or other employees which are, or may reasonably be, necessary for the performance of the Services hereunder. The Contractor warrants that, to its knowledge, no employee of the Contractor is currently employed in any capacity by the Board of Education of the City of New York, and that the Contractor shall be solely responsible for said employee's work, direction, safety and compensation unless otherwise provided by the Contract. The Contractor agrees to immediately remove from any part of the work to be performed hereunder any employee, and not engage such employee in the performance of this Contract, if the Contractor is notified in writing that, in the opinion of either the Chancellor, or his designee, such employee is incompetent or otherwise impedes the performance of the services hereunder. 31. Confidentiality of Records All personally identifiable student and staff information obtained by or furnished to the Contractor by the Board, and all reports and studies containing such information prepared or assembled by the Contractor, are to be kept strictly confidential by the Contractor and shall not be provided or disclosed to any third party without the express written permission of the Chancellor or his designee. The Contractor shall limit access to such material in its control to those of its employees performing services pursuant to this Contract strictly on a need to know basis. The Contractor shall restrict its use of the information to its performance under this Contract and shall return all such material to the Board upon the completion of the services herein. 32. Testimony If the subject matter of this Contract at any time becomes involved in any action or proceeding, to which the Board or the City is a party, before any court, board, tribunal, panel, arbitrator, referee or agency, the Contractor shall provide such knowledgeable witnesses as the Board shall require, free of additional compensation of any kind. Nothing herein shall require the Contractor to provide testimony in any proceeding in which it is a party with interests opposed to those of the Board. 64 Serial No. 9888 33. Indemnification The Contractor shall protect, indemnify and hold harmless the Board from any and all claims, suits, actions, costs and damages to which the Board may be subjected by reason of injury to person or property, or wrongful death, as may result from any act, omission, carelessness, malpractice or incompetence of the Contractor, or anyone employed or engaged by the Contractor, in connection with the performance of this Contract. 34. Conflict of Interest Prohibited A. Except in accordance with applicable provisions of law and regulations governing such employment, the Contractor may not employ or contract for the services of 1.) any present employee of the Board or 2.) any person who is presently on leave from employment with the Board, or 3.) any former employee of the Board. B. The Contractor warrants that, other than a bona fide employee or contractor regularly working as a sales representative for the Contractor, no person, selling agency, or other entity has solicited or secured this Contract, or has been employed or retained to do so, for a commission, percentage, brokerage fee or contingent fee. C. The Contractor shall not give, and warrants that it has not given or promised to give, any gift or thing of value to any officer, employee or other person whose salary is payable in whole or part from Board or City Funds, or other funds under this contract. The phrase "gift or thing of value" shall include, without limitation, money, tangible goods, services, loans, promises or negotiable instruments. D. If the Contractor violates any provision of this paragraph, the Board may, at its option, (1.) cancel and terminate this Contract and be relieved of all liability hereunder, (2.) deduct all amounts paid by the Contractor or other value given by the Contractor in violation of this paragraph, from payments made or to be made to the Contractor under this or any other contract at any time, (3.) require the refund of any funds paid hereunder or (4.) any combination of the foregoing. Any breach of the warranties or violation of the provisions of this paragraph shall be grounds to preclude the Contractor or its principals as a responsible bidder on other Board or City contracts. 35. Anti-Trust Clauses The Contractor hereby assigns, sells and transfers to the Board all right, title and interest in and to any claims and causes of action 65 Serial No. 9888 arising under the antitrust laws of New York State or of the United States relating to the particular goods or services purchased or procured by the Board or City under this Contract. 36. Merger This written Agreement constitutes the entire agreement of the parties, and no other prior or contemporaneous agreement, oral or otherwise, regarding the subject matter of this Agreement shall be deemed to exist or bind any of the parties hereto, or to vary any of the terms contained herein. 37. Participation In An International Boycott A. The Contractor agrees that neither it nor any substantially-owned affiliated company is participating or shall participate in an international boycott in violation of the provisions of the Export Administration Act of 1969, as amended, or the regulations of the United States Department of Commerce promulgated thereunder. B. Upon the final determination by the Commerce Department or any other agency of the United States as to, conviction of the Contractor or a substantially-owned affiliated company thereof, participation in an international boycott in violation of the provisions of the Export Administration act of 1969, as amended, or the regulations promulgated thereunder, the Comptroller or the Chancellor or his designee may, at his option, render forfeit and void this Contract. C. The Contractor shall comply in all respects, with the provisions of Section 343-10.0 of the Administrative Code of the City of New York and rules and regulations issued by the Comptroller thereunder. 38. Discrimination In connection with the performance of work under this Contract, the Contractor agrees as follows: a) The Contractor will not discriminate against any employee or applicant for employment because of race, creed, color, age, sex, national origin, handicap, marital status, religion or political beliefs or affiliations. The Contractor will take action to ensure that applicants are employed, and that employees are treated during employment, without regard to the foregoing categories. Such action shall include but not be limited to the following: employment; upgrading; demotions or transfer; recruitment or recruitment advertising; layoff or termination; rates of pay or other forms of compensation; and selection for training, including apprenticeship. The Contractor agrees to post 66 Serial No. 9888 in conspicuous places, available to employees and applicants for employment, notices to be provided by the Board setting forth the provisions of this nondiscrimination clause. b) The Contractor shall not discriminate against any employee or applicant for employment on the basis of sex pursuant to Title IX of the Education Amendments of 1972 (20 United States Code Annotated, Section 1681 et seq.). c) The Contractor will, in all solicitations or advertisements for employees placed by or on behalf of the contractor, state that all qualified applicants will receive consideration for employment without regard to race, creed, color, age, sex, or national origin. d) The Contractor will send to each labor union or representative of workers with which it has a collective bargaining agreement or other contract or understanding, a notice to be provided by the Board advising the said labor union or workers' representatives of the contractor's commitments under this section, and shall post copies of the notice in conspicuous places available to employees and applicants for employment. e) The Contractor will comply with all provisions of law prohibiting discrimination because of race, creed, color, age, sex, or national origin. f) The Contractor will comply with all provisions of Executive Order No. 11246 of September 24, 1965, and of the rules, regulations, and relevant orders of the Secretaries of Labor and Health and Human Services created thereby. The contractor will furnish all information and reports required by Executive Order No.11246 of September 24, 1965, and by the rules, regulations, and orders of said Secretaries issued pursuant thereto, and will permit access to its books, records, and accounts by the Board and the Secretaries for purposes of investigation to ascertain compliance with such rules, regulations and orders. In the event of the Contractor's non-compliance with the nondiscrimination clause of this Contract, or with any of the said rules, regulations or orders, this Contract may be cancelled in whole or in part and the Contractor may be declared ineligible for further Government contracts in accordance with procedures authorized in Executive Order No. 11246 of September 24, 1965, and such other sanctions may be imposed and remedies invoked as provided in the said Executive Order by rule, regulation or order of the Secretaries of Labor and Health and Human Services, or as otherwise provided by law. 67 Serial No. 9888 39. Equal Employment Opportunity Requirements for Non-Construction Contractors, Vendors and Suppliers The attention of all bidders is particularly directed to the various orders, rules, regulations and procedures set forth in the contract documents with respect to identifying and eliminating both overt and covert discriminatory employment practices. I. Policy It is the policy of the Board of Education, City of New York, in accordance with the Labor Law of the State of New York and other applicable laws, to provide equal opportunity for all qualified persons, to prohibit discrimination in employment because of race, creed, color, age, sex, national origin, handicap, marital status, religion or political beliefs or affiliations and to promote the full realization of equal opportunity through an affirmative, continuing program of compliance by all contractors, suppliers and vendors doing business with the Board of Education and their subcontractors. II. Implementation The Director of the Office of Equal Opportunity shall be responsible for the implementation and administration of this policy. He or she shall be directly responsible to the Deputy Chancellor of the Board of Education and shall be responsible for issuing all orders, rules, regulations and procedures as may be deemed necessary or convenient for carrying out and implementing the policy set forth in Section 1. III. Definition of terms for the purpose of these Orders, Rules and Procedures A. Non-Construction Contract Any Agreement, or commitment by the Board of Education, to purchase or lease supplies, equipment or services. The term "Non-Construction Contract" excludes contracts of the Board of Education related to the erection, construction, reconstruction, rehabilitation, alteration, conversion, extension, repair or demolition of buildings or improvements to real property, with the exception of supplies, equipment and materials therefore, and work, labor or services relating to architectural, engineering or consultant services. B. Contractor Any person or entity employing workers, who bids for, or who is awarded a non-construction contract. 68 Serial No. 9888 C. Employee of Non-Construction Contractor Any person employed full or part time, in any capacity, by a person, partnership, corporation or business association, that has bid on, is bidding on, or has been awarded a non-construction contract or purchase order for work, labor, supplies, equipment, materials, goods or services by the Board. D. Minority Group Members Blacks, Hispanics (non-European), Asian-Americans and American Indians. E. Program of Affirmative Action A detailed, result-oriented set of written procedures which when implemented with conscientious effort results in compliance with the equal opportunity policy herein, through full utilization and equal treatment of minority group members and women at all levels in all segments of Contractor's workforce. An effective program of affirmative action shall include, but not necessarily be limited to, the following ingredients: 1. Development or reaffirmation of the Contractor's equal emp1oyment opportunity policy); 2. Dissemination of the policy; 3. Responsibility for implementation; 4. A survey and analysis of employment at all levels and in all categories and aspects of its workforce, which determines if and at which levels, categories and aspects the Contractor or sub-contractor is deficient in the utilization of minority group members and women; 5. Establishment of goals and timetables toward the attainment of which the Contractor's or subcontractor's good faith effort must be directed to remedy any identifiable underutilization of minority group members and women; 6. An analysis of employment policies and practices, including but not limited to seniority systems, recruitment training, promotion, insurance, and job benefits, and their effects upon minority group members and women; 69 Serial No. 9888 7. Corrective actions taken, or to be taken, toward the elimination of any employment policy or practice having a discriminatory effect on minority group members and women. F. Goals and Timetables Projected levels of achievement resulting from an analysis by the Contractor or subcontractor of its deficiencies, and of what it can reasonably do to remedy them within a specified time frame. G. Underutilization Having fewer minority group members and women in a particular job classification than would reasonable be expected by their availability in the appropriate labor force. IV. Bidding and Awarding of Contracts A. Pre-Award Conference Prior to the award of Contract to the apparent low bidder and if requested in writing by the Director of the Office of Equal Opportunity (hereinafter referred to as the Director"), such bidder shall attend a pre-award conference to be held in the Office of Equal Opportunity of the Board of Education for the purpose of acquainting him or her with the statutory and contractual requirements and what specific measures shall constitute an acceptable program of affirmative action. B. Program of Affirmative Action Prior to the award of Contract to the lowest responsible bidder and upon demand, the low bidder must submit to the Director a detailed written Program of Affirmative Action (hereinafter referred to as "P.A.A."). In the event the low bidder fails to submit an acceptable P.A.A. within the allotted time stipulated in the demand, the Director may recommend that the low bid be rejected, the amount of the bid deposit, if any, be forfeited, and that the low bidder be disqualified from bidding on Board of Education work for a period of one year. The P.A.A. shall: 1. Apply to all Board of Education non-construction contracts except that, with regard to contracts, subcontracts or purchase orders under $25,000, the Director is authorized to make modifications as may be appropriate in the individual case; 70 Serial No. 9888 2. Encompass all phases of the employment process, including evaluation of job classifications to ensure job relatedness, recruitment, selection, validity of examinations, retention, layoffs, seniority, assignments, training, promotion, salary and benefits; 3. Be considered by the Board of Education in its determination as to whether a numerical low bidder will be judged the lowest responsible bidder entitled to award thereof. The Director shall be the sole judge of the program's acceptability; 4. In addition to the above, fulfill the requirements of subdivisions (a) through (g) of this section: (a) The P.A.A. shall include measurable goals, reasonable timetables and specific programs to be implemented by the Contractor to identify and eliminate deficiencies in employment practices with respect to the under-utilization of minority group men and women in the Contractor's workforce and a projection of the minority utilization in the Contractor's workforce for the life of the contract and for at least a one-year period succeeding its completion. This statement and projection shall include present and projected (1) rates of hiring and promotion of minority group members and women in specific job categories at each wage rate within each level of employment and according to major organizational unit, and (2) percentages of minority group and women utilization in specific job categories at each wage rate within each level of employment and according to major organizational units, within the Contractor's workforce. (b) The P.A.A. shall include all of the Contractor's facilities within New York City as well as those facilities located elsewhere within the continental limits of the United States. (c) The P.A.A. shall specify the union(s) or other employee organizations to which the Contractor's employees belong and shall include commitments to good faith efforts to effect equal employment opportunity changes directly or indirectly, in programs by such unions or organizations to recruit, train or otherwise select members if such changes are deemed necessary. The P.A.A shall also include a copy of any agreement with an employee association which affects employment policies and practices. 71 Serial No. 9888 (d) The P.A.A., or portion thereof, shall be submitted in such format as shall be specified by the Director of the Office of Equal Opportunity. (e) The P.A.A. shall include a commitment to submit to the Director a separate P.A.A., of the form and substance specified in subdivisions (a) through (g) hereof, for each subcontractor prior to its approval by the Board of Education. Every subcontract made by a non-construction contractor shall also contain these rules, regulations and orders in their entirety or their incorporation by reference. (f) If the P.A.A. shall include written evidence or other proof which shows that minority entrepreneurs have been solicited and given an equal opportunity to submit proposals and that such proposals have been given equal consideration for award. (g) Unless exempted by the Board of Education, no specific commitment, including goals for minority group employment and adoption of equal employment practices, contained in the P.A.A. shall be acceptable, which is not at least equal to any such commitment contained in the most recent previous P.A.A., if any, of the Contractor or subcontractor. V. Compliance Inspection Report A. Prior to the award of Contract to the lowest responsible bidder and upon demand, the low bidder must submit to the Director of Equal Opportunity, a Compliance Inspection Report. The completed Compliance Report must be returned to the Office of Equal Opportunity within twelve (12) calendar days from the effective date stated on the Requisition for Information accompanying the Report form. Failure to submit the Compliance Inspection Report within the period of time specified above may result in a rejection of the bid and the disqualification of the bidder from bidding on Board of Education work for a period of one year. B. The Compliance Inspection Report shall be submitted in a form provided by or approved by the Director, and shall indicate and furnish explanations for any current or anticipated departures from the total labor force projections, or minority group labor force projections in the contractor's or subcontractor's P.A.A., or from planned corrective action relating to employment policies as stated in the P.A.A. 72 Serial No. 9888 VI. Contractor's Implementation Good faith efforts must be made to implement these affirmative action steps during the performance of the Contract. The effectiveness of the affirmative action program shall be measured by the extent of progress made toward an equitable participation which reflects the appropriate available minority and female workforce and the lack of such progress shall be a factor considered in determining whether there have been good faith efforts to implement the program. VII. Sanctions and Remedies A. It is agreed that if the Contractor does not comply with the equal opportunity provisions herein stated, as solely determined by the Board of Education, the said Contract may be cancelled, terminated, or suspended in whole or in part and the Contractor may be declared ineligible for further Board of Education contracts and/or subject to such other sanctions as may be imposed and remedies involved by the Board of Education in its discretion. B. Prime Contractors shall be responsible for the compliance of their subcontractors. Failure of its subcontractor to comply with the provisions hereof or with affirmative action contractual provisions, shall be grounds for the imposition of sanctions and remedies against a prime contractor. Such sanctions and remedies include the authority of the Director to halt scheduled payments to Contractors who consistently fail to comply with the provisions hereof. C. No sanctions or remedies shall be imposed on a bidder, Contractor or subcontractor without affording such bidder, Contractor or subcontractor an opportunity for a compliance review. The purpose of the compliance review is to enable the bidder, Contractor or subcontractor to present written evidence as to why it should not be held in non-compliance with the Board of Education's Policy of Equal Opportunity. The bidder, Contractor or subcontractor shall be allowed at least twelve (12) calendar days to present such evidence. If at the end of such period compliance is not reached, and the Director maintains his or her position of non-compliance, the bidder, Contractor or subcontractor may appeal to the Board of Review of the Board of Education. Conformity to technical rules of evidence at the Board of Review hearing shall not be required. The determination of such Board of Review appeal shall be final and conclusive, subject only to judicial review. D. Each of the foregoing sections or subdivisions hereof shall be construed to be independent of all other sections and 73 Serial No. 9888 subdivisions unless the contrary is clearly indicated by the text. For further information concerning these rules, regulations or procedures contractors may consult with the Office of Equal Opportunity of the Board of Education. 40. Supervision The Contractor shall comply with all orders and instructions of the Director not inconsistent with or prohibited by the terms of this Contract. The scope and substance of said orders and instructions shall be in the discretion of the Director so that the Director may properly discharge his function of providing safe and reliable transportation to the students. 41. Reserved Rights The rights, powers, privileges and remedies reserved to the Board and to the City by this Contract are cumulative and shall be in addition to and not in derogation of any other rights or remedies which the City and the Board may have at law or in equity with respect to the subject matter of this contract, and a waiver thereof at any time or in any instance shall not affect any other time or instance. 42. Choice of Law, Consent to Jurisdiction and Venue This Contract shall be deemed to be executed in the City of New York, State of New York, regardless of the domicile of the Contractor, and shall be governed by and construed in accordance with the laws of the State of New York. The parties agree that any and all claims asserted by or against the Board or City arising under this Contract or related thereto shall be heard and determined either in the courts of the United States located in New York City ("Federal Courts") or in the courts of the State of New York, ("New York State Courts") located in the City of New York and County of Kings. To effect this agreement and intent, the Contractor agrees: (a) If the City or Board initiates any action against the Contractor in Federal Court or in the New York State Court, service of process may be made on the Contractor either in person, wherever such Contractor may be found, or by registered mail addressed to the Contractor at its address as set forth in this Contract, or to such other address as the Contractor may provide to the City or Board in writing; and (b) With respect to any action between the City or Board and the Contractor in New York State Court, the Contractor hereby expressly 74 Serial No. 9888 waives and relinquishes any rights it might otherwise have (i) to move to dismiss on grounds of fourm non conveniens, (ii) to remove to Federal Court; and (iii) to move for a change of venue to a New York State Court outside Kings County. (c) With respect to any action between the City or Board and the Contractor in Federal court located in New York City, the Contractor expressly waives and relinquishes any right it might otherwise have to move to transfer the action to a United States Court outside the City of New York. (d) If the Contractor commences any action against the City or Board in a court located other than in the City and State of New York, upon request of the City or Board, the Contractor shall either consent to a transfer of the action, to a court of competent jurisdiction located in the City and State of New York or, if the Contractor shall consent to dismiss such action without prejudice and may thereafter reinstitute the action in a court of competent jurisdiction in New York City. If any provision(s) of this Article is held unenforceable for any reason, each and all other provision(s) shall nevertheless remain in full force and effect. 43. Bidders Anti-Apartheid and Export Administration Act and Arms Export Control Act Provision Local Law No. 19 of 1985, enacted by the City Council and signed by the Mayor on March 15, 1985, adds a new section 343-11.0 to the Administrative Code of the City of New York, which provides for certain restriction on City contracts to express the opposition of the people of the City of New York to the policy of apartheid and to encourage companies doing business in South Africa and Namibia to support change. The local 1aw became effective on July 13, 1985. Pursuant to Local Law No. 19, bidders are asked to covenant and represent, as a material condition of their contract, that they and their substantially owned subsidiaries will not sell goods or services to certain agencies of the South African government. For contracts awarded before July 13, 1986, bidders are asked to affirm under oath in a form acceptable to the Department that they have not made such sales since July 13, 1985 and will not do so during the term of the contract. For contracts awarded on or after July 13, 1986, bidders will be asked to covenant and represent that they have not made such sales within 12 months prior to the award of the contract and will not do so during the term of the contract. Bidders for supply contracts are also asked to covenant and represent that they will not supply goods to the City which originate in South Africa or Namibia. For the purposes of this affirmation, construction contractors shall not be deemed to be supply contractors. Bidders are 75 Serial No. 9888 not required to agree to these conditions. However, if the lowest responsible bidder does not agree to the conditions, and there is another responsible bidder who does agree to the conditions, and whose bid is within five percent of the bid of the lowest responsible bidder, the bids will be referred to the Board of Estimate, which may determine that it is in the public interest that the contract be awarded to other than the lowest responsible bidder. In accordance with ss. 343-11.0 of the Administrative Code of the City of New York, the Contractor hereby covenants and represents: 1) that the Contractor and its substantially owned subsidiaries have not, since July 13, 1985, sold or agreed to sell, and shall not during the term of this Contract, sell or agree to sell, goods or services other than food or medical supplies directly to the following agencies of the South African government or directly to a corporation owned or controlled by such government and established expressly for the purposes of procuring such goods and services for such specific agencies: a) the police b) the military c) the prison system, or d) the department of cooperation and development; and 2) in the case of a Contract to supply goods, that none of the goods to be supplied to the City originated in the Republic of South Africa or Namibia. The contractor agrees that the covenants and representations in sub-section A above are material conditions of this Contract. In the event the Department receives information that the Contractor is in violation of sub-section A, the Department shall review information and give the Contractor an opportunity to respond. If the Department finds that a violation has occurred, the Department shall have the right to terminate this Contract and procure the supplies, services or work from another source in any manner the Department deems proper. In the event of such termination, the Contractor shall pay to the Department, or the Department in its sole discretion may withhold from any amounts otherwise payable to the Contractor, the difference between the contract price for the uncompleted portion of this Contract and the cost to the Department of completing performance of this Contract either itself or by engaging another contractor or contractors. In the case of a requirements contract, the Contractor shall be liable for such difference in price for the entire amount of supplies required by the Department for the uncompleted term of this Contract. In the case of a construction contract, the Department 76 Serial No. 9868 shall also have the right to hold the Contractor in partial or total default in accordance with the default provisions of this Contract. The rights and remedies of the Department hereunder shall be in addition to, and not in lieu of, any rights and remedies the Department has pursuant to this Contract or by operation of law. AGREED BY: ________________________ TITLE: ______________________ DATE: ______________________ ACKNOWLEDGEMENT BY INDIVIDUAL Sworn to before me this ____ day of ______________________, 19 __, personally came __________________________________ to me known and known to me to be the same person described and who executed the foregoing instrument and he/she acknowledged to me that he/she executed the same for the purposes therein mentioned. _______________________________________ Notary Public or Commissioner of Deeds 77 Serial No. 9888 ACKNOWLEDGEMENT BY A CORPORATION State, City and County of New York, ss: On this _________ day of ___________________, l9__ before me personally came ___________________________________________ who being by me duly sworn, did depose and say that he/she resides in the City of_______________; that he/she is the ____________________________ of the ______________________________________ the Corporation described in and which executed the foregoing instrument; that he/she knows the seal of said Corporation; that the seal affixed to the said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said Corporation; and that he/she signed his/her name thereto by like order for the purposes therein mentioned. _______________________________________ Notary Public or Commissioner of Deeds ================================================================================ ACKNOWLEDGEMENT BY A PARTNERSHIP State, City and County of New York, ss: On this ________ day of ________________, 19__, before me personally came _________________________ to me known and known to me to be a member of ______________________________________________ the firm described in and which executed the foregoing instrument and he/she acknowledged to me that he/she subscribed the name of said firm thereto on behalf of said firm for the purposes therein mentioned. _______________________________________ Notary Public or Commissioner of Deeds 78 Serial No. 9888 Export Administration Act and Arms Export Control Act The following provision is incorporated into the Contract: By executing this Contract, the Contractor covenants and represents that it and its substantially owned subsidiaries have not since July 13, 1985 violated, and shall not during the period of this contract violate, the Export Administration Act of 1979 as amended (50 U.S.C. ss. 2401 et seq.) or the Arms Export Control Act of 1976 as amended (22 U.S.C. ss. 2778) by 1awfully exporting or reexporting goods to the Republic of South Africa or Namibia. Upon a final determination by the United States Department of Commerce or any other agency of the United States or a court that the Contractor or its substantially owned subsidiary has violated the Export Administration Act or the Arms Export Control Act by unlawfully exporting or reexporting goods to the Republic of South Africa or Namibia, the Department shall have the right to terminate this Contract and procure the supplies, services or work from another source in any manner the Department deems proper. In the event of such termination, the contractor shall pay to the Department, or the Department in its sole discretion may withhold from any amounts otherwise payable to the Contractor, the difference between the contract price for the uncompleted portion of this Contract and the cost to the Department of completing performance of this Agreement either itself or by engaging another contractor or contractors. In the case of a requirements contract, the Contractor shall be liable for the said difference in price for the entire amount of supplies required by the Department for the uncompleted term of this Contract. In the case of a construction contract, the Department shall also have the right to hold the Contractor in partial or total default in accordance with the default provisions of this Contract. The rights and remedies of the Department hereunder shall be in addition to, and not in lieu of, any rights and remedies the Department has pursuant to this Contract or by operation of law. 79 Serial No. 9888 PERFORMANCE BOND KNOW ALL MEN BY THESE PRESENTS, THAT we,__________________________________ ________________________________________________________________________________ hereinafter referred to as the 'Principal', and ________________________________ _______________________________________________________________________________ hereinafter referred to as the 'Surety' are held and firmly bound to the BOARD OF EDUCATION OF THE CITY OF NEW YORK, hereinafter referred to as the 'Board', or to its successors and assigns, in the penal sum of ____________________________ Dollars, lawful money of the United States, for the payment of which said sum of money well and truly to be made, we, and each of us, bind ourselves, our heirs, executors, administrators, successors and assigns, jointly and severally, firmly by these presents. WHEREAS, the Principal is about to enter, or has entered, into a Contract in writing with the Board for the transportation of pupils, a copy of which Contract is annexed to and hereby made a part of this bond as through herein set forth in full; NOW, THEREFORE, the conditions of this obligation are such that if the principal, his/her or its representatives or assigns, during the period beginning on the first day of September 198_ and ending on the 30th day of June 198_ shall well and faithfully perform the conditions of said Contract and all modifications, amendments, additions and alterations therein with respect to performance by the Principal during said period and shall indemnify and save harmless the Board from all cost damages which it may suffer by reason of failure so to do and shall fully reimburse and repay the Board for all outlay and expense which the Board may incur in making good any such default with respect to performance by Principal during the period of this bond, then this obligation shall be void, otherwise the same to remain in full force and effect. The Surety, for value received, hereby stipulates and agrees, if requested to do so by the Board, fully to perform and complete the work to be performed under the Contract pursuant to the terms, conditions and covenants thereof, during the period of this bond if for any cause the Principal fails or neglects to fully perform and complete such work. The Surety further agrees to commence such work within twenty (20) days after written notice thereof from the Board. The Surety, for value received, for itself and its successors and assigns, hereby stipulates and agrees that the obligation of said Surety and its bond shall in no way be impaired or affected by any modification, omission, addition or change in or to the Contract or the work to be performed during the period of this bond, or by payment thereunder, before the time required therein, or by any waiver or any provisions thereof, or by any assignment, subletting other transfer thereof of any work to be performed or any moneys due to or to become due thereunder, and said Surety does hereby waive notice of any and all such extensions, modifications, omissions, additions, changes, payments, waivers, assignments, subcontracts and transfers, and hereby expressly stipulates and agrees that any and all things done and omitted to be done by and in relation to assignees, subcontractors, and other transferees shall have the same effect as to said Surety as though done or omitted to be done by or in relation to said Principal. 80 EX-10.16 24 6TH AMEND. TO CONTRACT FOR REGULAR ED EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES Extension and Sixth Amendment Agreement made and entered into on the date expressed at the end of this document by and between the BOARD OF EDUCATION OF THE CITY OF NEW YORK ("B0E"), 110 Livingston Street, Brooklyn, New York 11201, and the Contractor whose signature appears at the end of this document (the "Contractor"). WITNESSETH: In consideration of the following stipulations, terms and conditions, the parties to this Extension and Sixth Amendment Agreement further agree as follows: WHEREAS, in 1979 the BOE publicly solicited competitive bids for the transportation of regular education pupils under Contract Serial No. 0065, Contract Serial No. 0075 and Contract Serial No. 8107; and, WHEREAS, in 1986 the BOE publicly solicited competitive bids for transportation of open enrollment pupils and pupils attending regular classes in public and non-public schools under Contract Serial No. 9888; and, WHEREAS, the Contractor submitted a bid(s) under one or more of the aforementioned contract serial numbers and was duly awarded a contract(s) including certain Employee Protection Provisions for the transportation of regular education pupils; and, WHEREAS, the original terms of all contracts under Serial Nos. 0065, 0075, and 8107 would have expired on June 30, 1983 unless extended, and Section 305, Paragraph 14 (a) of the State Education Law authorizes extensions and provides a method for appropriate payment increases; and, WHEREAS, in 1983 the BOE and the Contractors agreed to amend and extend all Serial Nos. 0065, 0075 and 8107 contracts through June 30, 1986; and, WHEREAS, in 1986 the BOE and the Contractors agreed to amend and extend further all Serial Nos. 0065, 0075 and 8107 contracts through June 30, 1989; and, WHEREAS, in 1989 the BOE and the Contractors agreed to amend and extend further all Serial Nos. 0065, 0075 and 8107 contracts through June 30, 1992; and, WHEREAS, the original terms of all contracts under Serial No. 9888 who would have expired in June 30, 1991, unless extended; and State Education Law Section 305, Subdivision 14(a) allows extensions and provide a method for appropriate vehicle rate increase; and, 1 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES WHEREAS, in 1991, the BOE and the Contractors agreed for the first time to amend and extend contracts under Serial No. 9888 through June 30, 1994; and, WHEREAS, in 1991, the BOE Office of Auditor General ("OAG") commenced a currently continuing review and audit of annual rate increases paid to contractors during the school years 1986-87 through 1994-95 pursuant to provisions in previous and existing Extension and Amendment Agreements as allowed by State Education Law Section 305, Sub-division 14(a); and, this review has resulted in the release of preliminary findings which have proposed various adjustments to the daily rates per vehicle of many contractors as well as the recovery of alleged overpayments to some of the contractors during the affected period; and, WHEREAS, some of the contractors have instigated litigation in the Supreme Court of the State of New York in New York County under the Index No. 20841/92 (IAS Part 17, Justice Goodman) to prevent the BOE from acting upon the OAG's findings to adjust daily vehicles rates prospectively and to recover alleged overpayments, which litigation is still pending either judicial resolution or settlement, and which the Contractor does hereby agree, confess, acknowledge and stipulate that he/she/it has been apprised fully of such litigation; and, WHEREAS, in 1992 the BOE and the Contractors agreed to amend and extend further all Serial Nos. 0065, 0075 and 8107 contracts through June 30, 1995; and, WHEREAS, in 1994 the BOE and the Contractors agreed to amend and extend further contracts under Serial No. 9888, by which such contracts have been extended through June 30, 1997; and, WHEREAS, in 1995 the City of New York, the BOE, the Contractors, and delegates of the Amalgamated Transit Union, Local Division 1181-1061, the Transit Workers' Union, Local 100, and various other labor organizations that represent school bus workers entered into negotiations to deal with the increasing costs of school bus service in the face of markedly diminished City and school district financial resources; and, the City of New York, the BOE, the Contractors, and the labor organizations reached an accord that averted the possibility of school bus service interruptions and that produced significant prospective cost savings for the City and the BOE; and, WHEREAS, the BOE now determines that contracts under Serial Nos. 0065, 0075, 8107 (sixth amendment of Serial Nos. 0065, 0075 and 8107) and 9888 (third amendment of Serial No. 9888) should be still further amended and extended, and the Contractor does hereby so agree, acknowledge and stipulate; and, 2 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES WHEREAS, the parties mutually desire to make this extension agreement and amendment to the aforesaid contracts as heretofore amended and extended ("the Contract"); NOW THEREFORE, the parties whose names and signatures appear at the end of this document do hereby further agree and covenant as follows: (A) (1) TERM OF EXTENSION AGREEMENT. All references to the termination of the Contract, by whatever terminology, shall be deemed hereafter to read "June 30, 2000, unless further extended;" provided however, that if, prior to 5:00 P.M. on December 19, 1995, the Contractor shall have exercised an option to terminate the Contract as of June 30, 1996, the Contract shall so terminate; and, provided further, that if the Contractor has not, in December 1995, exercised the option to terminate, then if prior to 5:00 PM on December 19, 1996, the Contractor shall have exercised an option to terminate the Contract as of June 30, 1997, the Contract shall so terminate; and provided further that if the Contractor shall not have exercised an option to terminate, then if prior to 5:00 PM on December 19, 1997, the Contractor shall have exercised an option to terminate the Contract as of June 30, 1998, the Contractor shall so terminate; and provided further that if the Contractor shall not have exercised an option to terminate, then if prior to 5:00 PM on December 19, 1998, the Contractor shall have exercised an option to terminate the Contract as of June 30, 1999, the Contractor shall so terminate; and, provided still further, that the Contractor's aforementioned December option to terminate effective June 30th next succeeding may be exercised by a Contractor only if the Contractor demonstrates that its insurance premiums including any Automobile Insurance Plan (AIP) surcharges and excess pass-along costs for the minimum liability coverage required by the Contract will have increased as of January 1, 1995 more than six-percent (6%) over the January 1, 1994 premiums, and as of January 1, 1996 more than seven percent (7%) over the January 1, 1995 premiums and as of January 1, 1997, more than (7%) over the January 1, 1996, premiums and as of January 1, 1998, more than (7%) over the January 1, 1997 premiums. (2) To be effective the Contractor's Notice of Exercise of the Option to Terminate must be received at the Office of the Director of the Office of Pupil Transportation, in writing signed by the Contractor, by the date and time specified. 