-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, VKFReFDnZ0lV+ammWR7yu6hbq5Mg7ElXhY2jPY7AJbwuIy9RD5mODQ0LbatU9KQs QEoDv1Fe7eU4m+L7Jre8Gw== 0000950134-95-001915.txt : 19950814 0000950134-95-001915.hdr.sgml : 19950814 ACCESSION NUMBER: 0000950134-95-001915 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950811 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREYHOUND LINES INC CENTRAL INDEX KEY: 0000813040 STANDARD INDUSTRIAL CLASSIFICATION: LOCAL & SUBURBAN TRANSIT & INTERURBAN HWY PASSENGER TRAINS [4100] IRS NUMBER: 860572343 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10841 FILM NUMBER: 95562043 BUSINESS ADDRESS: STREET 1: 15110 N DALLAS PKWY STE 600 CITY: DALLAS STATE: TX ZIP: 75248 BUSINESS PHONE: 2147157000 MAIL ADDRESS: STREET 1: P O BOX 660362 CITY: DALLAS STATE: TX ZIP: 75266-0362 10-Q 1 FORM 10-Q FOR QUARTER ENDED JUNE 30, 1995 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ______________________ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____ Commission file number 1-10841 GREYHOUND LINES, INC. (Exact name of registrant as specified in its charter) DELAWARE 86-0572343 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 15110 N. DALLAS PARKWAY, SUITE 600 DALLAS, TEXAS 75248 (Address of principal executive offices) (Zip code) (214) 789-7000 (Registrant's telephone number, including area code) NONE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES X NO --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS OF COMMON STOCK OUTSTANDING AT AUGUST 8, 1995 --------------------- ----------------------------- $.01 PAR VALUE 54,158,726 SHARES 2 GREYHOUND LINES, INC. AND SUBSIDIARIES
PAGE NO. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Interim Consolidated Statements of Financial Position as of June 30, 1995 (Unaudited) and December 31, 1994 . . . . . . . . . . . . 4 Interim Consolidated Statements of Operations for the Three and Six Months Ended June 30, 1995 and 1994 (Unaudited) . . . . . 5 Interim Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1995 and 1994 (Unaudited) . . . . . . . . . . 6 Notes to Interim Consolidated Financial Statements (Unaudited) . . . . . . 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . 20 Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 21 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS 3 4 GREYHOUND LINES, INC. AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
JUNE 30, DECEMBER 31, 1995 1994 ----------- ------------ (UNAUDITED) Current Assets Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 893 $ 9,454 Accounts receivable, less allowance for doubtful accounts of $846 and $840 . . . . . . . . . . . . . . . . . . . . . . . . . 31,668 33,584 Stock subscription receivable . . . . . . . . . . . . . . . . . . . . ---- 15,150 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,200 3,779 Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 10,688 10,248 Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . 8,231 9,526 Other current assets . . . . . . . . . . . . . . . . . . . . . . . . 13,365 12,859 -------- -------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . 68,045 94,600 Prepaid Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . . . 23,274 22,250 Property, Plant and Equipment, net of accumulated depreciation of $72,550 and $68,388 . . . . . . . . . . . . . . . . . . . . . . . 279,782 288,250 Investments in Unconsolidated Affiliates . . . . . . . . . . . . . . . . 1,353 1,312 Insurance and Security Deposits . . . . . . . . . . . . . . . . . . . . . 79,553 84,548 Intangible Assets, net of accumulated amortization of $11,954 and $9,644 19,795 20,489 -------- -------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $471,802 $511,449 ======== ======== Current Liabilities Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,985 $ 14,916 Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 51,826 53,106 Unredeemed tickets . . . . . . . . . . . . . . . . . . . . . . . . . 11,267 10,259 Current portion of reserve for injuries and damages . . . . . . . . . 27,142 26,455 Current maturities of long-term debt . . . . . . . . . . . . . . . . 4,999 7,022 -------- -------- Total current liabilities . . . . . . . . . . . . . . . . . . . . 116,219 111,758 Reserve for Injuries and Damages . . . . . . . . . . . . . . . . . . . . 40,294 45,888 Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186,863 197,125 Deferred Gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,098 1,277 Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,657 2,205 -------- -------- Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . 347,131 358,253 -------- -------- Commitments and Contingencies (Note 3) Stockholders' Equity Preferred stock (10,000,000 shares authorized; par value $.01; none issued) Series A junior preferred stock (500,000 shares authorized; par value $.01; none issued) . . . . . . . . . . . . . . . . . . . --- --- Common stock (100,000,000 shares authorized; 53,852,874 and 37,567,744 shares issued as of June 30, 1995 and December 31, 1994 respectively; par value $.01) . . . . . . . . . . . . . . . . . . . 538 375 Common stock subscribed (16,279,070 shares as of December 31, 1994) . --- 163 Capital in excess of par value . . . . . . . . . . . . . . . . . . . 212,085 182,826 Capital in excess of par value, subscribed . . . . . . . . . . . . . --- 29,184 Retained earnings (deficit) . . . . . . . . . . . . . . . . . . . . . (85,415) (56,815) Less: Unfunded accumulated pension obligation . . . . . . . . . . . (1,499) (1,499) Less: Treasury stock, at cost (109,192 shares) . . . . . . . . . . . (1,038) (1,038) -------- -------- Total stockholders' equity . . . . . . . . . . . . . . . . . . . . 124,671 153,196 -------- -------- Total liabilities and stockholders' equity . . . . . . . . . . $471,802 $511,449 ======== ========
The accompanying notes are an integral part of these statements. 4 5 GREYHOUND LINES, INC. AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ---------------- JUNE 30, JUNE 30, -------- -------- 1995 1994 1995 1994 ---- ---- ---- ---- (UNAUDITED) (UNAUDITED) OPERATING REVENUES Transportation Services Passenger services . . . . . . . . . . . . . $ 136,663 $ 126,336 $ 246,117 $ 237,177 Package express . . . . . . . . . . . . . . 9,002 10,267 17,645 20,198 Food services . . . . . . . . . . . . . . . . 4,984 5,270 9,387 9,853 Other operating revenues . . . . . . . . . . 10,718 9,200 20,011 17,697 ---------- --------- ----------- --------- Total operating revenues . . . . . . . . 161,367 151,073 293,160 284,925 ---------- --------- ----------- --------- OPERATING EXPENSES Maintenance . . . . . . . . . . . . . . . . . 16,998 18,178 33,688 37,326 Transportation . . . . . . . . . . . . . . . 40,172 32,365 72,712 62,531 Agents' commissions and station costs . . . . 30,342 28,811 57,564 56,824 Marketing, advertising and traffic . . . . . 9,314 13,306 12,443 23,295 Insurance and safety . . . . . . . . . . . . 13,534 19,884 24,194 31,869 General and administrative . . . . . . . . . 18,155 18,921 36,115 37,370 Depreciation and amortization . . . . . . . . 7,074 12,610 14,498 19,901 Operating taxes and licenses . . . . . . . . 12,088 11,858 24,728 23,583 Operating rents . . . . . . . . . . . . . . . 11,384 12,303 22,381 23,429 Cost of goods sold - food services . . . . . 2,938 3,936 5,929 7,166 Other operating expenses . . . . . . . . . . 2,212 5,973 3,599 7,449 ---------- --------- ---------- --------- Total operating expense . . . . . . . . . 164,211 178,145 307,851 330,743 ---------- --------- ---------- --------- OPERATING INCOME (LOSS) . . . . . . . . . . . . ( 2,844) (27,072) (14,691) (45,818) Interest Expense . . . . . . . . . . . . . . . 7,013 7,657 13,881 15,561 ---------- --------- ---------- --------- INCOME (LOSS) BEFORE INCOME TAXES . . . . . . . ( 9,857) (34,729) (28,572) (61,379) Income Tax Provision . . . . . . . . . . . . . 26 10,656 28 17 ---------- --------- ---------- --------- NET INCOME (LOSS) . . . . . . . . . . . . . . . $ ( 9,883) $ (45,385) $ (28,600) $ (61,396) ========== ========= ========== ========= Income (Loss) Per Share of Common Stock: Primary . . . . . . . . . . . . . . . . . . . $ (0.18) $ (3.10) $ (0.54) $ (4.19) ========== ========= ========== ========= Fully Diluted . . . . . . . . . . . . . . . . $ (0.18) $ (3.10) $ (0.54) $ (4.19) ========== ========= ========== =========
The accompanying notes are an integral part of these statements. 5 6 GREYHOUND LINES, INC. AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, -------------------------- 1995 1994 --------- -------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (28,600) $ (61,396) Noncash expenses, gains and losses included in net loss Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 14,498 19,901 Amortization of deferred gain . . . . . . . . . . . . . . . . . . . . . . (179) (153) Amortization of debt issuance costs . . . . . . . . . . . . . . . . . . . 543 381 Amortization of discount on Senior Notes . . . . . . . . . . . . . . . . . 1,466 1,287 Net loss on assets sold . . . . . . . . . . . . . . . . . . . . . . . . . 122 211 Unfunded net pension gain . . . . . . . . . . . . . . . . . . . . . . . . (950) (2,400) Write-down of assets held for sale . . . . . . . . . . . . . . . . . . . --- 2,817 Net changes in certain operating assets and liabilities Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,373 (2,323) Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 579 590 Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (440) (625) Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . (506) (2,220) Insurance and security deposits . . . . . . . . . . . . . . . . . . . . . 4,995 16,061 Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,149) (2,258) Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,995 (2,684) Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,180 7,369 Reserve for injuries and damages . . . . . . . . . . . . . . . . . . . . . (4,907) 4,280 Unredeemed tickets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,008 1,096 --------- --------- Net cash provided by (used for) operating activities . . . . . . . . . (3,972) (20,066) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,081) (49,524) Proceeds from assets sold . . . . . . . . . . . . . . . . . . . . . . . . . 2,524 28,495 Proceeds from termination of interest rate swap . . . . . . . . . . . . . . --- 1,609 Deposit to collateralize operating leases . . . . . . . . . . . . . . . . . --- (7,127) Other investing activities . . . . . . . . . . . . . . . . . . . . . . . . (41) (76) --------- --------- Net cash provided by (used for) investing activities . . . . . . . . . (2,598) (26,623) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Payments on debt and capital lease obligations . . . . . . . . . . . . . . (16,194) (3,020) Proceeds from long-term borrowings . . . . . . . . . . . . . . . . . . . . --- 11,058 Net proceeds from Rights Offering . . . . . . . . . . . . . . . . . . . . . 11,685 --- Proceeds from issuance of Common Stock . . . . . . . . . . . . . . . . . . --- 13 Net change in revolving credit facility . . . . . . . . . . . . . . . . . . 2,518 --- --------- --------- Net cash provided by (used for) financing activities . . . . . . . . . (1,991) 8,051 --------- --------- NET DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . (8,561) (38,638) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . . . . . . . . . . . 9,454 39,643 --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . . . . . . . $ 893 $ 1,005 ========= =========
The accompanying notes are an integral part of these statements. 6 7 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1995 (UNAUDITED) 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS In the opinion of management, the unaudited Interim Consolidated Financial Statements of Greyhound Lines, Inc. and Subsidiaries (the "Company") include all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the Company's financial position as of June 30, 1995, and the results of its operations for the three and six months ended June 30, 1995 and 1994. Due to the seasonality of the Company's operations, the results of its operations for the interim period ended June 30, 1995 may not be indicative of total results for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations promulgated by the Securities and Exchange Commission. The unaudited Interim Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements of Greyhound Lines, Inc. and Subsidiaries and accompanying notes for the year ended December 31, 1994. 2. SIGNIFICANT ACCOUNTING POLICIES LOSS PER SHARE Primary loss per common share is calculated by dividing net loss by the weighted average shares of common stock of the Company ("Common Stock") and Common Stock equivalents outstanding during the period. Common Stock equivalents represent the dilutive effect of the assumed exercise of certain outstanding stock options. The calculation of fully diluted loss per share of Common Stock assumes the dilutive effect of the Company's 8.5% Convertible Subordinated Debentures due 2007 (the "Convertible Debentures") converted into Common Stock. For the three and six months ended June 30, 1995 and 1994, the assumed exercise of outstanding in-the- money stock options and conversion of Convertible Debentures have an antidilutive effect. As a result, these shares are not included in the weighted average shares outstanding at June 30, 1995 and 1994. The weighted average shares outstanding used in the calculation of primary and fully diluted loss per share of Common Stock for the three and six months ended June 30, 1995 and 1994 are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ---------------- JUNE 30, JUNE 30, -------- -------- WEIGHTED AVERAGE SHARES OUTSTANDING 1995 1994 1995 1994 - ----------------------------------- ---- ---- ---- ---- Primary . . . . . . . . . . . . . . . . . . . . . . . 53,743,682 14,652,321 53,061,852 14,651,858 Fully diluted . . . . . . . . . . . . . . . . . . . . 53,743,682 14,652,321 53,061,852 14,651,858
CERTAIN RECLASSIFICATIONS Certain reclassifications have been made to the prior period statements to conform them to the June 30, 1995 classifications. 3. COMMITMENTS AND CONTINGENCIES LABOR LITIGATION The Amalgamated Transit Union (the "ATU") strike in March 1990 resulted in litigation currently pending before the National Labor Relations Board ("NLRB"). In early 1995, a settlement among the ATU, NLRB and the Company was finalized. The settlement resulted in the dismissal of all litigation between the ATU, NLRB and the Company, with the exception of one issue related to the Company's granting in 1990 of experience-based seniority ("EBS") to drivers hired with previous commercial driving experience, which issue will be resolved in litigation 7 8 before the NLRB and appeals, if any. In September 1994, an Administrative Law Judge of the NLRB issued a ruling finding that the granting of EBS to drivers with previous commercial driving experience constituted an unfair labor practice by the Company. The Company has appealed this ruling. If the Company were to ultimately lose the EBS litigation, after all appeals, or if the Company were to change its policy relating to EBS credit, it may be exposed to liability to drivers hired after March 1990 who would lose their EBS credit. Liability to drivers hired before March 1990 who might lose their EBS credit was resolved in the aforementioned settlement. In June 1995, the Company extended an offer to its post-March 1990 drivers with EBS. Pursuant to the offer, approximately 80% of eligible drivers agreed to relinquish their seniority rights in return for cash payments. This buyout has reduced the Company's potential exposure should EBS later be discontinued. Based on an assessment of the potential liability it could face from claims by remaining drivers with EBS, the Company does not believe that any such liability exposure would have a material adverse effect on its business, results of operations or financial condition. DEPARTMENT OF JUSTICE INVESTIGATION In March 1994, the Antitrust Division of the U.S. Department of Justice (the "DOJ") initiated an antitrust investigation to determine whether there is, has been, or may be a violation by the Company of Sections 1 and 2 of the Sherman Act by conduct or activities constituting a restraint of trade, monopolization or an attempt to monopolize. This investigation principally involves the competitive impact of (i) the Company's computerized reservation system, including the provision of fare and scheduling information via telephone, (ii) the Company's decision to discontinue publishing its bus schedules in an industry publication and (iii) various provisions contained in agreements with bus carriers using the Company's terminals. In April 1995, the Company resumed publishing its schedules in the industry publication. Pursuant to this investigation, the DOJ served a civil investigative demand ("CID") on the Company in March 1994. The CID required the Company to answer various interrogatories and to produce certain documents. In July 1994, the Company completed the production of documents and answered the interrogatories required by the CID. In November 1994, the DOJ's staff contacted counsel for the Company and indicated that they believed that one of the several business practices investigated, a provision contained in terminal license agreements with bus carriers using the Company's terminals, violated Section 1 of the Sherman Act. The Company believes that the subject provision does not violate that antitrust law. The DOJ has requested that the Company enter into a consent decree enjoining the Company from enforcing the subject provision in its terminal license agreements. To date, the Company and the DOJ have not agreed upon the terms and provisions of a consent decree. The DOJ has indicated to the Company that it intends to file a complaint against the Company if a consent decree is not agreed to. In 1993, the Interstate Commerce Commission's (the "ICC") Office of Economics conducted an assessment of essentially the same issues involved in the DOJ investigation. In July 1993, the ICC issued a report concluding that, although the Company had initiated many business and technological practices that affected the bus industry, the Company had not intentionally mistreated other carriers or engaged in any anti-competitive practices. In September 1994, the ICC voted to discontinue any further potential rulemaking action with respect to the issues it investigated in 1993. If the DOJ's threatened action is in fact limited to the single provision in the terminal license agreements, the Company believes that the investigation will not have a material impact on the Company's business, financial condition or results of operations. However, if the DOJ were to challenge other business practices of the Company, the Company cannot assess the impact, if any, such action would have on its business or financial condition or results of operations. 8 9 OKLAHOMA SALES TAX CLAIM In January 1991, the Oklahoma Tax Commission ("OTC") filed a proof of claim with the Bankruptcy Court in connection with the Company's Chapter 11 bankruptcy case. That claim related to sales taxes which the OTC alleged were due and owing by the Company on interstate bus tickets sold in Oklahoma. The OTC claim involved a proposed tax assessment of approximately $908,000 plus additional interest. The Company objected to the claim on the basis that the tax the OTC proposed to assess was an improper burden on interstate commerce in violation of the Commerce Clause of the United States Constitution. In February 1993, the Bankruptcy Court denied the OTC's claim in its entirety, finding that the Oklahoma sales tax on interstate travel was unconstitutional. The OTC subsequently appealed the Bankruptcy Court's decision to the U.S. District Court for the Southern District of Texas, Brownsville Division (the "District Court"), which affirmed the Bankruptcy Court's ruling in October 1993. In November 1993, the OTC appealed the case to the United States Circuit Court of Appeals for the Fifth Circuit (the "Fifth Circuit"). The decision of the Fifth Circuit was being held in abeyance pending the United States Supreme Court's decision in another case brought by the OTC against another bus carrier involving the same issues. In April 1995, the United States Supreme Court ruled against the other bus carrier and upheld the constitutionality of a sales tax imposed on interstate bus tickets by the State of Oklahoma. The Company's case is being remanded to the Bankruptcy Court where additional proceedings concerning the claim will be heard. Additionally, in July 1995, the OTC notified the Company that it intends to conduct an audit for sales taxes due for the period from August 1992 to July 1995. In view of the Supreme Court's decision, the Company established a reserve, during the first quarter of 1995, for its estimate of the liability. In April 1995, the Company began collecting sales taxes from its customers for interstate bus tickets sold in Oklahoma. SECURITIES AND DERIVATIVE LITIGATION; SEC INVESTIGATION On August 23, 1994, a purported class action lawsuit was filed by Joseph Sonnenberg, a purported owner of the Company's Common Stock, against the Company and certain of its former officers and directors. The suit seeks unspecified damages for securities law violations as a result of statements made in public reports and press releases and to securities analysts during 1993 and 1994 that are alleged to have been false and misleading. The suit, filed in the United States District Court for the Northern District of Texas, is styled Sonnenberg v. Greyhound Bus Lines, Inc., Frank J. Schmieder and Michael Doyle, Civil Action No. 3-94-CV-1793G. On October 5, 1994, a purported class action lawsuit was filed by Bruce Doniger, a purported owner of the Company's Convertible Debentures, against the Company and certain of its former officers and directors. The suit seeks unspecified damages for securities law violations as a result of statements made in public reports and press releases and to securities analysts in 1993 and 1994 that are alleged to have been false and misleading. The suit, filed in the United States District Court for the Northern District of Texas, is styled Bruce Doniger v. Greyhound Bus Lines, Inc., Frank J. Schmieder and J. Michael Doyle, Civil Action No. 3-94-CV- 2135X. On October 20, 1994, a purported class action lawsuit was filed by M. Murray Van De Velde, a purported owner of the Company's Convertible Debentures, against the Company and certain of its former officers and directors. The suit seeks unspecified damages for securities law violations as a result of statements made in public reports and press releases and to securities analysts during 1993 and 1994 that are alleged to have been false and misleading. The suit, filed in the United States District Court for the Northern District of Texas, is styled M. Murray Van De Velde v. Greyhound Bus Lines, Inc., Frank J. Schmieder and J. Michael Doyle, Civil Action No. 3-94-CV-2240R. On October 21, 1994, a purported class action lawsuit was filed by Emile Gladstone, a purported owner of the Company's 10% Senior Notes due 2001 (the "Senior Notes"), against the Company, certain of its former officers and directors and Smith Barney Inc. The suit seeks unspecified damages for securities law violations as a result of statements made in public reports and press releases and to securities analysts during 1993 and 1994 that are alleged to have been false and misleading. The suit, filed in the United States District Court for the Northern District of Texas, is styled Emile Gladstone v. Greyhound Lines, Inc., Smith Barney Inc., Charles J. Lee, Charles A. Lynch, Frank J. Schmieder and J. Michael Doyle, Civil Action No. 3-94-CV-2258J. On October 25, 1994, a purported class action lawsuit was filed by Lawrence Robbins, a purported owner of the Company's Common Stock, against the Company, a present officer, certain former officers and directors, and Smith Barney Shearson. The suit seeks unspecified damages for securities law violations as a result of statements made 9 10 in public reports and press releases and to securities analysts during 1993 and 1994 that are alleged to have been false and misleading. The suit, filed in the United States District Court for the Northern District of Texas, is styled Lawrence Robbins v. Greyhound Bus Lines, Inc., Frank J. Schmieder, J. Michael Doyle, Charles Lynch, Phillip W. Taff, Robert R. Duty, Ralph Borland, Don T. Seaquist, Charles Lee and Smith Barney Shearson, Civil Action No. 3-94-CV-2270H. On November 2, 1994, a purported class action lawsuit was filed by The Witness Organization Pension Plan & Trust Dated 5-30-86, Philip H. deRoulet, Trustee, a purported owner of the Company's Convertible Debentures, against the Company and certain of its former officers and directors. The suit seeks unspecified damages for securities law violations as a result of statements made in public reports and press releases and to securities analysts during 1993 and 1994 that are alleged to have been misleading. The suit, filed in the United States District Court for the Northern District of Texas, is styled The Witness Organization Pension Plan & Trust Dated 5-30-86, Philip H. deRoulet, Trustee v. Greyhound Bus Lines, Inc., Frank J. Schmieder and J. Michael Doyle, Civil Action No. 3-94-CV-2332G. On December 12, 1994, a purported class action lawsuit was filed by the State Board of Administration of Florida and Louisiana State Employees Retirement System, purported owners of the Company's Common Stock, against the Company and certain of its former officers and directors. The suit seeks unspecified damages for securities law violations and common law fraud and deceit as a result of statements made in public reports and press releases and to securities analysts during 1993 and 1994 that are alleged to have been misleading. The suit, filed in the United States District Court for the Northern District of Texas, is styled State Board of Administration of Florida and Louisiana State Employees Retirement System v. Greyhound Lines, Inc., J. Michael Doyle, Charles A. Lynch, Frank J. Schmieder, and "John Doe" and "Richard Roe," Civil Action No. 3-94-CV-2694-R. Although this case has been filed, it has not yet been served on any defendants. All the purported class action cases above (with the exception of State Board of Administration of Florida and Louisiana State Employees Retirement System v. Greyhound Lines, Inc., J. Michael Doyle, Charles A. Lynch, Frank J. Schmieder, and "John Doe" and "Richard Roe," Civil Action No. 3-94CV-2694-R, which has not yet been served on any defendants) have been transferred to the Court in which the first purported class action suit is pending under a case styled In re Greyhound Securities Litigation, Civil Action 3-94-CV-1793-G. A joint pretrial order has been entered in the class action litigation which consolidates for pretrial and discovery purposes all of the stockholder actions and, separately, all of the debtholder actions. The joint pretrial order required plaintiffs to file consolidated amended complaints and excused answers to the original complaints. On July 12, 1995, the plaintiffs filed their consolidated amended complaints, naming Greyhound Lines, Inc., Frank J. Schmieder, J. Michael Doyle, Phillip W. Taff, Robert R. Duty, Don T. Seaquist, Charles J. Lee, Charles A. Lynch and Smith Barney Incorporated. The defendants will have forty-five days from that filing date to answer or otherwise respond, unless the time is extended. With respect to State Board of Administration of Florida and Louisiana State Employees Retirement System v. Greyhound Lines, Inc., J. Michael Doyle, Charles A. Lynch, Frank J. Schmieder, and "John Doe" and "Richard Roe," Civil Action No. 3-94-CV-2694-R, this suit has not yet been served on any defendants, and thus no answer or other response by the defendants is required. It is expected that, if served, one of the parties will seek to transfer this case to the Court where the other purported class actions are pending for consolidation under the joint pretrial order. On November 2, 1994, a shareholder derivative lawsuit was filed by Harvey R. Rice, a purported owner of the Company's Common Stock, against present directors and former officers and directors of the Company and the Company as a nominal defendant. The suit seeks to recover monies obtained by certain defendants by allegedly trading in the Company's securities on the basis of nonpublic information and to recover monies for certain defendants' alleged fraudulent dissemination of false and misleading information concerning the Company's financial condition and future business prospects. The suit, filed in the Delaware Court of Chancery, New Castle County, is styled Harvey R. Rice v. Frank J. Schmieder, J. Michael Doyle, Charles A. Lynch, Richard J. Caley, Thomas F. Meagher, Thomas G. Plaskett, Kenneth R. Norton, Robert B. Gill, Alfred E. Osborne, Jr., J. Patrick Foley, Charles J. Lee and Greyhound Lines, Inc., Civil Action No. 13854. Pursuant to a stipulation, the current deadline for all defendants to answer, move or otherwise plead with respect to the derivative complaint is not yet due. 10 11 On May 23, 1995, a lawsuit was filed on behalf of two individuals, purported owners of the Company's Common Stock, against the Company and certain of its former officers and directors. The suit seeks unspecified damages for securities law violations as a result of statements made in public reports and press releases and to securities analysts during 1993 and 1994 that are alleged to have been misleading. The suit, filed in the United States District Court for the Northern District of Ohio, is styled James Illius and Teodore J. Krawec v. Greyhound Bus Lines, Inc., Frank J. Schmeider and J. Michael Doyle, Civil Action No. 1-95-CV-1140. The defendants have filed a Motion to Transfer Venue seeking to have the case transferred to the court in Dallas where the class action litigation is pending. Based on a review of the litigation, a limited investigation of the underlying facts and discussions with legal and outside counsel, the Company does not believe that the outcome of this litigation would have a material adverse effect on its business and financial condition. The Company intends to defend against the actions vigorously. To the extent permitted by Delaware law, the Company is obligated to indemnify and bear the cost of defense with respect to lawsuits brought against its officers and directors. The Company maintains directors' and officers' liability insurance that provides certain coverage for itself and its officers and directors against claims of the type asserted in the subject litigation. The Company has notified its insurance carriers of the asserted claims. On January 23, 1995, the Company received notice that the Securities and Exchange Commission (the "SEC") is conducting a formal, non-public investigation into possible securities laws violations allegedly involving the Company and certain of its present and former officers, directors and employees and other persons. The SEC Order of Investigation (the "Order of Investigation") states that the SEC is exploring possible insider trading activities, as well as possible violations of the federal securities laws relating to the adequacy of the Company's public disclosures with respect to problems with its passenger reservation system implemented in 1993 and lower-than-expected earnings for 1993. In addition, the SEC has stated that it will investigate the adequacy of the Company's record keeping with respect to the passenger reservation system and its internal auditing controls. Although the SEC has not announced the targets of the investigation, it does not appear from the Order of Investigation that the Company is a target of the insider trading portion of the investigation. The Company is fully cooperating with the SEC's investigation of these matters. The probable outcome of this investigation cannot be predicted at this early stage in the proceeding. INTERNAL REVENUE SERVICE EXAMINATION The Internal Revenue Service (the "IRS") has conducted an examination of the Company's consolidated federal tax returns for the years 1987, 1988 and 1989. The IRS and the Company entered into Closing Agreements As To The Determination Of Specific Matters, dated February 13, 1992, and October 7, 1992, wherein the Company agreed to certain income adjustments resulting in additional tax assessments which were paid. In April 1995, the Company and the IRS agreed to settle the remaining contested issues. Pursuant to the settlement, approved by the Bankruptcy Court in August 1995, the Company will be obligated to pay additional taxes and interest of $1.1 million, half of which will be paid when the settlement is finalized, and the remainder of which will be paid with interest over a two and one-half year period. The Company previously established a reserve which covers substantially all of its liability under the settlement. CHRISS STREET & COMPANY, INC., ET AL V. GREYHOUND LINES, INC., ET AL In connection with its December 1994 financial restructuring, the Company stated that a majority of tendering holders of Convertible Debentures willing to participate in the selection would be entitled to nominate two qualified persons reasonably acceptable to the Company to serve on its Board of Directors. In March 1995, the former Convertible Debenture holders submitted the names of six prospective director nominees to the Company, including Messrs. Stephen M. Peck, Ernest P. Werlin, Chriss W. Street and Mark M. Glickman. After a balloting process, the Company's Board of Directors determined that Messrs. Peck and Werlin were the two most highly ranked nominees who were qualified to serve as directors of the Company and were reasonably acceptable to the Company. Messrs. Peck and Werlin were appointed to vacancies on the Board of Directors on May 31, 1995. On June 12, 1995, Chriss Street & Company, Inc. and James R. Moriarty ("Plaintiffs"), former holders of Convertible Debentures, filed a lawsuit against the Company and Messrs. Peck and Werlin (the "Defendants") seeking to invalidate the appointment of Messrs. Peck and Werlin to the Company's Board of Directors. The suit also seeks to have Messrs. Street and Glickman appointed to the Board of Directors or, alternatively, seeks an order establishing 11 12 a new nomination and appointment process to fill the two board positions currently held by Messrs. Peck and Werlin. The suit seeks no monetary damages other than Plaintiffs' costs including reasonable attorney's fees. The Defendants have filed an answer to the Plaintiff's complaint denying the Plaintiffs' allegations. The trial is scheduled to begin on August 30, 1995 and the parties are currently engaged in discovery. The Defendants are vigorously defending the suit, which the Company believes is without merit. ENVIRONMENTAL MATTERS The Company may be liable for certain environmental liabilities and clean-up costs relating to underground fuel storage tanks and systems in the various facilities presently or formerly owned or leased by the Company. Based upon surveys conducted by Company personnel, 75 locations have been identified as sites requiring potential clean-up and/or remediation as of June 30, 1995. Of this number, eight locations are surplus properties currently held for sale. The Company has estimated the cost of the clean-up of these eight sites to be $1.1 million of which approximately $0.3 million is indemnifiable by Dial pursuant to indemnity obligations arising out of the 1987 acquisitions of the domestic bus operations of Dial. The Company has estimated the clean-up and/or remediation costs for the remaining sites to be $4.8 million, of which approximately $0.8 million is indemnifiable by Dial. The Company has no reason to believe that Dial will not fulfill its indemnification obligations to the Company. However, if Dial does not fulfill such obligations, the Company could have liability with respect to those matters. Additionally, the Company has been designated as a potentially responsible party by the EPA at four Superfund sites where the Company and other parties face exposure for costs related to the clean-up of those sites. The Company believes its liability at these sites will be settled for an immaterial amount because its involvement at the sites was as a de minimis generator of wastes disposed of at the sites. In light of the minimal involvement, the Company has been negotiating to be released from liability in return for the payment of immaterial settlement amounts. The Company has recorded a $1.1 million receivable from Dial for indemnification at June 30, 1995, including costs associated with previously remediated sites. The Company has also recorded an environmental reserve of $5.4 million, including the $1.1 million for the surplus properties, at June 30, 1995, for noncapitalizable expenses related to the sites identified for potential clean-up and/or remediation. The receivable and reserve amounts for non-surplus sites are based on discounted cash flows at a discount rate of 8%. Management believes that adequate accruals have been made related to all known environmental matters. OTHER LEGAL PROCEEDINGS In addition to the litigation discussed above, the Company is a defendant in various lawsuits arising in the ordinary course of business, primarily cases involving personal injury and property damage claims. Although these lawsuits involve a variety of different facts and theories of recovery, the majority arise from traffic accidents involving buses operated by the Company. The vast majority of these claims are covered by insurance for amounts in excess of the self-retention or deductible portion of the policies. Therefore, based on the Company's assessment of known claims and its historical claims payout pattern and discussion with legal and outside counsel and risk management personnel, management believes that there is no proceeding either threatened or pending against the Company or its subsidiaries relating to such personal injury and/or property damage claims arising out of the ordinary course of business that, if resolved against the Company, would be likely to have a material adverse effect on its business, financial condition or results of operations. 