3 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES (3) If the Contractor fails to comply strictly with the above requirements the Contract shall continue without interruption. (B) ARTICLE V - A entitled "PAYMENT DURING PERIOD OF EXTENSION," will be further amended to read as follows for the term of this Extension and Amendment Agreement: "V - A. "PAYMENT DURING PERIOD OF EXTENSION" (1) Notwithstanding the provisions of Article V, during this Extension Period, the daily rate per vehicle will be deemed to be adjusted each year according to the following formulae subject to the Director's approval of all or any portion(s) of the Contractor's claims in the below described annual Cost Justification Financial Statements: (a) (1) For Contracts under Serial Nos. 0065, 0075, and 8107 during the Thirteenth Extension Year of July 1, 1995 through June 30, 1996, the Contractor's daily rates per vehicle shall be equal to ninety-eight-and-one-half per cent (98.5%) of the daily rates per vehicle provided in extension and amendment agreements of the Contracts which had been in effect for the Twelfth Extension Year of July 1, 1994 through June 30, 1995. (2) For Contracts under Serial No. 9888 during the Fifth Extension Year of July 1, 1995 through June 30, 1996, the Contractor's daily rates per vehicle shall be equal to ninety-eight-and-one-half per cent (98.5%) of the daily rates per vehicle provided in extension and amendment agreements of the Contracts which had been in effect for the Fourth Extension Year of July 1, 1994 through June 30, 1995. (b) (1) For Contracts under Serial Nos. 0065, 0075, and 8107 during the Fourteenth Extension Year of July 1, 1996 through June 30, 1997, the Contractor's daily rates per vehicle shall be deemed to be augmented by an amount not to exceed whichever of the following represents the least amount of actual increase: (i) the same percentage by which the Consumer Price Index as of May 1996 shall have increased over the Consumer Price Index as of May 1995; 4 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES (ii) two-and-two-tenths percent (2.2%) over the base daily rates per vehicle paid during the Thirteenth Extension Year of July 1, 1995 through June 30, 1996; or, (iii) the amount in dollars expressed as a percentage by which the Contractor's actual costs during the Extension Year of July 1, 1995 through June 30, 1996 shall have increased over the Contractor's actual costs during the Extension Years of July 1, 1993 through June 30, 1994. (2) For Contracts under Serial No. 9888 during the Sixth Extension Year of July 1, 1996 through June 30, 1997, the Contractor's daily rates per vehicle shall be deemed to be augmented by an amount not to exceed whichever of the following represents the least amount of actual increase: (i) the same percentage by which the Consumer Price Index as of May 1996 shall have increased over the Consumer Price Index as of May 1995; (ii) two-and-two-tenths per cent (2.2%) over the base daily rates per vehicle paid during the Fifth Extension Year of July 1, 1995 through June 30, 1996; or, (iii) the amount in dollars expressed as a percentage by which the Contractor's actual costs during the Fifth Extension Year of July 1, 1995 through June 30, 1996 shall have increased over the Contractor's actual costs during the Third Extension Year of July 1, 1993 through June 30, 1994, plus the percentage of the Contractor's actual cost increases from the Second Extension Year of July 1, 1992 through June 30, 1993 to the Third Extension Year of July 1, 1993 through June 30, 1994.(1) - ---------- (1) This "cost carry-forward" is permitted to the extent that such percentage has not yet been absorbed by any previous rate augmentation, and it is allowed because of the daily rate freeze, i.e., zero percent (0%) increase, during the Fourth Extension Year of July 1, 1994 through June 30, 1995. 5 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES (c) (1) For Contracts under Serial Nos. 0065, 0075, and 8107 during the Fifteenth Extension Year of July 1, 1997 through June 30, 1998, the Contractor's daily rates per vehicle shall be deemed to be augmented by an amount not to exceed whichever of the following represents the least amount of actual increase: (i) the same percentage by which the Consumer Price Index as of May 1997 shall have increased over the Consumer Price Index as of May 1996; (ii) two-and-six-tenths percent (2.6%) over the base daily rates per vehicle paid during the Fourteenth Extension Year of July 1, 1996 through June 30, 1997; or, (iii) the amount in dollars expressed as a percentage by which the Contractor's actual costs during the Fourteenth Extension Year of July 1, 1996 through June 30, 1997 shall have increased over the Contractor's actual costs during the Thirteenth Extension Year of July 1, 1995 through June 30, 1996, plus the percentage of the Contractor's actual cost increases from the Thirteenth Extension Year of July 1, 1995 through June 30, 1996 over the Eleventh Extension Year of July 1, 1993 through June 30, 1994 to the extent that such percentage exceeded two-and-two-tenths percent (2.2%) and was consequently disallowed for the Fourteenth Extension Year of July 1, 1996 through June 30, 1997.(2) (2) For Contracts under Serial No. 9888, during the Seventh Extension Year of July 1, 1997 through June 30, 1998, the Contractor's daily rates per vehicle shall be deemed to be augmented by an amount not to exceed whichever of the following represents the least amount of actual increase: - ---------- (2) This "cost carry-forward" is allowed only for that percentage of the Contractor's cost increases from the Thirteenth over the Eleventh Extension Years that exceeded two-and-two-tenths percent (2.2%) and because of such a low fixed rate hike cap. 6 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES (i) the same percentage by which the Consumer Price Index as of May 1997 shall have increased over the Consumer Price Index as of May 1996; (ii) two-and-six-tenths percent (2.6%) over the base daily rates per vehicle paid during the Sixth Extension Year of July 1, 1996 through June 30, 1997; or, (iii) the amount in dollars expressed as a percentage by which the Contractor's actual costs during the Sixth Extension Year of July 1, 1996 through June 30, 1997 shall have increased over the Contractor's actual costs during the Fifth Extension Year of July 1, 1995 through June 30, 1996, plus the percentage of the Contractor's actual cost increases from the Second Extension Year of July 1, 1992 through June 30, 1993 to the Third Extension Year of July 1, 1993 through June 30, 1994(3) plus the percentage of each Contractor's actual cost increases from the Fifth Extension Year of July 1, 1995 through June 30, 1996 over the Third Extension Year of July 1, 1993 through June 30, 1994 to the extent that such percentage exceeded two-and-two-tenths percent (2.2%) and was consequently disallowed for the Sixth Extension Year of July 1, 1996 through June 30, 1997.(4) (d) (1) For Contracts under Serial Nos. 0065, 0075, and 8107 during the Sixteenth Extension Year of July 1, 1998 through June 30, 1999, the Contractor's daily rates per vehicle shall be deemed to be augmented by an amount not to exceed whichever of - ---------- (3)As in Note 1, this "cost carry-forward" is allowed to the extent that such percentage has not been absorbed by any previous rate augmentation, and it is allowed because of the daily rate freeze, i.e., zero percent (0%) increase, during the Fourth Extension Year of July 1, 1994 through June 30, 1995. (4)As in Note 2, the second "cost-carry-forward" is allowed only for that percentage of the Contractor's cost increases that exceeded two-and-two-tenths percent (2.2%), and it is allowed because of such a low fixed rate augmentation cap. 7 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES the following represents the lesser amount of actual increase: (i) the same percentage by which the Consumer Price Index as of May 1998 shall have increased over the Consumer Price Index as of May 1997; or, (ii) the amount in dollars expressed as a percentage by which the Contractor's actual costs during the Fifteenth Extension Year of July 1, 1997 through June 30, 1998 shall have increased over the Contractor's actual costs during the Fourteenth Extension Year of July 1, 1996 through June 30, 1997, plus each of the percentages of the Contractor's actual cost increases from (a) the Fourteenth Extension Year (July 1, 1996 through June 30, 1997) over the Thirteenth Extension Year (July 1, 1995 through June 30, 1996) to the extent that such exceed two-and-six-tenths percent (2.6%),(5) and (b) the Thirteenth Extension Year (July 1, 1995 through June 30, 1996) over the Eleventh Extension Year (July 1, 1993 through June 30, 1994) to the extent that such exceeds two- and two-tenths percent (2.2%).(6) (2) For Contracts under Serial No. 9888 during the Eighth Extension Year from July 1, 1998 through June 30, 1999, the Contractor's daily rates per vehicle shall be deemed to be augmented by an amount not to exceed whichever of the following represents the lesser amount of actual increase: (i) the same percentage by which the Consumer Price Index as of May 1998 shall have in- - ---------- (5) This "cost carry-forward" is allowed only for that percentage of the Contractor's actual cost increases that exceeded two-and-six-tenths percent (2.6%) and it is allowed due to such a low fixed rate augmentation cap. (6) As in Note 2, the second "cost carry-forward" is allowed due to such a low fixed rate augmentation cap but only to the extent that the Contractor's cost increases beyond two-and-two-tenths percent (2.2%) shall not as yet have been absorbed by the rate augmentation for the Fifteenth Extension Year. 8 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES creased over the Consumer Price Index as of May 1997; or, (ii) the amount in dollars expressed as a percentage by which the Contractor's actual costs during the Seventh Extension Year of July 1, 1997 through June 30, 1998 shall have increased over the Contractor's actual costs during the Sixth Extension Year of July 1, 1996 through June 30, 1997, plus the following percentages to the extent that such have not yet been absorbed by any previous rate augmentation: (a) the percentage of the Contractor's actual cost increases from the Second Extension Year of July 1, 1992 through June 30, 1993 to the Third Extension Year of July 1, 1993 through June 30, 1994,(7) (b) the percentages of the Contractor's actual cost increases from the Sixth Extension Year (July 1, 1996 through June 30, 1997) over the Fifth Extension Year (July 1, 1995 through June 30, 1996),(8) and (c) the percentage of the Contractor's actual cost increases from the Fifth Extension Year (July 1, 1995 through June 30, 1996) over the Third Extension Year (July 1, 1993 through June 30, 1994).(9) (e) (1) For Contracts under Serial Nos. 0065, 0075, and 8107 during the Seventeenth Extension Year of - ---------- (7) As in Note 1, this "cost carry-forward" is allowed to the extent that such percentage has not been absorbed by any previous rate augmentation, and it is allowed because of the daily rate freeze, i.e., zero percent (0%) increase, during the Fourth Extension Year of July 1, 1994 through June 30, 1995. (8) As in Note 6, the second "cost carry-forward" is allowed due to such a low fixed rate augmentation cap but only to the extent that the Contractor's cost increases beyond two-and-six-tenths percent (2.6%) shall not as yet have been absorbed by any previous rate augmentation. (9) As in Note 6, the third "cost carry-forward" is allowed due to such a low fixed rate augmentation cap but only to the extent that the Contractor's cost increases beyond two-and-two-tenths percent (2.2%) shall not as yet have been absorbed by any previous rate augmentation. 9 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES July 1, 1999 through June 30, 2000, the Contractor's daily rates per vehicle shall be deemed to be augmented by an amount not to exceed whichever of the following represents the lesser amount of actual increase: (i) the same percentage by which the Consumer Price Index as of May 1999 shall have increased over the Consumer Price Index as of May 1998; or, (ii) the amount in dollars expressed as a percentage by which the Contractor's actual costs during the Sixteenth Extension Year of July 1, 1998 through June 30, 1999 shall have increased over the Contractor's actual costs during the Fifteenth Extension Year of July 1, 1997 through June 30, 1998. (2) For Contracts under Serial No. 9888 during the Ninth Extension Year of July 1, 1999 through June 30, 2000, the Contractor's daily rates per vehicle shall be deemed to be augmented by an amount not to exceed whichever of the following represents the lesser amount of actual increase: (i) the same percentage by which the Consumer Price Index as of May 1999 shall have increased over the Consumer Price Index as of May 1998; or, (ii) the amount in dollars expressed as a percentage by which the Contractor's actual costs during the Eighth Extension Year of July 1, 1998 through June 30, 1999, shall have increased over the Contractor's actual costs during the Seventh Extension Year of July 1, 1997 through June 30, 1998, plus the percentage of the Contractor's actual cost increases from the Second Extension Year of July 1, 1992 through June 30, 1993 to the Third Extension Year of July 1, 1993 through June 30, 1994.(10) - ---------- (10) As in Note 1, the "cost carry-forward" is allowed to the extent that such percentage has not been absorbed by any previous rate augmentation, and it is allowed because of the daily rate freeze, i.e., zero percent (0%) increase, during the Fourth Extension Year of July 1, 1994 through June 30, 1995. 10 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES (2) Notwithstanding the foregoing payment increase provisions, where there is a decrease in the regional consumer price index for the New York, New York-Northeastern, New Jersey area as based upon the index for all urban consumers (CPI-U) during the preceding twelve month period, the amount to be paid to the Contractor in the succeeding extension year will reflect that decrease in a manner satisfactory to the New York State Commissioner of Education. (3) Definitions. The definitions below control the meanings of the described terms wherever they appear in this Contract. These definitions add to and supplement any definitions or instructions expressed in the original Contract and, as such, do not supersede, revoke, replace, revise or limit any similar or analogous provisions in the original Contract. (a) For Contracts under Serial Nos. 0065, 0075 and 8107 the following shall apply: (i) "Thirteenth Extension Year" means July 1, 1995 through June 30, 1996. (ii) "Fourteenth Extension Year" means July 1, 1996 through June 30, 1997. (iii) "Fifteenth Extension Year" means July 1, 1997 through June 30, 1998. (iv) "Sixteenth Extension Year" means July 1, 1998 through June 30, 1999. (v) "Seventeenth Extension Year" means July 1, 1999 through June 30, 2000. (b) For Contracts Under Serial No. 9888 the following shall apply: (i) "Fifth Extension Year" means July 1, 1995 through June 30, 1996. (ii) "Sixth Extension Year" means July 1, 1996 through June 30, 1997. (iii) "Seventh Extension Year" means July 1, 1997 through June 30, 1998. (iv) "Eighth Extension Year" means July 1, 1998 through June 30, 1999. 11 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES (v) "Ninth Extension Year" means July 1, 1999 through June 30, 2000. (c) The term "Consumer Price Index," as of a given date, is defined as that statistic of the United States Department of Labor or its successor agency which the New York State Education Department deems as the "regional consumer price index for the New York, New York-Northeastern, New Jersey area, based upon the index for all urban consumers (CPI-U)," according to Section 305, Paragraph 14(a) of the State Education Law or as the same may be updated, revised or otherwise changed during the life of this Extension and Sixth Amendment Agreement. (d) The term "contractor's average cost per vehicle day" for a given extension year is defined as a Contractor's "total net allowable costs" for that extension year divided by the total number of "vehicle days." The term "total net allowable costs" is limited to those expenses determined by the BOE to be related directly to transportation services provided to the BOE pursuant to this Contract. The term "vehicle days" is defined as the total number of "authorized vehicles" the Contractor actually operates multiplied by the number of school days, which number is hereby fixed at 182 school days per extension year (220 school days per extension year for 12 month contracts) for the term of this Extension and Amendment Agreement.(11) The term "authorized vehicles" is defined as the total number of contract and additional vehicles, but excluding spare vehicles, that the Contractor has been granted expressly by the Director. If the Director grants the - ---------- (11) The numbers 182 (ten month contracts) and 220 (twelve month contracts) represent average numbers of school days per extension year for the three extension years preceding the instant Extension and Amendment Agreement, i.e., 1992-93, 1993-94 and 1994-95 Extension Years. These averages shall be reviewed every three (3) years during this Extension and Amendment Agreement and such further extension and amendment agreements thereafter, if any. Whereupon a triennial review finds that one or both average numbers of school days per extension year have changed as based upon the fluctuation of actual school days per annum, the affected fixed number(s) of school days shall be revised up or down accordingly for the next extension year(s), but only if the change in the affected average number(s) at least equals two (2) school days. In each subsequent triennial review, if any, the effects of changes in the numbers of school days from the preceding triennial review(s) shall be viewed cumulatively. 12 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES Contractor additional vehicles after December 15 of a given extension year, such additional vehicles shall not be counted among the "authorized vehicles" until the start of the succeeding extension year, if indeed the Contractor continues to furnish such additional vehicles during the succeeding extension year. (12) (e) The term "Cost Justification Financial Statement" is defined as a written accountant's review report prepared by a Certified Public Accountant (CPA) or Public Accountant (PA) licensed by the State of New York, except as otherwise noted herein. This review report shall state that a review was performed in accordance with AICPA standards and that the information in the financial statements is the representation of management, and it describes the nature of the review as distinct from an audit. The report shall give the limited assurance that, based on the review, the CPA/PA is not aware of any material modifications that should be made to the financial statement in order for it to be in conformity with generally accepted accounting principles. Contractors who have not had a Certified Public Accountant audited report done for any purpose within two (2) years of this extension agreement commencement date shall be required to submit a certified audited statement by a Certified Public Accountant for its first cost justification statement under this extension agreement. In addition, the Certified Public Accountant or Public Accountant preparing a report or review must state - ---------- (12) This exclusion of additional vehicles granted after each December 15th shall not apply to any vehicles that the Contractor obtains by way of assignment or other transfer of contract, if such is approved by the BOE. Except for the one-and-one-half percent (1.5%) daily rate reduction for the 1995-96 Extension Year, the annual rate augmentation, if any, for each additional vehicle granted after December 15th of a given extension year shall not become effective until the succeeding extension year, whereupon any such rate augmentation shall commence (without retroactivity) cumulatively with the following extension year's rate increase, if any. For cost justification purposes, the Contractor shall not add or combine any costs associated with additional vehicles granted after each December 15th into the Contractor's other operating costs for that extension year but shall begin to add or combine such costs (without retroactivity) into other operating costs only at the outset of the succeeding extension year, i.e, each such additional vehicle shall be treated for cost justification purposes as if it had been initially granted to the Contractor effective July 1st of the given following extension year. 13 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES that he or she has studied the cost justification manual supplied by the Board and has applied the standards contained in the Board's manual to the development of the Cost Justification Financial Statement. In addition, the accountant must have no interest in this Contract or the Contractor and must so certify in writing. The financial statement will utilize a form prescribed by the Director as approved by the State Education Department. (4) Cost Justification Financial Statements. Section 305 of the State Education Law requires the Contractor to substantiate any cost increases which he/she claims to justify annual payment increases during the term of this Extension and Sixth Amendment Agreement. In consultation with the BOE Office of Auditor General, the Director of the Office of Pupil Transportation shall determine whether to approve all or any portion(s) of the claims in each of the Contractor's annual Cost Justification Financial Statements as described immediately below: (a) To substantiate any payment increases received under this Article V - A during the Extension Year of July 1, 1996 through June 30, 1997, the Contractor must submit by September 30, 1996 (i) a cost justification financial statement by an independent Certified Public Accountant or Public Accountant which details the total costs incurred by the Contractor for all of its operations and, separately, for its operations under this Contract for the Extension Years 1995-96 and for 1993-1994 and (ii) for contracts under Serial Nos. 9888, an additional cost justification financial statement by an independent Certified Public Accountant or Public Accountant which details the total costs incurred by the Contractor for all of its operations and, separately, for its operations under Contract Serial No. 9888 for the Extension Year 1992-93 and Extension Year 1993-1994. (b) To substantiate any payment increases received under this Article V - A during the Extension Year of July 1, 1997 through June 30, 1998, the Contractor must submit by September 30, 1997 (i) a cost justification financial statement by an independent Certified Public Accountant or Public Accountant which details the total costs incurred by the Contractor for all of its operations and, separately, for its operations under this Contract for the Extension Years 1996-1997 and the 1995-1996, (ii) an additional cost justification financial statement by an independent Certified Public Accountant or Public Accountant which details the total costs incurred by the Contractor for all of its operations and, separately, for its operations under this Contract for Extension Years 1995-96 14 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES and 1993-1994 (to account for a cost carry-forward, if any), and (iii) for contracts under Serial No. 9888, an additional cost justification financial statement by an independent Certified Public Accountant or Public Accountant which details the total costs incurred by the Contractor for all of its operations and, separately, for its operations under Contract Serial No. 9888 for Extension Years 1992-93 and 1993-1994 (to account for a cost carry-forward, if any). (c) To substantiate any payment increases received under this Article V - A during the Extension Year of July 1, 1998 through June 30, 1999, the Contractor must submit by September 30, 1998, (i) a cost justification financial statement by an independent Certified Public Accountant or Public Accountant which details the total costs incurred by the Contractor for all of its operations and, separately, for its operations under this Contract, for the Extension Years 1997-1998 and 1996-1997, (ii) an additional cost justification financial statement by an independent Certified Public Accountant or Public Accountant which details the total costs incurred by the Contractor for all of its operations and, separately, for its operations under this Contract for Extension Years 1996-97, 1995-1996 and 1993-1994, (to account for a cost carry-forward, if any), and (iii) for contracts under Serial No. 9888, an additional cost justification financial statement by an independent Certified Public Accountant or Public Accountant which details the total costs incurred by the Contractor for all of its operations and, separately, for its operations under Contract Serial No. 9888 for Extension Years 1992-93 and 1993-1994 (to account for a cost carry-forward, if any). (d) To substantiate any payment increases received under this Article V - A during the Extension Year of July 1, 1999 through June 30, 2000, the Contractor must submit by September 30, 1999, (i) a cost justification financial statement by an independent Certified Public Accountant or Public Accountant which details the total costs incurred by the Contractor for all of its operations and, separately, for its operations under this Contract for the Extension Years 1998-1999 and 1997-1998, and (ii) for contracts under Serial No. 9888, an additional cost justification financial statement by an independent Certified Public Accountant or Public Accountant which details the total costs incurred by the Contractor for all of its operations and, separately, for its operations under Contract Serial No. 9888 for Extension Years 1992-93 and 1993-94 (to account for a cost carry-forward, if any). 15 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES (e) The Contractor shall, until six (6) years after completion of its services hereunder, or six (6) years after date of termination of this Extension, whichever is later, maintain and retain complete and correct books and records relating to all aspects of the Contractor's obligations hereunder. Records must be maintained separately, so as to identify clearly the expenses applicable to this Extension Contract and be distinguishable from all other costs not incurred under this Extension Contract. (f) As a minimum, the Contractor will supply in each annual cost justification financial statement all data required by the New York State Education Department related to this Contract, and the submittal shall include, but is not necessarily limited to, New York State Education Department approved cost justification forms. The Contractor must supply promptly any and all additional cost data as required by the BOE or the State Education Department. (g) To be eligible to "carry forward" unabsorbed cost increases arising from the daily rate freeze, i.e., zero percent (0%) increase, during the Fourth Extension Year of Contract Serial No. 9888, the Contractor must meet eligibility conditions and must adhere to rules, procedures and definitions expressed in Appendix A. The said eligibility conditions, rules, procedures, and definitions for the allowance of a "cost carry-forward" of such unabsorbed cost increases under Contract Serial No. 9888 are hereby incorporated by this reference into this Extension and Amendment Agreement as if set forth herein in their entirety, and a copy of the said eligibility conditions, rules, procedures, and definitions is hereto annexed as "Appendix A." (h) To be eligible to "carry forward" unabsorbed cost increases arising from cost growth, if any, greater than the two-and-two-tenths percent (2.2%) fixed cap during the 1996-97 Extension Year and the two and six-tenths percent (2.6%) fixed cap during the 1997-98 Extension Year of Contract Serial Nos. 0065, 0075, 8107 and 9888, the Contractor must meet eligibility conditions and must adhere to rules, procedures and definitions expressed in Appendix B. The said eligibility conditions, rules, procedures, and definitions for the allowance of a "cost carry-forward" of such unabsorbed cost increases under Contract Serial Nos. 0065, 0075, 8107 and 9888 are hereby incorporated by this reference into this Extension and Amendment Agreement as if set forth herein in their entirety, and a copy of the said eligibility conditions, 16 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES rules, procedures, and definitions is hereto annexed as "Appendix B." (i) In each annual Cost Justification Financial Statement, the Contractor must supply all data required by the New York State Education Department related to this Contract, and each submittal shall include, but is not necessarily limited to, New York State Education Department approved cost justification forms. (5) Required Analysis of Costs. To determine the allowable increase in costs for the extension year, as specified in Section V-A 1 of this agreement, the following analysis of the Cost Justification Financial Statement must be undertaken: Step 1: Divide the total applicable annual operating costs by the number of vehicle days for both the base year and the year previous to the base year to determine the average daily cost per vehicle for each of those years. The base year is the year immediately preceding the extension year. Step 2: Subtract the average daily cost per vehicle for the year previous to the base year from the average daily cost per vehicle for the base year to determine the increase in the average daily cost per vehicle. Step 3: Divide the increase in the average daily cost per vehicle by the average daily cost per vehicle for the year previous to the base year to determine the percent increase in the average daily cost per vehicle. Step 4: Compare the percent increase in the average daily cost per vehicle to the percentage by which the Consumer Price Index as of May of the base year shall have increased over the Consumer Price Index as of May of the year previous to the base year and to the appropriate percentage cap in the increase for each extension year as stipulated in Section V-A 1 of this agreement. Whichever is the least of the three percentages will be the allowable increase applied to the daily rate for the extension year. 17 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES Step 5: Repeat steps 1 to 4 for any allowable cost increases accrued during the period of the Eleventh to Thirteenth Extension Years (Third to Fifth Extension Years for Contract Serial No. 9888) and, when appropriate, any allowable cost increases accrued during the Fourteenth to Fifteenth Extension Years (Sixth to Seventh Extension Years for Contract Serial No. 9888). Determine the percent increase in the average daily cost per vehicle from the Eleventh to Thirteenth Extension Years (Third to Fifth Extension Years for Contract Serial No. 9888) and, when appropriate, from the Fourteenth to Fifteenth Extension Years (Sixth to Seventh Extension Years for Contract Serial No. 9888). If the percent increase in the average daily cost per vehicle resulting in Step 3 is insufficient to justify fully the Consumer Price Index increment in Step 4 or any applicable fixed cap, add the percent increase of the Eleventh to Thirteenth Extension Years (Third to Fifth Extension Years for Contract Serial No. 9888), if any, to the percent increase in Step 3. If there is any percent increase in the average daily cost per vehicle still unabsorbed, such increase may be carried forward to the Sixteenth Extension Year (Eighth Extension Year for Contract Serial No. 9888). For the Sixteenth Extension Year only (Eighth Extension Year for Contract Serial No. 9888), also add the unabsorbed increase of the Fourteenth to Fifteenth Extension Years (Sixth to Seventh Extension Years for Contract Serial No. 9888), if any, to the percent increase in Step 3. (6) Allowable Cost Increases. Only increases in "net allowable costs" will justify augmentation of the daily vehicle rate from one extension year to the next. "Allowable costs" are limited by the following: costs not attributable to the Contractor's operations pursuant to this Contract, costs which are not ordinary and/or reasonable, costs which are not documented, and costs disallowed by the New York State Education Department and/or BOE auditors are not permitted to justify increases of the daily rate per vehicle. The Director and the Office of Auditor General shall have the right, power and authority to prescribe standardized miscellaneous cost categories for all contractors. 18 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES (7) Access to Subcontractors. If with the approval of the Director, the Contractor subcontracts any portion of the services under this Contract, the Contractor must include in any such subcontract agreement a provision which allows full and unimpeded access by the BOE, the New York State Education Department or the New York City Office of the Comptroller to the books and records of a subcontractor for inspection, audit and copying purposes. The Contractor agrees and covenants to render all necessary assistance to obtain any requested documents from subcontractors. The Contractor's inability to obtain requested documentation from any such entities will not excuse a failure to provide the documentation as a means to justify payment increases. (8) Absence of Cost Justification Financial Statement. The Contractor's failure to submit an annual Cost Justification Financial Statement by the deadline date as above expressed will result in the forfeiture of any increase later justified for the period from the service start date to the day the statement is received at the Office of Pupil Transportation, unless the Director determines that reasonable circumstances exist to excuse the Contractor's late submittal. (9) Cost Increase Surety Bond or Letter of Credit. If the Contractor desires to receive the annual daily vehicle rate(s) augmentation in advance of the "final" results of the BOE audit of each year's Cost Justification Financial Statement(s), the Contractor must post by September 30th of each Extension Year a surety payment bond or letter of credit to insure the refund of any overpayments or debts the BOE deems to be due and owing from the Contractor. Each bond or letter of credit must insure expressly against the Contractor's inability to justify claims in each annual Cost Justification Financial Statement to the extent of all payment increases the BOE will make to the Contractor during each prospective Extension Year. Each bond or letter of credit must be issued by a company or bank licensed or approved to do business in New York State by the Superintendent of Insurance or the Superintendent of Banks, respectively. The coverage period of each bond or letter of credit must extend from September 1st of each Extension Year until such date as the Contractor receives from the BOE "final" written notice of the results of the audit of each year's Cost Justification Financial Statement. If an open ended term for a bond or letter of credit cannot be obtained, then the Contractor must renew the bond or letter of credit for a given Extension Year annually until such time as the "final" audit result notice has been received. A renewed bond(s) or letter(s) of credit for each Extension Year must be in addition to the bond(s) or letter(s) of credit the contractor obtains for each subsequent Extension Year. (The Contractor may consolidate the bonds or letters of credit to 19 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES insure the justification of payment increases for more than one Extension Year only if the amount of the consolidated bond or letter of credit reflects the total accumulation of payment increases which "final" audit result notices have not yet certified.) Each bond or letter of credit must extend to the BOE a claim submittal period of at least ninety (90) days beyond the date of the Contractor's receipt of the "final" audit result notice for the purpose of recouping any overpayments based on the Contractor's inability to justify all or any portion of each annual vehicle rate increase. Each bond or letter of credit must name both the BOE and the City of New York as the insured parties. To calculate the amount of a bond or letter of credit, use the following formula: the daily rate per vehicle for each contract item (i.e., for a given Extension Year) multiplied by the total number of vehicles for each contract item (i.e., for a given Extension Year excluding spare and maintenance vehicles) multiplied by 180 days and multiplied again by the percentage of payment increase as reflected either by the Consumer Price Index for the month of May for each Extension Year or the maximum cap for a given Extension Year, whichever is less. (a) Exemption from Cost Increase Surety Bond. If the Contractor provides a performance bond, letter of credit or a cash performance deposit for a given prospective Extension Year, the Contractor may forego the Cost Increase Surety Bond requirements in this Paragraph (B) (9), provided that the Contractor submits by September 30th of each Extension Year a written consent that the BOE may deduct such amounts of money as the BOE deems to be properly due and owing from the Contractor from any money to be earned by the Contractor under any Contract at any time. The verified consent will be on a form approved and supplied by the Director. (b) A Contractor who is not required to provide a Performance Bond or Letter of Credit because it provides 15 or fewer vehicles pursuant to this agreement, may choose to either present the BOE with the aforedescribed cost increase Surety Bond or consent to have the increase in payments coming due to it withheld until the approval of its cost justification statement. (10) Retroactive Payments. (a) Contractors will be entitled to receive retroactive payment increases without any interest only after the date of approval and to the extent of such approval of the cost justification statement, and the Contractor will 20 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES not be entitled to receive retroactive payment in one lump sum but only in monthly installments to be determined at the Director's sole discretion. (b) Should any retroactive payments promised by the foregoing language of Paragraph 9 be deemed or found to be illegal or otherwise improper due to being in violation of any Federal, State, New York City or BOE law, rule, regulation, by-law or official written policy (e.g., the BOE "Standard Operating Procedures for Financial Management Centers"), then the BOE, its employees or agents cease to have any and all obligations to pay same and contractor's obligations hereunder remain unchanged. (c) The Contractor hereby agrees and covenants to refrain from any litigation and to release, hold harmless and indemnify the BOE and the City of New York (including reasonable attorney fees) concerning any claims, actions or special proceedings by the Contractor or any other party arising from denial(s) or postponement(s) of any payment increase(s) or any portion(s) thereof due to the Contractor's failure to meet the express terms, conditions and deadlines of this paragraph 9. (11) Adjustments to Later Payments. Based on the BOE's audit of the Contractor's annual statements and financial records, the BOE may make any necessary adjustments in any later payments which become due and owing to the Contractor during a given Extension Year to compensate for any excesses of payments over cost increases. (12) Refund of Overpayment. The Contractor further agrees and covenants to refund any and all additional monies due to the BOE within thirty (30) days of the final audit report, if the amount of each year's payment excess over allowable cost increase is greater than any payments due and owing for the balance of a given Extension Year, except where a refund is obtained from the bond herein described. (13) In the event of any apparent inconsistencies between any other provisions of the Contract and this Article V - A, the provisions of this Article V - A will prevail. (C) MISALLOCATION OF COSTS. To prevent unjust enrichment through misrepresentation or falsification of cost increase claims, the Contractor hereby agrees, consents and covenants to abide in all respects by the following rules for the treatment of fixed, 21 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES variable or other costs utilized to establish increased expenses from one given Extension Year to the next: (1) Allocation of Costs. If the Contractor misallocates any cost item(s), the allocation will be disallowed. Improper allocation or "misallocation" is defined as a transgression of one or more of the following precepts: (a) Only those of the Contractor's fixed, variable or other costs which are directly attributable to the performance and/or administration of BOE pupil transportation contract work will be considered allowable expense items. Costs attributable to a contractor's other operations, whether in the public or private sector, will not be allowed to justify payment increases. (b) Costs must be attributable solely to the specific group of contracts covered by this Extension Agreement, i.e., Contract Serial Nos. 0065, 0075, 8107 and 9888. Expenses allocable to BOE pupil transportation contracts other than these serial numbers must not appear in any materials presented to justify payment increases under this Extension Agreement. (c) Costs must be attributable solely to the corporate, partnership, sole proprietorship or other entity which constitutes the Contractor. Expenses allocable to a parent or other affiliated entity must not appear on the Contractor's cost justification financial statement. Where employees, offices, storage and maintenance facilities or other cost items are shared by several affiliated or unaffiliated entities, all or some of which hold separate BOE transportation contracts, assertions of expense increases must reflect only those percentages of utilization directly allocable to the claimant Contractor. (d) Allocation of costs must be based on the number of vehicle days and not merely the number of vehicles under contract. (e) Such other forms of misallocation of costs as may be determined by the BOE, the New York City Office of the Comptroller or the New York State Education Department, in accordance with the terms and conditions of this Contract. (D) AMENDMENTS TO PERFORMANCE SECURITY PROVISIONS. 22 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES (1) The Contractor has the following options available to assure full and faithful performance of the Contract: (a) Provide a confirmed irrevocable Letter(s) of Credit from an acceptable financial institution equal in value to ten percent (10%) of the contract value which may be reduced each month by ten percent (10%) of the monthly payment authorized by the Contractor to be retained by the BOE during the Extension Year from July 1, 1995 through June 30, 1996. Whereupon at any time during this Extension Agreement there shall be any increase(s) or decrease(s) in the Contractor's number of contract and/or additional vehicles beyond five percent (5%) of the Contractor's total fleet (excluding spare and maintenance vehicles), the BOE and the Contractor shall adjust the performance security accordingly to maintain the level at a constant ten percent (10%) of the contract value; and, for each instance of any increases, the Contractor shall furnish additional performance security via confirmed irrevocable Letter(s) of Credit from an acceptable financial institution or written authorization of retainage within thirty (30) days of the award of each increase in the number of vehicles. The amounts retained shall be deposited in an interest bearing account maintained by the New York City Office of the Comptroller with annual reports of the amounts retained and interest earned provided to the Contractor. This retainage will be returned to the Contractor with interest after the conclusion of the full and faithful performance of this Extension Agreement, or whereupon the Contractor replaces the retainage with confirmed irrevocable Letter(s) of Credit from an acceptable financial institution in an amount equal to ten percent (10%) of the contract value at the time of the conversion. (b) Provide a confirmed irrevocable Letter(s) of Credit from an acceptable financial institution equal in value to ten percent (10%) of the contract value which may be reduced each month by five percent (5%) of the monthly payment authorized by the Contractor to be retained by the BOE during the Extension Years of July 1, 1995 through June 30, 1996 and July 1, 1996 through June 30, 1997. Whereupon at any time during this Extension Agreement there shall be any increase(s) or decrease(s) in the Contractor's number of contract and/or additional vehicles beyond five percent (5%) of the Contractor's total fleet (excluding spare and maintenance vehicles), the BOE and the Contractor shall adjust the performance 23 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES security accordingly to maintain the level at a constant ten percent (10%) of the contract value; and, for each instance of increase, the Contractor shall furnish additional performance security via confirmed irrevocable Letter(s) of Credit from an acceptable financial institution or written authorization of retainage within thirty (30) days of the award of each increase in the number of vehicles. The amounts retained shall be deposited in an interest bearing account maintained by the New York City Office of Comptroller with annual reports of the amounts retained and interest earned provided to the Contractor. This retainage will be returned to the Contractor with interest after the full and faithful performance of this Extension Agreement, or whereupon the Contractor replaces such retainage with a confirmed irrevocable Letter(s) of Credit from an acceptable financial institution in an amount equal to ten percent (10%) of the contract value at the time of the conversion. (c) Provide a confirmed irrevocable Letter(s) of Credit from an acceptable financial institution equal in value to ten percent (10%) of the contract value renewable each year at an amount equal to ten percent (10%) of the then current value of the Contract. (d) Provide any combination of cash security deposit and confirmed irrevocable Letter(s) of Credit from an acceptable financial institution equal to ten percent (10%) of the contract value. Whereupon at any time during this Extension Agreement there shall be any increase(s) or decrease(s) in the Contractor's number of contract and/or additional vehicles beyond five percent (5%) of the Contractor's total fleet (excluding spare and maintenance vehicles), the BOE and the Contractor shall adjust the performance security accordingly to maintain the level at a constant ten percent (10%) of the contract value; and, for each instance of increase, the Contractor shall furnish additional performance security via confirmed irrevocable Letter(s) of Credit from an acceptable financial institution or written authorization for retainage within thirty (30) days of the award of each increase in the number of vehicles. Any cash security deposit(s) shall be deposited in an interest bearing account maintained by the New York City Office of Comptroller with annual reports of the amounts held and interest earned provided to the Contractor. Any cash security deposit will be returned to the Contractor with 24 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES interest after the full and faithful performance of this Extension Agreement (2) Companies who are subject to common control as determined by the Board of Education based upon an analysis of (a) ownership of the corporation's assets; (b) coincidence of corporate officers and directors; and (c) such other factors as the Board of Education determines to be relevant, are deemed to be one contractor. If the Board determines companies to be the subject of common control, contractors will be required to provide the appropriate performance security for the number of vehicles operated by the companies that are determined to be the subject common control. For the purpose of determining common control and performance security requirements, all BOE transportation contracts will be considered. (E) Section E of the Extension & Fourth Amendment Agreement of Contract Serial Nos. 0065, 0075 and 8107 and Section E of the Extension & Second Amendment of Contract Serial No. 9888 is hereby amended to read as follows: "1. Priority in Hiring and Master Seniority Lists: "There shall be established two industry-wide Master Seniority Lists. One list shall be composed of all operators (drivers), mechanics, and dispatchers and the other list shall be composed of escorts (matrons-attendants) who were employed as of June 30, 1995, under a contract between their employers and the Board for the transportation of school children in the City of New York, who are furloughed or become unemployed as a result of loss of contract or any part thereof by their employers, or as the result of a reduction in service directed by the Board during the term of the contract, in accordance with their date of entry into the industry. All operators (drivers), mechanics, dispatchers and escorts (matrons-attendants) on the Master Seniority Lists who participated in the Division 1181 A.T.U. - New York Employees Pension Fund and Plan as of June 30, 1995, and who do not exercise their option to withdraw from the Fund and Plan shall continue to participate in such Pension Plan. "Any existing contractor or individual who conducted business as a sole proprietor, or as a member of a partnership or who held a controlling interest in a corporation that performed 25 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES service pursuant to contract expiring in June, 1995 (contractor) shall give priority in employment on September, 1995 or thereafter on the basis of position on the Master Seniority List of any additional or replacement operators, mechanics and dispatchers beyond those performing service as of June 30, 1995 consistent with the number of employees required by the specifications of the contract expiring June, 1995 for the number of vehicles providing service to the Board as of June 30, 1995 to individuals from the Master Seniority List until such list is exhausted. "Any new contractors, i.e. those who did not provide service pursuant to contract expiring June, 1995 (new contractor), shall give priority in employment in September, 1995 or thereafter on the basis of seniority to every operator (driver), mechanic and dispatcher performing service pursuant to such contract starting from the first employee from the Master Seniority List until such list is exhausted. "Should the Board determine to require the contractor to provide escort service in addition to the operator, and in the event that all escorts (matrons-attendants) on the Master Seniority List, who were employed as of June 30, 1995, are not employed as escorts by contractors for the beginning of service in September of 1995, then said escorts shall be employed in order of their position on the Master Seniority List. "2. Compensation "All operators (drivers), mechanics, dispatchers and escorts (matrons-attendants) on the industry-wide Master Seniority Lists shall be employed and paid on a full-time basis based upon the wage scale received from prior employer under pupil transportation contracts. "The contractor shall compensate operators (drivers), mechanics and dispatchers and escorts (matrons-attendants) who appear on the Master Seniority Lists and who are employed pursuant to contracts to be awarded as follows for the term of the contract: "(a) operators (drivers, and dispatchers at a daily rate of pay, including any COLA, for each day of service, not less than that paid pursuant to any applicable labor collective bargaining agreement. 26 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES "(b) mechanics at a daily rate of pay, including any COLA, for each day of service, not less than that paid pursuant to any applicable labor collective bargaining agreement. "(c) escorts (matrons-attendants) at a daily rate of pay, including any COLA, for each day of service, not less than that paid pursuant to any applicable labor collective bargaining agreement. "Such operators (drivers) and escorts (matrons-attendants) shall be available for extended service, without additional compensation, which shall be defined as performance within the particular job category (i.e. drivers as drivers, and escorts (matrons-attendants) as escorts (matrons-attendants) ) within the eight (8) hour work day within the spread (8 within 10 hours) provided for in the collective bargaining agreement covering said employees, if any. "3. Welfare "Contributions by the contractor for providing welfare benefits to operators (drivers), mechanics, dispatchers and escorts (matrons-attendants), in the event the contractor employs escorts, who appear on the Master Seniority List shall be no less than $410 per employee per month on a twelve month basis during each year of the contract. "4. Pensions "The contractor shall sign an agreement with Division 1181 A.T.U. - New York Employees Pension Fund and Plan to participate in such plan on behalf of all operators (drivers), mechanics, dispatchers and escorts (matrons-attendants), in the event the contractor employs escorts who appear on the Master Seniority Lists and who participated in the Fund and Plan as of June 30, 1995. This requirement shall not be interpreted to require a contractor to enter into a collective bargaining agreement with the union nor shall it prohibit the contractor from entering into a collective bargaining agreement with the union. The contractor shall file a copy of the executed agreement with the Trustees of the Fund and Plan to participate in said Fund and Plan and with the Secretary of the Board with the acknowledgment of the Notice of Award. "The contractor shall contribute $48.15 per week per operator (driver), mechanic and dispatcher on the Master Seniority 27 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES List, and participating in the Plan and Fund as of June 30, 1995, for forty weeks each year for the term of the contract, or such greater amount as may be required, based on contributions by contractors on behalf of the majority of employees participating in the Fund and Plan pursuant to a collective bargaining agreement with Local 1181 - 1061. The contractor shall withhold $23.00 a week from each operator, mechanic and dispatcher participating in said Fund and Plan for forty weeks each year for the term of the contract, or such greater amount as may be required based on contributions of a majority of the operators (drivers), mechanics or dispatchers contributing to the Fund and Plan. "Such contractors who provide escort service, shall contribute $44.15 per week per escort (matron-attendant) for forty weeks each year for the term of the contract, or such greater amount as may be required based on contributions by contractors on behalf of the majority of employees participating in the Fund and Plan pursuant to a collective bargaining agreement with Local 1181 - 1061. The contractor shall withhold $18.00 per week from each escort, (matron-attendant) participating in said Fund and Plan and Fund for forty weeks each year for the term of the contract, or such greater amount as may be required based on contributions of the majority of the escorts contributing to the Fund and Plan. "In connection with employees who are on the Master Seniority List and who do not participate in the Local 1181 - 1061 Fund and Plan, they shall not be required to participate in the Plan but shall participate in the collective bargaining agreement, if any, of their employer. "The contractor shall pay all such amounts to the Fund and Plan within seven days after the end of each payroll period. "5. Enforcement "In addition to any other remedies provided in the contract between the Board and the contractor, such as default and/or termination, if the contractor is found to be in violation of the foregoing employee protection provisions regarding the payment of wages, welfare benefit contributions, pension contributions, or other aspects of compensation or benefits, then the Director of the Office of Pupil Transportation, within thirty (30) days of written notice, shall withhold the appropriate amounts from any payments due to the contractor and pay them directly to the applicable union for the benefit of the employees affected, to the Division 1181 A.T.U. - New 28 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES York Employees Pension Fund or other applicable union pension fund for the benefit of the employees affected or to the appropriate Welfare Fund for the benefit of the employees affected. If the affected employees are not affiliated with any union, then the Board shall investigate on their behalf allegations of employee protection provision violations regarding the payment of wages, welfare benefit or health insurance contributions, pension or similar savings plan contributions, or other aspects of compensation or benefits. Upon a finding of any such violation(s), the Director of the Office of Pupil Transportation shall withhold the appropriate amounts from any payments due to the Contractor and pay them directly to the employees or to such health insurance companies or other institutions as appropriate. "In the event any contractor willfully fails to comply, the Board of Education shall act to cancel such contractor's contract; provided, however, that the Board shall not be required to act so as to cause a disruption of service. "6. Contractors providing a total of five vehicles or less pursuant to all contracts with the Board for the transportation of pupils shall not be subject to the foregoing provisions with respect to operators (drivers), mechanics and dispatchers. "Escorts (matron-attendants) shall not be included in the exclusion provided in this paragraph six (6). "7. For the purposes of this section, corporate bidders who are subject to common control as determined by the Board based upon analysis of: "(a) ownership of the corporations' assets, "(b) coincidence of corporate officers and directors, and "(c) such other factors as the Board determines to be relevant, are deemed to be one bidder. "8. The Board may in its sole and unfettered discretion change any date which determines employee protected status, employer status or any other status, which is contained in any employee protection provisions of the Contract. The Master Seniority Lists will be updated to June 30, 1995 as permitted in accordance with pre-existing collective bargaining agree- 29 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES ments executed prior to the date of execution of this Contract. Furthermore, the rates quoted herein may not be reflective of current labor rates in effect. The contractor should pay special attention to the fact that many employees on the Master Seniority Lists have been in the industry for many years and therefore may be entitled to substantial wages, pension and welfare benefits and wage accruals. "The date for inclusion on the Master Seniority List is hereby updated to the last school day in June, 1995 as permitted in accordance with pre-existing collective bargaining agreement executed prior to the date of this Extension Agreement and Amendment Agreement." (F) MISCELLANEOUS VEHICLE SPECIFICATIONS AND OPERATIONAL AMENDMENTS. Any terms, conditions and specifications to the contrary notwithstanding, the Contract is hereby amended as follows: (1) List of Vehicles. Before September of this Extension Year or at any other time stated by the Director, the Contractor must provide a list of all vehicles, including spare and maintance vehicles, to be operated during this Extension Year. This list must show for every vehicle the year, make, type, seating capacity, registration number, bus number, license plate number, owner, lessee (if applicable), and the expiration date of the New York State Department of Transportation approval sticker. The information must be provided on forms approved and supplied by the BOE, and the Contractor must supply a copy of the title or certificate of registration for each listed vehicle. Whenever any changes occur in the list of vehicles, the Contractor must update the list within ten (10) business days. In addition, the Contractor must provide at the same time written assurance that all vehicles are equipped with two-way radios. (2) Age and Condition of Vehicles. The vehicles affected by this provision include all originally contracted vehicles, (i.e., "contract vehicles") and all additional and spare vehicles. Except for the age of vehicles, nothing contained in this Paragraph (2) and/or any of its subparagraphs shall be deemed or construed in any manner or to any extent whatsoever to act and/or operate in abrogation or derogation of any other individual or cumulative provisions of the Contract, as heretofore amended and extended. (a) The Contractor shall furnish service, maintenance and repairs of all vehicles used in the performance of this contract in compliance with (i) all manufacturer's 30 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES guidelines for maintenance, service and repairs, (ii) all Federal and State of New York statutes, regulations, rules, guidelines and policies applicable to service, maintenance and repair of school bus vehicles, (iii) all New York State Department of Transportation and New York State Department of Motor Vehicles policies, rules and regulations; and (iii) Federal and State regulations applicable to maintenance and repair of school bus vehicles, and (iv) all New York State Education Department, policies, rules and regulations applicable to service, maintenance and repair of school bus vehicles. The Contractor shall maintain and, upon demand, shall present to the Director contemporaneously kept, accurate, complete, orderly and written records of the school bus vehicle, maintenance and repair activities performed in accordance with the foregoing. (b) The Director shall have the right to disapprove any vehicles under this Contract and to require the Contractor to furnish an acceptable replacement vehicles in the event that the Director determines in his/her reasonable judgement any such vehicle(s) to be unfit for service. (c) The Contractor may continue to use the vehicles that are in service as of the date of the execution of this Extension and Amendment Agreement throughout the term of said Extension and Amendment Agreement, provided each such vehicle is in compliance with subparagraph (a) and (b) hereof. However, any new vehicles that shall be placed into service during the term of this Extension and Amendment Agreement shall be not more than five years old at the time such vehicle is placed into service. Vehicles transferred among contractors that are subject to common control shall not be considered as new vehicles under the preceding sentence. In his/her reasonable discretion, the Director may allow the continued use of any given contractor's vehicles that are in service as of the date of the execution of this Extension and Amendment Agreement upon an assignment of the Contract, if and to the extent any such assignment shall be approved in accordance with the terms and conditions of the Contract, as heretofore amended and extended. (3) Use of Vehicles. Article XII entitled "Use of Vehicles" in Contract Serial Nos. 0065, 0075 and 8107 and Article 36 entitled "Use of Vehicles" in Contract Serial No. 9888, are hereby amended by the addition of sixth and seventh unnumbered 31 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES paragraphs at the end of each such Article to read as follows: "In addition to all other uses of vehicles prescribed in pupil transportation contracts, the Director shall have the right, power and authority to require the Contractor to provide vehicles during the hours between the transportation of pupils to school for the morning sessions and the pick-up of pupils for homeward bound trips for service to other mayoral and/or non-mayoral City of New York agencies and to any other public agencies and/or private organizations, as determined by the Director. While not previously invoked to any great extent during the period of the Contract, the provisions of the third unnumbered paragraph contained in this Article XII are still in full force and effect as stated herein. The Contractor shall be entitled to payment for such services as stipulated in this contract. At no time shall such service interfere with the timely transportation of pupils to and from school." (4) New Laws, Rules, Regulations, By-Laws or School Bus Safety Features. Whereupon any Federal, State, local or Board of Education laws, rules, regulations or by-laws are enacted, updated, revised, amended or otherwise changed in any manner which require the Contractor to undertake any new or revised procedures affecting school bus personnel or operations (i.e., school bus personnel drug or alcohol testing, driver licensing or training procedures, etc.) or the introduction onto vehicles of new safety features or any other equipment (i.e., increased seat-back padding, back-up beepers, stop arms, safety sensors, seat belts, etc.), the Contractor must comply promptly. The Contractor must assume the full cost of compliance with any new or revised driver, and/or operational procedures or for the purchase and installation of new safety features or other equipment in compliance with any such changes and will not be entitled to any additional remuneration from the BOE except as expressly permitted by law. (5) Railroad Crossings. Each driver must make a full stop at all railroad crossings, except that no stop is necessary at any railroad crossing where a police officer, New York City Department of Transportation traffic control officer, or a traffic control signal directs traffic to proceed. (G) MISCELLANEOUS FINANCIAL AMENDMENTS. Any express terms, conditions and specifications to the contrary notwithstanding, the Contract is hereby amended as follows: (1) Chapter 902 Service. On days when public schools are not in session, the Contractor is required nevertheless to provide 32 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES service pursuant to Chapter 902 of the Laws of 1985. The Contractor must comply with the Director's instructions concerning the numbers of vehicles and the vehicular routes to maximize efficient utilization. The Contractor will be paid only for those vehicles which operate on those days as expressly authorized by the Director. (2) Further Amendments. The Contractor hereby agrees and covenants to execute any further amendment to the Contract that the New York State Education Department requires to secure the Department's approval of this Extension and Sixth Amendment Agreement and to maintain the continuity of funding. (3) Cancellation. (a) General Terms and Conditions Section 7 entitled, "Cancellation," is amended so that the Director may seek to have the Contractor declared by the Chancellor's Board of Review to be in default of the Contract either as a whole or merely in one or more "items" of the Contract, i.e., the Contract is divisible into its several "items." Upon a finding of default, the Chancellor's Board of Review will have the right, power and authority to terminate the whole Contract or merely one or more contractual "items." (b) General Terms and Conditions Section 7 entitled, "Cancellation," is amended by the addition of a new paragraph "D" to read as follows: "In the event of significant or repeated safety violations due to acts of commission or omission by the Contractor or by its employees, which result from the Contractor's failure to conduct its operations in accordance with good practices in the pupil transportation business, the BOE shall have the right to terminate the contract upon thirty days advance written notice to the Contractor, unless the Contractor can establish to the Director's reasonable satisfaction that the Contractor's record of safety will thereafter be satisfactory in accordance with good industry practices. For purposes of this provision, "safety violations" shall mean significant or repeated violation of safety laws and/or regulations of the United the New York State Department of Transportation, The New York City Department of Transportation, and the BOE Office of Pupil Transportation, provided that prior to terminating this agreement for repeated safety violations the BOE Office of Pupil Transportation shall provide the contractor with notice and an opportunity to cure." (c) General Terms and Conditions Section 7 entitled, "Cancellation," is amended by the addition of a new 33 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES paragraph "E" to read as follows: "In the event of an indictment of the Contractor, any of its principals, officers, or management employees on the basis of acts of commission or omission involving or affecting the provision of pupil transportation services under any BOE pupil transportation contract(s) including, but not limited to, acts of commission or omission which excessively increase BOE costs of doing business, the BOE will have the right, at the Director's discretion, either to terminate the Contract upon thirty days advance written notice to the Contractor or to require the Contractor to obtain the employment termination and ownership divestiture of the indicted party. Before a final decision on either alternative disposition, the Director will afford the Contractor a personal meeting to allow for a full, open discussion of relevant issues." (d) General Terms and Conditions Section 7 entitled, "Cancellation," is amended by the addition of a new paragraph "F" to read as follows: "Nothing herein shall otherwise limit the rights and remedies of the Director as set forth in this contract." (4) Insurance Cost Increase Provision. Whereupon the Legislature amends the State Education Law to allow the Board of Education to obtain State funding to reimburse the Contractor for any amount of demonstrated and approved increases in the cost of insurance, this Contract will be deemed automatically amended to allow such reimbursement according to the exact terms of any such statutory provision. (a) Interim Insurance Provision. For only so long as the State Education Law does not provide expressly for reimbursement of vehicle insurance cost increases, the Board of Education agrees and consents for a limited time to a partial or complete suspension of the application of the two percent (2%) prompt payment discount but only to the for Contract Serial Nos. 0065, 0075, and 8107, but only to the extent of the Contractor's annual proof of eligibility. (b) To be eligible for a partial or complete suspension of the 2% prompt payment discount for each Extension Year, the Contractor must meet eligibility conditions and adhere to rules, procedures and definitions for the annual submittal of an "Insurance Rate Increase Claim Statement," as such are expressed in Appendix C. The said eligibility conditions, rules, procedures and 34 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES definitions for partial or complete suspension of the two percent (2%) prompt payment discount for each Extension Year are hereby incorporated by this reference into this Extension and Amendment Agreement as if set out herein in their entirety, and a copy of the said eligibility conditions, rules, procedures and definitions is hereto annexed as Appendix C. (5) Increase or Decrease in the Number of Vehicles. Article XIII- A of Contracts under Serial Nos. 0065, 0075 AND 8107, entitled, "INCREASE OR DECREASE IN THE NUMBER OF VEHICLES DURING THE PERIOD OF EXTENSION," as added by the 1992 Extension and Amendment Agreement, shall be amended at Paragraph (h) to read as follows: "1. Notwithstanding the provisions of Article XIII, at any time during the period of extension the number of vehicles required in an item may be increased or decreased and the schedules may be adjusted due to changes in pupil population, default or voluntary surrender of a contract or changes in policy or directives adopted by the Board of Education, the City of New York, the State Department, and/or the Financial Control Board; provided however, that in no event shall the total number of vehicles originally awarded to a contractor be reduced by more than forty percent (40%) of the total number of vehicles originally awarded. Compensation to the contractor shall be adjusted to the number of vehicles actually used in the performance of this Contract, and the Board of Education shall not be liable for payments for any vehicles eliminated to the extent provided above." 2. "If the Director eliminates any vehicle(s) from the number originally awarded to the Contractor and later offers again a vehicle(s) of the same type(s) and geographical service area(s) due to any resumed need, the Contractor shall be entitled to restoration up to and including the number of vehicles of the same type(s) and geographical service area(s) originally awarded pursuant to the procedures specified above in Paragraph B. "The Director shall offer any 'additional' vehicle(s) first to the contractor with the lowest 'current' weighted average daily rate per vehicle in the relevant contractual item, pursuant to the procedures specified above in Paragraph B. Additional vehicles will be offered first to the Contractor will the lowest current 35 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES daily weighted average. The ranking will include both those Contractors who are under an extension agreement and those Contractors who are under the terms of Contracts for similar work. If all the contractors in a particular item refuse an offer of additional vehicles, the additional vehicles will then be offered to the contractors providing service under this extension in order of the lowest current daily rate in all items. "The term 'lowest weighted average daily rate per vehicle,' which is used to determine the order in which contractors are affected by both the decrease provisions of Paragraph A and the increase provisions of Paragraph B concerning both original vehicles and all additional vehicles, shall reflect the current rates paid by the Board of Education at the time of an offer. 3. All vehicles awarded under this provision will be treated as additional not contract vehicles. (6) Pending Litigation. (a) The Contractor does hereby acknowledge that he/she is fully aware and apprised of pending litigation cases concerning cost justification which have been consolidated under the caption of, A.C. Transportation. Inc., et al., v. Board of Education of City of New York, et al., Index No. 30841/92 (S. Ct. New York County) (the "litigation"). Subject to the final judicial disposition or settlement of the litigation, the Contractor does hereby consent, agree and covenant that the daily rate(s) per vehicle to be paid by the BOE to the Contractor during the period of the 1995-2000 Extension and Amendment Agreement shall be the daily rate(s) per vehicle approved by the BOE Office of Auditor General and as first decreased and thereafter augmented each Extension Year pursuant to provisions contained herein (the "OAG Rate"), unless the Contractor shall make a written request to the Director to be paid the daily rate(s) per vehicle based on such rate(s) paid during the Tenth Extension Year (Second Extension Year in Contract Serial No. 9888), as augmented during the Eleventh and Twelfth Extension Years (Third and Fourth Extension Years in Contract Serial No. 9888), decreased during the Thirteenth Extension Year (Fifth Extension Year in Contract Serial No. 9888), and thereafter augmented during the Fourteenth, Fifteenth, Sixteenth and Seventeenth Extension Years (Sixth, Seventh, Eighth and Ninth Extension Years in Contract Serial No. 9888) pursuant to provisions contained herein (The "Contractor's Rate"). 