12 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAPITAL RESOURCES AND LIQUIDITY Registration Statement. On July 27, 1995, the Company filed a registration statement on Form S-3 relating to the sale of up to 10,004,144 shares of Common Stock. Of those shares, 4,000,000 shares are being offered by the Company and 6,004,144 are being offered by Motor Coach Industries Limited, a selling stockholder. The Company will not receive any portion of the proceeds from the sale of shares of Common Stock by the selling stockholder. The net proceeds to the Company from the sale of the 4,000,000 shares of Common Stock being offered by the Company are estimated to be $16.7 million (based on the last reported sale price of the Common Stock on the American Stock Exchange on July 25, 1995 of $4.50 per share). The Company intends to use $9.6 million of the net proceeds received by it to repurchase (the "Senior Note Repurchase") $10.7 million aggregate principal of its 10% Senior Notes due 2001 (the "Senior Notes") pursuant to a put/call agreement in principle with one of the Company's principal stockholders. The purchase price for the Senior Notes was based on arms-length negotiations. The Company will use the remaining net proceeds from the sale of Common Stock by it for general corporate purposes. Pending use, the net proceeds to the Company from the Offering will be invested in short-term, interest-bearing securities. Capital Structure and Leverage. The Company requires significant cash flows to meet its debt and other continuing obligations. The Company had $186.9 million in long-term debt outstanding (excluding $16.4 million of issued and undrawn standby letters of credit) at June 30, 1995, consisting primarily of the Company's Senior Notes. The Company currently has semi-annual interest payments (each January 31 and July 31) of $8.2 million due on the Senior Notes. After giving effect to the Senior Note Repurchase, the Company's semi-annual interest payments will be reduced to $7.6 million (each January 31 and July 31). The Senior Notes have sinking fund payments, initially in the amount of $8.0 million and increasing annually thereafter, beginning in July 1996. Assuming the Company completes the Senior Note Repurchase, the 1996 sinking fund payment of $8.0 million will be met through the Senior Note Repurchase and the $1.7 million of Senior Notes which the Company currently owns. The balance of the Senior Note Repurchase will be applied to the July 1997 sinking fund payment. As a result, the July 1997 sinking fund payment will be reduced from $10.0 million to approximately $5.6 million. The Company will also require $13.5 million in the aggregate for other debt service and $18.4 million for bus, real estate and other operating lease obligations during the remainder of 1995. During February 1995, in connection with the Financial Restructuring (see - "Financial Restructuring"), the Company pre-paid $12.9 million in bus financing to Motor Coach Industries Acceptance Corporation ("MCIAC") and as of June 30, 1995, aggregate amounts outstanding were $7.1 million. The pre-payment resulted in the release of liens on 64 buses, which the Company has pledged as collateral under the New Credit Facility (defined herein). As part of the Financial Restructuring, the Company agreed to use its best efforts to refinance, on commercially reasonable terms, the remaining MCIAC debt. In July 1995, the Company issued 415,044 shares of Common Stock to the participants in the Company sponsored 401(k) cash or deferred retirement plans that cover substantially all of its ongoing salaried, hourly and represented employees. Liquidity. Operating cash flows, together with cash from financing activities, seasonal revolving credit borrowings and sales of assets, historically have been sufficient to fund the Company's operations and investing activities which consist primarily of capital expenditures for new bus acquisitions, systems development costs and, to a lesser extent, facilities replacements or upgrades. For the six months ended June 30, 1995, however, operating activities required net cash of $4.0 million. The net cash required by operating activities, as well as cash required for investing activities, were funded by revolving borrowings under the New Credit Facility (defined herein), proceeds received from the Rights Offerings (see - "Financial Restructuring") and, to a lesser extent, the sale of surplus assets. At June 30, 1995, the Company had cash and cash equivalents of $0.9 million and $30.2 million in available borrowing capacity under the New Credit Facility (defined herein) for general purposes. 13 14 The Company is party to two floating rate interest rate swap agreements. In October 1994, the agreements were amended to lock in future payments under the agreements until maturity in July 1998. The net result of the amendments is that these swaps will not be subject to interest rate risk. Under the amendments, the Company will be required to pay and recognize incremental interest expense of $6.2 million in total over the remaining term of the five-year agreements. The Company has collateralized its payment obligations under the amended agreements with a $1.1 million letter of credit and liens on six pieces of Company-owned real property. On or prior to January 1, 1996, the counterparty to the swap agreements has the right to evaluate its collateral and may require the Company to post additional collateral or cash collateral in lieu of real property. During October 1994 as part of the Financial Restructuring (see - "Financial Restructuring"), the Company entered into a revolving credit facility (the "Credit Facility") with Foothill Capital Corporation ("Foothill"), which replaced the Company's prior bank facility. At the time of the Financial Restructuring, the Credit Facility provided for revolving loans and letters of credit and/or letter of credit guarantees of up to $35.0 million. In June 1995, the Company renegotiated its Credit Facility (the "New Credit Facility). The New Credit Facility provides for revolving loans, letters of credit and letter of credit guarantees up to a maximum commitment of $73.5 million. Syndication commitments under the New Credit Facility, including Foothill's commitment as the lead agent, total $65.0 million at August 10, 1995. Availability under the New Credit Facility is limited to the aggregate of the following: (1) revolving advances of up to $3.5 million based on a formula of certain eligible accounts receivable; (2) revolving advances of up to $35.0 million (subject to increase to $45.0 million under certain circumstances) (the "Fixed Asset Advances") based on the value of certain fixed asset collateral pledged to Foothill; and (3) a bus purchase facility of up to $26.5 million (the "Bus Purchase Facility"). Borrowings under the New Credit Facility mature on May 31, 1998, although availability under the Fixed Asset Advances will be subject to quarterly reductions after April 1996. The New Credit Facility is secured by liens on substantially all the assets of the Company, excluding real estate purchases and new bus purchases unless those buses are specifically pledged to support borrowing under the Bus Purchase Facility. The New Credit Facility allows the Company to dispose of certain non-core real estate properties. In addition, non-bus capital expenditures are limited to $25.0 million annually with no spending limitations on bus purchases as long as financed through debt, or operating or capital leases with maturities of no less than five years. The New Credit Facility is subject to financial covenants, including maintenance of a minimum net worth and an agreed ratio of cash flow to interest expense. As of June 30, 1995, there were approximately $16.4 million in issued and undrawn standby letters of credit outstanding under the New Credit Facility, and $2.5 million in revolving borrowings outstanding under the New Credit Facility. The Company has embarked on an aggressive risk reduction and claims reduction program. Due to a decrease in the pending inventory of claims, certain insurance carriers have reduced their collateral and security requirements for previous years' claims, which resulted in a return of collateral and security to the Company of approximately $8.5 million during April 1995. Nevertheless, a decision by the Company's insurers to modify the Company's program substantially, by either increasing cost, reducing availability or increasing collateral, could have a material adverse effect on the future liquidity and operations of the Company. During the Company's bankruptcy in 1990, certain funds were set aside to cover claims arising under the ICC Trust Fund. Those claims have been concluded and a final distribution has been made to the claimants. The ICC trust fund is collateralized with a $2.0 million letter of credit which is expected to be released during September 1995. Capital Expenditures. The Company's operations also require significant annual capital and maintenance expenditures related to the Company's bus fleet, properties and systems software. For the six months ended June 30, 1995, the Company's capital expenditures totalled $5.1 million. During June and July 1995, the Company took delivery of 102 new buses from Motor Coach Industries International, Inc. ("MCII"). These buses are currently subject to a month to month operating lease. Prior to October 1, 1995, the Company must either purchase the buses or convert to a seven year operating lease with MCII or its assignee. During the last half of 1995, the Company will take delivery of an additional 23 buses from MCII. The Company currently plans to purchase these buses. Approximately 34% of the Company's bus fleet is more than 10 years old. The Company's experience indicates that as the age of its fleet increases, the dependability and quality of service declines, which may make the Company less competitive. To replace these buses and to support the planned increase in the size of the bus fleet, the Company expects to acquire up to 300 new buses over the next 18 months at an aggregate cost of approximately $70 to $80 million. Management believes that a delay in acquiring these new buses could adversely affect future operations due 14 15 to the higher operating costs associated with operating older buses and the inability to implement fully the Company's plans to increase total bus miles. The Company's ability to finance these and other capital expenditures and to meet its other financial obligations will depend on the Company's future operating performance, which will be subject to financial, economic, legal and other factors affecting the business and operations of the Company, many of which are beyond its control. Although the New Credit Facility and cash flows from operating activities will be sufficient to make a portion of the Company's planned expenditures, the Company's operating strategy will depend on the availability of additional sources of financing, such as operating and capital lease financing or funds provided through sales of assets or sales of securities. There can be no assurance that the Company will be able to obtain financing on suitable terms for these purposes. CERTAIN CONTINGENCIES. The Company is subject to various contingencies that could affect its liquidity position in the future. See ("ITEM 1. LEGAL PROCEEDINGS.") FINANCIAL RESTRUCTURING During the fall of 1994, the Company initiated a comprehensive change to its capital structure (the "Financial Restructuring"). The Financial Restructuring was completed in January 1995 and consisted of (i) the execution of the Credit Facility; (ii) an offer to convert the entire $98.9 million in aggregate principal amount of the Convertible Debentures into shares of Common Stock and (iii) a pro rata offering (the "Rights Offering") to the Company's stockholders of the opportunity to subscribe for and purchase new shares of Common Stock. Further information relating to the Financial Restructuring may be found under "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Financial Restructuring" in the Company's Annual Report on Form 10-K for the year ended December 31, 1994. SECOND QUARTER 1995 AND 1994 RESULTS OF OPERATIONS The Company's business is seasonal in nature and generally follows the pattern of the travel business as a whole, with peaks during the summer months and the Thanksgiving and Christmas holiday periods. Historically, the Company has experienced substantial seasonal variances in its results of operations with the second quarter reflecting a net loss or minimal net income and the first quarter typically being a net loss period. The following table presents certain of the Company's consolidated operating statistics for the three and six months ended June 30, 1995 and 1994:
THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ---------------- JUNE 30, JUNE 30, -------- -------- 1995 1994 1995 1994 ---- ---- ---- ---- Regular Service Miles (000) . . . . . . . . . . . . . 62,598 57,707 117,150 110,329 Total Bus Miles (000) . . . . . . . . . . . . . . . 63,935 58,600 119,018 111,954 Passenger Miles (000) . . . . . . . . . . . . . . . . 1,422,218 1,355,346 2,566,566 2,477,874 Available Seat Miles (000) . . . . . . . . . . . . . 2,879,508 2,654,522 5,388,900 5,035,668 Passengers Carried (000) (a) . . . . . . . . . . . . 4,054 3,784 7,660 7,251 Average Trip Length (miles) (a) . . . . . . . . . . . 351 358 335 342 Load Factor (% of available seats filled) . . . . . . 49.4 51.1 47.6 49.2 Yield (Revenue Per Passenger Mile) (cents) . . . . . 9.61 9.32 9.59 9.57 Passenger Revenue Per Regular Service Mile (dollars) 2.18 2.19 2.10 2.15 Total Operating Revenue per Total Bus Mile (dollars) 2.52 2.58 2.46 2.55 Total Operating Expense per Total Bus Mile (dollars) 2.57 3.04 2.59 2.95 Cost per Mile (cents): Maintenance . . . . . . . . . . . . . . . . . . . 26.6 31.0 28.3 33.3 Transportation . . . . . . . . . . . . . . . . . . 62.8 55.2 61.1 55.9 Insurance and Safety . . . . . . . . . . . . . . . 21.2 33.9 20.3 28.5 Station Costs as a % of Total Revenue (%) . . . . . . 18.8 19.1 19.6 19.9