36 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES (b) To be effective, the Contractor's written request to be paid at a higher daily rate(s) per vehicle must state that the Contractor does consent, agree and covenant to be bound by the terms and conditions of any settlement(s) or final judicial disposition(s) in the litigation. To be effective, the Contractor's written request must also state that the Contractor shall provide collateral annually in a form and amount acceptable to the BOE Office of Auditor General sufficient to secure the difference(s) each Extension Year between the OAG Rate and the Contractor's Rate (the "Annual Rate Difference"), i.e., the difference(s) between the daily rate(s) per vehicle in fact paid during the Tenth Extension Year (Second Extension Year in Contract Serial No. 9888), as augmented during the Eleventh and Twelfth Extension Years (Third and Fourth Extension Years in Contract Serial No. 9888), decreased during the Thirteenth Extension Year (Fifth Extension Year in Contract Serial No. 9888), and augmented during the Fourteenth, Fifteenth, Sixteenth and Seventeenth Extension Years (Sixth, Seventh, Eighth and Ninth Extension Years in Contract Serial No. 9888) pursuant to provisions contained herein, and such daily rate(s) per vehicle, which has or shall have been determined to be appropriate by the BOE Office of Auditor General for the Eleventh and Twelfth Extension Years (Third and Fourth Extension Years in Contract Serial No. 9888), decreased during the Thirteenth Extension Year (Fifth Extension Year in Contract Serial No. 9888), and augmented during the Fourteenth, Fifteenth, Sixteenth and Seventeenth Extension Years (Sixth, Seventh, Eighth and Ninth Extension Years in Contract Serial No. 9888), pursuant to the provisions contained herein. (c) The BOE shall be required to surrender or release such collateral to the Contractor only on the following conditions: (i) upon the settlement(s) or final judicial disposition(s) of the said litigation cases and upon the Contractor's payment to the BOE of any amounts agreed or determined to be due and owing from the Contractor to the BOE; and, (ii) if and to the extent that a higher daily rate(s) per vehicle than that approved by BOE Office of Auditor General is sustained upon a final judicial disposition(s) of the lawsuits. (d) The following forms of collateral are deemed to be acceptable: (i) if the BOE withheld retainage as performance security from the Contractor during the Twelfth Extension Year (Fourth Extension Year in Contract Serial No. 9888) and the estimated cumulative performance security retainage amounts for the Thirteenth, Fourteenth, Fifteenth, Sixteenth and Seventeenth Extension Years (Fifth, Sixth, Seventh, Eighth and 37 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES Ninth Extension Years in Contract Serial No. 9888) are equal to or greater than the minimum collateral amounts estimated by the BOE Office of Auditor General for the Thirteenth, Fourteenth, Fifteenth, Sixteenth and Seventeenth Extension Years (Fifth, Sixth, Seventh, Eighth and Ninth Extension Years in Contract Serial No. 9888), the Contractor may use such retainage for the Thirteenth, Fourteenth, Fifteenth, Sixteenth and Seventeenth Extension Years (Fifth, Sixth, Seventh, Eighth and Ninth Extension Years in Contract Serial No. 9888), as collateral, provided the Contractor furnishes a written agreement each year to the Director that such retainage shall be pledged as collateral against any rate reduction(s) and overpayment recovery by the BOE; (ii) if the Contractor's monthly service payments plus performance security retainage for the Thirteenth, Fourteenth, Fifteenth, Sixteenth and Seventeenth Extension Years (Fifth, Sixth, Seventh, Eighth and Ninth Extension Years in Contract Serial No. 9888), are equal to or greater than the minimum collateral amounts estimated by the BOE Office of Auditor General for the Thirteenth, Fourteenth, Fifteenth, Sixteenth and Seventeenth Extension Years (Fifth, Sixth, Seventh, Eighth and Ninth Extension Years in Contract Serial No. 9888), the Contractor shall provide to the Director a written agreement to receive monthly service payments on or about the twenty-fifth (25th) day following each month of service with no surrender by the BOE of the Two Percent (2%) Prompt Payment Discount if payment shall be delayed by more than thirty (30) days after the BOE's receipt of each monthly invoice, as provided in Article V of the Contract; (iii) the Contractor shall provide a confirmed, irrevocable Letter of Credit from an acceptable financial institution for the benefit of the BOE, and/or renewed annually, in an amount minimally equal to the collateral deemed necessary by the BOE Office of the Auditor General; (iv) a surety payment bond on which the BOE shall appear as the insured, issued by an insurer licensed to do business in the State of New York, renewed annually in an amount minimally equal to the collateral deemed necessary by the BOE Office of Auditor General; (v) the Contractor shall furnish title vested in the BOE to a frozen bank account to be held by the BOE in escrow in an amount minimally equal to the collateral deemed necessary by the BOE Office of Auditor General; and/or, (vi) in the event that the Contractor does not elect one of the foregoing forms of collateral provided for in this subparagraph (d), the Contractor's daily rate(s) per vehicle shall be reduced to a level(s) approved by the BOE Office of Auditor General, the disputed difference(s) shall be held by the BOE in escrow for the Contractor in an interest bearing account maintained by the Comptroller of the City of New York pending the outcome of 38 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES the litigation, and such amount shall be payable to the Contractor in accordance with subparagraph (c) hereof. (e) If the Contractor elects under Article (G), Paragraph (6) (d) (vi) above to receive the reduced daily rate(s) per vehicle during the 1995-96 Extension Year, then the amount to be escrowed shall be the difference(s) between 98.5% of the higher daily rate(s) and 98.5% of the reduced daily rate(s), and the daily rate(s) per vehicle to be paid to the Contractor during the 1995-96 Extension Year shall be 98.5% of the reduced daily rate(s). (f) If the litigation is unresolved prior to June of the Thirteenth, Fourteenth, Fifteenth, Sixteenth or Seventeenth Extension Years (Fifth, Sixth, Seventh, Eighth and Ninth Extension Years in Contract Serial No. 9888), the BOE shall retain from the Contractor's monthly service payment(s) for June of each Extension Year any underpayment in collateral for the year then ended, as determined by the BOE Office of Auditor General. The BOE shall hold such retainage in escrow for the Contractor in an interest bearing account maintained by the Comptroller of the City of New York pending the outcome of the litigation. (H) GENERAL MISCELLANEOUS AMENDMENTS. Any express terms, conditions and specifications to the contrary notwithstanding, the Contract is hereby amended as follows: (1) Standardization of Contracts. The Contractor hereby acknowledges, consents, stipulates, agrees and covenants that contracts awarded under Serial Nos. 0065, 0075, 8107 and 9888, as well as such contracts that may be awarded in the future pursuant to competitive bids in the same or substantially similar terms and conditions all form an interwoven system for the provision of pupil transportation services as fully and completely as if they were awarded simultaneously, and, therefore, constitute one contract. This includes contracts which successor vendors obtain through assignments, mergers, acquisitions, management agency agreements or any other means. Therefore, any individual contractor with more than one contract will be deemed for all intents and purposes to possess one contract. Furthermore, any group of vendor entities subject to common ownership or control which holds more than one contract will be deemed for all intents and purposes to be one contractor with one contract. It is agreed that this provision shall not be used in any way to prejudice the position of any party relating to issues raised in the 39 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES Cost Justification Litigation described immediately above at Article (G) Paragraph (6). (2) Changes Affecting the Contractor. The Contractor agrees and covenants to provide written notice to the BOE on forms prescribed by the Director of each change affecting the following: partners, sole proprietors, management control, Chief Executive Officer, Chief Financial Officer, Chief Operating Officer or the organization of ownership of the contractor entity, i.e., the corporation, partnership or sole proprietorship. Changes in the contractor entity include, but are not limited to, the following: corporate or partner voting power; sale, transfer or other alienation of corporate, partnership or sole proprietorship assets; sale or transfer of corporate stock or partnership interest over five percent (5%); or, any other action which may affect the interests of the BOE as a party to this Contract. (3) Office of Pupil Transportation. All references in the Contract and any previous extension and amendment agreements to the "Bureau of Pupil Transportation" are hereby amended to read, "Office of Pupil Transportation." (4) School Bus Contractor's Manual of Procedures and Requirements. The Office of Pupil Transportation's School Bus Contractor's Manual of Procedures and Requirements (the "Contractor's Manual"), issued on June 1, 1982, is hereby incorporated by reference and made a part of this Contract as if the "Contractor's Manual" were set out herein in its entirety. Contractors and their employees, agents, successors, assigns, subcontractors, and subcontractor's employees must observe and comply fully with all rules, requirements and procedures as expressed in the "Contractor's Manual." The Director will have the right, power, authority and sole discretion to add, delete, revise, update, reissue or otherwise change any or all rules, procedures and/or requirements in the "Contractor's Manual" at any time without prior notice to any party. Any and all provisions of the Contract, including but not limited to the Article regarding Liquidated Damages, which refer to Pupil Transportation Handbook Nos. 1, 2 and/or 3 are hereby amended to refer solely to the "Contractor's Manual." (5) Standards of Professional Conduct and Performance. If the Director promulgates new standards of professional conduct and/or minimum levels of competency or performance for drivers and escorts, the Contractor must ensure that all affected employees are made fully aware of, and act in full compliance with, such new standards. In addition, the Contractor must certify in the manner prescribed by the Director that each and 40 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES every driver, escort and other affected employee has received written notification of such new standards. (6) Uniform Attire of Transportation Crews. Unnumbered Paragraph 9 of Article XVII entitled, "Vehicle Operator Standards," is hereby amended to add the following provisions: (a) on August 15th prior to the start of this Extension Year, the Contractor will submit one (1) complete sample each of the current or new uniforms to be worn by drivers; (b) within five (5) business days of the submittal, the Director will have sole discretion to approve or disapprove the Contractor's choice of uniform attire for any class of employees, i.e., this provision affects current choices of uniforms as well as prospective choices; (c) whereupon the Director disapproves any choice of uniform attire, the Contractor must replace at no expense to the BOE the affected uniform items with those acceptable to the Director; and, (d) the Contractor must submit for approval to the Director any proposed change(s) in any item(s) of uniform attire before such change(s) becomes effective. (7) Advertising on Vehicles. (a) The Contractor hereby agrees and warrants to cooperate fully and completely with the Board of Education regarding the placement of advertisements on the two (2) exterior sides of all standard size vehicles, including spare vehicles. The Contractor shall not be responsible for any costs, labor or other work associated with the installation, repair, maintenance, replacement and/or removal of advertisements or the repair and/or maintenance of school bus vehicles in relation thereto. In addition, the Contractor must not cause, incur or allow any costs, expenses or other liabilities on its own part concerning anything whatsoever directly or indirectly related to the placement, repair, maintenance and/or removal of advertisements on school bus vehicles or the repair or maintenance of school bus vehicles in connection with such advertisements, and the Contractor shall not demand, nor be entitled to, any compensation from the Board of Education for any such costs, expenses or other liabilities. (b) The Contractor shall allow the Board or the Board's agents, employees, contractors, subcontractors or other representatives to affix any and all such advertisements to the Contractor's vehicles by any means the Board selects including, but not limited to, metal and/or plastic frames and/or direct application, adhesive decals, provided that the BOE or its agent, contractor and/or subcontractor shall be responsible for the cost to restore the vehicle bodies with respect to any damage upon removal. The Contractor shall cooperate fully to provide access to all of its vehicles under 41 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES the Contract, including spare vehicles, at such times when they are not in use for Board transportation service including the early morning, midday and evening hours, as the Board or the Board's agents, employees, contractors, subcontractors or other representatives shall schedule with at least three (3) business days advance notice. Whereupon any advertisement or any component part thereof becomes damaged to any extent or destroyed, for any reason whatsoever, and/or whereupon any vehicle sustains damage or requires repairs or maintenance due to any advertisements or any component part thereof, the Contractor shall notify the Board or the Board's designated agents, employees, contractors, subcontractors or other representatives within twenty-four (24) hours by calling an "(800)" telephone number which the Board shall supply to the Contractor. If the Contractor is dissatisfied for any reason with any vehicle repairs or maintenance supplied by the Board or the Board's designated agents, employees, contractors, subcontractors or other representatives, the Contractor shall submit any such claim or dispute in writing to the Director of the Office of Pupil Transportation for resolution whose decision shall be final and binding upon the Contractor, except for administrative appeal to the Chancellor's Board of Review pursuant to Section 8.3 of the Board of Education's Bylaws. (c) The Contractor hereby consents, acknowledges and agrees that any and all revenues or other consideration derived from the placement of advertisements on the Contractor's vehicles shall be and remain forever the sole and exclusive property of the Board of Education and not the Contractor. The Contractor further agrees to follow in every respect any and all rules, regulations, requirements, specifications or procedures concerning school bus advertisements that the Board may, in its sole discretion, promulgate in the Board's "SCHOOL BUS CONTRACTOR'S MANUAL OF PROCEDURES AND REQUIREMENTS," as currently or hereafter updated, revised or otherwise changed. (8) Access to Premises. The Contractor and their employees, agents, successors, assigns, subcontractors and subcontractor's employees must grant to OPT inspectors, BOE administrative personnel, City of New York administrative personnel and State of New York administrative personnel full cooperation and access to all premises, vehicles, books and records for the purpose of vehicle and garage inspections and related functions as well as the review and audit of the Contractor's records to ascertain compliance with the Contract and/or any Federal, State, local and/or Board of Education laws, rules, regulations and/or by-laws. 42 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES (9) Unlawful or Unenforceable Provisions Void. Whereupon this Extension and Sixth Amendment Agreement is found to contain any unlawful or unenforceable provision(s) which is not essential to continued performance or which is not material to the intent and inducement of the parties, such provision(s) will be deemed of no effect and will, upon application of either party, be stricken from this document without thereafter affecting the binding force of the remainder of this Extension and Sixth Amendment Agreement. (10) Approval and Execution. This Extension and Sixth Amendment Agreement will not become binding or effective upon the Board of Education until the following series of events will have transpired: (a) approval as to form by the BOE Office of Legal Services; (b) authorization by a resolution duly adopted by a vote of the Board of Education which will be deemed to be incorporated herein; (c) execution on behalf of the Board of Education by the Chancellor or his/her designee; (d) approval by the New York State Commissioner of Education; (e) initial registration with Comptroller and re-registration with the Comptroller each year thereafter; and, (f) initial approval and subsequent annual re-approval by the New York State Financial Control Board pursuant to the New York State Emergency Act for the City of New York, the rules and regulations of said Board so require. (11) Implementation of the State Education Law. This Extension and Sixth Amendment Agreement is intended to implement the provisions of the New York State Education Law, Section 305, Subdivision 14 and the attendant regulations of the New York State Commissioner of Education. Whereupon there exist any inconsistency between the Board of Education and the State Education Department concerning this statutory provision, the attendant regulations of the Commissioner of Education and/or any formula(e) for reimbursement of funds, this Extension and First Amendment Agreement will be deemed amended automatically to conform to the interpretation of the State Education Department but only for the protection of the Board of Education's interests and only at the Board of Education's option. (12) The Comptroller will endorse hereon during the term of this Contract his/her certificates that there are appropriations or funds applicable thereto sufficient to pay the estimated expense to execute and operate this Contract during the respective fiscal periods. (13) As used herein, the singular will include the plural and vice versa. (14) All other provisions of the Contracts under Serial Nos. 0065, 0075 and 8107, as amended by the Contract Amendment Agreement of May 25, 1979, the 1983 Extension Agreement and 43 EXTENSION AND SIXTH AMENDMENT OF CONTRACT FOR REGULAR EDUCATION PUPIL TRANSPORTATION SERVICES First Amendment Agreement, the 1986 Extension Agreement and Second Amendment Agreement as amended further on June 24, 1986, and the 1989 Extension Agreement and Third Amendment Agreement and 1992 Extension and Fourth Amendment Agreement, except those provisions herein noted and revised, will remain in full force and effect. (15) All other provisions of the Contract under Serial No. 9888 as amended by the 1991 Extension Agreement and First Amendment and the 1994 Extension Agreement and Second Amendment as amended, except those provisions herein noted and revised, will remain in full force and effect. (16) The Contractor does hereby consent and agree to cooperate with the BOE concerning the elimination of the Contractor's payment of Federal, State and local sales, excise and use taxes on purchases, leases and other transfers which the Contractor makes, effects, causes or allows in the performance of the Contract. The particular rules and procedures concerning the elimination of such taxes shall be promulgated in the Board's "SCHOOL BUS CONTRACTOR'S MANUAL OF PROCEDURES AND REQUIREMENTS," a draft copy of which shall be circulated to the contractors for comment before final promulgation. Such rules and procedures may include, but are not necessarily limited to, the following: (A) the Contractor's use of the Board's tax exempt status when making, effecting, causing or allowing purchases, leases and other transfers in the performance of the Contract (the Board shall furnish the Contractor with appropriate forms and procedures), provided that the Contractor shall remain the purchaser or lessee of its vehicles, goods, commodities, supplies, equipment and so forth; and, (B) the Contractor's cooperation through the production of documentary evidence, as specified by the Board, with any and all attempts by the Board to seek and obtain refunds of any and all Federal, State and local excise, sales and use taxes which the Contractor has paid during the applicable statutory period of limitation for goods, fuel, commodities, services, leases, etc. in the performance of the Contract. Whereupon the Board requires the Contractor to produce documentary evidence in the course of any attempt by the Board to seek and obtain such refunds of taxes, the Board shall pay the Contractor, as consideration for such cooperation, twenty percent (20%) of any refund amount attributable to the Contractor's purchases, leases and other transfers, but only when and after such refund amounts are actually received by the Board. 44 IN WITNESS WHEREOF the parties have executed this Extension Agreement and Sixth Amendment Agreement in septuplicate the year and day below written. For the Board For the Contractor /s/ [ILLEGIBLE] for the AMBOY BUS COMPANY - ----------------------- ---------------------------------- Chancellor (Print full name above) 46-81 METROPOLITAN AVENUE ---------------------------------- RIDGEWOOD, NEW YORK 11385 ---------------------------------- (Print address above) /s/ Michael P. Comeys BY: /s/ [ILLEGIBLE] - ----------------------- ---------------------------------- Approved as to Form Sign in ink above - Print name and title below) /s/ Michael Gatto ---------------------------------- Sec Treas ---------------------------------- /s/ Michael P. Comeys - ------------------------ NOTICE OF LEGAL SERVICES DATED: January 2, 1996 Subscribed and sworn to me this 3 day of January, 1996 /s/ Marilyn C. Wise ----------------------------------- Notary Public MARILYN C. WISE Notary Public; State of New York No. 41-4836893 Qualified in Queens County Commission Expires 10/31/97 -45- This Extension Agreement pertains to the following Bid Serial Number(s), Item(s) and number of contract vehicles originally awarded per Item. Number of Contract Bid Serial Number(s) Item Vehicles - -------------------- ---- ------------------ 006503 WBK-19-23 6 007501 WBK-20 17 988842 WBK-21 73 988842 WM-l-C 59 988818 WO-25-B 36 988842 WO-26 47 006502 WO-27-B 16 988818 WO-29 38 -46- APPENDIX A For Contracts under Serial No. 9888 only where the Contractor meets conditions of eligibility, any allowable cost increases accrued during the period from the Second Extension Year through the Third Extension Year may be carried forward "below-the-line" to supplement those cost increases which are used to justify an augmentation of the daily rate per vehicle for the Fifth Extension Year and any subsequent extension years. To be eligible to carry forward such cost increases, the Contractor must provide annually a cost increase comparison between the Second and Third Extension Years which identifies all items of cost increase and, separately, the percentage of cost increase, if any, to be carried forward and applied to a given subsequent base year. For purposes of this subparagraph, the term "base year" is defined as the year immediately preceding the given subsequent extension year to which the cost increases from the Second to Third Extension Years are to be applied. The BOE Auditor General may prescribe additional eligibility conditions as deemed appropriate in his/her sole discretion. The term "below-the-line" is defined to mean that cost increases from the period of the Second to Third Extension Years, which are carried forward, are deemed as allocated to the period of accrual i.e., the Second and Third Extension Years, and not to the subsequent extension year(s) to which they are carried forward and applied both supplementally and "below-the-line" as prior cost increases that have not yet been absorbed by the lesser of an annual Consumer Price Index increment or a fixed annual rate augmentation cap. Once a cost increase item has been carried forward and applied "below-the-line" to a given base year, it may not be used again in any base year. (i) APPENDIX B For all Contracts under Serial Nos. 0065, 0075, 8107 and 9888 where the Contractor meets conditions of eligibility, any allowable cost increases accrued during the period of the Eleventh to Thirteenth Extension Years (Third to Fifth Extension Years for Contract Serial No. 9888) may be carried forward "below-the-line" to supplement those cost increases which are used to justify the augmentations of the daily rates per vehicle for the Fifteenth and Sixteenth Extension Years (Seventh and Eighth Extension Years for Contract Serial No. 9888). In addition, where the Contractor meets conditions of eligibility, any allowable cost increases accrued during the period of the Fourteenth to Fifteenth Extension Years (Sixth to Seventh Extension Years for Contract Serial No. 9888) may be carried forward "below-the-line" to supplement those cost increases which are used to justify an augmentation of the daily rates per vehicle for the Sixteenth Extension Year (Eighth Extension Year for Contract Serial No. 9888). To be eligible to carry forward such cost increases, the Contractor must provide annually a cost comparison between the Eleventh and Thirteenth Extension Years (Third and Fifth Extension Years for Contract Serial No. 9888) and the Fourteenth and Fifteenth Extension Years (Sixth and Seventh Extension Years for Contract Serial No. 9888) (when appropriate for each contract serial number, respectively) that identifies all items of cost increase and, separately, the percentage of cost increase, if any, to be carried forward and applied to a given subsequent base year. For purposes of this subparagraph, the term "base year" is defined as the year immediately preceding the given subsequent extension year to which the cost increases from the Eleventh to Thirteenth and/or the Fourteenth to Fifteenth Extension Years (Third to Fifth and Sixth to Seventh Extension Years for Contract Serial No. 9888) are to be applied. The BOE Auditor General may prescribe additional eligibility conditions as deemed appropriate in his/her sole discretion. The term "below-the-line" is defined to mean that cost increases from the periods of the Eleventh to Thirteenth and Fourteenth to Fifteenth Extension Years (Third to Fifth and Sixth to Seventh Extension Years for Contract Serial No. 9888), which are carried forward, are deemed as allocated to the period of accrual, i.e., the Eleventh to Thirteenth and Fourteenth to Fifteenth Extension Years (Third to Fifth and Sixth to Seventh Extension Years for Contract Serial No. 9888), respectively, and not to the subsequent extension year(s) to which they are carried forward and applied both supplementally and "below-the-line" as prior cost increases that have not as yet been absorbed by the lesser of an annual Consumer Price Index increment or a fixed annual rate augmentation cap. Once a cost increase item accrued during the Eleventh to Thirteenth and/or Fourteenth to Fifteenth Extension Years (Third to Fifth and Sixth to Seventh Extension Years for Contract Serial No. 9888) has been carried forward and applied "below-the-line" to a given base year, it may not be used again in any later base year. (i) APPENDIX C (1) Eligibility for Discount Suspension. For contracts under Serial Nos. 0065, 0075 and 8107 to be eligible for a suspension of the two percent (2%) prompt payment discount, to which the BOE is otherwise entitled under the provisions of the Contract, the Contractor must demonstrate in an annual "Vehicle Insurance Rate Increase Claim Statement" that increases of insurance premium rates have created unreasonable financial burdens. Each annual "Vehicle Insurance Rate Increase Claim Statement" will be subject to approval at the sole discretion of the Director, in consultation with the BOE Office of Auditor General. Eligibility for a suspension of the two percent (2%) prompt payment discount also rests on the Contractor's showing that the insurance premiums, which reflect annual increases are sufficient to provide minimum levels of coverage required pursuant to the BOE Resolution of September 6, 1985, as amended, and the Contract, as amended. The extent of the discount suspension, if any, is governed by the provisions herein below. (2) The term "Vehicle Insurance Rate Increase Claim Statement" is defined as a written accountant's review report prepared by an independent Certified Public Accountant ("CPA") or Public Accountant ("PA") licensed by the State of New York. Each such review report must state (a) that a review was performed in accordance with the standards of the American Institute of Certified Public Accountants ("AICPA"), (b) that the information and data contained in the "Vehicle Insurance Rate Increase Claim Statement" are the representations of the Contractors management and (c) that it describes the nature of the review as distinct from an audit. Each such review report must furnish at least the limited assurance that, based upon the review, the CPA/PA is not aware of any material modifications that should be made to the "Vehicle Insurance Rate Increase Claim Statement" in order for it to conform to the AICPA's generally accepted accounting principles. Contractor's who have not had a CPA audited report performed for tax, securities or other operation-wide purpose within two (2) years of the commencement date of this Extension and Amendment Agreement must submit a certified and audited "Vehicle Insurance Rate Increase Claim Statement" prepared by an independent CPA for the 1995-96 Extension Year. Furthermore, the CPA or PA who prepares each "Vehicle Insurance Rate Increase Claim Statement" and each review report must state that he/she has studied the cost justification manual supplied by the BOE and has applied the standards contained therein for the development of the "Vehicle Insurance Rate Increase Claim Statement." Still further, the CPA or PA must have no interest in this Contract, the Contractor or any of the Contractor's parent, subsidiary or other affiliated entities and must so certify in writing. The "Vehicle Insurance Rate Increase Claim Statement" shall utilize form prescribed by the Director as approved by the State Education Department. (i) (3) Documentation of Vehicle Insurance Rate Increases. The Contractor must submit a copy of the full insurance policy and a copy of all invoices from the insurance carrier(s) noting the full amount of premiums which are the subject of any claims. During the 1995-96 and 1996-97 Extension Years, the base year for the vehicle insurance calculation is January 1, 1991, through December 31, 1991. During the 1997-98, 1998-99 and 1999-2000 Extension Years, the base year for the vehicle insurance calculation is January 1, 1994 through December 31, 1994. (a) During the Extension Year from July 1, 1995 through June 30, 1996, the Contractor must show the difference between all premiums paid for required coverage for the period from January 1, 1995 through December 31, 1995 and the amount of such coverage for the period from January 1, 1991 through December 31, 1991. For a complete suspension of the discount, the difference between the two (2) years must be equal to or greater than the value of the two percent (2%) discount for each year, as adjusted by the annual percentages of increase provided above in Paragraph (B) of this Extension Agreement, and as calculated on a monthly basis at the coverage levels prescribed by the BOE during the balance of the Contract. To the extent that the difference is between zero percent (0%) to two percent (2%), there shall be a proportionate reduction in the suspension of the discount. (b) During the Extension Year from July 1, 1996 through June 30, 1997, the Contractor must show the difference between all premiums paid for required coverage for the period from January 1, 1996 through December 31, 1996 and the amount of such coverage for the period from January 1, 1991 through December 31, 1991. For a complete suspension of the discount, the difference between the two (2) years must be equal to or greater than the value of the two percent (2%) discount for each year, as adjusted by the annual percentages of increase provided above in Paragraph (B) of this Extension Agreement, and as calculated on a monthly basis at the coverage levels prescribed by the BOE during the balance of the Contract. To the extent that the difference is between zero percent (0%) to two percent (2%), there will be a proportionate reduction in the suspension of the discount. (c) During the Extension Year from July 1, 1997 through June 30, 1998, the Contractor must show the difference between all premiums paid for required coverage for the period from January 1, 1997 through December 31, 1997 and the amount paid for such coverage for the period from January 1, 1994 through December 31, 1994. For a complete suspension of the discount, the difference between the two (2) years must be equal to or greater than the value of the two percent (2%) discount for each year as adjusted by the annual percentage of increase (ii) provided above in Paragraph (B) of this Extension Agreement and as calculated on a monthly basis at the coverage levels prescribed by the BOE during the balance of the contract period. To the extent that the difference is between zero percent (0%) to two percent (2%), there will be a proportionate reduction in the suspension of the discount. (d) During the Extension Year from July 1, 1998 through June 30, 1999, the Contractor must show the difference between all premiums paid for required coverage for the period from January 1, 1998 through December 31, 1998 and the amount paid for such coverage for the period from January 1, 1994 through December 31, 1994. For a complete suspension of the discount, the difference between the two (2) years must be equal to or greater than the value of the two percent (2%) discount for each year as adjusted by the annual percentage of increase provided above in Paragraph (B) of this Extension Agreement and as calculated on a monthly basis at the coverage levels prescribed by the BOE during the balance of the contract period. To the extent that the difference is between zero percent (0%) to two percent (2%), there will be a proportionate reduction in the suspension of the discount. (e) During the Extension Year from July 1, 1999 through June 30, 2000, the Contractor must show the difference between all premiums paid for required coverage for the period from January 1, 1999 through December 31, 1999 and the amount paid for such coverage for the period from January 1, 1994 through December 31, 1994. For a complete suspension of the discount, the difference between the two (2) years must be equal to or greater than the value of the two percent (2%) discount for each year as adjusted by the annual percentage of increase provided above in Paragraph (B) of this Extension Agreement and as calculated on a monthly basis at the coverage levels prescribed by the BOE during the balance of the contract period. To the extent that the difference is between zero percent (0%) to two percent (2%) there will be a proportionate reduction in the suspension of the discount. (iii) EX-10.17 25 NYC TRANSIT AUTHORITY CONTRACT #94E5461B Exhibit 10.17 NYC D.O.T. CONTRACT ATLANTIC PARATRANS 7 North Street Staten Island, NY [Letterhead of New York City Transit] October 19, 1995 Mr. David Kessler Vice President Atlantic Paratrans, Inc. 1752 Shore Pkwy. Brooklyn, NY 11213 Re: Contract No. 94E5461B Modification #1 - Zones 2 & 3 Dear David: As previously mentioned, enclosed are five copies of the above referenced contract modification. Please sign all five copies, returning all five to the address below: Gail H. Eisenfeld New York City Transit Authority 130 Livingston St., Room 6052B Brooklyn, New York 11201 Thank You. Sincerely yours, /s/ Gail Gail H. Eisenfeld Procurement Manager Material Division 1312a/ge MTA New York City Transit is an agency of the Metropolitan Transportation Authority Peter E. Stangl, Chairman and Chief Executive Officer NEW YORK CITY TRANSIT AUTHORITY CONTRACT MODIFICATION/CHANGE ORDER Change Order No.: 1 Contract No: 94E5461B Contract Title: Five Borough Paratransit Carrier Service Contractor: Atlantic Paratrans, Inc. 1752 Shore Parkway Brooklyn, NY 11214 This Modification/Change Order, when properly executed, constitutes authorization to proceed with the changes describe herein and changes the amount of the contract as noted. - -------------------------------------------------------------------------------- DESCRIPTION OF CHANGE - -------------------------------------------------------------------------------- 1. ARTICLE 110, Payment, Paragraph B only shall be deleted in its entirety and changed to read as follows: B. Payment will be made to the Contractor on: (1) a fixed payment basis for items allowed in the fixed price portion of this contract; (2) A variable payment basis for each service hour operated by the Contractor at the direction of NYC Transit; (3) a pass-through payment basis to include (a) a per unit monthly cost for revenue vehicles acquired by the Contractor with the prior approval of NYC Transit; (b) a per vehicle cost for insurance; and (c) tolls for revenue vehicles. Mobilization costs will be paid upon submission of invoices in a form acceptable to NYC Transit. 2. ARTICLE 125, Warranty Work and Parts: Delete the last sentence, which will be relocated to become the last sentence of ARTICLE 126, Vehicle Equivalency Procedure. 3. ARTICLE 126 , Vehicle Equivalency Procedure: At the end of this Article, include the following sentence, "All submissions will then be forwarded to the Chairman of the Vehicle Equivalency Committee in a timely fashion for consideration as an `approved equal'." 4. PARAGRAPH 2.9, Technical Specifications, (Page T-2), delete the paragraph in its entirety and replace with the following: "As of the contract start date, service hours for Zones 1, 2, 3 and 4 are 6 am to 8 pm on weekdays and 10 am to 12 midnight on weekends and holidays. Beginning 7/1/96, service hours for Zones 1, 2, 3 and 4 are 6 am to 8 pm on weekdays and 6 am to midnight on weekends and holidays. Beginning 10/1/96, service hours for Zones 1, 2, 3 and 4 are 6 am to midnight on weekdays, weekends and holidays. 5. PARAGRAPH 2.11, Technical Specifications, (Page T-3), delete the phrase "within 90 calendar days" and replace with "at least 90 days in advance." 6. PARAGRAPH 2.20 of the Technical Specifications (Page T-4) shall be changes to read as follows: "Payment will be made to the contractor on (1) a fixed payment basis for items allowed in the fixed price portions of this contract, (2) a variable payment basis for each service hour operated by the carrier at the direction of NYC transit and (3) a pass-through basis to include costs for revenue vehicles, revenue vehicle insurance and tolls for revenue service vehicles calculated on a monthly basis in accordance with Article 110, Payment, and Article 111, Invoices and Audit." 7. PARAGRAPH 5.8, Technical Specifications (Page T-8) delete the following sentence: "PMMIS hardware provided by the carrier shall be acquired, installed and tested by the carrier during Phase III." Replace with the following sentence: "PMMIS hardware provided by the carrier shall be acquired, installed and tested by the carrier during Phase I." 8. PARAGRAPH 13.8B, Vehicle Equivalency Procedure, Technical Specifications (page T-20), delete in its entirety and replace with the following: Any contractor proposing a vehicle with specifications that differ from those listed in Appendices A, B, C and D must submit those vehicle specifications as stated in Article 126, Vehicle Equivalency Procedure, page C-22. 9. PARAGRAPH 13.11, Technical Specifications (page T-20), delete the last sentence and replace with the following: "All equipment considered for reassignment are built on 1993 or newer chassis." 10. PARAGRAPH 14.11, Technical Specifications (page T-23), in the last sentence delete "one day" and replace with "two days...." 11. SECTION 28.1 through SECTION 28.5 shall be renumbered Section 27.1 through Section 27.5. 12. SECTION 27.1 through SECTION 27.4, Estimated Contract Quantities shall be changed to reflect new dates for mobilization and contract duration as follows: 2 Section 27.1 Zone 1 - Manhattan and the Bronx Mobilization Date: October 1, 1995 Contract Period Beginning April 1, 1996: Term 5 years 1st Year - 4/1/96 through 3/31/97 2nd Year - 4/1/97 through 3/31/98 3rd Year - 4/1/98 through 3/31/99 4th Year - 4/1/99 through 3/31/00 5th Year - 4/1/00 through 3/31/01 Section 27.2 Zone 2 - Queens Mobilization Date: November 1, 1995 Contract Period Beginning May 1, 1995: Term 5 Years 1st Year - 5/1/96 through 4/30/97 2nd Year - 5/1/97 through 4/30/98 3rd Year - 5/1/98 through 4/30/99 4th Year - 5/1/99 through 4/30/00 5th Year - 5/1/00 through 4/30/01 Section 27.3 - Zone 3 - Brooklyn Mobilization Date: December 1, 1995 Contract Period Beginning June 1, 1995: Term 5 Years 1st Year - 6/1/96 through 5/31/97 2nd year - 6/1/97 through 5/31/98 3rd Year - 6/1/98 through 5/31/99 4th Year - 6/1/99 through 5/31/00 5th Year - 6/1/00 through 5/31/01 Section 27.4 - Zone 4 - Staten Island Mobilization Date: November 1, 1995 Contract Period Beginning May 1, 1996: Term 5 Years 1st Year - 5/1/96 through 4/30/97 2nd Year - 5/1/97 through 4/30/98 3rd Year - 5/1/98 through 4/30/99 4th Year - 5/1/99 through 4/30/00 5th Year - 5/1/00 through 4/30/01 13. SECTION 29, Lease Agreement, Technical Specifications (page T-47) delete the words, "The language in paragraph 30.3...." and replace with "The language in paragraph 29.3...." 3 14. PART III, TECHNICAL SPECIFICATIONS: the cause "in this RFP" as stated in many paragraphs of this Contract, is deemed to mean "in this Contract" as well. - -------------------------------------------------------------------------------- All terms, covenants, and conditions of the Original Agreement 94E5461B remain in force and effect except as herein stated. A. Original Contract Amount $77,044,351.00 -------------- B. New Mod #1 (No Change Amount) $ - 0 - -------------- C. New Contract Amount (A+B) $77,044,351.00 -------------- - -------------------------------------------------------------------------------- CONTRACTOR: ATLANTIC PARATRANS, INC. NEW YORK CITY TRANSIT AUTHORITY Signature: /s/ David S. Kessler Signature:____________________________ Name: David S. Kessler Name: Joy Fairtile Title: Vice-President Title: Asst. Chief Proc. Officer Date: October 23, 1995 Material Division Date: _________________________ - -------------------------------------------------------------------------------- RETURN EXECUTED COPIES TO NEW YORK CITY TRANSIT AUTHORITY, 130 LIVINGSTON ST., Room 6052A, BROOKLYN, NY 11201 ATTN: Gail H. Eisenfeld, Procurement Manager 4 [Letterhead of New York City Transit] October 20, 1995 Mr. David Kessler Atlantic Paratrans, Inc. 1752 Shore Parkway Brooklyn, NY 11214 Re: NOTICE TO PROCEED, Contract Number 94E5461B, Five Borough Paratransit Carrier Service, Zones 2 & 3 Dear Mr. Kessler: As you have been advised, the subject contract has been awarded to your firm. New mobilization instructions have been sent to you under separate cover. This letter is the NOTICE TO PROCEED with those mobilization instructions. Please acknowledge receipt of this letter by signing below and indicate the date of receipt. Return this letter to Gail Eisenfeld, Procurement at 130 Livingston St., Room 6052A, Brooklyn, NY 11201. Sincerely yours, /s/ Stanley Grill Stanley Grill Chief Procurement Officer Materiel Division ___________________________________________ ACKNOWLEDGEMENT: Signature and Date MTA New York City Transit is an agency of the Metropolitan Transportation Authority Peter E. Stangl, Chairman and Chief Executive Officer [Letterhead of New York City Transit] October 20, 1995 Mr. David Kessler Vice President/Director of Transportation Atlantic Paratrans, Inc. 1752 Shore Parkway Brooklyn, New York 11214 Dear Mr. Kessler: In accordance with Contract 94E5461B, the purpose of this letter is to provide you with sufficient requirements to prepare your start-up plans for approval to start your actual mobilization activity. The items specified are vehicle levels, minimum facility square footage and the starting first quarter's vehicle service hours as follows: VEHICLES Zone 2 - Queens - 55* Zone 3 - Brooklyn - 66* * These are starting levels for the beginning of the respective contract years. Additional vehicles will be required for the ramp-up activities in the in the latter part of 1996. We will advise you of the additional requirements at a later date. When submitting your plan, assume you will receive 1 large and 6 small vans that will be reassigned from the current Queens operator. Also, your plan should include the mix of vehicles types that were accepted in the executed contracts. You may start this service with any vehicle approved by the project manager for use that is no older than March 1994. FACILITIES Zone 2 - Queens - 32,350 square feet Zone 3 - Brooklyn - 36,533 square feet FIRST QUARTER VEHICLE SERVICE HOURS Zone 2 - Queens - 30,755 hours Zone 3 - Brooklyn - 37,078 hours MTA New York City Transit is an agency of the Metropolitan Transportation Authority Peter E. Stangl, Chairman and Chief Executive Officer Page 2 As a reminder, as the contract requires, please ensure that your accounting records are not commingled with any other business owned or operated by the principals of your company. Sincerely, /s/ Dennis A. Erkus Dennis A. Erkus Director, Operations Divisions of Paratransit & ADA Compliance cc: G. Millis K. DeDonno P. Baker E. Kalomiris G. Eisenfeld Contractor File [Letterhead of New York City Transit] September 22, 1995 Mr. David Kessler Vice President Atlantic Paratrans, Inc. 1752 Shore Parkway Brooklyn, NY 11214 Re: Contract 94E5461B - Five Borough Paratransit Carrier Contracts - Zone 2 and 3 Dear Mr. Kessler: You are hereby notified that the above subject contract has been awarded to Atlantic Paratrans, Inc. The contract is deemed to be in effect as of the date of this letter. This contract is in the not to exceed amount of $77,044,351. The demand estimates contained in this contract are currently being reviewed. Mobilization instructions will follow shortly. Attached is a fully executed original copy of your contract with the Authority. If you have any questions, please call Gail Eisenfeld, Procurement Manager, at (718) 694-3171. Sincerely, /s/ Stanley Grill Stanley Grill Chief Procurement Officer Material Division Enclosure MTA New York City Transit is an agency of the Metropolitan Transportation Authority Peter E. Stangl, Chairman and Chief Executive Officer [ILLEGIBLE] CHGS: CS DIV. AUTHORITY OPERATING AUTHORITY R.C # 7196 ACCT. # 808.99 ACCEPTANCE AND ORDER FUNCT. # 806 ------------------------- CON. DEPT. |X| PURCH DEPT. |_| 130 LIVINGSTON STREET BROOKLYN, NY 11201 ------------------------- - ------------------------------------------------ Atlantic Paratrans, Inc. Proc. Manager: G. Eisenfeld 1752 Shore Parkway Tel. No.: (718) 694-3177 Brooklyn, NY 11214 Project Man: D. Erkus Attn: D. Kessler Tel. No.: (212) 373-5635 - ------------------------------------------------ YOU ARE HEREBY NOTIFIED THAT YOUR BID FOR THE ARTICLES LISTED IN THE SCHEDULE BELOW HAS BEEN ACCEPTED AND YOU ARE HEREBY DIRECTED TO FURNISH SAME IN ACCORDANCE WITH THE TERMS THEREOF TO BE DELIVERED AT TIME DESIGNATED IN SAID PROPOSAL. GOODS WILL NOT BE ACCEPTED OR BILLS AUDITED FOR PAYMENT, UNLESS THE FOLLOWING CONDITIONS ARE COMPLIED WITH: PLACE ORDER NUMBER AND DELIVERY POINT ON ALL BILLS, PACKING SLIPS AND SHIPPING LABELS. BILLS MUST BE SUBMITTED IN DUPLICATE FOR EACH DELIVERY MADE. MAIL TO: N.Y.C. TRANSIT AUTHORITY OR MANHATTAN AND BRONX SURFACE TRANSIT OPERATING AUTHORITY per contract terms. -------------------------------- SEPARATE INVOICES REQUIRED FOR EACH DELIVERY POINT -------------------------------- SEND MEMORANDUM BILL WITH EACH SHIPMENT, INCLUDING PRICES, TO DELIVERY POINT. MAKE DELIVERIES BETWEEN 8 A.M. AND 3 P.M. DAILY, EXCEPT SATURDAY AND SUNDAY. - --------------------------------------------------------------- DELIVERY POINT: SEE STOREROOM COLUMN BELOW FOR DESIGNATION. TRANS ADDRESSES OF STOREROOMS ON REVERSE SIDE. CODE 15 - --------------------------------------------------------------- ================================================================================ NO. ORDER DATE ORDER NO: MARK ALL BILLS AND SHIPMENTS DELIVERY DATE E5461B 9/22/95 E-2098 SEE BELOW WITH THIS NUMBER - -------------------------------------------------------------------------------- [ILLEGIBLE] Shipping Instructions: Contract 94E5461B See Below
- --------------------------------------------------------------------------------------------------------- [ILLEGIBLE] STORE QUANTITY UNIT ROOM MEAS. DESCRIPTION UNIT PRICE AMOUNT - --------------------------------------------------------------------------------------------------------- THIS MATERIAL IS EXEMPT FROM ALL EXCISE TAX FOR ACCOUNTING PURPOSES ONLY Furnish and deliver Paratransit Access- a-Ride service for Zones 2 and 3 (Boroughs of Queens and Brooklyn) in accordance with Contract #94E5461B. TOTAL AMOUNT NOT TO EXCEED $77,044,351 ----------- =========================================================================================================
NOTE: THAT PURSUANT TO THE DIRECTIVE OF JOSEPH H. MURPHY, COMMISSIONER OF TAXATION AND FINANCE OF THE STATE OF NEW YORK DATED 7/22/65. THIS PURCHASE MAY BE ACCEPTED IN LIEU OF AN EXEMPTION CERTIFICATE, WITH THE VENDOR RETAINING A COPY TO PROVE THAT THE SALE WAS EXEMPT. THIS ORDER SUBJECT TO NON-DISCRIMINATION CLAUSE ON REVERSE SIDE. _________________________________ AUTHORIZED PROCUREMENT OFFICER ------------------------------------- NEW YORK CITY TRANSIT AUTHORITY DIVISION OF MATERIEL PROCUREMENT SUB-DIVISION CONTRACT #94E5461 FIVE BOROUGH PARATRANSIT CARRIER SERVICE --------------------------------------- FIVE BOROUGH PARATRANSIT CARRIER SERVICE CONTRACTS CONTRACT 94E5461 TABLE OF CONTENTS SECTION PART I Contract Terms and Conditions PART II General Contract Provisions PART III Technical Specifications Appendices ATTACHMENTS: Attachment I: PRICE SCHEDULE Attachment II: Schedule A - Insurance and Bonding Requirements Attachment III: Schedule D - Federal Contract Provisions Attachment IV: Schedule F - Certification and Disclosure Forms Attachment V: Schedule C - Disadvantaged Business Enterprise Participation Attachment VI: Schedule G - Rider to Contract Documents Attachment VII: FAR Part 31 CONTRACT 94E5461 FIVE BOROUGH PARATRANSIT CARRIER SERVICE PART I CONTRACT TERMS AND CONDITIONS PAGE ----------------------------- ---- ARTICLE 101 DEFINITIONS ...................................................... C-1 102 SCOPE OF WORK .................................................... C-5 103 TERM OR AGREEMENT ................................................ C-6 104 TIME AND STANDARDS OF PERFORMANCE ................................ C-6 105 DELIVERY AND WORK PRODUCTS AND MATERIALS ......................... C-8 106 DRUG AND ALCOHOL PROGRAM ......................................... C-8 107 SUSPENSION OF PERFORMANCE ........................................ C-8 108 PERMITS .......................................................... C-8 109 GRAND JURY TESTIMONY ............................................. C-8 110 PAYMENT .......................................................... C-9 111 INVOICES AND AUDIT ............................................... C-11 112 LIQUIDATED DAMAGES ............................................... C-13 113 ENTIRE AGREEMENT ................................................. C-18 114 PROSECUTION OF THE WORK .......................................... C-18 115 RISK OF LOSS ..................................................... C-19 116 SUBCONTRACTORS ................................................... C-20 117 RELATIONSHIP OF CONTRACTOR TO THE AUTHORITY ...................... C-20 118 DISCLOSURE ....................................................... C-21 119 MOST FAVORED CUSTOMER ............................................ C-21 120 PUBLICITY ........................................................ C-21 121 AMENDMENTS ....................................................... C-21 122 ATTACHMENTS ...................................................... C-21 123 RESCISSION ....................................................... C-22 124 ORDER OF PREFERENCE .............................................. C-22 125 WARRANTY WORK AND PARTS: VEHICLE MAINTENANCE AGREEMENTS .......... C-22 126 VEHICLE EQUIVALENCY PROCEDURE .................................... C-22 PART II CONTRACT TERMS AND CONDITIONS 94E5461 AGREEMENT, made this_______ day of ____________,199_, between the NEW YORK CITY TRANSIT AUTHORITY (hereinafter the "Authority"), with offices at 370 Jay Street, Brooklyn, NY 11201, and ____________________ (hereinafter the "Contractor"), a Corporation, with offices at______________________ WITNESSETH: WHEREAS, the Authority desires to retain a Contractor to provide Americans with Disabilities Act mandated Paratransit (Access-a-Ride) service for Zone _________ as set forth in Part III, Technical Specifications; WHEREAS, the Contractor represents that it possesses the necessary knowledge and experience to perform the Work and services herein described; and WHEREAS, the Authority desires to retain Contractor on the terms and conditions set forth in this Agreement and Contractor has agreed to accept such compensation based upon the rates set forth in the Price Schedule designated herein; NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto do hereby agree as follows: C-0 NEW YORK CITY TRANSIT AUTHORITY Materiel Division - Procurement CONTRACT PROVISIONS ARTICLE 101 DEFINITIONS The following terms used in this Contract shall, except where, by the context, it is clear that another meaning is intended, be construed as follows: 1. "Access-a-Ride" shall mean New York City Transit Authority paratransit service. 2. "Adaptive Device" shall mean a tool used by persons with physical disabilities to help with mobility and communication. 3. "Addenda" or "Addendum" shall mean the additional Contract provisions relating to the Contract issued in writing by the Authority prior to the Award Date. 4. "Add-on Trips" shall mean stand-by trips not provided in a driver's daily manifest to be dispatched real-time to driver. 5. "Advance Reservations" shall mean paratransit service mode requiring passengers to call to place a reservation for paratransit service. 6. "Annual Paratransit Plan Update" shall mean the report required annually by the Federal Transit Administration which documents Americans with Disabilities Act. 7. "Authority" or "NYC Transit" (or the initials "T.A" or "N.Y.C.T.A.") shall mean the New York City Transit Authority, a public benefit corporation existing by virtue of the Public Authorities Law, Title 9 of Article 5, and any other authority, board, body, commission official or officials to which or to whom the powers now belonging to the said Authority with respect to the location, construction, equipment, maintenance and operation of transit facilities shall by virtue of any act or acts hereinafter pass or be held to appertain. 8. "Award Date" shall mean the date of the Notice of Award is issued. 9. "Brochure Rack" shall mean a pamphlet display fixture to be furnished by the New York City Transit Authority and installed by carriers in the interior of Access-a-Ride vehicles. 10. "Bus Block" shall mean a segment of vehicle platform time in non-revenue and revenue service. 11. "Call Holding" shall mean the queuing of customer calls awaiting availability of a reservations operator. 12. "Call Reservations" shall mean an Access-a-Ride function providing customers with on-line confirmation of their advance registration trip request. 13. "Carrier" shall mean an operator of, or party submitting a proposal to operate some or all of, the Access-a-Ride service. C-1 14. "Carrier No-Show" shall mean a failure by the Contractor to pick up a passenger. 15. "Centralized Reservations and Scheduling System (CRSS)" shall mean an automated system supporting paratransit ride reservations, scheduling and reporting. 16. "City" shall mean the City of New York, according to its boundaries at the date of this Contract. 17. "Command Center" shall mean a New York City Transit Authority site for operating Access-a-Ride reservations, scheduling and customer assistance functions during Phase 3 of operations. 18. "Conditional Eligibility" shall mean service restrictions of some Access-a-Ride participants. 19. "Contract," "Contract Documents" or "Agreement" shall mean the ATTACHMENTS, APPENDIX, PROPOSER'S PROPOSAL, CONTRACT TESTIMONIUM, GENERAL CONTRACT PROVISIONS, INFORMATION FOR PROPOSERS (IFP),SPECIFIC CONTRACT PROVISIONS, SCHEDULES deemed included (if any), TECHNICAL SPECIFICATIONS (if any), FORMS OF BONDS (if any), CONTRACT DRAWINGS (if any), all ADDENDA hereafter issued (if any), and the Notice of Award. 20. "Contractor" shall mean the Proposer to whom this Contract is awarded, its successors and assignees. For convenience the Contractor may be hereinafter referred to as if the Contractor were an individual. The word "he" shall , as the sense may require include "she", "it" and "they", the word "him" shall include "her", "it" and "them", and the word "his" shall include "her", "its" and "their". 21. "Contractor Cancellation" shall mean Unauthorized Access-a-Ride carrier cancellation of scheduled passenger trip. 22. "Contractor Early" shall mean vehicle arrival more than 15 minutes before scheduled passenger pick-up time. 23. "Contractor Late" shall mean vehicle arrival more than 15 minutes after scheduled passenger pick-up time. 24. "Customer Assistance Division" shall mean a Sub-division of NYC Transit which provides customer information and complaint management. 25. "Customer No-Show" shall mean Access-a-Ride participant not available for properly scheduled trip. 26. "Deadheading" shall mean any vehicle time and mileage when vehicle is not in revenue service. 27. "Depot" shall mean the Carrier's operation facility. C-2 28. "Directed," "required," "permitted," "ordered," "designated," "selected'" "prescribed," or words of like import used in the specifications or upon the drawings (if any) shall mean, respectively, the direction, requirement, permission, order, designation, selection or prescription of the Project Manager; and similarly the words "approved," "approved manner," "approval," "acceptable," "satisfactory," "equal," "necessary," or words of like import shall mean, respectively, approved by, or acceptable or satisfactory to, or equal, or necessary in the opinion of the Project Manager. 29. "Dispatch Log" shall mean the dispatchers daily record of service and vehicle information. 30. "Disputes Resolution Officer" or "DRO" shall mean the individual designated by the Authority to resolve disputes between the parties. 31. "DOT" shall mean the United States Department of Transportation. 32. "Driver Bid" mean the process by which carrier personnel are assigned regular work 33. "Engineer" shall have the same meaning as "Project Manager". 34. "En Route Relief" shall mean a change in revenue vehicle drivers in the field during carrier service hours. 35. "Federal" or words of like import shall mean the United States of America. 36. "Inspector" shall mean any representative of the Project Manager designated to act as an inspector. 37. "Late Trip Cancellation" shall mean customer cancellation after 5:00 p.m. the night before a trip. 38. "Law shall mean the Constitution and laws of the United States and of the State of New York, the New York City Charter, the City Code, and each and every other law, rule, regulation, requirement, order, judgment, decree, or ordinance of every kind whatsoever issued by any government entity, applicable to or affecting the Contract, the Work and all persons engaged in the Work (including any of the foregoing which concern health, safety, environmental protection, and non-discrimination). 39. "Legal Proceeding" shall mean every action, litigation, arbitration, administrative proceedings, and other legal or equitable proceeding of any kind whatsoever. 40. "Liens" shall mean any and every lien of kind whatsoever against the Work, any monies due or to become due from the Authority to Contractor, and/or any other property of the Authority, for or on account of the work, including any Public Lien. 41. "Maintenance Campaign" shall mean inspections of heating and air conditioning equipment and revenue vehicles. 42. "Manufacturer" - See "Supplier". C-3 43. "MTA" shall mean the Metropolitan Transportation Authority and any other board, body, commission, official or officials to which or to whom the powers now belonging to the said Authority in respect to the planning, financing, location, construction, equipment, maintenance and operation of mass transportation facilities or the purchase of Rapid Transit cars under the provisions of Article 5, Title 11 of the Public Authorities Law of the State of New York shall, by virtue of any act or acts, hereafter pass or be held to appertain. 44. "New York City Transit System" (or "system") shall mean the transit system within the City of New York operated by the New York City Transit Authority. 45. "New York State" shall mean the State of New York. 46. "Non-revenue Equipment" shall mean vehicles used by the Contractor that are not in revenue service; it may include vehicles used for supervisory and maintenance functions. 47. "Notice" or "notice" shall mean a written notice. 48. "Notice of Award" shall mean a document that apprises the Contractor that this Contract has been approved by the NYCTA. 49. "On-Line Confirmation" shall mean confirmation to a customer of his/her requested ride at the time the customer makes the reservation. 50. "On-Time Performance" shall mean plus or minus 15 minutes from the scheduled pick-up time. 51. The term "Original Equipment Manufacturer" or "O.E.M." shall mean the standards, requirements, recommendations of the respective Manufacturer. 52. "Pigtail" shall mean a long cord used in the remote control operation of a wheelchair lift in a lift vehicle. 53. "Post Trip Vehicle Inspection" shall mean the daily inspection of the revenue vehicle immediately following completion of revenue service tour. 54. "Pre-trip Vehicle Inspection" shall mean inspection of the revenue vehicle immediately preceding the revenue service tour. 55. "Project Manager" shall mean the individual designated by the Authority to administer this Contract or his duly authorized representative and any successor or successors duly appointed or any deputy or substitute who shall be appointed by the Authority. 56. "Pull-In" shall mean the return of the revenue vehicle to the assigned depot facility. 57. "Pull-Out" shall mean the revenue vehicle departure from the assigned depot facility to enter revenue services. 58. "Pull-Out/Pull-in Logs" shall mean dispatcher records of vehicle pull-outs and pull-ins. 59. "Pull Out Ready Line " shall mean the revenue vehicles available for revenue service pull-out at the beginning of each peak period. C-4 60. "Repeaters" shall mean repeating radio signals during radio transmissions. 61. "Revenue Service" shall mean the period of time from the initial departure of the revenue vehicle from the assigned depot to the last passenger drop-off and return of revenue vehicle to the assigned depot. 62. "Service Hour" shall mean each hour that a revenue vehicle is in revenue service. 63. "Service Capacity" shall mean the sum total of passenger trips scheduled to be completed, including passenger late cancellations, passenger no-shows and completed trips. 64. "SI System" shall mean the International System of Units. 65. "State" -- See "New York State." 66. "Subcontractor" shall mean an individual or organization who enters into a contract to furnish labor or services only or labor and materials or apparatus in connection with the Work directly or indirectly for or on behalf of the Contractor and whether or not in privity of Contract with the Contractor. 67. "Subscription" shall mean regularly scheduled paratransit service available without a reservation. 68. "Supplier" shall mean an individual or organization who furnishes materials, equipment or supplies to the Contractor either directly or indirectly, for incorporation in the Work. 69. "Timely Trip Cancellation" shall mean a trip cancellation received before 5 p.m. the day before a trip is scheduled. 70. The term "Warranty Unit" or "warranty unit" shall mean any Unit returned pursuant to the Warranty Provisions of this Contract. 71. "Work" or "Project" shall be defined as all the required obligations of the Contractor hereunder, including but not limited to, the performance of any labor or services, the supplying of any goods or materials, the furnishing or repair and/or remanufacture of any equipment or any other resources or requirements or deliverables necessary to perform, construct, accomplish and complete this Contract's objectives as stated in Article 102 below. 72. "UMTA" shall mean the United States Department of Transportation Urban Mass Transportation Administration, now known as the Federal Transit Administration. 73. "United States Government" -- See "Federal." ARTICLE 102 SCOPE OF WORK The New York City Transit Authority (hereafter referred to as "the Authority," "NYC Transit" or "NYCTA") hereby retains the Contractor, and the Contractor hereby agrees to perform the services as described in the Technical C-5 Specifications, which is appended hereto and incorporated herein. (Part III). All performance obligations specified herein and in Scope of Work shall be referred to as the "Work." Contract shall perform all Work in accordance with the highest professional standards. ARTICLE 103 TERM OF AGREEMENT This Agreement shall become effective upon the date of the notice to proceed and shall continue in effect for a period of five years (plus a mobilization period) unless terminated sooner. ARTICLE 104 TIME AND STANDARDS OF PERFORMANCE A. Contractor shall complete all Work assigned hereunder within the period of time specified by the Contract. B. The Contractor shall adhere to the following performance standards. 1. On Time Performance: the Contractor shall provide ninety (90) percent on time performance for all scheduled pick-ups and drop-offs. On-time is deemed to mean plus or minus fifteen (15) minutes from the scheduled time. 2. Advanced Reservation Shared Ride Time: the Contractor shall not require any customer to ride on an advanced reservation shared ride that is twice as long as an advanced reservation non-shared ride. 3. Subscription Shared Ride Time: the Contractor shall not require any customer to ride on any revenue vehicle in shared ride subscription service when that ride is twice as long as an advanced reservation non-shared ride. 4. Reservationist Response: the Contractor shall provide a sufficient number of reservationists during Phase Two operations so as to provide immediate (no call holding or waiting) access to customers calling for a ride a minimum of seventy-five (75) percent of the time. Remaining calls should be answered within two minutes of customers accessing the automated call distribution system. 5. Cancellation "Hot Line" Response: the Contractor shall provide a sufficient number of operators during the hours of 6:00 a.m. to 10:00 p.m. weekdays and weekends to handle the Cancellation "Hot Line" so as to provide customers canceling reservations immediate access (no call holding or call waiting) to personnel at a minimum of seventy-five (75) percent of the time. Remaining call should be answered within two minutes of initial access. During non-business hours, all calls must be captured by the Automated Call Distribution System and reviewed by the Contractor no later than 6:00 a.m. the following morning. 6. Phase Two Posting and Delivery of Trip Tickets and PMMIS deliverables shall be made within three (3) business days of the actual trips. 7. Telephone Recording Cassettes Tapes shall be delivered to NYCTA no later than three (3) business days after Contractor's receipt of request from NYCTA. C-6 8. Signed Trip Tickets: during Phase Two operations, all trip tickets must be handled in the manner specific in paragraphs 11.20 and 11.21, Technical Specifications. 9. Preventative Maintenance of Revenue Vehicles: the Contractor shall be required to perform ninety-five (95) percent of all Type A, B and C inspections within three (3) business days and 400 miles or less from the scheduled maintenance date and mileage requirements. The Contractor is specifically exempted from this requirement during the first month of Phase Two operations. 10. Pre and Post Trip Vehicle Inspection: the Contract shall implement a program to establish a ninety-nine percent conformance with paragraph 14.4, Technical Requirements. 11. Accidents/Incidents: a. Reporting: The Contractor shall provide a verbal report to the NYC Transit Project Manager or duly authorized representative within one hour of the accident or incident involving injury to a customer, Access-a-Ride employee or any other person or where damage is in excess of $1,000. A written report to follow the verbal report is required within 24 hours. All other incidents are to be reported verbally and in writing within 24 hours of the event. b. Repairs: The Contractor must repair all damage to vehicles or facilities within 30 days. 12. Deadheading: the Contractor will adhere to a maximum thirty (30) minute deadheading limit at both the beginning and end of any revenue vehicle work block. 13. Complaints: the Contractors shall maintain a ratio of complaints to completed trips to 1:2,500. 14. Productivity: the Contractor shall maintain a trip per hour ration of no less than 1.80 trips per revenue vehicle hour, measured from vehicle pull-out to pull-in during Phase Two. 15. Heating and Air Conditioning: the Contractor shall properly maintain operating heating and air conditioning systems on all revenue vehicles. No revenue vehicle shall be operated in revenue service for longer than two (2) days without properly functioning heating or air conditioning systems as described in paragraph 14.11, Technical Specifications. 16. Cleanliness of Revenue Vehicles: The Contractor shall be responsible for maintaining the appearance and cleanliness of all vehicles used in the Paratransit service. The Contractor shall implement and maintain a regular schedule of vehicle washing. (a) Vehicle Exteriors: Vehicles shall be washed at least twice each week to maintain a clean exterior appearance. Clean is defined as no visible dirt buildup from a distance of 25 feet. In the event of inclement weather, the Contractor may suspend vehicle washing for no later than 24 hours after the end of the inclement weather, at which time the Contractor will resume vehicle washing. C-7 (b) Vehicle Interiors: At a minimum, interiors shall be swept trash emptied and cleaned daily; fully mopped, windows cleaned and driver's area cleaned once a week; and fully cleaned throughout once a month. ARTICLE 105 DELIVERY OF WORK PRODUCTS AND MATERIALS Upon request of the Authority, the Contractor shall deliver forthwith to the Authority any Work products produced and all data, studies, reports, material, specifications, plans, charts, photographs, exhibits prepared, developed or kept in connection with, or as part of this project, and all their material and records of whatsoever nature prepared, developed or kept in connection with, or as part of, this project ("Work Products"). Without the necessity of any demand by the Authority, Contractor shall deliver to the Authority, prior to the expiration or upon the earlier termination of this Agreement, all Work Products, which shall become the property of the Authority. This paragraph does not apply to any records or documents pertaining to the operation of Contractor's business. The Contractor may retain copies of those records or documents which it considers necessary for proof of performance. ARTICLE 106 DRUG AND ALCOHOL PROGRAM The Contractor shall comply with all applicable federal, state and local drug testing requirements in effect on the date of this Contract's execution and any such requirements as become effective thereafter. ARTICLE 107 SUSPENSION OF PERFORMANCE The Authority may at any time, and without cause, direct the Contractor to stop Work under this contract for a period of time. Such direction shall be given by at least ten days notice in writing which shall specify the period during which work shall be stopped. The Contractor shall resume Work upon the date specified in such direction, or upon such other date as the Authority may thereafter specify in writing. The period during which work shall have been stopped may be deemed added to the contract term at the sole discretion of the Authority. Stoppage of Work under this ARTICLE shall not give rise to any claim against the Authority. ARTICLE 108 PERMITS A. The Contractor, at its own expense, shall apply for, request, process and obtain all permits and approvals required for, necessary for, or in connection with the Work. B. The Contractor is required by the New York State Department of Motor Vehicles (NYSDMV) to comply with the requirements of Article 19-A, Part 6 of the Vehicle and Traffic Law and all other relevant federal, state and city regulations including those of the Taxi and Limousine Commission (TLC). ARTICLE 109 GRAND JURY TESTIMONY Upon refusal of the Contractor as an individual or as member, partner, director or officer of the Contractor, if the Contractor be a firm, partnership or corporation, when called before a grand jury, governmental C-8 department, commission, agency or any other body which is empowered to compel the attendance of witnesses and examine them under oath, to testify in an investigation or to answer any relevant questions concerning any transaction or contract entered into with the State, or any political subdivision thereof, or a public authority or with any public department, agency or official of the State or any political subdivision thereof, when immunity has been granted to the witness against subsequent use of such testimony, or any evidence derived therefrom in any subsequent criminal proceeding: 1. Such individual, or any firm, partnership or corporation of which he is a member, partner, director or officer shall be disqualified for a period of five (5) years after such refusal from submitting bids for, or entering into or obtaining any contracts, leases, permits or licenses with the City of New York, the Metropolitan Transportation Authority (MTA) or the New York City Transit Authority or submitting bids for or entering into, or obtaining any contracts, leases, permits or licenses which will be paid out of any monies under the control or collected by the City, the Metropolitan Transportation Authority (MTA), the New York City Transit Authority and/or shall be subject to such other action appropriate under the circumstances, and 2. this contract and any and all such existing contracts, leases, permits or licenses made with or obtained by any such individual or with or by the firm, partnership, or corporation of which he is a member, partner, director or officer may be canceled or terminated by the City, the Metropolitan Transportation Authority (MTA) or the New York City Transit Authority or the contracting agency or be subject to such action appropriate under the circumstances thereto without incurring any penalty or damages on account of such cancellation or termination, but any monies owing for goods delivered, work done, or rentals, permit or license fees due, prior to the cancellation or termination, shall be paid. ARTICLE 110 PAYMENT A. It is agreed that for all services and Work rendered or to be rendered, and for all costs and expenses incurred under this Agreement, the Authority will pay, and the Contractor will accept as full payment the amounts set forth in the Price Schedule (Technical Specifications, Attachment No. I, at a total cost not to exceed $______. B. Payment will be made to the Contractor on: (1) a fixed payment basis for items allowed in the fixed price portion of this contract; (2) a variable payment basis for each service hour operated by the Contractor at the director of NYC Transit (3) a per vehicle cost for insurance; and (4) a per unit monthly cost for revenue vehicles acquired by the Contractor with the prior approval of NYC Transit. C-9 (5) mobilization costs will be paid upon submission of an invoice in a form acceptable to NYC Transit. C. Fixed costs shall be subject to the U.S. Department of Labor's New York, New York-Northern New Jersey CPIU (Consumer Price Index for all Urban Consumers) on an annual basis. D. Variable costs shall be subject to General Contract Provisions Article 222, QUANTITIES ARE APPROXIMATE/VARIABLE QUANTITIES CLAUSE E. NYC Transit shall pay the Contractor for actual vehicle service hours less adjustments for excessive deadheading. No payment shall be made to the Contractor in excess of the sum total of vehicle hours plus 2% defined by the run-blocks provided by NYC Transit. [See Article III(A)(2)]. F. Payment will be made by NYC Transit for only those revenue vehicles receiving pre-approval and authorization for use by NYC Transit. G. There shall be deducted and retained as security eight (8) percent of the value of work certified for payment in each invoice. Such retained monies ("retainage") shall be held as security for the faithful performance by the Contractor of all the conditions, covenants and requirements specified and provided in this Agreement. Beginning in the first month of the second year after the Contract start date specified in the Notice to Proceed, one-twelfth (1/12) of the monies retained in Contract Year One shall be returned to the Contractor. The same formula shall be applied in the third, forth and fifth years of the Contract term. Monies retained in the fifth year of the Contract shall be returned in accordance with final payment provisions. Retained monies will not be returned with interest. H. All payments are subject to audit and revision by the Authority. In general allowable costs shall be as specified in Federal Acquisition Regulations (FAR) Part 31 made a part of the Agreement by ATTACHMENT NO. VII. ARTICLE 111 INVOICES AND AUDIT a. The Authority shall make payments to the Contractor upon the following terms: 1. Fixed Costs: Monthly Lump Sum Payment - one twelfth (1/12) of each annually fixed cost paid monthly to the Contractor as set forth in the Authority approved fixed price schedule. Adjustments may be made by NYC Transit if it is found that the Contractor has not provided the services, personnel, goods or any other item contained in the Contractor's approved fixed price schedule. 2. Variable Costs; Monthly payment per Vehicle Service Hours - payment for vehicle service hours invoiced by the Contractor to the NYCTA not in excess of two (2%) percent of the vehicle service hours indicated in bus blocks and runs provided provided by NYC Transit to the Contractor. All invoices for Vehicle Service hours must be supported by complete and adequate documentation. Additional payment will be made for any authorized tolls for which the Contractor has provided the required documentation. 3. Insurance Costs: Monthly Payment per insured revenue vehicle for any NYCTA approved revenue vehicles. C-10 4. (a) Revenue Vehicle Leasing Costs: Monthly payment per lease vehicle for any NYCTA approved leased vehicle. Contractor must provide backup and support documentation. (b) Revenue Vehicle Purchase Costs: Consistent with paragraph 13.7 of the Technical Specifications on page T-19, as amended, reimbursement for the costs of such vehicles will be made on a monthly basis, in an amount equal to 1/60 of the approved cost of such vehicles. Contractor must provide backup and support documentation. At the end of the 60 month amortization period for each such vehicle, NYC Transit may, at its option, purchase from the Contractor such vehicle for $1.00. 5. Liquidated damages and fare revenue paid by customers shall be deducted by the NYCTA from the Contractor's fixed price payment each month. 6. Mobilization Costs: will be paid upon submission of an invoice in a form acceptable to NYC Transit. 7. Final Payment: After the expiration of the Contract, or its termination, the Contractor shall submit an invoice marked "Invoice for Final Payment" covering all items not previously invoiced. This "Invoice for Final Payment" shall contain or be accompanied by the information or supporting documentation, and shall otherwise be in the form, described in this ARTICLE or elsewhere in this Contract. Any dispute over the proper amount of the final payment is subject to the dispute resolution provisions (ARTICLE 211) of this Contract. 8. The Authority shall pay the Contractor within thirty (30) days of its receipt of the Contractor's invoices in a form satisfactory to the Authority. In no event, however, shall an invoice be submitted sooner than forty-five (45) days after the start of work. Payment shall be deemed made upon mailing by the Authority. B. Contractor shall certify that each invoice is accurate. Any false certification shall render the invoice void, and the Authority shall be entitled to recover immediately any monies paid on such invoices. C. All payments are subject to audit and revision by the Authority. Contractor shall make its records available for three years (3) after the later of termination of, or final payment under this Agreement. D. Invoices: 1. Proper Invoice: In addition to any other requirement set forth in this contract with respect to what constitutes a proper invoice or for the Contractor to be entitled to receive payment, the Contractor's invoice, in triplicate, must set forth: (a) a description, with specificity, of the goods delivered, Work performed, services rendered, or other event initiating entitlement to payment pursuant to the terms of this contract; (b) that portion of the contract price related to such payment less any deductions, such as retainage, required pursuant to the terms hereof; and C-11 (c) the contract number. Should the invoice not be calculated correctly, such as not taking into account retainage as a deduction, the Authority may either reject the invoice or treat the invoice as proper only to the extent of the correct calculation of the amount thereof. 2. Supporting Documentation: The following are in addition to any other requirement set forth in this contract with respect to what supporting documentation must accompany an invoice: a. A sworn certificate or equivalent document signed by a knowledgeable officer of the Contractor that the services covered by the contract have been performed for the period covered by the invoice. b. In the event the contract provides for payment upon achieving stated milestones of performance, the Contractor's invoice relating to any milestone must be accompanied by a copy of the Project Manager's certificate, or equivalent document, that the milestone has been achieved. c. In the event that the payment request is based upon a "deliverable," the Contractor's invoice must be accompanied by appropriate documentation that the deliverable has been delivered in accordance with the contract, and if this contract requires acceptance thereof as a condition precedent to payment, that the deliverable has been so accepted. d. Invoices must also be accompanied by all affidavits, time records, staffing and other records provided for or required by the contract to establish the amount of payment and/or performance of the Work billed, as well as a statement with sufficient specificity which establishes the basis on which the payment is due according to the contract. Any documentation generated by the Authority, such as Certificate of Acceptance, will be issued in accorance with the terms of the contract. 3. Inspection, Review and Audit: In addition to any other requirements pertaining to the right of the Authority or other entity to perform inspections, reviews or audits with respect to any payment or to the contract as a whole, the Authority reserves the right to inspect, review and/or audit each invoice for payment to verify that the invoice amount is consistent with the materials, labor, goods and/or services provided and is in accordance with the provisions of the contract, as well as to determine the resources applied or used by the Contractor in fulfilling the terms of the contract or otherwise to verify that the Work, goods or services billed for were provided in accordance therewith. The Authority will require ten (10) Authority business days from the receipt of invoice date within which to perform this function. 4. Set-off: The Authority shall have the right to set off against any payment due the Contractor under this contract any unpaid legally enforceable debt owed by the Contractor to the Authority, as outlined in the Authority's Prompt Payment Rules adopted by its Board on March 25, 1988. 5. Designated Payment Office: The Designated Payment Office, to which all invoices and supporting documentation are required to be submitted under this contract, is as follows: C-12 E. The Contractor must submit the original and one copy of the invoice and supporting documentation to the Designated Payment Office: New York City Transit Authority Disbursements Department 130 Livingston Street, 7th Floor Brooklyn, N.Y. 11201 The Contractor must submit one copy of an invoice to: New York City Transit Authority Paratransit Division 10 Columbus Circle, 17th Floor New York, New York 11019 Attention: Glenn Millis, Chief Paratransit Division, 94E5461 Either of the above may be changed at any time by the Authority upon notification in writing to the Contractor. ARTICLE 112 LIQUIDATED DAMAGES A. NYC Transit intends to monitor performance on this Contract closely. Techniques that will be used to assess the Contractor's performance include, but are not limited to, radio monitoring, telephone monitoring and recording, on-street service monitoring, dispatch center inspection and random facility and vehicle inspections. The Contractor must recognize that strict adherence to the Contract terms and conditions in providing clean, safe, reliable, customer-friendly effective service to the disabled community is of paramount importance. Poor performance on the part of the Contractor resulting from a failure of the Contractor in exercising due diligence in the performance of the tasks listed herein may result in the imposition of liquidated damages. In the event the Contractor shall fail to comply with the provisions set forth in this Contract, the liquidated damages set forth in this item are hereby fixed and the parties agree that the damages that NYC Transit will suffer by reason of such failure to comply are not a penalty. NYC Transit reserves the right to substitute performance standards upon consultation (and agreement) with the Contractor. The Contractor shall strive at all times to provide service in a manner that will maximize both productivity and efficient paratransit service. NYC Transit shall have the right to enter the Contractor's premises at any time without advance notice or authorization from the Contractor in order to observe the Contractor's operations only. B. Should liquidated damages be assessed, the Contractor shall be so notified in writing. The assessed amount will then be deducted from the payments due the Contractor for the month in which the liquidated damage(s) occurred. NYC Transit will cooperate with the Contractor to fully explore any concerns regarding the service and performance standards. Prior to assessing any liquidated damage(s), the following procedures will occur: 1. NYC Transit will notify the Contractor in writing of performance problems with respect to the service standards. The Contractor C-13 shall be given a reasonable amount of time to take corrective action with respect to the problem identified by NYC Transit. 