(a) See Operating Revenues for discussion of 1994 restatements Operating Loss. Operating loss for the three and six months ended June 30, 1995 was reduced to $2.8 million and $14.7 million, respectively, compared to an operating loss of $27.1 million and $45.8 million for the same periods in 1994 despite an increase in regular service miles operated of 4.9 million miles (or 8.5%) and 6.8 million miles (or 6.2%) for the three and six months ended June 30, 1995, respectively, compared to 1994. 15 16 Operating revenues increased $10.3 million (or 6.8%) and $8.2 million (or 2.9%) for the three and six months ended June 30, 1995, while operating expenses decreased $13.9 million (or 7.8%) and $22.9 million (or 6.9%) for the three and six months ended June 30, 1995, compared to the same periods in 1994. Operating loss for the three and six months ended June 30, 1994 included $20.5 million and $21.0 million, respectively, of certain operating charges for a number of items including: claims from the Company's 1990 bankruptcy; increased cost estimates for environmental remediation; and an adjustment to depreciation of $6.0 million to recognize impairment of certain operating facilities which are less than fully utilized. Operating Revenues. Passenger service revenues increased $10.3 million (or 8.2%) and $8.9 million (or 3.8%) for the three and six months ended June 30, 1995, compared to the same periods in 1994. This increase was realized despite the impact of the "$68 or Less" fare promotion which was in effect during the three months ended June 30, 1994. The promotion resulted in lower yields (revenue per passenger mile) during the second quarter of 1994 (9.32 cents per mile) compared to the second quarter of this year (9.61 cents per mile). The promotion was discontinued for the second half of 1994. Because of this year's everyday low pricing, the Company does not expect yields for the remainder of 1995 to be above 1994 levels. During the first quarter of 1995, the Company disclosed that business in the smaller markets had been very weak. The Company took action to provide more telephone support and better pricing and scheduling support for these locations in an effort to rebuild the smaller market segment. While showing some improvement from the first quarter of 1995, the revenue performance in the smaller markets is still weak. The number of passengers carried increased 7.1% for the second quarter of 1995 compared to 1994 and 5.6% for the six months ended June 30, 1995, compared to 1994. Management believes the increase in ridership results from the introduction of everyday low pricing, improvements in handling customer telephone calls and more convenient bus schedules. Average trip length declined 2.0% for the second quarter of 1995 and 2.0% for the six months ending June 30, 1995, due to greater growth of the short haul business versus last year. The statistics for passengers carried and trip length, previously estimated from the revenue accounting system, are now produced from the information captured by the Transportation Reservation Itinerary Planning System ("TRIPS") for electronically sold tickets, which represents an ever-increasing portion of the total business. Historical factors for estimating the statistical impact of tickets sold in non-TRIPS locations have been updated and, in addition, the impact of such sales has been reduced as the number of TRIPS locations has increased. As a result, the statistical information for 1994 has been changed accordingly, from that previously published. As the Company continues to expand TRIPS to manual locations, the dependence on historical factors for estimating manual ticket activity will be lessened. Package express delivery service revenues declined $1.3 million (or 12.3%) and $2.6 million (or 12.6%) in the three and six months ended June 30, 1995, compared to the same periods in 1994. Package express revenues continued to decline, reflecting reductions in routes and intense competition in the package express delivery service from overnight carriers. This decline is likely to continue until the Company develops and successfully implements a turnaround strategy for package express. Other operating revenues increased approximately $1.5 million (or 16.5%) and $2.3 million (or 13.1%) for the three and six months ended June 30, 1995 compared to the same periods in 1994 due primarily to an increase in interest income. As a result of higher interest rates during the first and second quarter of 1995, interest earned on the Company's insurance deposits, ICC Trust Fund and collateral deposits increased. Operating Expenses. Total operating expenses decreased by $13.9 million (or 7.8%) and $22.9 million (or 6.9%) for the three and six months ended June 30, 1995 as compared to 1994. Regular service miles operated for the three and six months ended June 30, 1995 as compared to 1994 increased by 4.9 million miles (or 8.5%) and 6.8 million miles (or 6.2%). Operating expenses for the three and six months ended June 30, 1994 included a total of $19.6 million and $20.1 million, respectively, of the certain operating charges discussed above. Maintenance costs continue to decline from 1994 in absolute dollars and cost per mile. In spite of increased miles operated, maintenance labor costs decreased due to a significant reduction in garage personnel since the first half of 1994. Maintenance utilities and building repairs have decreased due to the downsizing and closure of several 16 17 facilities. Also contributing to the decreased expenses was the closing of the New York City garage in January 1995. In addition, included in the second quarter of 1994 were certain operating charges of $1.7 million which related primarily to the reserve for increased cost of environmental remediation. Transportation expenses increased $7.8 million (or 24.1%) and $10.2 million (or 16.3%) for the three and six months ended June 30, 1995 compared to the same periods in 1994. This increase is primarily due to an increase in drivers' wages of $2.0 million and $4.3 million, and additional fuel expense of $0.7 million and $0.7 million resulting from increased miles operated for the three and six month periods ended June 30, 1995 compared to 1994. Also contributing to the change in transportation expense were increased costs for the training of drivers of $3.0 million and $3.2 million for the three and six months ending June 30, 1995 compared to 1994. These additional expenses related to hiring and training new drivers and were necessary in order to increase the number of bus miles being operated versus last year and to improve the quality of operations. The increase in transportation cost per mile of 7.6 cents per mile (or 13.8%) and 5.2 cents per mile (or 9.3%) for the three and six month periods ended June 30, 1995 as compared to 1994, are primarily due to these training costs but also reflect in the second quarter a contractual increase in drivers wages. Agents' commissions and station costs increased $1.5 million (or 5.3%) and $0.7 million (or 1.3%) for the three and six months ended June 30, 1995 compared to the same periods in 1994, primarily due to an increase in customer service headcount which was required to improve service levels at the Company's terminals. In 1994, in order to reduce costs, certain terminals were closed in the late evenings and overnight. During the current year, the business hours at 15 of these terminals have been increased to better serve long distance customers. Also contributing to the increased staffing was the implementation of the continuous quality cleaning program, which is a program to ensure that buses are cleaned and washed on a more consistent basis. Communication costs at the telephone information centers increased due to a jump in the number of calls handled by 1.2 million (or 26.1%) and 1.4 million (or 15.6%) for the three and six-month periods ending June 30, 1995 compared to the same periods in 1994. In spite of these increases, station costs declined on a per mile and percent of revenue basis due to increased volume. Marketing, advertising and traffic costs decreased $4.0 million (or 30.0%) and $10.9 million (or 46.6%) for the three and six months ended June 30, 1995 compared to the same periods in 1994, due primarily to a planned spending reduction of $9.5 million in the first half of 1995 in direct advertising expenditures. Insurance and safety costs decreased $6.4 million (or 31.9%) and $7.7 million (or 24.1%) for the three and six months ended June 30, 1995 compared to the same periods in 1994. Included in the second quarter of 1994 were certain operating charges of $6.4 million which related primarily to charges recorded to increase reserve levels for bankruptcy claims previously considered barred. Also contributing to the decrease is a $1.2 million and $1.5 million reduction in the baggage claims expense for the three and six months ended June 30, 1995 compared to the same periods in 1994, due to a new baggage handling policy put into place in October, 1994 which has reduced the number of baggage claims and also the payout on baggage claims. The automobile and general liability expense increased in the second quarter of 1995 due to the additional claims exposure related to the increased miles operated, as well as the impact of a change in the Company's claims management strategy. This strategy is expected to reduce insurance claims expense for automobile and general liability over the longer term. General and administrative expenses decreased $0.8 million (or 4.0%) and $1.3 million (or 3.4%) for the three and six months ended June 30, 1995 compared to the same periods in 1994, due in part, to a decrease in group insurance expense. In addition, included in the second quarter of 1994 were $1.1 million of certain operating charges which relate primarily to the write-down of certain assets to their realizable value. These decreases were partially offset by approximately $0.6 million and $1.5 million recorded in the three and six months ended June 30, 1995, respectively, to accrue for expense under the Company's management incentive plan. There was no similar expense recorded during 1994. Depreciation and amortization decreased by $5.5 million (or 43.9%) and $5.4 million (or 27.1%) for the three and six months ended June 30, 1995 as compared to the same periods in 1994, primarily due to an operating charge of $6.0 million taken in the second quarter of 1994 to recognize impairment of certain operating facilities which are less than fully utilized. 17 18 Operating taxes and licenses increased $0.2 million (or 1.9%) and $1.1 million (or 4.9%) for the three and six months ended June 30, 1995 as compared to the same periods in 1994, primarily as a result of a reserve recorded in the first quarter of 1995 for past sales taxes potentially owed on interstate bus tickets sold in Oklahoma. This increase is partially offset by a decrease in real estate taxes due to the closure of the New York City garage in early January 1995. Operating rental expense decreased by $0.9 million (or 7.5%) and $1.0 million (or 4.5%) for the three and six months ended June 30, 1995 as compared to the same periods in 1994, primarily due to the closing of several maintenance facilities. Operating rental expense for leased buses for the three month periods ended June 30, 1995 and 1994 was $5.6 million and $5.7 million, respectively, and for the six month periods ended June 30, 1995 and 1994 was $11.4 million and $10.7 million, respectively. Other operating expenses decreased $3.8 million (or 63.0%) and $3.9 million (or 51.7%) for the three and six months ended June 30, 1995 as compared to the same periods in 1994. Included in the three and six months ended June 30, 1994 are certain operating charges of $4.4 million and $4.9 million, respectively, which relate primarily to a $2.8 million write-down in 1994 taken to reflect the expected market value of real estate properties which were not being utilized by the Company and were expected to be sold. Interest Expense. For the six months ended June 30, 1995, interest expense was $13.9 million, including net expense of $0.2 million resulting from the interest rate swap agreements entered into during 1993 (see - "Capital Resources and Liquidity"). Interest expense decreased $1.7 million (or 10.8%) for the first six months of 1995 compared to 1994, due to the $3.8 million interest reduction related to the conversion of the Convertible Debentures (see - "Financial Restructuring"). This reduction was offset by increased expense paid on an installment note relating to bus purchase financing entered into during mid 1994. Also offsetting the reduction is the interest component of a settlement with the Internal Revenue Service for adjustments to prior year federal tax returns. The Company's weighted average interest rate on long-term debt at June 30, 1995 was 11.1%. Income Taxes. For the quarter ended March 31, 1994, the Company recorded an income tax benefit of $10.6 million as a result of its pre-tax loss. At that time, projections indicated that it was "more likely than not" that the income tax benefit would be utilized to offset future period income tax expense. At June 30, 1994, projections were revised, and the Company expected to have a net loss for the year. As a result, there was less of a likelihood that the Company would utilize the income tax benefit, and therefore, the income tax benefit recorded for the first quarter of 1994, was reversed during the second quarter of 1994. In 1995, the Company does not anticipate a profit and has not recorded any tax benefit for the six months ended June 30, 1995. 18 19 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS LABOR LITIGATION The ATU strike resulted in certain litigation before the NLRB relating to experience-based seniority. See Note 3 to the Interim Consolidated Financial Statements for the three and six months ended June 30, 1995, included elsewhere in this filing. DEPARTMENT OF JUSTICE INVESTIGATION The Antitrust Division of the DOJ has initiated an antitrust investigation to determine whether there is, has been, or may be a violation by the Company of Sections 1 and 2 of the Sherman Act by conduct or activities constituting a restraint of trade, monopolization or an attempt to monopolize. See Note 3 to the Interim Consolidated Financial Statements for the three and six months ended June 30, 1995, included elsewhere in this filing. OKLAHOMA SALES TAX CLAIM In January 1991, the Oklahoma Tax Commission ("OTC") filed a proof of claim with the Bankruptcy Court in connection with the Company's Chapter 11 bankruptcy case. The claim related to sales taxes which the OTC alleged were due and owing by the Company on interstate bus tickets sold in Oklahoma. See Note 3 to the Interim Consolidated Financial Statements for the three and six months ended June 30, 1995, included elsewhere in this filing. SECURITIES AND DERIVATIVE LITIGATION; SEC INVESTIGATION From August 1994 to May 1995, eight lawsuits were filed by various individuals and groups against the Company and certain other parties. The suits seek unspecified damages for securities law violations. In November 1994, a shareholder derivative lawsuit was filed against present directors and former officers and directors of the Company and the Company as a nominal defendant. In addition, on January 23, 1995, the Company received notice that the Securities and Exchange Commission is conducting a formal, non- public investigation into possible securities laws violations allegedly involving the Company and certain other parties. See Note 3 to the Interim Consolidated Financial Statements for the three and six months ended June 30, 1995, included elsewhere in this filing. INTERNAL REVENUE SERVICE EXAMINATION The IRS has conducted an examination of the Company's consolidated federal tax returns for the years 1987, 1988 and 1989. The Company and the IRS have settled all remaining contested issues. See Note 3 to the Interim Consolidated Financial Statements for the three and six months ended June 30, 1995, included elsewhere in this filing. CHRISS STREET & COMPANY, INC., ET AL V. GREYHOUND LINES, INC., ET AL In connection with its December 1994 financial restructuring, the Company stated that a majority of tendering holders of Convertible Debentures willing to participate in the selection would be entitled to nominate two qualified persons reasonably acceptable to the Company to serve on its Board of Directors. After a balloting process, the Company's Board of Directors determined that Stephen M. Peck and Ernest P. Werlin were the two most highly ranked nominees who were qualified to serve as directors of the Company and were reasonably acceptable to the Company. Messrs. Peck and Werlin were appointed to vacancies on the Board of Directors on May 31, 1995. On June 12, 1995, Chriss Street & Company, Inc. and James R. Moriarty, former holders of Convertible Debentures, filed a lawsuit against the Company and Messrs. Peck and Werlin seeking to invalidate the appointment of Messrs. Peck and Werlin to the Company's Board of Directors. See Note 3 to the Interim Consolidated Financial Statements for the three and six months ended June 30, 1995, included elsewhere in this filing. 19 20 OTHER LEGAL PROCEEDINGS In addition to the litigation discussed above, the Company is a defendant in various lawsuits arising in the ordinary course of business, primarily cases involving personal injury and property damage claims. Although these lawsuits involve a variety of different facts and theories of recovery, the majority arise from traffic accidents involving buses operated by the Company. The vast majority of these claims are covered by insurance for amounts in excess of the self-retention or deductible portion of the policies. Therefore, based on the Company's assessment of known claims and its historical claims payout pattern and discussion with legal and outside counsel and risk management personnel, management believes that there is no proceeding either threatened or pending against the Company or its subsidiaries relating to such personal injury and/or property damage claims arising out of the ordinary course of business that, if resolved against the Company, would be likely to have a material adverse effect on the business, financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ELECTION OF DIRECTORS On May 31, 1995, at the annual stockholders' meeting, Mr. Thomas G. Plaskett, Mr. Craig R. Lentzsch and Mr. Frank L. Nageotte were each elected to serve as Class I directors for three-year terms. In each case, the election was determined by a majority vote. Total stockholder votes for and withheld on the election of Mr. Plaskett were 47,971,092 and 557,134, respectively. Total stockholder votes for and withheld on the election of Mr. Lentzsch were 47,978,706 and 549,520, respectively. Total stockholder votes for and withheld on the election of Mr. Nageotte were 47,948,292 and 579,934, respectively. Mr. Alfred E. Osborne, Jr. continues to serve as a Class II director until his term expires in 1996. Mr. Herbert Abramson and Mr. Richard J. Caley continue to serve as Class III directors until their terms expire in 1997. Prior to the annual meeting, the Board of Directors appointed Mr. Stephen M. Peck and Mr. Ernest P. Werlin as Class II directors for the remaining terms expiring in 1996. These appointments were made to fill vacancies on the Board of Directors. APPROVAL OF 1995 LONG TERM STOCK INCENTIVE PLAN The 1995 Long Term Stock Incentive Plan (the "1995 Stock Incentive Plan") was adopted by the Board of Directors on February 27, 1995. The 1995 Stock Incentive Plan is designed to attract and retain capable employees and consultants and to provide them with long term incentives to continue their services to the Company, to maximize the value of the Company to its stockholder's and to permit them to acquire a continuing ownership interest in the Company. The aggregate number of shares of Common Stock in respect of which awards may be granted under the 1995 Stock Incentive Plan may not exceed 4,000,000 shares. On May 31, 1995, at the annual stockholders meeting, the 1995 Long Term Stock Incentive Plan was approved by a majority vote of the stockholders. Total votes for, against, abstentions and broker non-votes were 34,056,553, 1,803,806, 127,279 and 12,540,588, respectively. APPROVAL OF 1995 DIRECTORS' STOCK INCENTIVE PLAN The 1995 Directors' Stock Incentive Plan (the "1995 Directors' Incentive Plan") was adopted by the Board of Directors on February 27, 1995. The 1995 Directors' Incentive Plan is designed to attract and retain capable directors and to provide them with long-term incentives to continue their services to the Company, to maximize the value of the Company to its stockholders and to permit them to acquire a continuing ownership interest in the Company. Only directors who are not employees of the Company are eligible to receive options under the 1995 Directors' Incentive Plan. The aggregate numbers of shares of Common Stock in respect of which awards may be granted under the 1995 Directors' Incentive Plan may not exceed 300,000. On May 31, 1995, at the annual stockholders' meeting, the 1995 Directors' Stock Incentive Plan was approved by a majority vote of the stockholders. Total votes for, against, abstentions and broker non-votes were 34,578,329, 1,184,318, 224,991 and 12,540,588, respectively. ITEM 5. OTHER INFORMATION REGISTRATION STATEMENT On July 27, 1995, the Company filed a registration statement relating to the sale of up to 10,004,144 shares of Common Stock. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Registration Statement." 20 21 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS 4.1 - Indenture governing the 8 1/2 % Convertible Subordinated Debentures due March 31, 2007, including the form of 8 1/2 % Convertible Subordinated Debentures due March 31, 2007. (3) 4.2 - Indenture, dated October 31, 1991, between the Registrant and LaSalle National Bank, as Trustee, with respect to $165,000,000 principal amount of 10% Senior Notes due 2001, including form of 10% Senior Notes Due 2001. (1) 4.3 - First Supplemental Indenture to the Indenture between the Registrant and LaSalle National Bank, as Trustee. (3) 4.4 - Form of First Supplemental Indenture to the Indenture between the Registrant and Shawmut Bank Connecticut, N.A., as Trustee. (7) 4.5 - Rights Agreement, dated as of March 22, 1994, between the Registrant and Mellon Securities Trust Company, as Rights Agent. (4) 4.6 - Form of Promissory Note issued to holders of priority tax claims against the Registrant, including a schedule of holders of such notes and principal amounts thereof. (2) 4.7 - Amended and Restated Loan and Security Agreement dated as of October 13, 1994 by and between Greyhound Lines, Inc. and Foothill Capital Corporation. (6) 4.8 - Amendment Number One to Amended and Restated Loan and Security Agreement dated as of March 27, 1995 by and between Greyhound Lines, Inc. and Foothill Capital Corporation. (8) 4.9 - Second Amended and Restated Loan and Security Agreement dated as of June 5, 1995 by and between Greyhound Lines, Inc. and Foothill Capital Corporation. (9) 10.1 - Greyhound Lines, Inc. 1995 Long Term Stock Incentive Plan. (9) 10.2 - Greyhound Lines, Inc. 1995 Director's Stock Incentive Plan. (9) 10.3 - Employment Agreement dated July 25, 1995 between Registrant and Steven L. Korby. (9) 11 - Computation of Registrant's earnings per share for the three and six months ended June 30, 1994. (5) 11.1 - Computation of Registrant's earnings per share for the three and six months ended June 30, 1995. (9) 27 - Financial Data Schedule as of and for the six months ended June 30, 1995. (9)
(1) Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1991. (2) Incorporated by reference from the Registration Statement on Form S-1 (File Nos. 33-45060-01 and 33-45060-02) regarding the Registrant's 8 1/2% Convertible Subordinated Debentures Due 2007. (3) Incorporated by reference from the Company's Registration Statement on Form S-1 (File No. 33-47908) regarding the Registrant's Common Stock and 10% Senior Notes Due 2001 held by the Contested Claims Pool Trust. (4) Incorporated by reference from the Registrant's Quarterly Report on Form 8-K regarding the Rights Agreement dated March 22, 1994. (5) Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994. (6) Incorporated by reference from the Registration Statement on Form S-1 (File No. 33-56131) regarding the Registrant's Common Stock. (7) Incorporated herein by reference from the Registrant's Issuer Tender Offer Statement on Schedule 13E-4 (File No. 5-41800). (8) Incorporated by reference from the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. (9) Filed herewith. (B) REPORTS ON FORM 8-K During the quarter ended June 30, 1995, the Company filed no current reports on Form 8-K with the Securities and Exchange Commission, nor was it required to do so. 21 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 11, 1995 GREYHOUND LINES, INC. By: /s/ Steven L. Korby Steven L. Korby Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer) 22 23 INDEX TO EXHIBITS
EXHIBIT NUMBER EXHIBITS - ------ -------- 4.9 - Second Amended and Restated Loan and Security Agreement dated as of June 5, 1995 by and between Greyhound Lines, Inc. and Foothill Capital Corporation. 10.1 - Greyhound Lines, Inc. 1995 Long Term Stock Incentive Plan. 10.2 - Greyhound Lines, Inc. 1995 Directors' Stock Incentive Plan. 10.3 - Employment Agreement dated July 25, 1995, between Registrant and Steven L. Korby. 11.1 - Computation of Registrant's earnings per share for the three and six months ended June 30, 1995. 27 - Financial Data Schedule as of and for the six months ended June 30, 1995.
EX-4.9 2 AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT 1 EXHIBIT 4.9 ================================================================================ SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT by and between GREYHOUND LINES, INC. and FOOTHILL CAPITAL CORPORATION Dated as of June 5, 1995 ================================================================================ 2 TABLE OF CONTENTS
Page ---- 1. DEFINITIONS AND CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 1.3 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 1.4 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 1.5 Schedules and Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2. LOAN AND TERMS OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2.1 Revolving Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2.2 Letters of Credit and Letter of Credit Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2.3 Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.4 Overadvances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.5 Interest: Rate, Payments, and Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.6 Crediting Payments; Application of Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.7 Statements of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.8 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 3. CONDITIONS; TERM OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 3.1 Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 3.2 Conditions Precedent to All Advances, L/Cs, or L/C Guarantees . . . . . . . . . . . . . . . . . . . . . . . 26 3.3 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 3.4 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 3.5 Early Termination by Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 3.6 Partial Reductions of Tranche A Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 4. CREATION OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 4.1 Grant of Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 4.2 Negotiable Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 4.3 Collection of Accounts, General Intangibles, Negotiable Collateral . . . . . . . . . . . . . . . . . . . . 28 4.4 Delivery of Additional Documentation Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 4.5 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 4.6 Right to Inspect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 5.1 No Prior Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 5.2 Eligible Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 5.3 Location of Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 5.4 Location of Inventory and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3 5.5 Inventory Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 5.6 Location of Chief Executive Office; FEIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 5.7 Due Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 5.8 Due Authorization; No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 5.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 5.10 No Material Adverse Change in Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 5.11 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 5.12 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 5.13 Environmental Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 5.14 Compliance With The ADA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 5.15 Reliance by Foothill; cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 6.1 Accounting System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 6.2 Collateral Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 6.3 Schedules of Certain Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 6.4 Financial Statements, Reports, Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 6.5 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 6.6 Guarantor Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 6.7 Registration, Use, Maintenance, Identification of Vehicles . . . . . . . . . . . . . . . . . . . . . . . . 35 6.9 Title to Equipment other than Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.10 Maintenance of Equipment other than Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.12 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 6.13 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 6.14 No Setoffs or Counterclaims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 6.15 Location of Inventory and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 6.16 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 6.17 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 6.18 Environmental Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 6.19 Compliance With The ADA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 6.20 Second Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 7.1 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 7.2 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 7.3 Restrictions on Fundamental Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 7.4 Extraordinary Transactions and Disposal of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 7.5 Change Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 7.6 Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 7.7 Restructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 7.8 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 7.9 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 7.10 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ii 4 7.11 Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 7.12 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 7.13 Accounting Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 7.14 Advances, Investments and Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 7.15 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 7.16 Suspension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 7.17 Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 7.18 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 7.19 Change in Location of Chief Executive Office; Inventory and Equipment with Bailees . . . . . . . . . . . . 45 8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 9. FOOTHILL'S RIGHTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 9.1 Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 9.2 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 9.3 Foreclosure Not A Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 9.4 Release of Trust Monies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 10. TAXES AND EXPENSES REGARDING THE COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 11. WAIVERS; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 11.1 Demand; Protest; etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 11.2 Foothill's Liability for Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 11.3 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 12. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 14. DESTRUCTION OF BORROWER'S DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 15. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 15.1 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 15.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 15.3 Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 15.4 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 15.5 Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 15.6 Amendments in Writing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 15.7 Counterparts; Telefacsimile Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 15.8 Revival and Reinstatement of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 15.9 Lending Relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 15.10 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 15.11 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
iii 5 15.12 Post-Closing Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 15.13 Amendment and Restatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SCHEDULES Schedule C-1 Core Bus Collateral Schedule C-2 Core Real Property Collateral Schedule I-1 Existing Interest Rate Protection Agreements Schedule P-1 Permitted Liens Schedule R-1 Real Property Schedule R-2 Required Parcels Schedule 3.1 BT Mortgages Schedule 5.3 Vehicles Schedule 5.9 Litigation Schedule 5.12 Employee Benefits Schedule 6.12 Insurance Schedule 6.15 Location of Inventory and Equipment
iv 6 SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT This SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT, is entered into as of June 5, 1995, between FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill"), with a place of business located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333, and GREYHOUND LINES, INC., a Delaware corporation ("Borrower"), with its chief executive office located at 15110 N. Dallas Parkway, Dallas, Texas 75248. W I T N E S S E T H A. Borrower, and Foothill have previously entered into that certain Amended and Restated Loan and Security Agreement, dated as of October 13, 1994, as amended by that certain Amendment Number One to Amended and Restated Loan and Security Agreement, dated as of March 27, 1995 (the "Prior Agreement"); and B. Borrower and Foothill desire to amend and restate the Prior Agreement in its entirety in accordance with the terms and provisions of this Agreement. The parties agree as follows: 1. DEFINITIONS AND CONSTRUCTION. 1.1 Definitions. As used in this Agreement, the following terms shall have the following definitions: "Account Debtor" means any Person who is or who may become obligated under, with respect to, or on account of an Account. "Accounts" means all currently existing and hereafter arising accounts, contract rights, and all other forms of obligations owing to Borrower arising out of the sale or lease of goods or the rendition of services by Borrower, irrespective of whether earned by performance, and any and all credit insurance, guaranties, or security therefor. "Act" means all applicable present and future laws, regulations, statutes, common law, rules, ordinances, codes, licenses, permits, orders, approvals, authorizations, concessions, franchises, and similar items of any federal, state, or local government, instrumentality, or body related to Hazardous Materials, as the same may be amended, modified, or supplemented from time to time. "ADA" means the Americans with Disabilities Act, 42 U.S.C. Sections 12101, et. seq., and all applicable rules and regulations promulgated thereunder. 1 7 "Affiliate" means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For purposes of this definition, "control" as applied to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities, by contract, or otherwise. "Agreement" means this Second Amended and Restated Loan and Security Agreement and any extensions, riders, supplements, notes, amendments, or modifications to or in connection with this Second Amended and Restated Loan and Security Agreement. "Applicable Margin" means the percentage, per annum, set forth in the table below opposite the applicable Operating Ratio for the latest four (4) fiscal quarters (beginning with the four (4) quarters ended December 31, 1995):
Operating Ratio : Applicable Margin : - --------------------- ------------------------ less than 1.5:1.0 2.00% 1.5:1.0 or more but less than 2.0:1.0 1.75% 2.0:1.0 or more but less than 2.5:1.0 1.50% 2.5:1.0 or more but less than 3.0:1.0 1.25% 3.0:1.0 or more 1.00%