2. Should the problem not be correct, NYC Transit shall issue a second letter indicating NYC Transit's intent to monitor the service closely in order to assess the liquidated damages. 3. Within forty-eight hours of assessment of liquidated damages, the Contractor will be given written notice of each failure to conform to the terms of this Contract and the liquidated damages assessment resulting from each failure Supporting documentation will be provided at that time. Should the Contractor wish to contest all or part of a notice of assessment of liquidated damages, it must, within ten (10) business days from the date of such notice, respond in writing to NYC Transit stating the reasons why such assessment is improper, after which NYC Transit may affirm, modify, or withdraw the assessment as it deems appropriate. If the Contractor fails to contest a notice of assessment of liquidated damages within ten (10) business days from the date of such notice, the assessment shall become final and binding upon the Contractor without further notice from NYC Transit. C. The following liquidated damages shall apply, unless otherwise agreed upon: 1. PERFORMANCE: a. On Time Performance: The Contractor shall provide ninety (90) percent on time performance for all schedule pick-ups and drop-offs. On-time shall mean plus or minus fifteen (15) minutes from the agreed to time. If the Contractor has failed to provide ninety (90) percent on-time performance for all scheduled pick-ups and drop-offs each month, the carrier will be assessed liquidated damages of $250 for each day that NYC Transit determines the Contractor is less than ninety (90) percent on time. NYC Transit may make this determination from sampling Contractor's completed trips, the sampling to be taken from a combination of route manifests, field surveys, customer surveys or any other reasonable sampling methods. b. Shared Ride Time - Advanced Reservation: The Contractor shall not require any customer to share an advanced reservation ride which is twice as long as the same ride on a non-shared basis. In the event that NYC Transit determines that the Contractor has exceeded this limitation, NYC Transit may assess liquidated damages in the amount of $25 per day per occurrence. c. Shared Ride Time - Subscription: The Contractor shall not require any customer to share a subscription ride which is twice as long as the same ride on a non-shared basis. In the event that NYC Transit determines that the Contractor has exceeded this limitation, NYC Transit may assess $25 per day per occurrence. C-14 2. RESERVATIONIST RESPONSE: In order to provide efficient and customer-friendly service, it is important that the Contractor provide a sufficient number of reservationists during Phase Two Operations so as to provide the customer with immediate (no call holding nor call waiting) access to the Contractor's reservation system a minimum of seventy-five (75) percent of the time, with the remaining twenty-five (25) percent of the calls answered within two minutes of automated call distribution. In the event that NYC Transit determines that the Contractor has exceeded these limitations, NYC Transit may assess liquidated damages in the amount of $100 per day. 3. CANCELLATION "HOT LINE RESPONSE": Between the hours of 6:00 a.m. and 10:00 p.m. on weekdays and weekend, all cancellations shall be handled by "live" personnel, not by recording devices so as to provide the customer with immediate (no call holding nor call waiting) access to the Contractor's reservation system a minimum of seventy-five (75) percent of the time, with the remaining twenty-five (25) percent of the calls answered within two minutes of automated call distribution. During non business hours, all calls shall be captured by the automated call distribution system and reviewed by the Contractor no later than 6:00 a.m. each morning. In the event that NYC Transit determines that the contractor has exceeded these limitation, NYC Transit may assess $100 per day. 4. CASSETTE TAPES: Cassettes tapes from tape recording devices shall be delivered to NYC Transit within three (3) business days from date of receipt of the request by NYC Transit. In the event that NYC Transit determines that the Contractor has failed to do so, NYC Transit may assess damages in the amount of $50 per day per occurrence. 5. TRIP TICKETS: During Phase Two Operations, all trip tickets shall be processed as stated in paragraphs 11.20 and 11.21, Technical Specifications and delivered to NYC Transit within three (3) business days of the actual trips. In the event that NYC Transit determines that the Contractor has failed to achieve this standard, the NYC Transit may assess liquidated damages in the amount of $250 per day. 6. PREVENTATIVE MAINTENANCE OF REVENUE VEHICLES: In order to maintain a serviceable fleet, the Contractor shall be required to perform ninety-five (95) percent of all Type A, B and C inspections no more than 400 miles and within three (3) business days the scheduled maintenance date. The Contractor is expressly excepted from this requirement during the first month of Phase Two Operations. In the event that NYC Transit determines that the Contractor has exceeded the limitation set forth herein, NYC Transit may assess liquidated damages in the amount of $500 per vehicle for each vehicle found in non-compliance. C-15 7. PRE & POST TRIP VEHICLE INSPECTION: The Contractor shall implement a program to establish a ninety-nine (99) percent compliance with pre and post vehicle inspections as detailed in Paragraph 14.2, Technical Specifications. In the event that NYC Transit determines that the Contractor has exceeded this limitation, NYC Transit may assess $100 per day for each day the Contractor is found to be in non-compliance. 8. ACCIDENT, DAMAGE REPAIRS: The Contractor is required to repair all accident damage to revenue and non-revenue vehicles within thirty (30) days from date of the accident. In the event that NYC Transit determines that the carrier has exceeded this limitation, NYC Transit may assess liquidated damages in the amount of $50 per day per vehicle. 9. COMPLAINTS: Contractors shall maintain a ratio of complaints to completed trips of 1:2,500. Complaints relating to NYC Transit policy or procedure shall be not considered for the purposes of assessing liquidated damages. In the event that NYC Transit determines that the carrier has exceeded this limitation, NYC Transit may assess liquidated damages in the amount of $1000 for the month in which the carrier exceeded the limitation. 11. TRIPS: a. Late Trips: In the event that NYC Transit determines that the Contractor is more than 30 minutes late for a scheduled pick-up, NYC Transit may assess liquidated damages in the amount of $40. b. Failed Trips: In the event that NYC Transit determines that the Contractor is over 45 minutes late for a passenger, the trip will be considered a failure and the NYCTA may assess liquidated damages in the amount of $60. c. Missed Trips: In the event that NYC Transit determines that the Contractor did not perform the trip and that the Contractor's vehicle was a no-show, the trip will be considered a missed trip and NYC Transit may assess liquidated damages in the amount of $80. The Contractor will also be required to reimburse the customer who was to be picked up by the no-show vehicle for any reasonable expenses incurred by the customer in order for the customer to arrange and complete the trip independently of the Contractor. 11. VEHICLE CLEANLINESS: In order to provide a positive public image and appearance, the Contractor will be responsible for maintaining the appearance and cleanliness of all revenue and non-revenue vehicles used in AAR services. The word C-16 appearance is deemed to mean a vehicle without readily apparent or visible accident damage. In the event that NYC Transit determines that a vehicle is below the cleanliness standards described in Paragraph 10.16, Technical Specifications, or that the carrier is not performing exterior or interior vehicle cleaning, the NYC Transit may assess liquidated damages in the amount of $10 per vehicle per day. 12. DRIVERS: a. Dress Requirements: In the event that NYC Transit determines that a driver in revenue service is seen out of uniform or in a dirty or damaged uniform as described in Section 15, Driver Requirements, Technical Specifications, NYC Transit may assess liquidated damages in the amount of $25 per occurrence. b. Training Requirements: In the event that NYC Transit determines that a driver in revenue service has not satisfactorily passed all required training, NYC Transit may assess liquidated damages in the amount of $100 per driver per day. The driver will be immediately removed from service and will not be permitted to drive again until NYC Transit has certified that the driver has been properly trained. c. Vehicle Operation/Driving Requirements: In the event that NYC Transit determines that a driver has been employed in revenue service after notification by NYC Transit to the Contractor that the driver is not to be allowed to operate any AAR revenue vehicle, NYC Transit may assess liquidated damages in the amount of $1000 per driver per day. 13. RECORDKEEPING: If the Contractor fails to accurately keep, complete, and/or return billing and other required paperwork within the time periods specified, the Contractor shall be charged at the rate of $10 per day per item. 14. ACCIDENT REPORTING: If the Contractor fails to report an accident within the required time period, the Contractor will be charged liquidated damages of $400 per accident, per day the report is late. 15. UNAUTHORIZED USE OF VEHICLES: If NYC Transit determines that a Contractor has used any AAR revenue service for any purpose other than that described in this RFP or otherwise directly authorized in writing by NYC Transit, the Contractor will be assess liquidated damages of $1,000 per vehicle per incident. 16. UNSAFE CONDUCT: If NYC Transit determines that the Contractor's drivers or facility support staff have engaged in any conduct or unsafe action which creates a safety hazard, the Contractor will be assessed liquidated damages of $100 per incident. C-17 17. HEATING/AIR CONDITIONING The Contractor shall be assessed liquidated damages of $25 per day for each vehicle found not in compliance with heating and air conditioning standards set forth herein. ARTICLE 113 ENTIRE AGREEMENT This Contract constitutes the entire agreement and understanding between the parties, all prior and contemporaneous representations, understandings and agreements having been merged therein. ARTICLE 114 PROSECUTION OF THE WORK A. If, during the prosecution of the Work, unforeseen difficulties of any nature be encountered, the Contractor shall take every necessary or proper precaution to overcome the unforeseen difficulty according to the direction of the Project Manager and as provided in these Contract Documents. B. All goods and workmanship shall be of the best class in every respect, and the Transit Authority Project Manager shall be the sole judge of quality and efficiency. C. In all operations connected with the Work, all local laws and ordinances of the City of New York and all laws of the State of New York which control or limit in any way the actions of those engaged in the Work, or affecting the Work belonging to or used to them, shall be strictly complied with, and further, the Contractor shall comply with all applicable Federal, State and Municipal Regulations regarding the transportation of goods in and around the City and State of New York. D. The Contractor shall employ only competent, skillful, and faithful personnel to do the Work. E. The Contractor hereby represents that prior to submitting his proposal, he examined the locations of the Technical Specifications in details and satisfied himself as to the intent of the Technical Specifications relating to the Work to be performed, and he shall not at any time make any claim for damage or extension of time, or ny other demand because of any misinterpretation or misunderstanding of the Technical Specifications, or because of any lack of information. F. All goods of whatever kind which, during their installation become damaged from any cause whatsoever, shall be removed and shall be replaced by new, undamaged goods without any additional cost to the Authority. G. The Contractor shall furnish all labor, material, plant, tools supplies and other means necessary to perform the Work described in the Contract Documents in accordance with the Technical Specifications; and shall perform such Work within the direction and to the satisfaction of the Project Manager. C-18 H. The Contractor agrees to deliver and install conforming goods in accordance with the Technical Specifications. I. All Work by the Contractor shall be within the time specified in the Scope of Work. If for any reason the Work cannot be performed by the date or dates specified, the Contractor must immediately furnish the Authority with written notice of such delay and reason thereof. Extension of time will be granted only if the delay is deemed by the Authority to be unavoidable as provided for in Paragraph L below. J. Time is of the essence of this Contract. In the event of a delay in the Work for which the Contractor is not entitled to an extension of time under Paragraph L, the Authority may recover all damages for such delay. K. If the Work under this Contract should be unavoidably delayed, the Authority may extend the time for completion of the Contract for the determined number of days of excusable delay provided the Contractor advised the Authority as required under Paragraph J above. A delay is unavoidable only if the delay was substantial and in fact caused the Contractor to miss performance dates and arose from unforeseen causes beyond the Contractor's control, provided the Contractor has taken reasonable precautions to prevent delays due to such causes and further provided such delays were not caused directly or substantially by acts, omissions, negligence, or mistakes of the Contractor, the Contractor's suppliers, or their agents, and could not adequately have been guarded against by contractual or legal means. L. The Contractor agrees to make no claim for damages for delay in performance of this Contract occasioned by any act or omission of the Authority or any of its representatives, and agrees that any such claim shall be fully compensated for by an extension of time to complete performance of the Work as provided herein. M. The acceptance of Work after the date fixed for completion of performance shall not be deemed a waiver of the right of the Authority to terminate this Contract with respect to the unperformed portion thereof or to require the delivery of any undelivered goods in accordance with this Contract. ARTICLE 115 RISK OF LOSS A. Contractor assumes the risk of, and shall be responsible for, any loss or damage to Authority property, including property, including property and equipment leased by the Authority, used in the performance of this Contract, and caused, either directly or indirectly by the acts, conduct, omissions or lack of good faith of the Contractor, its officers, managerial personnel, and employees or any person, firm, company, agent or others engaged by the Contractor as expert, consultant, specialist, or subcontractor hereunder. B. In the event that any such Authority property is lost or damaged, except for normal wear and tear, then the Authority shall have the right to withhold further payments hereunder for the purpose of set-off, in sufficient sums to cover such loss or damage. C-19 C. The Contractor agrees to indemnify the Authority and hold it harmless from any and all liability or claim for damages due to any such loss or damage to any such Authority property described in Subsection (a) above. D. The rights and remedies of the Authority provided herein shall not be exclusive and are in addition to any other rights and remedies provided by law or by the Contract. ARTICLE 116 SUBCONTRACTORS A. If the Contractor will cause any part of this Contract to be performed by a Subcontractor, the provisions of this Contract will apply to such Subcontractor and its officers, agents and employees in all respects as if it and they were employees of the Contractor; and the Contractor will not be in any manner thereby discharged from its obligations and liabilities hereunder, but will be liable hereunder for all acts and negligence of the Subcontractor, its officers, agents and employees, as if they were employees of the Contractor. The employees of the Subcontractor will be subject to the same provisions hereof as the employees of the Contractor; and the Work performed by the Subcontractor will be subject to the provisions hereof as if performed directly by the Contractor. B. The Contractor, before making any subcontract for any portion of the Work, will state in writing to the Authority the name of the proposed subcontractor, the portion of the Work which the subcontractor is to do, the place of business of such subcontractor, and such other information as the Authority may require. The Authority will have the right to require the Contractor not to award any subcontract to a person, firm or corporation disapproved by the Authority. C. Before entering into any subcontract hereunder, the Contractor will inform the subcontractors fully and completely of all provisions and requirements of this Contract relating either directly or indirectly to the Work to be performed. Such Work performed by such subcontractor will strictly comply with the requirements of this Contract. D. In order to qualify as a subcontractor satisfactory to the Authority, in addition to the other requirements herein provided, the subcontractor must be prepared to prove to the satisfaction of the Authority that it has the necessary facilities, skill and experience, and ample financial resources to perform the work in a satisfactory manner. To be considered skilled and experienced, the subcontractor must show to the satisfaction of the Authority that it has satisfactorily performed Work of the same general type which is required to be performed under this Contract. ARTICLE 117 RELATIONSHIP OF CONTRACTOR TO THE AUTHORITY The relationship of Contractor to the Authority is that of an independent Contractor, and said Contractor, in accordance with its status as such, covenants and agrees that it will conduct itself consistent with such C-20 status, that it will neither hold itself out as nor claim to be an officer or employee of the Authority (or the MTA or the City) by reason hereof, and that it will not, by reason hereof, make any claim, demand or application to, or for any right or privilege applicable to an officer or employee of the Authority (or the MTA or the City), including, but not limited to, Workers' Compensation coverage, Unemployment Insurance Benefits, Social Security coverage or retirement membership or credit. ARTICLE 118 DISCLOSURE Contractor hereby represents that to the best of its knowledge neither it nor any of its personnel has been the subject of any investigation or has any of them been convicted or indicted for commission of any crime involving misconduct, corruption, bribery, or fraud in connection with any public contract in the State of New York or any other jurisdiction, except as has been specifically disclosed in writing to the Authority, and that, should any such conviction or indictment be obtained or any such investigation commenced prior to the expiration of the term hereof, regardless of the date of the occurrence giving rise to the subject matter of such conviction, indictment or investigation, it will be disclosed in writing to the Authority. Breach of this provision is expressly understood to constitute a material breach hereof. ARTICLE 119 MOST FAVORED CUSTOMER The Contractor warrants and represents that the prices, warranties, benefits and terms set forth herein are at least equal to or more favorable to the Authority than the prices, warranties, benefits, and terms now charged or offered by the Contractor to other customers under similar circumstances and terms and conditions, or that may be charged or offered during the term hereof for the same or substantially similar products or services. ARTICLE 120 PUBLICITY A. Prior written approval of the Authority is required before the Contractor or any of its employees, servants, agents or independent contractor may, at any time, either during or after completion or termination of this Contract, make any statement to the press or issue any material for publicity through any media of communication bearing on the Work performed or data collected under this Contract. B. If the Contractor wishes to publish a work dealing with any aspect of performance under this Contract, or of the results and accomplishments attained in such performance, such publication requires the prior written approval of the Authority, which approval may be conditioned upon the Authority's obtaining royalties from the Contractor, and also obtaining a non-exclusive and irrevocable license to reproduce, publish, or otherwise use and authorize others to use the publication. ARTICLE 121 AMENDMENTS This Contract may be amended only by an instrument in writing executed by the Authority and Contractor. ARTICLE 122 ATTACHMENTS Attachment Numbers I, II, III, IV, V, VI and VII are incorporated in this Contract and shall be deemed to apply to the entire Contract. C-21 ARTICLE 123 RESCISSION In the event that the Authority elects to execute this Contract prior to submission by the Contractor of any required document, such as insurance policies, performance bond and DBE documentation, and approval of such items by the Authority, the Authority may, in its sole discretion, rescind this Contract if all such matters have not been resolved to the Authority's satisfaction within thirty (30) Days after execution hereof. ARTICLE 124 ORDER OF PREFERENCE If there is a conflict between provisions of this Agreement, the following order of precedence shall apply A. Attachments B. Technical Specifications C. Terms and Conditions D. Price Schedule ARTICLE 125 WARRANTY WORK AND PARTS: VEHICLE MAINTENANCE AGREEMENTS The Contractor may choose to enter into agreements with vehicle manufacturers or dealers by which the Contractor will perform warranty work or receive warranty parts in exchange for cash or other valuable consideration. Any such agreement entered into between the Contractor and a third party must receive prior written approval by the NYCTA. The value of that work or parts received shall be passed along in full to the NYCTA. The value of work performed or parts received shall be the fair market value at the time of performance or delivery of parts. The total value of any work performed or parts received shall be reported to the NYCTA and shall be deducted from the subsequent Fixed Cost: Monthly Lump Sum Payment as described in ARTICLE III, Invoices and Audit, (A)(1). All submissions will then be forwarded to the Chairman of the Vehicle Equivalency Committee in a timely fashion for consideration as an "approved equal." ARTICLE 126: VEHICLE EQUIVALENCY PROCEDURE Any Contractor proposing a vehicle with specifications that differ from those listed in Appendices A, B, C and D must submit those vehicle specifications to the NYCTA Vehicle Equivalency Committee. All such submissions must be sent to the Paratransit Director of Contract Administration as follows: Mr. Dennis Erkus Director, Contract Administration Paratransit Division New York City Transit Authority 10 Columbus Circle New York, NY 10019 Tel. No. (212) 353-5635 Fax No. (212) 977-5126 C-22 IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be effective with the date set forth in the Notice to Proceed. _______________________________________________________________________________ CONTRACTOR: NEW YORK CITY TRANSIT AUTHORITY: Signature: ______________________ Signature: _________________________ Name: ___________________________ Name: ______________________________ Title: __________________________ Title: _____________________________ Date: ___________________________ Date: ______________________________ C-23 ACKNOWLEDGMENT FOR CONTRACTOR STATE OF ______________________) ) ss.: COUNTY OF _____________________) On this ______________________ day of _________________________, 1994 before me personally appeared _________________________ to me known, who, being by me first duly sworn, did depose and say that he resides at No. ________________________________________________________ in the City of __________________, in the County of ________________________ in the State of _________________: that he is ____________________ of ___________________________, the corporation described in and which executed the foregoing contract; that she knows the corporate seal of said corporation; that one of the seals affixed to said contract is such corporate seal; that it was affixed thereto by order of the Board of Directors of said corporation, and that she signed his name thereto by like authority. __________________________ Notary Public PRICE SCHEDULE CONTRACT # 94E5461 FIVE BOROUGH PARATRANSIT CARRIER SERVICE
Attachment 1 Circle Proposed Zone(s) [ 1 ] [ 2 ] [ 3 ] [ 4 ] [ All ] Page 1 of 7 Phase 1 - Start Up Team (Payment Category - Mobilization Cost) - -------------------------------------------------------------------------------------------- # Item Quantity Unit Price Extension - -------------------------------------------------------------------------------------------- 1 Consultant Labor, On-Site $ - -------------------------------------------------------------------------------------------- 2 Consultant Labor, Off-Site $ - -------------------------------------------------------------------------------------------- 3 Consultant Travel (give number of trips) $ - -------------------------------------------------------------------------------------------- 4 Consultant Automobile Rental/Parking $ - -------------------------------------------------------------------------------------------- 5 Consultant Lodging (nights, rate) $ - -------------------------------------------------------------------------------------------- 6 Consultant Meals $ - -------------------------------------------------------------------------------------------- 7 Consultant Telephone $ - -------------------------------------------------------------------------------------------- 8 Consultant Xerox $ - -------------------------------------------------------------------------------------------- 9 Consultant Printing $ - -------------------------------------------------------------------------------------------- 10 Consultant Office Rental $ - -------------------------------------------------------------------------------------------- 11 Consultant Utilities $ - -------------------------------------------------------------------------------------------- 12 Consultant Miscellaneous $ - -------------------------------------------------------------------------------------------- Subtotal $ ================= Phase 1 - Start Up, Other (Payment Category - Mobilization Cost) - -------------------------------------------------------------------------------------------- # Item Quantity Unit Price Extension - -------------------------------------------------------------------------------------------- 13 Project Manager $ - -------------------------------------------------------------------------------------------- 14 Operations Manager $ - -------------------------------------------------------------------------------------------- 15 Maintenance Manager $ - -------------------------------------------------------------------------------------------- 16 Driver Supervisors $ - -------------------------------------------------------------------------------------------- 17 Dispatcher Supervisors $ - -------------------------------------------------------------------------------------------- 18 Scheduler Supervisor $ - -------------------------------------------------------------------------------------------- 19 Reservationist Supervisor $ - -------------------------------------------------------------------------------------------- 20 Benefits. Lines 13 to 19 $ - -------------------------------------------------------------------------------------------- 21 Dispatchers $ - -------------------------------------------------------------------------------------------- 22 Schedulers $ - -------------------------------------------------------------------------------------------- 23 Reservationists $ - -------------------------------------------------------------------------------------------- 24 Benefits. Lines 21 to 23 $ - -------------------------------------------------------------------------------------------- 25 Drivers $ - -------------------------------------------------------------------------------------------- 26 Mechanics $ - -------------------------------------------------------------------------------------------- 27 Servicemen $ - -------------------------------------------------------------------------------------------- 28 Benefits, Lines 25 to 27 $ - -------------------------------------------------------------------------------------------- 29 Fuel $ - -------------------------------------------------------------------------------------------- 30 Maintenance Parts & Fluids $ - -------------------------------------------------------------------------------------------- 31 Tires $ - -------------------------------------------------------------------------------------------- 32 Office Equipment $ - -------------------------------------------------------------------------------------------- 33 Office Furnishings $ - -------------------------------------------------------------------------------------------- 34 Telephone $ - -------------------------------------------------------------------------------------------- 35 Xerox $ - -------------------------------------------------------------------------------------------- 36 Printing $ - -------------------------------------------------------------------------------------------- 37 Facility Rental $ - -------------------------------------------------------------------------------------------- 38 Facility Renovations $ - -------------------------------------------------------------------------------------------- 39 Utilities $ - -------------------------------------------------------------------------------------------- 40 Business Insurance $ - -------------------------------------------------------------------------------------------- 41 Vehicle Insurance $ - -------------------------------------------------------------------------------------------- 42 Revenue Vehicles $ - -------------------------------------------------------------------------------------------- 43 Non-Revenue Vehicles $ - -------------------------------------------------------------------------------------------- 44 Computer Equipment $ - -------------------------------------------------------------------------------------------- 45 Computer Support Services $ - -------------------------------------------------------------------------------------------- 46 Tools $ - -------------------------------------------------------------------------------------------- 47 Licenses, Taxes, Permits $ - -------------------------------------------------------------------------------------------- 48 Other Equipment (Detail) $ - -------------------------------------------------------------------------------------------- 49 Other Operating (Detail) $ - -------------------------------------------------------------------------------------------- 50 Other Overheads $ - -------------------------------------------------------------------------------------------- 51 Miscellaneous $ - -------------------------------------------------------------------------------------------- Subtotal $ ================= ================= TOTAL $ =================
PRICE SCHEDULE CONTRACT # 94E5461 FIVE BOROUGH PARATRANSIT CARRIER SERVICE
Year ONE, 1995-1996 Attachment 1 Circle Proposed Zone(s) [ 1 ] [ 2 ] [ 3 ] [ 4 ] [ All ] Page 2 of 7 Phase 2 - Operations (Payment Category - Fixed Cost) - -------------------------------------------------------------------------------------------- # Item Quantity Unit Price Extension - -------------------------------------------------------------------------------------------- 1 Consultant Labor, On-Site $ - -------------------------------------------------------------------------------------------- 2 Consultant Labor, Off-Site $ - -------------------------------------------------------------------------------------------- 3 Consultant Travel (give number of trips) $ - -------------------------------------------------------------------------------------------- 4 Consultant Automobile Rental/Parking $ - -------------------------------------------------------------------------------------------- 5 Consultant Lodging (nights, rate) $ - -------------------------------------------------------------------------------------------- 6 Consultant Meals $ - -------------------------------------------------------------------------------------------- 7 Consultant Telephone $ - -------------------------------------------------------------------------------------------- 8 Consultant Xerox $ - -------------------------------------------------------------------------------------------- 9 Consultant Printing $ - -------------------------------------------------------------------------------------------- 10 Consultant Office Rental $ - -------------------------------------------------------------------------------------------- 11 Consultant Utilities $ - -------------------------------------------------------------------------------------------- 12 Consultant Miscellaneous $ - -------------------------------------------------------------------------------------------- 13 Project Manager $ - -------------------------------------------------------------------------------------------- 14 Operations Manager $ - -------------------------------------------------------------------------------------------- 15 Maintenance Manager $ - -------------------------------------------------------------------------------------------- 16 Benefits, Lines 13 to 15 $ - -------------------------------------------------------------------------------------------- 17 Computer Support Services $ - -------------------------------------------------------------------------------------------- 18 Telephone $ - -------------------------------------------------------------------------------------------- 19 Xerox $ - -------------------------------------------------------------------------------------------- 20 Printing $ - -------------------------------------------------------------------------------------------- 21 Facility Rental $ - -------------------------------------------------------------------------------------------- 22 Utilities $ - -------------------------------------------------------------------------------------------- 23 Business Insurance $ - -------------------------------------------------------------------------------------------- 24 Reservation Supervisor $ - -------------------------------------------------------------------------------------------- 25 Reservationists $ - -------------------------------------------------------------------------------------------- 26 Scheduler Supervisor $ - -------------------------------------------------------------------------------------------- 27 Schedulers $ - -------------------------------------------------------------------------------------------- 28 Dispatcher Supervisor $ - -------------------------------------------------------------------------------------------- 29 Dispatchers $ - -------------------------------------------------------------------------------------------- 30 Benefits, Lines 24 to 29 $ - -------------------------------------------------------------------------------------------- 31 Licenses, Taxes, Permits $ - -------------------------------------------------------------------------------------------- 32 Other Equipment (Detail) $ - -------------------------------------------------------------------------------------------- 33 Other Operating (Detail) $ - -------------------------------------------------------------------------------------------- 34 Other Overheads $ - -------------------------------------------------------------------------------------------- 35 Miscellaneous $ - -------------------------------------------------------------------------------------------- 36 Non-Revenue Vehicles $ - -------------------------------------------------------------------------------------------- 37 Computer Support Services $ - -------------------------------------------------------------------------------------------- Subtotal Fixed Costs: Subtotal $ ================= Profit: Profit $ ================= Phase 2 - Operations (Payment Category - Variable Cost) - -------------------------------------------------------------------------------------------- # Item Quantity Unit Price Extension - -------------------------------------------------------------------------------------------- 38 Driver Supervisors $ - -------------------------------------------------------------------------------------------- 39 Drivers $ - -------------------------------------------------------------------------------------------- 40 Mechanics $ - -------------------------------------------------------------------------------------------- 41 Servicemen $ - -------------------------------------------------------------------------------------------- 42 Benefits, Lines 38 to 41 $ - -------------------------------------------------------------------------------------------- 43 Fuel $ - -------------------------------------------------------------------------------------------- 44 Maintenance Parts & Fluids $ - -------------------------------------------------------------------------------------------- 45 Tires $ - -------------------------------------------------------------------------------------------- 46 Miscellaneous Maintenance $ - -------------------------------------------------------------------------------------------- Subtotal Variable Costs: Subtotal $ ================= Profit: Profit $ ================= - -------------------------------------------------------------------------------------------- # Item Quantity Unit Price Extension - -------------------------------------------------------------------------------------------- 47 Vehicle Hours Bid - -------------------------------------------- 48 Subtotal Line 40 to 48 - -------------------------------------------- 49 Divide Line 50 by Line 49 - -------------------------------------------- 50 Variable Cost Per Vehicle Hour Per Vehicle Hour $ - -------------------------------------------- ================= Phase 2 - Operations (Payment Category - Pass Through) - -------------------------------------------------------------------------------------------- 51 Lift Van (Large) (month) $ - -------------------------------------------------------------------------------------------- 52 Lift Van (Small) (month) $ - -------------------------------------------------------------------------------------------- 53 Ramp Equipped MiniVan (month) $ - -------------------------------------------------------------------------------------------- 54 Sedan (month) $ - -------------------------------------------------------------------------------------------- 55 Tolls (month) $ - -------------------------------------------------------------------------------------------- 56 Revenue Vehicle Insurance (month) $ - -------------------------------------------------------------------------------------------- Subtotal Pass-Through Costs: Subtotal $ ================= ================= Total Bid $ =================
PRICE SCHEDULE CONTRACT # 94E5461 FIVE BOROUGH PARATRANSIT CARRIER SERVICE
Year TWO, 1996-1997 Attachment 1 Circle Proposed Zone(s) [ 1 ] [ 2 ] [ 3 ] [ 4 ] [ All ] Page 3 of 7 Phase 2 & 3 - Operations (Payment Category - Fixed Cost) - -------------------------------------------------------------------------------------------- # Item Quantity Unit Price Extension - -------------------------------------------------------------------------------------------- 1 Consultant Labor, On-Site $ - -------------------------------------------------------------------------------------------- 2 Consultant Labor, Off-Site $ - -------------------------------------------------------------------------------------------- 3 Consultant Travel (give number of trips) $ - -------------------------------------------------------------------------------------------- 4 Consultant Automobile Rental/Parking $ - -------------------------------------------------------------------------------------------- 5 Consultant Lodging (nights, rate) $ - -------------------------------------------------------------------------------------------- 6 Consultant Meals $ - -------------------------------------------------------------------------------------------- 7 Consultant Telephone $ - -------------------------------------------------------------------------------------------- 8 Consultant Xerox $ - -------------------------------------------------------------------------------------------- 9 Consultant Printing $ - -------------------------------------------------------------------------------------------- 10 Consultant Office Rental $ - -------------------------------------------------------------------------------------------- 11 Consultant Utilities $ - -------------------------------------------------------------------------------------------- 12 Consultant Miscellaneous $ - -------------------------------------------------------------------------------------------- 13 Project Manager $ - -------------------------------------------------------------------------------------------- 14 Operations Manager $ - -------------------------------------------------------------------------------------------- 15 Maintenance Manager $ - -------------------------------------------------------------------------------------------- 16 Benefits, Lines 13 to 15 $ - -------------------------------------------------------------------------------------------- 17 Computer Support Services $ - -------------------------------------------------------------------------------------------- 18 Telephone $ - -------------------------------------------------------------------------------------------- 19 Xerox $ - -------------------------------------------------------------------------------------------- 20 Printing $ - -------------------------------------------------------------------------------------------- 21 Facility Rental $ - -------------------------------------------------------------------------------------------- 22 Utilities $ - -------------------------------------------------------------------------------------------- 23 Business Insurance $ - -------------------------------------------------------------------------------------------- 24 Reservation Supervisor $ - -------------------------------------------------------------------------------------------- 25 Reservationists $ - -------------------------------------------------------------------------------------------- 26 Scheduler Supervisor $ - -------------------------------------------------------------------------------------------- 27 Schedulers $ - -------------------------------------------------------------------------------------------- 28 Dispatcher Supervisor $ - -------------------------------------------------------------------------------------------- 29 Dispatchers $ - -------------------------------------------------------------------------------------------- 30 Benefits, Lines 24 to 29 $ - -------------------------------------------------------------------------------------------- 31 Licenses, Taxes, Permits $ - -------------------------------------------------------------------------------------------- 32 Other Equipment (Detail) $ - -------------------------------------------------------------------------------------------- 33 Other Operating (Detail) $ - -------------------------------------------------------------------------------------------- 34 Other Overheads $ - -------------------------------------------------------------------------------------------- 35 Miscellaneous $ - -------------------------------------------------------------------------------------------- 36 Non-Revenue Vehicles $ - -------------------------------------------------------------------------------------------- 37 Computer Support Services $ - -------------------------------------------------------------------------------------------- Subtotal Fixed Costs: Subtotal $ ================= Profit: Profit $ ================= Phase 2 & 3 - Operations (Payment Category - Variable Cost) - -------------------------------------------------------------------------------------------- # Item Quantity Unit Price Extension - -------------------------------------------------------------------------------------------- 38 Driver Supervisors $ - -------------------------------------------------------------------------------------------- 39 Drivers $ - -------------------------------------------------------------------------------------------- 40 Mechanics $ - -------------------------------------------------------------------------------------------- 41 Servicemen $ - -------------------------------------------------------------------------------------------- 42 Benefits, Lines 38 to 41 $ - -------------------------------------------------------------------------------------------- 43 Fuel $ - -------------------------------------------------------------------------------------------- 44 Maintenance Parts & Fluids $ - -------------------------------------------------------------------------------------------- 45 Tires $ - -------------------------------------------------------------------------------------------- 46 Miscellaneous Maintenance $ - -------------------------------------------------------------------------------------------- Subtotal Variable Costs: Subtotal $ ================= Profit: Profit $ ================= - -------------------------------------------------------------------------------------------- # Item Quantity Unit Price Extension - -------------------------------------------------------------------------------------------- 47 Vehicle Hours Bid - -------------------------------------------- 48 Subtotal Line 40 to 48 - -------------------------------------------- 49 Divide Line 50 by Line 49 - -------------------------------------------- 50 Variable Cost Per Vehicle Hour Per Vehicle Hour $ - -------------------------------------------- ================= Phase 2 & 3 - Operations (Payment Category - Pass Through) - -------------------------------------------------------------------------------------------- 51 Lift Van (Large) (month) $ - -------------------------------------------------------------------------------------------- 52 Lift Van (Small) (month) $ - -------------------------------------------------------------------------------------------- 53 Ramp Equipped MiniVan (month) $ - -------------------------------------------------------------------------------------------- 54 Sedan (month) $ - -------------------------------------------------------------------------------------------- 55 Tolls (month) $ - -------------------------------------------------------------------------------------------- 56 Revenue Vehicle Insurance (month) $ - -------------------------------------------------------------------------------------------- Subtotal Pass-Through Costs: Subtotal $ ================= ================= Total Bid $ =================
PRICE SCHEDULE CONTRACT # 94E5461 FIVE BOROUGH PARATRANSIT CARRIER SERVICE
Year THREE, 1997-1998 Attachment 1 Circle Proposed Zone(s) [ 1 ] [ 2 ] [ 3 ] [ 4 ] [ All ] Page 4 of 7 Phase 3 - Operations (Payment Category - Fixed Cost) - -------------------------------------------------------------------------------------------- # Item Quantity Unit Price Extension - -------------------------------------------------------------------------------------------- 1 Consultant Labor, On-Site $ - -------------------------------------------------------------------------------------------- 2 Consultant Labor, Off-Site $ - -------------------------------------------------------------------------------------------- 3 Consultant Travel (give number of trips) $ - -------------------------------------------------------------------------------------------- 4 Consultant Automobile Rental/Parking $ - -------------------------------------------------------------------------------------------- 5 Consultant Lodging (nights, rate) $ - -------------------------------------------------------------------------------------------- 6 Consultant Meals $ - -------------------------------------------------------------------------------------------- 7 Consultant Telephone $ - -------------------------------------------------------------------------------------------- 8 Consultant Xerox $ - -------------------------------------------------------------------------------------------- 9 Consultant Printing $ - -------------------------------------------------------------------------------------------- 10 Consultant Office Rental $ - -------------------------------------------------------------------------------------------- 11 Consultant Utilities $ - -------------------------------------------------------------------------------------------- 12 Consultant Miscellaneous $ - -------------------------------------------------------------------------------------------- 13 Project Manager $ - -------------------------------------------------------------------------------------------- 14 Operations Manager $ - -------------------------------------------------------------------------------------------- 15 Maintenance Manager $ - -------------------------------------------------------------------------------------------- 16 Benefits, Lines 13 to 15 $ - -------------------------------------------------------------------------------------------- 17 Computer Support Services $ - -------------------------------------------------------------------------------------------- 18 Telephone $ - -------------------------------------------------------------------------------------------- 19 Xerox $ - -------------------------------------------------------------------------------------------- 20 Printing $ - -------------------------------------------------------------------------------------------- 21 Facility Rental $ - -------------------------------------------------------------------------------------------- 22 Utilities $ - -------------------------------------------------------------------------------------------- 23 Business Insurance $ - -------------------------------------------------------------------------------------------- 24 Reservation Supervisor $ - -------------------------------------------------------------------------------------------- 25 Reservationists $ - -------------------------------------------------------------------------------------------- 26 Scheduler Supervisor $ - -------------------------------------------------------------------------------------------- 27 Schedulers $ - -------------------------------------------------------------------------------------------- 28 Dispatcher Supervisor $ - -------------------------------------------------------------------------------------------- 29 Dispatchers $ - -------------------------------------------------------------------------------------------- 30 Benefits, Lines 24 to 29 $ - -------------------------------------------------------------------------------------------- 31 Licenses, Taxes, Permits $ - -------------------------------------------------------------------------------------------- 32 Other Equipment (Detail) $ - -------------------------------------------------------------------------------------------- 33 Other Operating (Detail) $ - -------------------------------------------------------------------------------------------- 34 Other Overheads $ - -------------------------------------------------------------------------------------------- 35 Miscellaneous $ - -------------------------------------------------------------------------------------------- 36 Non-Revenue Vehicles $ - -------------------------------------------------------------------------------------------- 37 Computer Support Services $ - -------------------------------------------------------------------------------------------- Subtotal Fixed Costs: Subtotal $ ================= Profit: Profit $ ================= Phase 3 - Operations (Payment Category - Variable Cost) - -------------------------------------------------------------------------------------------- # Item Quantity Unit Price Extension - -------------------------------------------------------------------------------------------- 38 Driver Supervisors $ - -------------------------------------------------------------------------------------------- 39 Drivers $ - -------------------------------------------------------------------------------------------- 40 Mechanics $ - -------------------------------------------------------------------------------------------- 41 Servicemen $ - -------------------------------------------------------------------------------------------- 42 Benefits, Lines 38 to 41 $ - -------------------------------------------------------------------------------------------- 43 Fuel $ - -------------------------------------------------------------------------------------------- 44 Maintenance Parts & Fluids $ - -------------------------------------------------------------------------------------------- 45 Tires $ - -------------------------------------------------------------------------------------------- 46 Miscellaneous Maintenance $ - -------------------------------------------------------------------------------------------- Subtotal Variable Costs: Subtotal $ ================= Profit: Profit $ ================= - -------------------------------------------------------------------------------------------- # Item Quantity Unit Price Extension - -------------------------------------------------------------------------------------------- 47 Vehicle Hours Bid - -------------------------------------------- 48 Subtotal Line 40 to 48 - -------------------------------------------- 49 Divide Line 50 by Line 49 - -------------------------------------------- 50 Variable Cost Per Vehicle Hour Per Vehicle Hour $ - -------------------------------------------- ================= Phase 3 - Operations (Payment Category - Pass Through) - -------------------------------------------------------------------------------------------- 51 Lift Van (Large) (month) $ - -------------------------------------------------------------------------------------------- 52 Lift Van (Small) (month) $ - -------------------------------------------------------------------------------------------- 53 Ramp Equipped MiniVan (month) $ - -------------------------------------------------------------------------------------------- 54 Sedan (month) $ - -------------------------------------------------------------------------------------------- 55 Tolls (month) $ - -------------------------------------------------------------------------------------------- 56 Revenue Vehicle Insurance (month) $ - -------------------------------------------------------------------------------------------- Subtotal Pass-Through Costs: Subtotal $ ================= ================= Total Bid $ =================
PRICE SCHEDULE CONTRACT # 94E5461 FIVE BOROUGH PARATRANSIT CARRIER SERVICE
Year FOUR, 1998-1999 Attachment 1 Circle Proposed Zone(s) [ 1 ] [ 2 ] [ 3 ] [ 4 ] [ All ] Page 5 of 7 Phase 3 - Operations (Payment Category - Fixed Cost) - -------------------------------------------------------------------------------------------- # Item Quantity Unit Price Extension - -------------------------------------------------------------------------------------------- 1 Consultant Labor, On-Site $ - -------------------------------------------------------------------------------------------- 2 Consultant Labor, Off-Site $ - -------------------------------------------------------------------------------------------- 3 Consultant Travel (give number of trips) $ - -------------------------------------------------------------------------------------------- 4 Consultant Automobile Rental/Parking $ - -------------------------------------------------------------------------------------------- 5 Consultant Lodging (nights, rate) $ - -------------------------------------------------------------------------------------------- 6 Consultant Meals $ - -------------------------------------------------------------------------------------------- 7 Consultant Telephone $ - -------------------------------------------------------------------------------------------- 8 Consultant Xerox $ - -------------------------------------------------------------------------------------------- 9 Consultant Printing $ - -------------------------------------------------------------------------------------------- 10 Consultant Office Rental $ - -------------------------------------------------------------------------------------------- 11 Consultant Utilities $ - -------------------------------------------------------------------------------------------- 12 Consultant Miscellaneous $ - -------------------------------------------------------------------------------------------- 13 Project Manager $ - -------------------------------------------------------------------------------------------- 14 Operations Manager $ - -------------------------------------------------------------------------------------------- 15 Maintenance Manager $ - -------------------------------------------------------------------------------------------- 16 Benefits, Lines 13 to 15 $ - -------------------------------------------------------------------------------------------- 17 Computer Support Services $ - -------------------------------------------------------------------------------------------- 18 Telephone $ - -------------------------------------------------------------------------------------------- 19 Xerox $ - -------------------------------------------------------------------------------------------- 20 Printing $ - -------------------------------------------------------------------------------------------- 21 Facility Rental $ - -------------------------------------------------------------------------------------------- 22 Utilities $ - -------------------------------------------------------------------------------------------- 23 Business Insurance $ - -------------------------------------------------------------------------------------------- 24 Reservation Supervisor $ - -------------------------------------------------------------------------------------------- 25 Reservationists $ - -------------------------------------------------------------------------------------------- 26 Scheduler Supervisor $ - -------------------------------------------------------------------------------------------- 27 Schedulers $ - -------------------------------------------------------------------------------------------- 28 Dispatcher Supervisor $ - -------------------------------------------------------------------------------------------- 29 Dispatchers $ - -------------------------------------------------------------------------------------------- 30 Benefits, Lines 24 to 29 $ - -------------------------------------------------------------------------------------------- 31 Licenses, Taxes, Permits $ - -------------------------------------------------------------------------------------------- 32 Other Equipment (Detail) $ - -------------------------------------------------------------------------------------------- 33 Other Operating (Detail) $ - -------------------------------------------------------------------------------------------- 34 Other Overheads $ - -------------------------------------------------------------------------------------------- 35 Miscellaneous $ - -------------------------------------------------------------------------------------------- 36 Non-Revenue Vehicles $ - -------------------------------------------------------------------------------------------- 37 Computer Support Services $ - -------------------------------------------------------------------------------------------- Subtotal Fixed Costs: Subtotal $ ================= Profit: Profit $ ================= Phase 3 - Operations (Payment Category - Variable Cost) - -------------------------------------------------------------------------------------------- # Item Quantity Unit Price Extension - -------------------------------------------------------------------------------------------- 38 Driver Supervisors $ - -------------------------------------------------------------------------------------------- 39 Drivers $ - -------------------------------------------------------------------------------------------- 40 Mechanics $ - -------------------------------------------------------------------------------------------- 41 Servicemen $ - -------------------------------------------------------------------------------------------- 42 Benefits, Lines 38 to 41 $ - -------------------------------------------------------------------------------------------- 43 Fuel $ - -------------------------------------------------------------------------------------------- 44 Maintenance Parts & Fluids $ - -------------------------------------------------------------------------------------------- 45 Tires $ - -------------------------------------------------------------------------------------------- 46 Miscellaneous Maintenance $ - -------------------------------------------------------------------------------------------- Subtotal Variable Costs: Subtotal $ ================= Profit: Profit $ ================= - -------------------------------------------------------------------------------------------- # Item Quantity Unit Price Extension - -------------------------------------------------------------------------------------------- 47 Vehicle Hours Bid - -------------------------------------------- 48 Subtotal Line 40 to 48 - -------------------------------------------- 49 Divide Line 50 by Line 49 - -------------------------------------------- 50 Variable Cost Per Vehicle Hour Per Vehicle Hour $ - -------------------------------------------- ================= Phase 3 - Operations (Payment Category - Pass Through) - -------------------------------------------------------------------------------------------- 51 Lift Van (Large) (month) $ - -------------------------------------------------------------------------------------------- 52 Lift Van (Small) (month) $ - -------------------------------------------------------------------------------------------- 53 Ramp Equipped MiniVan (month) $ - -------------------------------------------------------------------------------------------- 54 Sedan (month) $ - -------------------------------------------------------------------------------------------- 55 Tolls (month) $ - -------------------------------------------------------------------------------------------- 56 Revenue Vehicle Insurance (month) $ - -------------------------------------------------------------------------------------------- Subtotal Pass-Through Costs: Subtotal $ ================= ================= Total Bid $ =================
PRICE SCHEDULE CONTRACT # 94E5461 FIVE BOROUGH PARATRANSIT CARRIER SERVICE
Year FIVE, 1999-2000 Attachment 1 Circle Proposed Zone(s) [ 1 ] [ 2 ] [ 3 ] [ 4 ] [ All ] Page 6 of 7 Phase 3 - Operations (Payment Category - Fixed Cost) - -------------------------------------------------------------------------------------------- # Item Quantity Unit Price Extension - -------------------------------------------------------------------------------------------- 1 Consultant Labor, On-Site $ - -------------------------------------------------------------------------------------------- 2 Consultant Labor, Off-Site $ - -------------------------------------------------------------------------------------------- 3 Consultant Travel (give number of trips) $ - -------------------------------------------------------------------------------------------- 4 Consultant Automobile Rental/Parking $ - -------------------------------------------------------------------------------------------- 5 Consultant Lodging (nights, rate) $ - -------------------------------------------------------------------------------------------- 6 Consultant Meals $ - -------------------------------------------------------------------------------------------- 7 Consultant Telephone $ - -------------------------------------------------------------------------------------------- 8 Consultant Xerox $ - -------------------------------------------------------------------------------------------- 9 Consultant Printing $ - -------------------------------------------------------------------------------------------- 10 Consultant Office Rental $ - -------------------------------------------------------------------------------------------- 11 Consultant Utilities $ - -------------------------------------------------------------------------------------------- 12 Consultant Miscellaneous $ - -------------------------------------------------------------------------------------------- 13 Project Manager $ - -------------------------------------------------------------------------------------------- 14 Operations Manager $ - -------------------------------------------------------------------------------------------- 15 Maintenance Manager $ - -------------------------------------------------------------------------------------------- 16 Benefits, Lines 13 to 15 $ - -------------------------------------------------------------------------------------------- 17 Computer Support Services $ - -------------------------------------------------------------------------------------------- 18 Telephone $ - -------------------------------------------------------------------------------------------- 19 Xerox $ - -------------------------------------------------------------------------------------------- 20 Printing $ - -------------------------------------------------------------------------------------------- 21 Facility Rental $ - -------------------------------------------------------------------------------------------- 22 Utilities $ - -------------------------------------------------------------------------------------------- 23 Business Insurance $ - -------------------------------------------------------------------------------------------- 24 Reservation Supervisor $ - -------------------------------------------------------------------------------------------- 25 Reservationists $ - -------------------------------------------------------------------------------------------- 26 Scheduler Supervisor $ - -------------------------------------------------------------------------------------------- 27 Schedulers $ - -------------------------------------------------------------------------------------------- 28 Dispatcher Supervisor $ - -------------------------------------------------------------------------------------------- 29 Dispatchers $ - -------------------------------------------------------------------------------------------- 30 Benefits, Lines 24 to 29 $ - -------------------------------------------------------------------------------------------- 31 Licenses, Taxes, Permits $ - -------------------------------------------------------------------------------------------- 32 Other Equipment (Detail) $ - -------------------------------------------------------------------------------------------- 33 Other Operating (Detail) $ - -------------------------------------------------------------------------------------------- 34 Other Overheads $ - -------------------------------------------------------------------------------------------- 35 Miscellaneous $ - -------------------------------------------------------------------------------------------- 36 Non-Revenue Vehicles $ - -------------------------------------------------------------------------------------------- 37 Computer Support Services $ - -------------------------------------------------------------------------------------------- Subtotal Fixed Costs: Subtotal $ ================= Profit: Profit $ ================= Phase 3 - Operations (Payment Category - Variable Cost) - -------------------------------------------------------------------------------------------- # Item Quantity Unit Price Extension - -------------------------------------------------------------------------------------------- 38 Driver Supervisors $ - -------------------------------------------------------------------------------------------- 39 Drivers $ - -------------------------------------------------------------------------------------------- 40 Mechanics $ - -------------------------------------------------------------------------------------------- 41 Servicemen $ - -------------------------------------------------------------------------------------------- 42 Benefits, Lines 38 to 41 $ - -------------------------------------------------------------------------------------------- 43 Fuel $ - -------------------------------------------------------------------------------------------- 44 Maintenance Parts & Fluids $ - -------------------------------------------------------------------------------------------- 45 Tires $ - -------------------------------------------------------------------------------------------- 46 Miscellaneous Maintenance $ - -------------------------------------------------------------------------------------------- Subtotal Variable Costs: Subtotal $ ================= Profit: Profit $ ================= - -------------------------------------------------------------------------------------------- # Item Quantity Unit Price Extension - -------------------------------------------------------------------------------------------- 47 Vehicle Hours Bid - -------------------------------------------- 48 Subtotal Line 40 to 48 - -------------------------------------------- 49 Divide Line 50 by Line 49 - -------------------------------------------- 50 Variable Cost Per Vehicle Hour Per Vehicle Hour $ - -------------------------------------------- ================= Phase 3 - Operations (Payment Category - Pass Through) - -------------------------------------------------------------------------------------------- 51 Lift Van (Large) (month) $ - -------------------------------------------------------------------------------------------- 52 Lift Van (Small) (month) $ - -------------------------------------------------------------------------------------------- 53 Ramp Equipped MiniVan (month) $ - -------------------------------------------------------------------------------------------- 54 Sedan (month) $ - -------------------------------------------------------------------------------------------- 55 Tolls (month) $ - -------------------------------------------------------------------------------------------- 56 Revenue Vehicle Insurance (month) $ - -------------------------------------------------------------------------------------------- Subtotal Pass-Through Costs: Subtotal $ ================= ================= Total Bid $ =================
PRICE SCHEDULE CONTRACT # 94E5461 FIVE BOROUGH PARATRANSIT CARRIER SERVICE Summary: Year ONE to Year FIVE Attachment 1 Circle Proposed Zone(s) [ 1 ] [ 2 ] [ 3 ] [ 4 ] [ All ] Page 7 of 7 MOBILIZATION COSTS: $ ================= TOTAL FIXED COSTS: $ ================= PROFIT ON FIXED COSTS: $ ================= TOTAL VARIABLE COSTS: $ ================= PROFIT ON VARIABLE COSTS: $ ================= SUBTOTAL: $ ================= TOTAL PASS-THROUGH COSTS: $ ================= ================= GRAND TOTAL: $ ================= EX-21 26 LIST OF SUBSIDIARIES Exhibit 21 List of Subsidiaries 1. Atlantic-Conn. Transit, Inc. 2. Atlantic Express of Pennsylvania, Inc. 3. Atlantic Paratrans of Kentucky Inc. 4. Atlantic Express of Missouri Inc. 5. Atlantic Express Coachways, Inc. 6. Amboy Bus Co., Inc. 7. Atlantic Paratrans, Inc. 8. Atlantic-Hudson, Inc. 9. Block 7932, Inc. 10. Brookfield Transit Inc. 11. Courtesy Bus Co., Inc. 12. G.V.D. Leasing Co., Inc. 13. 180 Jamaica Corp. 14. K. Corr, Inc. 15. Merit Transportation Corp. 16. Metro Affiliates, Inc. 17. Metropolitan Escort Service, Inc. 18. Midway Leasing Inc. 19. Raybern Bus Service, Inc. 20. Raybern Capital Corp. 21. Raybern Equity Corp. 22. Staten Island Bus, Inc. 23. Temporary Transit Service, Inc. 24. Atlantic North Casualty Company EX-23.1 27 CONSENT OF BDO SEIDMAN Exhibit 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors and Stockholder of Atlantic Express Transportation Corp. New York, New York We hereby consent to the use in the Prospectus constituting a part of this Registration Statement of our report dated November 8, 1996 (except for Note 1 as to which the date is January 30, 1997) relating to the consolidated financial statements of Atlantic Express Transportation Corp., which is contained in that Prospectus. We also consent to the reference to us under the caption "Experts" in the Prospectus. BDO SEIDMAN, LLP New York, New York April 18, 1997 EX-25 28 STATEMENT OF ELIGIBILITY OF TRUSTEE CONFORMED COPY ================================================================================ FORM T-1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) |__| ---------------------- THE BANK OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5160382 (State of incorporation (I.R.S. employer if not a U.S. national bank) identification no.) 48 Wall Street, New York, N.Y. 10286 (Address of principal executive offices) (Zip code) ---------------------- ATLANTIC EXPRESS TRANSPORTATION CORP. (Exact name of obligor as specified in its charter) New York 13-3924567 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 7 North Street Staten Island, New York 10302-1205 (Address of principal executive offices) (Zip code) ______________________ 103/4% Senior Secured Notes due 2004 (Title of the indenture securities) ================================================================================ 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE: (A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT. - -------------------------------------------------------------------------------- Name Address - -------------------------------------------------------------------------------- Superintendent of Banks of the State of 2 Rector Street, New York, New York N.Y. 10006, and Albany, N.Y. 12203 Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045 Federal Deposit Insurance Corporation Washington, D.C. 20429 New York Clearing House Association New York, New York 10005 (B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. Yes. 2. AFFILIATIONS WITH OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. None. 16. LIST OF EXHIBITS. EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE 7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND RULE 24 OF THE COMMISSION'S RULES OF PRACTICE. 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) 4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.) -2- 6. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.) 7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. -3- SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 25th day of March, 1997. THE BANK OF NEW YORK By: /s/ VIVIAN GEORGES ------------------------- Name: VIVIAN GEORGES Title: ASSISTANT VICE PRESIDENT -4- Exhibit 7 ----------------------------------------------------------------------------- Consolidated Report of Condition of THE BANK OF NEW YORK of 48 Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business September 30, 1996, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act. Dollar Amounts ASSETS in Thousands Cash and balances due from depos- itory institutions: Noninterest-bearing balances and currency and coin ......................... $ 4,404,522 Interest-bearing balances ................. 732,833 Securities: Held-to-maturity securities ............... 789,964 Available-for-sale securities ............. 2,005,509 Federal funds sold in domestic offices of the bank: Federal funds sold .......................... 3,364,838 Loans and lease financing receivables: Loans and leases, net of unearned income .................28,728,602 LESS: Allowance for loan and lease losses ..............584,525 LESS: Allocated transfer risk reserve........................429 Loans and leases, net of unearned income, allowance, and reserve........... 28,143,648 Assets held in trading accounts ............. 1,004,242 Premises and fixed assets (including capitalized leases) ....................... 605,668 Other real estate owned ..................... 41,238 Investments in unconsolidated subsidiaries and associated companies ................................. 205,031 Customers' liability to this bank on acceptances outstanding ................... 949,154 Intangible assets ........................... 490,524 Other assets ................................ 1,305,839 ----------- Total assets ................................ $44,043,010 ----------- ----------- LIABILITIES Deposits: In domestic offices ....................... $20,441,318 Noninterest-bearing .......8,158,472 Interest-bearing .........12,282,846 In foreign offices, Edge and Agreement subsidiaries, and IBFs .......... 11,710,903 Noninterest-bearing ..........46,182 Interest-bearing .........11,664,721 Federal funds purchased in domestic offices of the bank: Federal funds purchased ................... 1,565,288 Demand notes issued to the U.S. Treasury .................................. 293,186 Trading liabilities ......................... 826,856 Other borrowed money: With original maturity of one year or less ................................. 2,103,443 With original maturity of more than one year ................................ 20,766 Bank's liability on acceptances exe- cuted and outstanding ..................... 951,116 Subordinated notes and debentures ........... 1,020,400 Other liabilities ........................... 1,522,884 ----------- Total liabilities ........................... 40,456,160 ----------- EQUITY CAPITAL Common stock ............................... 942,284 Surplus .................................... 525,666 Undivided profits and capital reserves ................................. 2,129,376 Net unrealized holding gains (losses) on available-for-sale securities ............................... ( 2,073) Cumulative foreign currency transla- tion adjustments ......................... ( 8,403) ----------- Total equity capital ....................... 3,586,850 ----------- Total liabilities and equity capital .................................. $44,043,010 ----------- ----------- I, Robert E. Keilman, Senior Vice President and Comptroller of the above-named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Robert E. Keilman We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. \ J. Carter Bacot | Thomas A. Renyi > Directors Alan R. Griffith | / ----------------------------------------------------------------------------- EX-99.1 29 EXHIBIT 99.1 LETTER OF TRANSMITTAL OFFER TO EXCHANGE 10 3/4% SENIOR SECURED NOTES DUE 2004 FOR ANY AND ALL OUTSTANDING 10 3/4% SENIOR SECURED NOTES DUE 2004 OF ATLANTIC EXPRESS TRANSPORTATION CORP. PURSUANT TO THE PROSPECTUS DATED , 1997 THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON , 1997, UNLESS EXTENDED. TENDERS MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS: THE BANK OF NEW YORK BY REGISTERED OR CERTIFIED FACSIMILE TRANSMISSIONS: BY HAND OR OVERNIGHT DELIVERY: MAIL: (Eligible Institutions Only) The Bank of New York The Bank of New York (212) 571-3080 101 Barclay Street 101 Barclay Street, 7E Corporate Trust Services Window New York, New York 10286 TO CONFIRM BY TELEPHONE Ground Level Attention: Reorganization OR FOR INFORMATION CALL: Attention: Reorganization Section -- Section (212) 815-5920 Floor 7E
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. The undersigned acknowledges that he or she has received the Prospectus, dated , 1997 (the "Prospectus"), of Atlantic Express Transportation Corp, a New York corporation (the "Company"), and this Letter of Transmittal, which together constitute the Company's offer (the "Exchange Offer") to exchange its outstanding 10 3/4% Senior Secured Notes due 2004 (the "Old Notes"), of which $110,000,000 aggregate principal amount is outstanding as of the date hereof, for an equal aggregate principal amount of newly issued 10 3/4% Senior Secured Notes due 2004 (the "New Notes"). The form and terms of the New Notes will be the same as those of the Old Notes except that the New Notes will have been registered under the Securities Act of 1933, as amended (the "Securities Act"), and consequently will not be subject to certain transfer restrictions, registration rights and related liquidated damages provisions applicable to the Old Notes. THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. Capitalized terms used but not defined herein shall have the same meaning given them in the Prospectus (as defined below). This Letter of Transmittal is to be completed by holders of Old Notes (the "Holders") either if Old Notes are to be forwarded herewith or if tenders of Old Notes are to be made by book-entry transfer to an account maintained by The Bank of New York (the "Exchange Agent") at The Depository Trust Company (the "Book-Entry Transfer Facility" or "DTC") pursuant to the procedures set forth in "The Exchange Offer -- Procedures for Tendering Old Notes" in the Prospectus. If a registered Holder of Old Notes desires to tender such Old Notes and the Old Notes are not immediately available, or time will not permit such Holder's Old Notes or other required documents to reach the Exchange Agent before the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, Holders must tender their Old Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer -- Procedures for Tendering Old Notes" in the Prospectus. DELIVERY OF DOCUMENTS TO THE DEPOSITORY OR THE COMPANY DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY The undersigned has completed the appropriate boxes below and signed this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer. DESCRIPTION OF OLD NOTES 1 2 3 Aggregate Liquidation Liquidation Name(s) and Address(es) of Registered Holder(s): Certificate Amount of Amount of (Please fill in, if blank) Number* Old Notes Old Notes Tendered** Total * Need not be completed if Old Notes are being tendered by book-entry holders. ** Old Notes tendered hereby must be in denominations of principal amount of $1,000 and any integral multiple thereof. See Instruction 4. Unless otherwise indicated in the column, a holder will be deemed to have tendered all Old Notes represented by the Old Notes indicated in Column 2. See Instruction 4.