Changes in the Applicable Margin resulting from a change in the Operating Ratio, shall become effective on the first day of the second month of each fiscal quarter of Borrower, beginning February 1, 1996, and continuing on the first day of each May, August, November and February thereafter and shall be based on the Operating Ratio for the prior four (4) fiscal quarters as set forth in the certificate of Borrower's Chief Financial Officer delivered pursuant to Section 6.4. "Approved Bank" means any bank whose short-term rating from S&P is at least A-2 or the equivalent thereof or from Moody's is at least P-2 or the equivalent thereof. "Authorized Officer" means any officer of Borrower. "Average Unused Portion of Maximum Borrowing Amount" means the Maximum Borrowing Amount minus (a) the average Daily Balance of advances made by Foothill under Section 2.1 that were outstanding during the immediately preceding month and (b) the average Daily Balance of the undrawn L/Cs and L/C Guarantees issued by Foothill under Section 2.2 that were outstanding during the immediately preceding month. 2 8 "Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C. S 101 et seq.), as amended, and any successor statute. "Borrower" has the meaning set forth in the preamble to this Agreement. "Borrower's Books" means all of Borrower's books and records including: ledgers; records indicating, summarizing, or evidencing Borrower's properties or assets (including the Collateral) or liabilities; all information relating to Borrower's business operations or financial condition; and all computer programs, disc or tape files, printouts, runs, or other computer prepared information, and the equipment containing such information. "BT Mortgages" has the meaning set forth in Section 6.20. "Business Day" means any day which is not a Saturday, Sunday, or other day on which national banks are authorized or required to close. "Cash Equivalents" means: (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) having maturities of not more than twelve (12) months from the date of acquisition, (b) Dollar denominated time deposits, certificates of deposit and bankers acceptances of (x) any commercial bank having capital and surplus in excess of Two Hundred Million Dollars ($200,000,000) or (y) any Approved Bank, in each case with maturities of not more than six (6) months from the date of acquisition, (c) repurchase obligations with a term of not more than ninety (90) days for underlying securities of the types referred to in clause (a) above entered into with any bank or registered broker- dealer meeting the capitalization qualifications specified in clause (b) above, (d) commercial paper issued by any Approved Bank or by the parent company of any Approved Bank and commercial paper issued by, or guaranteed by, any industrial or financial company with a short-term commercial paper rating of at least A-2 or the equivalent thereof by S&P or at least P-2 or the 3 9 equivalent thereof by Moody's (any such company, an "Approved Company"), issued by, or guaranteed by any Approved Company with a long term unsecured debt rating of at least A or A2, or the equivalent of each thereof, from S&P or Moody's, as the case may be, and in each case maturing within six (6) months after the date of acquisition and (e) any fund or funds investing solely in investments of the type described in clauses (a) through (d) above. "Change of Control" shall be deemed to have occurred at such time as a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of more than fifty percent (50%) of the total voting power of all classes of stock then outstanding of Borrower normally entitled to vote in the election of directors. "Closing Date" means the date that all of the conditions set forth in Section 3.1 have been met. "Code" means the California Uniform Commercial Code. "Collateral" means each of the following: the Accounts; Borrower's Books; the Equipment; the General Intangibles; the Inventory; the Negotiable Collateral; the Vehicles; any money, or other assets of Borrower (other than buses) which now or hereafter come into the possession, custody, or control of Foothill; and the proceeds and products, whether tangible or intangible, of any of the foregoing including proceeds of insurance covering any or all of the Collateral, and any and all Accounts, Borrower's Books, Equipment, General Intangibles, Inventory, Negotiable Collateral, money, deposit accounts, or other tangible or intangible property resulting from the sale, exchange, collection, or other disposition of any of the foregoing, or any portion thereof or interest therein, and the proceeds thereof; provided, however, the term Collateral, as used herein, in no event shall include Real Property or any other real estate asset of the Borrower. "Consolidated EBITDA" means, for any period, with respect to Borrower, Consolidated Net Income of Borrower for such period (A) plus, without duplication and to the extent reflected as a charge in the consolidated income statement of Borrower for such period, the sum of (i) total income and franchise tax expense, (ii) interest expense, amortization or writeoff of debt discount and debt issuance costs and commissions and discounts and other fees and charges associated with Indebtedness, (iii) depreciation and amortization expense, (iv) amortization of intangibles (v) other noncash charges and (vi) any extraordinary and usual losses (including losses on sales of assets other than Inventory sold in the ordinary course of business) other than any loss from any discontinued operation and (B) minus, without duplication, any extraordinary and unusual gains (including gains on the 4 10 sales of assets, other than Inventory sold in the ordinary course of business) other than any income from discontinued operations. "Consolidated Net Income" means, for any period, with respect to Borrower, the amount which, in conformity with GAAP, would be set forth opposite the caption "Net Income/(Loss)" (or any like caption) on a consolidated income statement of Borrower and its Subsidiaries for such period. "Convertible Debentures" means Borrower's 8 1/2% Convertible Subordinated Debentures due March 31, 2007, as amended or supplemented. "Core Bus Collateral" means those vehicles which are owned by Borrower on the Closing Date and are listed on Schedule C-1. "Core Real Property Collateral" means that portion of the Real Property which is listed on Schedule C-2". "Current Asset Sublimit" means Three Million Five Hundred Thousand Dollars ($3,500,000). "Daily Balance" means the amount of an Obligation owed at the end of a given day. "Designated Payables" has the meaning set forth in Section 6.2. "Early Termination Premium" has the meaning set forth in Section 3.5. "Eligible Accounts" means those Accounts created by Borrower in the ordinary course of its scheduled or charter passenger bus transportation business, or its "package express" business (i.e. freight forwarding), that arise out of Borrower's rendition of scheduled or charter passenger transportation services or of "package express" services (net of any sales taxes comprising a part thereof), that strictly comply with all of Borrower's representations and warranties to Foothill, and that are and at all times shall continue to be acceptable to Foothill in all respects based upon Foothill's reasonable credit judgment in accordance with Foothill's customary business practices; provided, however, that standards of eligibility may be fixed and revised from time to time by Foothill based upon Foothill's reasonable credit judgment in accordance with Foothill's customary business practices. Until Borrower is notified to the contrary by Foothill, the foregoing Accounts shall be Eligible Accounts subject to the following exceptions: (a) Accounts that the Account Debtor has failed to pay within ninety (90) days of invoice date and all Accounts owed by an Account Debtor that has failed 5 11 to pay fifty percent (50%) or more if its Accounts owed to Borrower within ninety (90) days of invoice date; (b) Accounts with respect to which the Account Debtor is an officer, employee, Affiliate, or agent of Borrower; (c) Accounts with respect to which the payment by the Account Debtor may be conditional; (d) Accounts with respect to which the Account Debtor is not a resident of the United States unless supported by a letter of credit issued by a financial institution acceptable to Foothill in its sole and absolute discretion, or covered by credit insurance acceptable to Foothill in its sole and absolute discretion; (e) Accounts with respect to which the Account Debtor is the United States or any department, agency, or instrumentality of the United States; (f) Accounts with respect to which Borrower is or may become liable to the Account Debtor for goods sold or services rendered by the Account Debtor to Borrower; (g) Accounts with respect to an Account Debtor whose total obligations owing to Borrower exceed ten percent (10%) of all Eligible Accounts, but only to the extent of the obligations owing by such Account Debtor in excess of such percentage; (h) Accounts with respect to which the Account Debtor disputes liability or makes any claim with respect thereto, or is subject to any Insolvency Proceeding, or becomes insolvent, or goes out of business; (i) Accounts the collection of which Foothill, in its reasonable credit judgment, believes to be doubtful by reason of the Account Debtor's financial condition; (j) Accounts that are payable in other than United States Dollars; (k) Accounts that represent progress payments or other advance billings that are due prior to the completion of performance by Borrower of the subject contract for services; and (l) Unbilled accruals, Accounts respecting interline receivables, Accounts classified by Borrower as "other receivables" and Accounts arising out of agency stations cash receipts. 6 12 "Equipment" means all of Borrower's present and hereafter acquired machinery, machine tools, motors, equipment, furniture, furnishings, fixtures, tools, parts, dies, jigs, goods (other than buses, consumer goods, farm products, or Inventory), wherever located, and any interest of Borrower in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located; provided, however, "Equipment" shall not include (a) a fixture covered by the BT Mortgages unless and until a second lien in favor of Foothill is granted on the property and fixtures covered by the BT Mortgages in accordance with Section 6.20, or (b) any fixture located on any real estate other than the Real Property. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, or any predecessor, successor, or superseding laws of the United States of America, together with all regulations promulgated thereunder. "ERISA Affiliate" means any trade or business (whether or not incorporated) which, within the meaning of Section 414 of the IRC, is: (i) under common control with Borrower; (ii) treated, together with Borrower, as a single employer; (iii) treated as a member of an affiliated service group of which Borrower is also treated as a member; or (iv) is otherwise aggregated with the Borrower for purposes of the employee benefits requirements listed in IRC Section 414(m)(4). "ERISA Event" means any one or more of the following: (i) a Reportable Event with respect to a Qualified Plan or, to the knowledge of Borrower, a Multiemployer Plan; (ii) a Prohibited Transaction with respect to any Plan (other than a Multiemployer Plan); (iii) a complete or partial withdrawal by Borrower or any ERISA Affiliate from a Multiemployer Plan; (iv) the complete or partial withdrawal of Borrower or an ERISA Affiliate from a Qualified Plan during a plan year in which it was, or was treated as, a "substantial employer" as defined in Section 4001(a)(2) of ERISA; (v) a failure to make full payment when due of all amounts which, under the provisions of any Plan or applicable law, Borrower or any ERISA Affiliate is required to make; (vi) the filing of a notice of intent to terminate, or the treatment of a plan amendment as a termination, under Sections 4041 or 4041A of ERISA; (vii) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Qualified Plan or Multiemployer Plan; (viii) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon Borrower or any ERISA Affiliate; and (ix) a violation of the applicable requirements of Sections 404 or 405 of ERISA, or the exclusive benefit rule under Section 403(c) of ERISA, by any fiduciary or disqualified person with respect to any Plan for which Borrower or any ERISA Affiliate may be directly or indirectly liable. "Event of Default" has the meaning set forth in Section 8. "FEIN" means Federal Employer Identification Number. 7 13 "Fixed Asset Sublimit" means, at any given time of measurement, the sum of the Tranche A Borrowing Base and the Tranche B Borrowing Base, as each is then in effect pursuant to the terms of Sections 2.1(a)(ii) and (iii). "Foothill" has the meaning set forth in the preamble to this Agreement. "Foothill Expenses" means all: reasonable costs or expenses (including taxes, photocopying, notarization, telecommunication and insurance premiums) required to be paid by Borrower under any of the Loan Documents that are paid or advanced by Foothill; documentation, filing, recording, publication, appraisal (including periodic Collateral appraisals), real estate survey, real property taxes on any of the Real Property (should Foothill elect to pay them), environmental audit, and search fees assessed, paid, or incurred by Foothill, subject to the limitations of Section 2.8(c) where applicable; costs and expenses incurred by Foothill in preserving the value of the Collateral; costs and expenses incurred by Foothill in the disbursement of funds to Borrower (by wire transfer or otherwise); charges paid or incurred by Foothill resulting from the dishonor of checks; costs and expenses paid or incurred by Foothill to correct any default or enforce any provision of the Loan Documents, or, following an Event of Default, in gaining possession of, maintaining, handling, preserving, storing, shipping, selling, preparing for sale, or advertising to sell the Collateral, or any portion thereof, irrespective of whether a sale is consummated; reasonable costs and expenses paid or incurred by Foothill in examining Borrower's Books in accordance with the provisions of the Loan Documents; costs and expenses of third party claims or any other suit paid or incurred by Foothill in enforcing or defending the Loan Documents; and Foothill's reasonable attorneys fees and expenses incurred in advising, structuring, drafting, reviewing, administering, amending, terminating, enforcing (including reasonable attorneys fees and expenses incurred in connection with a "workout," a "restructuring," or an Insolvency Proceeding concerning Borrower or any guarantor of the Obligations), defending, or concerning the Loan Documents, irrespective of whether suit is brought. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States, consistently applied. "General Intangibles" means all of Borrower's present and future general intangibles, contract rights, rights arising under common law, statutes, or regulations, choses or things in action, goodwill, patents, trade names, trademarks, servicemarks, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements, infringements, claims, computer programs, computer discs, computer tapes, literature, reports, catalogs, deposit accounts, insurance premium rebates, tax refunds, and tax refund claims), other than goods and Accounts; provided, however, that "General Intangibles" shall not include any property (including any self-insurance reserve or deposit of Borrower or any of its Affiliates) or contract right the granting of a security interest in which would be prohibited by law or contract. 8 14 "Hazardous Materials" means: (a) those substances as defined as "hazardous substances," "hazardous materials," "toxic substances," or "solid waste" in the Comprehensive Environmental Response, Compensation and Liability Act, Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901 et seq. ("RCRA"), or the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq.; (b) those substances designated as a "hazardous substance" under or pursuant to the Federal Water Pollution Control Act, 33 U.S.C. Sections 1257 et seq., or defined as a "hazardous waste" under or pursuant to RCRA; (c) those substances listed in the United States Department of Transportation Table (40 CFR 172.101 and amendments thereto) or by the Environmental Protection Agency (or any successor agency) as hazardous substances (40 CFR Part 302 and amendments thereto); and (d) and any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority including, without limitation, any petroleum or petroleum products, radioactive materials, friable asbestos, urea formaldehyde foam insulation, transformers or other equipment that contained electric fluid containing levels of polychlorinated biphenyls, and radon gas, or which are classified as hazardous or toxic under any Act. All of the statutes, acts, codes, sections and tables listed above shall include all amendments, modifications and supplements thereto, together with all regulations promulgated pursuant to such statutes, acts, codes, sections and tables. "Indebtedness" means: (a) all obligations of Borrower for borrowed money; (b) all obligations of Borrower evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations of Borrower in respect of letters of credit, letter of credit guaranties, bankers acceptances, interest rate swaps, controlled disbursement accounts, or other financial products; (c) all obligations of Borrower under capitalized leases; (d) all obligations or liabilities of others secured by a lien or security interest on any property or asset of Borrower, irrespective of whether such obligation or liability is assumed; and (e) any obligation of Borrower guaranteeing or intended to guarantee (whether guaranteed, endorsed, co-made, discounted, or sold with recourse to Borrower) any indebtedness, lease, dividend, letter of credit, or other obligation of any other Person. "Indemnified Persons" means Foothill and its parents, subsidiaries and affiliates, attorneys, and each of their officers, directors, agents, employees, trustees, receivers, executors, and administrators, and the heirs, successors, and assigns of all of the foregoing. 