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY) / / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution Account Number Transaction Code Number / / CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name of Registered Holder(s)
Window Ticket Number (if any) _______________________________________________ Date of Execution of Notice of Guaranteed Delivery __________________________ Name of Institution which Guaranteed Delivery _______________________________ If Guaranteed Delivery is to be made By Book-Entry Transfer: Name of Tendering Institution _______________________________________________ Account Number ______________________________________________________________ Transaction Code Number _____________________________________________________ / / CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES ARE TO BE RETURNED BY CREDITING THE BOOK-ENTRY TRANSFER FACILITY ACCOUNT NUMBER SET FORTH ABOVE. / / CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: __________________________________________________________________________ Address: _______________________________________________________________________ Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Company, the above described aggregate principal amount of Old Notes in exchange for a like principal aggregate amount of New Notes which have been registered under the Securities Act upon the terms and subject to the conditions set forth in the prospectus dated , 1997 (as the same may be amended or supplemented from time to time, the "Prospectus"), receipt of which is acknowledged, and in this Letter of Transmittal (which, together with the Prospectus, constitute the "Exchange Offer"). Subject to and effective upon the acceptance for exchange of all or any portion of the Old Notes tendered herewith in accordance with the terms and conditions of the Exchange Offer (including, if the Exchange Offer is extended or amended, the terms and conditions of any such extension or amendment), the undersigned hereby sells, assigns and transfers to or upon the order of the Company all right, title and interest in and to such Old Notes as are being tendered herewith. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as its agent and attorney-in-fact (with full knowledge that the Exchange Agent is also acting as agent of the Company in connection with the Exchange Offer) with respect to the tendered Old Notes, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest) subject only to the right of withdrawal described in the Prospectus, to (i) deliver Certificates for Old Notes to the Company together with all accompanying evidences of transfer and authenticity to, or upon the order of, the Company, upon receipt by the Exchange Agent, as the undersigned's agent, of the New Notes to be issued in exchange for such Old Notes; (ii) present Certificates for such Old Notes for transfer, and to transfer the Old Notes on the books of the Company; and (iii) receive for the account of the Company all benefits and otherwise exercise all rights of beneficial ownership of such Old Notes, all in accordance with the terms and conditions of the Exchange Offer. THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD NOTES TENDERED HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF THE EXCHANGE OFFER. The name(s) and address(es) of the registered holder(s) of the Old Notes tendered hereby should be printed above, if they are not already set forth above, as they appear on the Certificates representing such Old Notes. The Certificate number(s) and the Old Notes that the undersigned wishes to tender should be indicated in the appropriate boxes above. If any tendered Old Notes are not exchanged pursuant to the Exchange Offer for any reason, or if Certificates are submitted for more Old Notes than are tendered or accepted for exchange, Certificates for such nonexchanged or nontendered Old Notes will be returned (or, in the case of Old Notes tendered by book-entry transfer, such Old Notes will be credited to an account maintained at the Depositary Trust Company (the "Book-Entry Transfer Facility"), without expense to the tendering holder, promptly following the expiration or termination of the Exchange Offer. The undersigned understands that tenders of Old Notes pursuant to any one of the procedures described in "The Exchange Offer -- Procedures for Tendering Old Notes" in the Prospectus and in the instruction, attached hereto will, upon the Company's acceptance for exchange of such tendered Old Notes, constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer. The undersigned recognizes that, under certain circumstances set forth in the Prospectus, the Company may not be required to accept for exchange any of the Old Notes tendered hereby. Unless otherwise indicated herein in the box entitled "Special Issuance Instructions" below, the undersigned hereby directs that the New Notes be issued in the name(s) of the undersigned or, in the case of a book-entry transfer of Old Notes, that such New Notes be credited to the account indicated above maintained at the Book-Entry Transfer Facility. If applicable, substitute Certificates representing Old Notes not exchanged or not accepted for exchange will be issued to the undersigned or, in the case of a book-entry transfer of Old Notes, will be credited to the account indicated above maintained at the Book-Entry Transfer Facility. Similarly, unless otherwise indicated under "Special Delivery Instructions," please deliver New Notes to the undersigned at the address shown below the undersigned's signature. BY TENDERING OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (I) THE NEW NOTES ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS WHETHER OR NOT THE UNDERSIGNED IS THE HOLDER OF THE OLD NOTES; (II) NEITHER THE UNDERSIGNED NOR ANY SUCH OTHER PERSON RECEIVING SUCH NEW NOTES HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF THE NEW NOTES TO BE RECEIVED IN THE EXCHANGE OFFER; (III) IF THE UNDERSIGNED IS NOT A BROKER-DEALER, OR IS A BROKER-DEALER BUT WILL NOT RECEIVE NEW NOTES FOR ITS OWN ACCOUNT IN EXCHANGE FOR NEW NOTES, NEITHER THE UNDERSIGNED NOR ANY SUCH OTHER PERSON IS ENGAGED IN, OR INTENDS TO ENGAGE IN, A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH NEW NOTES; AND (IV) NEITHER THE UNDERSIGNED NOR ANY SUCH OTHER PERSON IS AN "AFFILIATE," AS DEFINED UNDER RULE 405 OF THE SECURITIES ACT, OF THE COMPANY. BY TENDERING OLD NOTES PURSUANT TO THE EXCHANGE OFFER AND EXECUTING THIS LETTER OF TRANSMITTAL, A HOLDER OF OLD NOTES WHICH IS A BROKER-DEALER THAT WILL RECEIVE NEW NOTES FOR ITS OWN ACCOUNT IN EXCHANGE FOR OLD NOTES THAT WERE ACQUIRED AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES REPRESENTS AND AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE LETTERS ISSUED BY THE STAFF OF THE DIVISION OF CORPORATION FINANCE OF THE SECURITIES AND EXCHANGE COMMISSION TO THIRD PARTIES, THAT (A) SUCH OLD NOTES HELD BY THE BROKER-DEALER ARE HELD ONLY AS A NOMINEE, OR (B) SUCH OLD NOTES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND IT WILL DELIVER THE PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME) MEETING THE REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE OF SUCH NEW NOTES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, A BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT). THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, MAY BE USED BY A PARTICIPATING BROKER-DEALER (AS DEFINED BELOW) IN CONNECTION WITH THE RESALE OF NEW NOTES RECEIVED IN EXCHANGE FOR OLD NOTES, WHERE SUCH OLD NOTES WERE ACQUIRED BY SUCH PARTICIPATING BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND 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 PARTICIPATING BROKER-DEALER FOR USE IN CONNECTION WITH ANY SUCH RESALE. IN THAT REGARD, EACH BROKER-DEALER WHO ACQUIRED OLD NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER"), BY TENDERING SUCH OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, AGREES THAT, UPON RECEIPT OF NOTICE FROM THE COMPANY OF THE OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY FACT WHICH MAKES ANY STATEMENT CONTAINED IN THE PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR WHICH CAUSES THE PROSPECTUS TO OMIT TO STATE A MATERIAL FACT NECESSARY IN ORDER TO MAKE THE STATEMENTS CONTAINED THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING OR OF THE OCCURRENCE OF CERTAIN OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, SUCH PARTICIPATING BROKER-DEALER WILL SUSPEND THE SALE OF NEW NOTES PURSUANT TO THE PROSPECTUS UNTIL THE COMPANY HAS AMENDED OR SUPPLEMENTED THE PROSPECTUS TO CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES OF THE AMENDED OR SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF THE NEW NOTES MAY BE RESUMED, AS THE CASE MAY BE. IF THE COMPANY GIVES SUCH NOTICE TO SUSPEND THE SALE OF THE NEW NOTES, IT SHALL EXTEND THE 180-DAY PERIOD REFERRED TO ABOVE DURING WHICH PARTICIPATING BROKER-DEALERS ARE ENTITLED TO USE THE PROSPECTUS IN CONNECTION WITH THE RESALE OF NEW NOTES BY THE NUMBER OF DAYS DURING THE PERIOD FROM AND INCLUDING THE DATE OF THE GIVING OF SUCH NOTICE TO AND INCLUDING THE DATE WHEN PARTICIPATING BROKER-DEALERS SHALL HAVE RECEIVED COPIES OF THE SUPPLEMENTED OR AMENDED PROSPECTUS NECESSARY TO PERMIT RESALES OF THE NEW NOTES OR TO AND INCLUDING THE DATE ON WHICH THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF NEW NOTES MAY BE RESUMED, AS THE CASE MAY BE. Interest accrues on the Notes at the rate of 10 3/4% per annum and will be payable in cash semi-annually in arrears on each February 1 and August 1, commencing on August 1, 1997. No interest will be payable on the Old Notes on the date of the exchange for the New Notes and therefore no interest will be paid thereon to the Holders at such time. The undersigned will, upon request, execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the sale, assignment and transfer of the Old Notes tendered hereby. All authority herein conferred or agreed to be conferred in this Letter of Transmittal shall survive the death or incapacity of the undersigned and any obligation of the undersigned hereunder shall be binding upon the heirs, executors, administrators, personal representatives, trustees in bankruptcy, legal representatives, successors and assigns of the undersigned. Except as stated in the Prospectus, this tender is irrevocable. THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS SET FORTH IN SUCH BOX. HOLDER(S) SIGN HERE (SEE INSTRUCTIONS 2, 5 AND 6) (PLEASE COMPLETE SUBSTITUTE FORM W-9 ON PAGE ) (NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2) Must be signed by registered holder(s) exactly as name(s) appear(s) on Certificate(s) for the Old Notes hereby tendered or on the register of holders maintained by the Book-Entry Transfer Facility, or by any person(s) authorized to become the registered holder(s) by endorsements and documents transmitted herewith (including such opinions of counsel, certifications and other information as may be required by the Company for the Old Notes to comply with the restrictions on transfer applicable to the Old Notes). If signature is by an attorney-in-fact, executor, administrator, trustee, guardian, officer of a corporation or another acting in a fiduciary capacity or representative capacity, please set forth the signer's full title. See Instruction 5. (SIGNATURE(S) OF HOLDERS(S)) Date: - -----------, 199 - - Names(s) - -------------------------------------------------------------------------------- ------------------------------------------------------------------------- (PLEASE PRINT) Capacity (full title) - -------------------------------------------------------------------------- Address - -------------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone Number - ------------------------------------------------------------ - -------------------------------------------------------------------------------- (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S)) GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 2 AND 5) - -------------------------------------------------------------------------------- (AUTHORIZED SIGNATURE) Date: - -----------, 199 - - Name of Firm - ------------------------------------------------------------------------------ Capacity (full title) - -------------------------------------------------------------------- (PLEASE PRINT) Address - -------------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone Number - ------------------------------------------------------------ SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 1, 5 AND 6) To be completed ONLY if the new Notes or Old Notes not tendered are to be issued in the name of someone other than the registered holder of the Old Notes whose name(s) appear(s) above or if Old Notes delivered by book-entry transfer which are not accepted for exchange are to be returned by credit to an account maintained at the Book-Entry Transfer Facility other than the account indicated above.
Issue / / Old Notes not tendered to: / / New Notes, to:
Name(s) ________________________________________________________________________ Address ________________________________________________________________________ ________________________________________________________________________________ (INCLUDE ZIP CODE) Area Code and Telephone Number _______________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S)) / / Credit unexchanged Old Notes delivered by book-entry transfer to the Book-Entry Transfer Facility account set forth below. ________________________________________________________________________________ (Book-Entry Transfer Facility Account Number, is applicable) SPECIAL DELIVERY INSTRUCTION (SEE INSTRUCTIONS 1, 5 AND 6) To be completed ONLY if New Notes or Old Notes not tendered are to be sent to someone other than the registered holder of the Old Notes whose name(s) appear(s) above, or such registered holder(s) at an address other than that shown above.
Mail / / Old Notes not tendered to: / / New Notes, to:
Name(s) ________________________________________________________________________ Address ________________________________________________________________________ ________________________________________________________________________ (INCLUDE ZIP CODE) Area Code and Telephone Number _______________________________________________________________ ________________________________________________________________________________ (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S)) INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY PROCEDURES. This Letter of Transmittal is to be completed either if (a) Certificates are to be forwarded herewith or (b) tenders are to be made pursuant to the procedures for tender by book-entry transfer set forth in "The Exchange Offer -- Book-Entry Transfer" in the Prospectus. Certificates, or Book-Entry Confirmation, as well as this Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at its address set forth herein on or prior to the Expiration Date. Old Notes tendered hereby must be in denominations of principal amount of $1,000 and any integral multiple thereof. Holders who wish to tender their Old Notes and (i) whose Old Notes are not immediately available; or (ii) who cannot deliver their Old Notes, this Letter of Transmittal and all other required documents to the Exchange Agent on or prior to the Expiration Date; or (iii) who cannot complete the procedures for delivery by book-entry transfer on a timely basis, may tender their Old Notes by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in "The Exchange Offer -- Guaranteed Delivery Procedures" in the Prospectus. Pursuant to such procedures: a tender may be effected if (i) the tender is made through an Eligible Institution; (ii) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Letter of Transmittal (of a facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form provided by the Company (by telegram, telex, facsimile transmission, mail or hand delivery), setting forth the name and address of the Holder of Old Notes and the amount of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that within five New York Stock Exchange ("NYSE") trading days after the date of execution of the Notice of Guaranteed Delivery, the certificates of all physically tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent; and (iii) the certificates for all physically tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and all other documents required by the Letter of Transmittal, are received by the Exchange Agent within five NYSE trading days after the date of execution of the Notice of Guaranteed Delivery, all as provided in "The Exchange Offer -- Guaranteed Delivery Procedures" in the Prospectus. For Old Notes to be properly tendered pursuant to the guaranteed delivery procedure, the Exchange Agent must receive a Notice of Guaranteed Delivery on or prior to the Expiration Date. As used herein and in the Prospectus, "Eligible Institution" means a firm or other entity identified in Rule 17Ad-15 under the Exchange Act as "an eligible guarantor institution," including (as such terms are defined therein) (i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or government securities broker or dealer; (iii) a credit union; (iv) a national securities exchange, registered securities association or clearing agency; or (v) a savings association that is a participant in a Securities Transfer Association. THE METHOD OF DELIVERY OF OLD NOTES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING HOLDER. DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. The Company will not accept any alternative, conditional or contingent tenders. Each tendering holder, by execution of a Letter of Transmittal (or facsimile thereof), waives any right to receive any notice of the acceptance of such tender. 2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of Transmittal is required if: (i) this Letter of Transmittal is signed by the registered holder (which term, for purposes of this document, shall include any participant in DTC whose name appears on the register of holders maintained by the Book-Entry Transfer Facility the owner of the Old Notes) of Old Notes tendered herewith, unless such holder(s) has completed either the box entitled "Special Issuance Instructions" or the box entitled "Special Delivery Instructions" above, or (ii) such Old Notes are tendered for the account of a firm that is an Eligible Institution. In all other cases, an Eligible Institution must guarantee the signature(s) on this Letter of Transmittal. See Instruction 5. 3. INADEQUATE SPACE. If the space provided in the box captioned "Description of Old Notes" is inadequate, the Certificate number(s) and/or the principal amount of Old Notes and any other required information should be listed on a separate signed schedule which is attached to this Letter of Transmittal. 4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. If less than all of the Old Notes evidenced by a submitted certificate are to be tendered, the tendering holder(s) should fill in the aggregate principal amount of Old Notes to be tendered in the box above entitled "Description of Old Notes -- Principal Amount Tendered." Holders whose Old Notes are not tendered or are tendered but not accepted in the Exchange Offer will continue to hold such Old Notes and will be entitled to all the rights and preferences and subject to the limitations applicable thereto under the Indenture. Following consummation of the Exchange Offer, the Holders will continue to be subject to the existing restrictions upon transfer thereof and the Company will have no further obligation to such Holders to provide for the registration under the Securities Act of the Old Notes held by them. ALL OF THE OLD NOTES DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED. Tenders of Old Notes may be withdrawn at any time prior to the Expiration Date. For a withdrawal to be effective, a written notice of withdrawal must be received by the Exchange Agent at one of the addresses set forth above or in the Prospectus under "The Exchange Offer -- Exchange Agent." Any such notice of withdrawal must specify the name of the person having tendered the Old Notes to be withdrawn, identify the Old Notes to be withdrawn (including the principal amount of such Old Notes), and (where certificates for Old Notes have been transmitted) specify the name in which such Old Notes are registered, if different from that of the withdrawing Holder. If certificates for Old Notes have been delivered or otherwise identified to the Exchange Agent, then, prior to the release of such certificates, the withdrawing Holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution unless such Holder is an Eligible Institution. If Old Notes have been tendered pursuant to the procedure for book-entry transfer described above or in the Prospectus under "The Exchange Offer -- Book-Entry Transfer," any note of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Old Notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the Holder thereof without cost to such Holder (or, in the case of Old Notes tendered by book-entry transfer procedures described above or in the Prospectus under "The Exchange Offer -- Book-Entry Transfer," such Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility for the Old Notes) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described under "The Exchange Offer -- Procedures for Tendering Old Notes" in the Prospectus at any time on or prior to the Expiration Date. 5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Old Notes tendered hereby, the signature(s) must correspond exactly with the name(s) as written on the face of the Certificate(s) without alteration, enlargement or any change whatsoever. If any of the Old Notes tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any tendered Old Notes are registered in different name(s) on several Certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal (or facsimiles thereof) as there are different registrations of Certificates. If this Letter of Transmittal or any Certificates or bond powers 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 must submit proper evidence satisfactory to the Company, in its sole discretion, of each such person's authority so to act. When this Letter of Transmittal is signed by the registered owner(s) of the Old Notes listed and transmitted hereby, no endorsement(s) of Certificate(s) or separate bond power(s) are required unless New Notes are to be issued in the name of a person other than the registered holder(s). Signature(s) on such Certificate(s) or bond power(s) must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered owner(s) of the Old Notes listed, the Certificates must be endorsed or accompanied by appropriate bond powers, signed exactly as the name or names of the registered owner(s) appear(s) on the Certificates, and also must be accompanied by such opinions of counsel, certifications and other information as the Company, or the Trustee for the Old Notes may require in accordance with the restrictions on transfer applicable to the Old Notes. Signatures on such Certificates or bond powers must be guaranteed by an Eligible Institution. 6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If New Notes are to be issued in the name of a person other than the signer of this Letter of Transmittal, or if New Notes are to be sent to someone other than the signer of this Letter of Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Certificates for Old Notes not exchanged will be returned by mail or, if tendered by book-entry transfer, by crediting the account indicated above maintained at the Book-Entry Facility. See Instruction 4. 7. IRREGULARITIES. The Company will determine, in its sole discretion, all questions as to the form of documents, validity, eligibility (including time of receipt) and acceptance for exchange of any tender of Old Notes, which determination shall be final and binding on all parties. The Company reserves the absolute right to reject any and all tenders determined by either of them not to be in proper form or the acceptance of which, or exchange for which, may, in the view of counsel to the Company, be unlawful. The Company also reserves the absolute right, subject to applicable law, to waive any of the conditions of the Exchange Offer set forth in the Prospectus under "The Exchange Offer -- Certain Conditions to the Exchange Offer" or any conditions or irregularity in any tender of Old Notes of any particular holder whether or not similar conditions or irregularities are waived in the case of other holders. The Company's interpretation of the terms and conditions of the Exchange Offer (including this Letter of Transmittal and the instructions hereto) will be final and binding. No tender of Old Notes will be deemed to have been validly made until all irregularities with respect to such tender have been cured or waived. The Company, any affiliates or assigns of the Company, the Exchange Agent, or any other person shall not be under any duty to give notification of any irregularities in tenders or incur any liability for failure to give such notification. 8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and requests for assistance may be directed to the Exchange Agent at its address and telephone number set forth on the front of this Letter of Transmittal. Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the Letter of Transmittal may be obtained from the Exchange Agent or from your broker, dealer, commercial bank, trust company or other nominee. 9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. federal income tax law, a holder whose tendered Old Notes are accepted for exchange is required to provide the Exchange Agent with such holder's correct taxpayer identification number ("TIN") on Substitute From W-9 below. If the Exchange Agent is not provided with the correct TIN, the Internal Revenue Service (the "IRS") may subject the holder or other payee to a $50 penalty. In addition, payments to such holders or other payees with respect to Old Notes exchanged pursuant to the Exchange Offer may be subject to 31% backup withholding. The box in Part 2 of the Substitute Form W-9 may be checked if the tendering holder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 2 is checked, the holder or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 2 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Exchange Agent will withhold 31% of all payments made prior to the time a properly certified TIN is provided to the Exchange Agent. The Exchange Agent will retain such amounts withheld during the 60 day period following the date of the Substitute Form W-9. If the holder furnishes the Exchange Agent with its TIN within 60 days after the date of the Substitute Form W-9, the amounts retained during the 60 day period will be remitted to the holder and no further amounts shall be retained or withheld from payments made to the holder thereafter. If, however, the holder has not provided the Exchange Agent with its TIN within such 60 day period, amounts withheld will be remitted to the IRS as backup withholding. In addition, 31% of all payments made thereafter will be withheld and remitted to the IRS until a correct TIN is provided. The holder is required to give the Exchange Agent the TIN (e.g., social security number or employer identification number) of the registered owner of the Old Notes or of the last transferee appearing on the transfers attached to, or endorsed on, the Old Notes. If the Old Notes are registered in more than one name or are not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. Certain holders (including, among others, corporations, financial institutions and certain foreign persons) may not be subject to these backup withholding and reporting requirements. Such holders should nevertheless complete the attached Substitute Form W-9 below, and write "exempt" on the face thereof, to avoid possible erroneous backup withholding. A foreign person may qualify as an exempt recipient by submitting a properly completed IRS Form W-8, signed under penalties of perjury, attesting to that holder's exempt status. Please consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which holders are exempt from backup withholding. Backup withholding is not an additional U.S. federal income tax. Rather, the U.S. federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. 10. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive satisfaction of any or all conditions enumerated in the Prospectus. 11. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or contingent tenders will be accepted. All tendering holders of Old Notes, by execution of this Letter of Transmittal, shall waive any right to receive notice of the acceptance of their Old Notes for exchanges. Neither the Company, the Exchange Agent nor any other person is obligated to give notice of any defect or irregularity with respect to any tender of Old Notes nor shall any of them incur any liability for failure to give any such notice. 12. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s) representing Old Notes have been lost, destroyed or stolen, the holder should promptly notify the Exchange Agent. The holder will then be instructed as to the steps that must be taken in order to replace the Certificate(s). This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost, destroyed or stolen Certificate(s) have been followed. 13. SECURITY TRANSFER TAXES. Holders who tender their Old Notes for exchange will not be obligated to pay any transfer taxes in connection therewith. If, however, New Notes are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the Old Notes tendered, or if a transfer tax is imposed for any reason other than the exchange of Old Notes in connection with the Exchange Offer, then the amount of any such transfer tax (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE. TO BE COMPLETED BY ALL TENDERING SECURITYHOLDERS (SEE INSTRUCTION 9)
PAYER'S NAME: THE BANK OF NEW YORK SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN TIN ------------------------ FORM W-9 ON THE LINE AT RIGHT AND Social Security Number or CERTIFY BY SIGNING AND DATING Employer Identification Number BELOW. PART 2-- TIN APPLIED FOR / / DEPARTMENT OF THE CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT: TREASURY (1) the number shown on this form is my correct taxpayer INTERNAL REVENUE identification number (or I am waiting for a number to be issued SERVICE to me). PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER (TIN) AND CERTIFICATION (2) I am not subject to backup withholding either because (i) I am exempt from backup withholding, (ii) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (iii) the IRS has notified me that I am no longer subject to backup withholding, and (3) any other information provided on this form is true and correct. SIGNATURE DATE, 1997 You must cross out item (iii) in Part (2) above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return and you have not been notified by the IRS that you are no longer subject to backup withholding. NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF SUBSTITUTE FORM W-9 CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (2) I intend to mail or deliver an application in the near future.I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all payments made to me on account of the Exchange Capital Securities shall be retained until I provide a taxpayer identification number to the Exchange Agent and that, if I do not provide my taxpayer identification number within 60 days, such retained amounts shall be remitted to the Internal Revenue Service as backup withholding and 31% of all reportable payments made to me thereafter will be withheld and remitted to the Internal Revenue Service until I provide a taxpayer identification number. Signature___________________________________________________ Date , 1997 -----END PRIVACY-ENHANCED MESSAGE-----