9 15 "Insolvency Proceeding" means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other similar relief. "Interest Rate Protection Agreement" means any of the interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement or arrangement designed to hedge the risks for Borrower with respect to, or otherwise manage, interest rates, set forth on Schedule I-1. "Inventory" means all present and future inventory in which Borrower has any interest, including goods held for sale or lease or to be furnished under a contract of service and all of Borrower's present and future raw materials, work in process, finished goods, and packing and shipping materials, wherever located, and any documents of title representing any of the above. "IRC" means the Internal Revenue Code of 1986, as amended, and the regulations thereunder. "L/C" has the meaning set forth in Section 2.2(a). "L/C Guaranty" has the meaning set forth in Section 2.2(a). "Loan Documents" means this Agreement, the Stock Pledge, the Subsidiary Security Agreements, to the extent executed and delivered by Borrower pursuant to Section 2.1(a), the Lock Box Agreements, the Mortgages, any note or notes executed by Borrower and payable to Foothill, and any other agreement entered into in connection with this Agreement. "Lock Box" has the meaning provided in the respective Lock Box Agreements. "Lock Box Agreements" means those certain Depository Account Agreements, dated October 13, 1994 and October 14, 1994, respectively, each of which is among Borrower, Foothill, and one of the Lock Box Banks or any hereafter executed lockbox agreement with any new Lockbox Bank. "Lock Box Banks" means PNC Bank, Kentucky, Inc., Texas Commerce Bank National Association or any Approved Bank. "Losses" shall mean any and all losses, liabilities, contingent liabilities, damages, obligations, claims, contingent claims, actions, suits, proceedings, disbursements, penalties, costs, and expenses (including, without limitation, reasonable 10 16 attorneys' fees and costs of counsel retained by Foothill to monitor the proceedings and actions of Borrower in satisfying its obligations hereunder, and to advise and represent Foothill with respect to matters related hereto, including, without limitation, reasonable fees incurred pursuant to 11 U.S.C. and all other professional or consultants' fees and expenses), whether or not an action or proceeding is commenced or threatened. "Maturity Date" has the meaning set forth in Section 3.3. "Maximum Borrowing Amount" means, at any given time of measurement, the lesser of (i) the sum of the Current Asset Sublimit and the Fixed Asset Sublimit as each is then in effect or (ii) the Maximum Credit. "Maximum Credit" means at any given time, the lowest of (i) Seventy Three Million Five Hundred Thousand Dollars ($73,500,000), (ii) the sum of (A) Fifty-Five Million Dollars ($55,000,000) plus (B) the aggregate amount of commitments to participate in Foothill's interests in the financing arrangements hereunder obtained by Foothill after the date of this Agreement from Participants acceptable to Foothill who have entered into participation agreements with Foothill on terms and conditions satisfactory to Foothill, or (iii) the sum of (A) the Current Asset Sublimit plus (B) the amount of the Tranche A Borrowing Base then in effect, plus (C) the Maximum Tranche B Credit Amount. "Maximum Foothill Amount" means that portion of the Maximum Credit for which Foothill shall be responsible, exclusive of any participations with Participants. The Maximum Foothill Amount is Twenty Million Dollars ($20,000,000). "Maximum Tranche B Credit Amount" means Twenty Five Million Dollars ($25,000,000), as reduced from time to time pursuant to Section 3.7. "Moody's" means Moody's Investors Service, Inc. "Mortgages" means one or more mortgages, deeds of trust, or deeds to secure debt, executed by Borrower in favor of Foothill, or executed by Borrower in favor of a predecessor lender and assigned to Foothill, that encumber the Real Property and the related improvements thereto. "Multiemployer Plan" means a multiemployer plan as defined in Sections 3(37) or 4001(a)(3) of ERISA or Section 414 of the IRC in which employees of Borrower or an ERISA Affiliate participate or to which Borrower or any ERISA Affiliate contribute or are required to contribute. "Negotiable Collateral" means all of Borrower's present and future letters of credit, notes, drafts, instruments, the stock of the Pledged Subsidiaries, documents, personal property leases (wherein Borrower is the lessor), chattel paper, and Borrower's Books relating to any of the foregoing. 11 17 "Net Worth" means, as of the date any determination thereof is to be made, Borrower's total stockholder's equity, calculated on a consolidated basis. "Obligations" means all loans, advances, debts, principal, interest (including any interest that, but for the provisions of the Bankruptcy Code, would have accrued), contingent reimbursement obligations owing to Foothill under any outstanding L/Cs or L/C Guarantees, premiums, liabilities (including all amounts charged to Borrower's loan account pursuant to any agreement authorizing Foothill to charge Borrower's loan account), obligations, fees (including Early Termination Premiums), lease payments, guaranties, covenants, and duties owing by Borrower to Foothill of any kind and description pursuant to or evidenced by the Loan Documents, and further including all interest not paid when due and all Foothill Expenses that Borrower is required to pay or reimburse by the Loan Documents, by law, or otherwise. "Operating Ratio" means, for any rolling four (4) quarter period, with respect to Borrower, the ratio of (a) Consolidated EBITDA (minus interest income to the extent included in Consolidated EBITDA) to (b) consolidated interest expense of Borrower and its Subsidiaries net of interest income, in each case for interest expense or interest income as shown under the line item "Interest Expense" or "Interest Income", respectively, on the consolidated income statement of Borrower and its Subsidiaries for such period. "Overadvance" has the meaning set forth in Section 2.4. "Participant" means any Person, other than Foothill, that has committed to provide a portion of the financing contemplated herein. "PBGC" means the Pension Benefit Guaranty Corporation as defined in Title IV of ERISA, or any successor thereto. "Permitted Acquisition" means an acquisition by Borrower of a company (whether by stock or asset acquisition) which meets all of the following conditions: (i) the company acquired is in the bus transportation business; (ii) the company, once acquired by Borrower, will be wholly-owned by Borrower; and (iii) the purchase price paid by Borrower for such company, in the aggregate with the purchase price paid by Borrower for all other companies meeting the conditions of clauses (i) and (ii) of this definition during the term of this Agreement, is equal to or less than Fifteen Million Dollars ($15,000,000), including cash, notes issued and/or acquired funded debt. "Permitted Liens" means: (a) liens and security interests held by Foothill; (b) liens for unpaid taxes that are not yet due and payable or liens for real or personal property taxes that are being contested in good faith by Borrower; (c) liens and security interests set forth on Schedule P-1; (d) purchase money security interests and liens of lessors under capitalized leases to the extent that the acquisition or lease of the underlying asset was permitted under Section 7.10, and so long as the security interest or lien only secures the 12 18 purchase price of the asset; (e) easements, rights of way, reservations, covenants, conditions, restrictions, zoning variances, and other similar encumbrances that do not materially interfere with the use or value of the property subject thereto; (f) obligations and duties as lessee under any lease existing on the date of this Agreement; (g) exceptions listed in the title insurance or commitment therefor to be delivered by Borrower hereunder in respect of the Real Property; (h) liens (other than any lien imposed by ERISA) in respect of property or assets of Borrower imposed by law which were incurred in the ordinary course of business and which do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens, statutory landlord's liens, and other similar liens arising in the ordinary course of business, and (x) which do not in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of Borrower or (y) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture of sale of the property or asset subject to such lien; (i) liens (other than any lien imposed by ERISA) incurred or deposits made in the ordinary course of business of Borrower in connection with (x) workers' compensation, unemployment insurance and other types of social security, (y) to secure the performance of tenders, insurance policies, statutory obligations, customs bonds, bids, leases, government contracts, trade contracts, performance and return-of-money bonds and other similar obligations incurred in the ordinary course of business (exclusive of obligations in respect of borrowed money) or (z) surety, stay, appeal or judgments bonds, provided that the aggregate amount of cash and the fair market value of the property encumbered by liens described in this clause (z) shall not exceed Three Million Dollars ($3,000,000); (j) licenses, leases or subleases granted to third Persons not materially interfering with the ordinary course of business of Borrower; (k) liens arising from precautionary UCC (or other similar recording or notice statutes) financing statement filings regarding operating leases permitted pursuant to this Agreement; (l) deposits made in the ordinary course of business to secure liability for premiums to insurance carries; (m) any interest or title of a lessor, sublessor, or licensor under any lease or license agreement permitted by this Agreement; (n) liens on the assets or property of Borrower existing prior to the time such assets were acquired by Borrower and not incurred as a result of (or in connection with or in anticipation of) such acquisition; provided that such liens do not extend to or cover any property or assets of Borrower other than the property or assets so acquired; (o) liens of a banking institution encumbering deposits (including the right of set-off) held by such banking institutions incurred in the ordinary course of business and which are within general parameters customary within the banking industry; and (p) prior liens in favor of Bankers Trust Company on the Real Property subject to the BT Mortgages. "Permitted Note Redemptions" means the acquisition, redemption, conversion, exchange, or retirement of (i) up to Eighteen Million Dollars ($18,000,000) in face amount of Senior Notes; and (ii) up to Two Million Dollars ($2,000,000) in cash for Convertible Debentures at a price below their par value. "Person" means and includes natural persons, corporations, limited partnerships, general partnerships, joint ventures, trusts, land trusts, business trusts, 13 19 or other organizations, irrespective of whether they are legal entities, and governments and agencies and political subdivisions thereof. "Plan" means an employee benefit plan (as defined in Section 3(3) of ERISA) which Borrower or any ERISA Affiliate sponsors or maintains or to which Borrower or any ERISA Affiliate makes, is making, or is obligated to make contributions, including any Multiemployer Plan or Qualified Plan. "Pledged Subsidiaries" means VTC and TNM&O. "Prior Agreement" has the meaning given to such term in the Recitals. "Prohibited Transaction" means any transaction described in Section 406 of ERISA which is not exempt by reason of Section 408 of ERISA, and any transaction described in Section 4975(c) of the IRC which is not exempt by reason of Section 4975(c) of the IRC. "Qualified Plan" means a pension plan (as defined in Section 3(2) of ERISA) intended to be tax-qualified under Section 401(a) of the IRC which Borrower or any ERISA Affiliate sponsors, maintains, or to which any such person makes, is making, or is obligated to make, contributions, or, in the case of a multiple-employer plan (as described in Section 4064(a) of ERISA), has made contributions at any time during the immediately preceding period covering at least five (5) plan years, but excluding any Multiemployer Plan. "Quarterly Reduction" has the meaning given to such term in Section 2.1(a)(ii). "Real Property" means the parcel or parcels of real property and the related improvements thereto owned in fee by Borrower on the Closing Date, or leased by Borrower for which consent of the landlord is required and has been obtained and such leasehold has been heretofore mortgaged on the Closing Date, as identified on Schedule R-1, and any parcels of real property hereafter mortgaged to Foothill at the option of Borrower. "Reference Rate" means the highest of the variable rates of interest, per annum, most recently announced by (a) Bank of America, N.T. & S.A., (b) Mellon Bank, N.A., and (c) Citibank, N.A., or any successor to any of the foregoing institutions, as its "prime rate" or "reference rate," as the case may be, irrespective of whether such announced rate is the best rate available from such financial institution. "Remediate" and "Remediation" shall include, but not be limited to, the investigation of the environmental condition of the Real Property, the preparation of any feasibility studies, reports or remedial plans, and the performance of any cleanup, abatement, 14 20 removal, remediation, containment, operation and maintenance, monitoring or restoration work, whether on or off of the Real Property. "Reportable Event" means any event described in Section 4043 of ERISA (other than an event for which the thirty (30) day notice to PBGC is waived by regulations). "Required Parcels" means the parcels of Real Property identified on Schedule R-2. "S&P" means Standard & Poor's Ratings Group. "Senior Notes" means Borrower's 10% Senior Notes due July 31, 2001, as amended or supplemented. "Solvent" means, with respect to any Person on a particular date, that on such date (a) at fair valuations, all of the properties and assets of such Person are greater than the sum of the debts, including contingent liabilities, of such Person, (b) the present fair salable value of the properties and assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person is able to realize upon its properties and assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (d) such Person does not intend to, and does not believe that it will, incur debts beyond such Person's ability to pay as such debts mature, and (e) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's properties and assets would constitute unreasonably small capital after giving due consideration to the prevailing practices in the industry in which such Person is engaged. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount that, in light of all the facts and circumstances existing at such time, represents the amount that reasonably can be expected to become an actual or matured liability. "Stock Pledge" means that certain Security Agreement - Stock Pledge, of even date herewith, between T&V Holding Company and Foothill, as amended from time to time. "Subsidiary Security Agreements" means those certain security agreements to be executed by the Pledged Subsidiaries in order to grant to Foothill a security interest in the Tranche A Additional Collateral, if elected by Borrower pursuant to Section 2.1(a), together with any and all schedules and/or exhibits thereto, as such security agreements may be amended from time to time in accordance with the terms thereof. "TNM&O" means Texas, New Mexico & Oklahoma Coaches, Inc., a Texas corporation. 15 21 "Tranche A Additional Collateral" has the meaning set forth in Section 2.1(a)(ii). "Tranche A Borrowing Base" has the meaning set forth in Section 2.1(a)(ii). "Tranche B Borrowing Base" has the meaning set forth in Section 2.1(a)(iii). "Tranche B Collateral" means any bus (i) which is owned by Borrower or any of its subsidiaries, (ii) in which Foothill has been granted a first priority perfected security interest to support the Tranche B Borrowing Base in accordance with Section 2.1(a)(iii), (iii) which has not otherwise been pledged to Foothill, and (iv) which, at the time of such pledge, is not more than twelve (12) months old, with the exception of the 1994 buses which may be fourteen (14) months old. "Unfunded Benefit Liability" means the excess of a Plan's benefit liabilities (as defined in Section 4001(a)(16) of ERISA) over the current value of such Plan's assets, determined in accordance with the assumptions used by the Plan's actuaries for funding the Plan pursuant to Section 412 of the IRC for the applicable plan year. "Unused Line Fee" has the meaning set forth in Section 2.8(b). "Vehicles" means all of Borrower's buses and motor vehicles set forth on Schedule 5.3 together with any buses and motor vehicles of Borrower that are pledged by Borrower or one of the Pledged Subsidiaries as Tranche A Additional Collateral or Tranche B Collateral, as agreed between Borrower and Foothill and added to Schedule 5.3. "VTC" means Vermont Transit Co., Inc., a Vermont corporation. "Voidable Transfer" has the meaning set forth in Section 15.8. 1.2 Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. When used herein, the term "financial statements" shall include the notes and schedules thereto. Whenever the term "Borrower" is used in respect of a financial covenant or a related definition, it shall be understood to mean Borrower on a consolidated basis unless the context clearly requires otherwise. 1.3 Code. Any terms used in this Agreement which are defined in the Code shall be construed and defined as set forth in the Code unless otherwise defined herein. 16 22 1.4 Construction. Unless the context of this Agreement clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the term "including" is not limiting, and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Section, subsection, clause, schedule, and exhibit references are to this Agreement unless otherwise specified. Any reference in this Agreement or in the Loan Documents to this Agreement or any of the Loan Documents shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, and supplements, thereto and thereof, as applicable. 1.5 Schedules and Exhibits. All of the schedules and exhibits attached to this Agreement shall be deemed incorporated herein by reference. 2. LOAN AND TERMS OF PAYMENT. 2.1 Revolving Advances. (a) Subject to the terms and conditions of this Agreement, including the amount of the Maximum Credit and the Maximum Borrowing Amount, Foothill agrees to make revolving advances to Borrower in an amount not to exceed the sum of: (i) the lesser of: (x) eighty-five percent (85%) of Borrower's Eligible Accounts, net of reserves established pursuant to Section 2.1(b); (y) an amount equal to Borrower's total cash collections from all sources for the immediately preceding thirty (30) calendar day period; and (z) the Current Asset Sublimit; plus (ii) Thirty-Five Million Dollars ($35,000,000), which amount is subject to reduction and/or increase in accordance with the terms of this Section 2.1(a)(ii) and Section 3.6 (the "Tranche A Borrowing Base"). The amount of the Tranche A Borrowing Base shall automatically be reduced in amounts which equal: (1) One Million Two Hundred Fifty Thousand Dollars ($1,250,000) per quarter (the "Quarterly Reduction"), commencing April 1, 1996 and continuing on the first day of each July, October, January and April thereafter; (2) the higher of (x) one hundred percent (100%) of the net proceeds received from the sale of any of the Core Bus Collateral after the date of this Agreement and (y) the minimum release price for the Core Bus Collateral to be established by Foothill in its reasonable credit judgment; (3) the higher of (x) one hundred percent (100%) of the net proceeds received from the sale of any of the Core Real Property Collateral after the date of this Agreement and (y) the minimum release price for the Core Real Property Collateral to be established by Foothill in its sole and absolute discretion; and (4) ten percent (10%) of the net proceeds, which exceed an aggregate total of Fifteen Million Dollars ($15,000,000), from the sale, subsequent to January 1, 1995, of any Real Property (other than Core Real Property Collateral). 17 23 The Tranche A Borrowing Base may be increased by an amount not greater than Ten Million Dollars ($10,000,000) to a maximum amount of Forty-Five Million Dollars ($45,000,000) if Borrower elects, prior to September 30, 1995, to grant to Foothill a first priority perfected security interest in all of the then owned personal property of the Pledged Subsidiaries, wherever located, of every type and description, including approximately one hundred fifteen (115) buses (the "Tranche A Additional Collateral"). The amount of such increase shall be determined by Foothill in its reasonable credit judgment based upon Foothill's review of a third party appraisal of the bus portion of the Tranche A Additional Collateral, but in no event shall the amount of such increase exceed the lesser of eighty percent (80%) of the bulk wholesale value or orderly liquidation value of the bus portion of such Collateral. Upon Foothill's approval of any increase in the Tranche A Borrowing Base based upon the Tranche A Additional Collateral but prior to any increase in the Tranche A Borrowing Base being made available to Borrower, Borrower shall take, or cause the Pledged Subsidiaries to take, such actions with respect to the Tranche A Additional Collateral as Foothill shall require in accordance with Section 4.4. In the event that the Tranche A Borrowing Base is increased in accordance with this Section 2.1(a)(ii), then the amount of the Quarterly Reduction shall be increased by three and fifty seven one hundredths of one percent (3.57%) of the increase in the Tranche A Borrowing Base. plus (iii) such amount as shall be made available in accordance with the terms of this Section 2.1(a)(iii) (the "Tranche B Borrowing Base"). The amount of the Tranche B Borrowing Base shall be equal to seventy-five percent (75%) (rounded down to the nearest One Million Dollar ($1,000,000) if the amount over a One Million Dollar ($1,000,000) increment is Five Hundred Thousand Dollars ($500,000), or less, or rounded up to the nearest One Million Dollar ($1,000,000) increment if the amount over a One Million Dollar ($1,000,000) increment is more than Five Hundred Thousand Dollars ($500,000)) of Borrower's actual cost (excluding costs of acquisition and transportation) of the Tranche B Collateral in which Foothill has been granted a first priority perfected security interest from time to time by Borrower to either activate or increase, as the case may be, the Tranche B Borrowing Base; provided, however, the availability and amount of the Tranche B Borrowing Base is subject to the amount of the Maximum Credit, and in no event shall the amount of the Tranche B Borrowing Base ever exceed the Maximum Tranche B Credit Amount; provided, further, prior to the activation or any increase, as the case may be, of the Tranche B Borrowing Base, Borrower shall have taken such actions with respect to such Tranche B Collateral as Foothill shall require in accordance with Section 4.4. For each separate item of Tranche B Collateral pledged to Foothill in accordance with the terms of this Section 2.1(a)(iii), the Tranche B Borrowing Base shall thereafter be reduced on the first day of the thirteenth month following the date that such Tranche B Collateral was pledged to Foothill, and continuing on the first day of each third month thereafter by an amount equal to five percent (5%) of the Tranche B Borrowing Base attributable to such Tranche B Collateral pledged to Foothill. Concurrently with each such quarterly reduction, Borrower shall make a principal reduction payment to Foothill in such amount as shall be required in order to reduce the principal balance of advances owing under the Tranche B Borrowing Base to the amount of the Tranche B Borrowing Base, as so reduced on such date, together with all accrued but unpaid 18 24 interest on the amount of such principal reduction payment calculated in accordance with Section 2.5. At Borrower's request, so long as an Event of Default is not continuing, Foothill shall release any security interests previously granted to it in and upon the Tranche B Collateral, or any portion thereof; provided, however, that concurrently therewith, the Tranche B Borrowing Base shall be reduced to an amount equal to seventy-five percent (75%) (rounded down to the nearest One Million Dollar ($1,000,000) increment) of Borrower's actual cost (excluding costs of acquisition and transportation) of the Tranche B Collateral, if any, which thereafter remains subject to Foothill's security interest; provided, further, that prior to any release of the Tranche B Collateral, Borrower shall have made a principal reduction payment to Foothill in such amount as shall be required in order to reduce the principal balance of advances owing under the Tranche B Borrowing Base to the amount of the Tranche B Borrowing Base, as reduced by the amount of such release of the Tranche B Collateral, together with all accrued but unpaid interest on the amount of such principal reduction payment. (b) Anything to the contrary in Section 2.1(a) notwithstanding, Foothill may reduce its advance rates based upon Eligible Accounts, and may reduce the Tranche A Borrowing Base and/or the Tranche B Borrowing Base (in addition to the automatic reductions provided in Sections 2.1(a)(ii) and (iii)), without declaring an Event of Default if it determines, in its reasonable judgment exercised in good faith in accordance with Foothill's customary business practices, that there is a material impairment of the prospect of repayment of all or any portion of the Obligations or a material impairment of the value or priority of Foothill's security interests in the Collateral, the Tranche A Additional Collateral and/or the Tranche B Collateral; provided, however, that such determinations with respect to a reduction of the Tranche A Borrowing Base and/or the Tranche B Borrowing Base shall be based on the value of Vehicles, Real Property, the Tranche A Additional Collateral and/or the Tranche B Collateral determined by Foothill's periodic (but not more frequently than once per year) appraisals. In addition, Foothill may impose reserves in respect of Designated Payables if Borrower has become delinquent in the payment thereof. (c) Foothill shall have no obligation to make advances hereunder to the extent they would cause the outstanding Obligations to exceed the lesser of: (i) the Maximum Credit, or (ii) the Maximum Borrowing Amount. (d) Borrower agrees to establish and maintain a single designated deposit account for the purpose of receiving the proceeds of the advances requested by Borrower and made by Foothill hereunder. Unless otherwise agreed by Foothill and Borrower in writing, any advance requested by Borrower and made by Foothill hereunder shall be made to such designated deposit account. Foothill is authorized to make advances under this Agreement to the designated deposit account based upon telephonic or other instructions received from anyone purporting to be an Authorized Officer of Borrower, or without instructions if pursuant to Section 2.5(d). Amounts borrowed pursuant to this Section 2.1 may be repaid and, subject to the terms and conditions of this Agreement, reborrowed at any time during the term of this Agreement. 19 25 2.2 Letters of Credit and Letter of Credit Guarantees. (a) Subject to the terms and conditions of this Agreement, Foothill agrees to issue commercial or standby letters of credit for the account of Borrower (each, an "L/C") or to issue standby letters of credit or guarantees of payment (each such letter of credit or guaranty, an "L/C Guaranty") with respect to commercial or standby letters of credit issued by another Person for the account of Borrower in an aggregate face amount not to exceed the lesser of: (i) the amount of the Fixed Asset Sublimit then in effect plus Borrower's credit availability under Section 2.1(a)(i) (assuming for purposes of this calculation that advances under such Section were zero) less the amount of advances outstanding pursuant to Section 2.1, and (ii) Twenty Five Million Dollars ($25,000,000). Borrower expressly understands and agrees that Foothill shall have no obligation to arrange for the issuance by other financial institutions of letters of credit that are to be the subject of L/C Guarantees. Borrower and Foothill acknowledge and agree that certain of the letters of credit that are to be the subject of L/C Guarantees may be outstanding on the Closing Date. Each such L/C and L/C Guaranty shall have an expiry date no later than sixty (60) days prior to the date on which this Agreement is scheduled to terminate under Section 3.3 (without regard to any potential renewal term) and all such L/Cs and L/C Guarantees shall be in form and substance acceptable to Foothill in its sole discretion. Foothill shall not have any obligation to issue L/Cs or L/C Guarantees to the extent that the face amount of all outstanding L/Cs and L/C Guarantees, plus the amount of advances outstanding pursuant to Section 2.1, would exceed the lesser of: (y) the Maximum Credit, or (z) the Maximum Borrowing Amount. The L/Cs and the L/C Guarantees issued under this Section 2.2 shall be used by Borrower, consistent with this Agreement, for its general corporate purposes. If Foothill is obligated to advance funds under an L/C or L/C Guaranty, the amount so advanced immediately shall be deemed to be an advance made by Foothill to Borrower pursuant to Section 2.1 and, thereafter, shall bear interest at the rates then applicable under Section 2.5. (b) Borrower hereby agrees to indemnify, save, defend, and hold Foothill harmless from any loss, cost, expense, or liability, including payments made by Foothill, reasonable expenses, and reasonable attorneys fees incurred by Foothill arising out of or in connection with any L/Cs or L/C Guarantees. Borrower agrees to be bound by the issuing bank's regulations and reasonable interpretations of any letters of credit backed by an L/C Guaranty and opened to or for Borrower's account or by Foothill's reasonable interpretations of any L/C issued by Foothill to or for Borrower's account, even though this interpretation may be different from Borrower's own, and Borrower understands and agrees that Foothill shall not be liable for any error, negligence, or mistakes, whether of omission or commission, in following Borrower's instructions or those contained in the L/Cs or any modifications, amendments, or supplements thereto. Borrower understands that the L/C Guarantees may require Foothill to indemnify the issuing bank for certain costs or liabilities arising out of claims by Borrower against such issuing bank. Borrower hereby agrees to indemnify, save, defend, and hold Foothill harmless with respect to any loss, cost, expense (including reasonable attorneys fees), or liability incurred by Foothill under any L/C Guaranty as a result of Foothill's indemnification of any such issuing bank. 20 26 (c) Borrower hereby authorizes and directs any bank that issues a letter of credit backed by an L/C Guaranty to deliver to Foothill all instruments, documents, and other writings and property received by the issuing bank pursuant to the letter of credit, and to accept and rely upon Foothill's instructions and agreements with respect to all matters arising in connection with the letter of credit and the related application. Borrower may or may not be the "applicant" or "account party" with respect to such letter of credit. (d) Any and all service charges, commissions, fees, and costs incurred by Foothill relating to letters of credit backed by L/C Guarantees shall be considered Foothill Expenses for purposes of this Agreement and immediately shall be reimbursable by Borrower to Foothill subject to Section 2.5(d). On the first day of each month, Borrower will pay Foothill a fee equal to two percent (2.0%) per annum times the average Daily Balance of the undrawn L/Cs and L/C Guarantees that were outstanding during the immediately preceding month. Service charges, commissions, fees, and costs may be charged to Borrower's loan account at the time the service is rendered or the cost is incurred. (e) Immediately upon the termination of this Agreement, Borrower agrees to either: (i) provide cash collateral to be held by Foothill in an amount equal to the maximum amount of Foothill's obligations under L/Cs plus the maximum amount of Foothill's obligations to any Person under outstanding L/C Guarantees, or (ii) cause to be delivered to Foothill releases of all of Foothill's obligations under its outstanding L/Cs and L/C Guarantees. At Foothill's discretion, any proceeds of Collateral received by Foothill after the occurrence and during the continuation of an Event of Default may be held as the cash collateral required by this Section 2.2(e). 2.3 Intentionally Omitted. 2.4 Overadvances. If, at any time or for any reason, the amount of Obligations owed by Borrower to Foothill pursuant to Sections 2.1 and 2.2 is greater than either the dollar or percentage limitations set forth in Sections 2.1 or 2.2 (an "Overadvance"), Borrower immediately shall pay to Foothill, in cash, the amount of such excess to be used by Foothill first, to repay non-contingent Obligations and, thereafter, to be held by Foothill as cash collateral to secure Borrower's obligation to repay Foothill for all amounts paid pursuant to L/Cs or L/C Guarantees. 2.5 Interest: Rate, Payments, and Calculations. (a) Interest Rate. All Obligations, except for undrawn L/Cs and L/C Guarantees, shall bear interest, on the average Daily Balance, from the Closing Date to and including January 31, 1996, at a per annum rate equal to the Reference Rate plus two percent (2%), and thereafter at a per annum rate equal to the Reference Rate plus the Applicable Margin then in effect. 21 27 (b) Default Rate. All Obligations, except for undrawn L/Cs and L/C Guarantees, shall bear interest, from and after the occurrence and during the continuance of an Event of Default, at a per annum rate equal to four (4.0) percentage points above the Reference Rate. From and after the occurrence and during the continuance of an Event of Default, the fee provided in Section 2.2(d) shall be increased to a fee equal to four percent (4.0%) per annum times the average Daily Balance of the undrawn L/Cs and L/C Guarantees that were outstanding during the immediately preceding month. (c) Minimum Interest. In no event shall the rate of interest chargeable hereunder be less than six percent (6%) per annum. (d) Payments. Interest hereunder shall be due and payable on the first day of each month during the term hereof. Borrower hereby authorizes Foothill, at its option, without prior notice to Borrower, to charge such interest, all Foothill Expenses (as and when incurred), and all installments or other payments due under any other Loan Document to Borrower's loan account, which amounts shall thereafter accrue interest at the rate then applicable hereunder. To extent it is practicable to do so, Foothill shall provide notice to Borrower of the nature and amount of any such Foothill Expenses prior to same being charged to Borrower's account; provided, however, that any failure by Foothill to provide such notice to Borrower shall not in any way diminish Borrower's obligation to reimburse Foothill for such Foothill Expenses or impair Foothill's right to receive the same; provided, further that if Foothill is unable to give prior notice to Borrower of the Foothill Expenses or any other payments due (other than interest and fees), Foothill will, in all events, give subsequent detailed notice to Borrower of such charges and the constituent amounts. Any such Foothill Expenses which are charged to Borrower's account at or prior to 9:00 a.m., Los Angeles time shall be credited that same day, and if after such time, then credited on the next Business Day. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder. (e) Computation. The Reference Rate as of this date is nine percent (9%) per annum. In the event the Reference Rate is changed from time to time hereafter, the applicable rate of interest hereunder automatically and immediately shall be increased or decreased by an amount equal to such change in the Reference Rate. The rates of interest charged hereunder shall be based upon the average Reference Rate in effect during the month. All interest and fees chargeable under the Loan Documents shall be computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed. (f) Intent to Limit Charges to Maximum Lawful Rate. In no event shall the interest rate or rates payable under this Agreement, plus any other amounts paid in connection herewith, exceed the highest rate permissible under any law that a court of competent jurisdiction shall, in a final determination, deem applicable. Borrower and Foothill, in executing this Agreement, intend to legally agree upon the rate or rates of interest and manner of payment stated within it; provided, however, that, anything contained herein to the contrary notwithstanding, if said rate or rates of interest or manner of payment exceeds the 22 28 maximum allowable under applicable law, then, ipso facto as of the date of this Agreement, Borrower is and shall be liable only for the payment of such maximum as allowed by law, and payment received from Borrower in excess of such legal maximum, whenever received, shall be applied to reduce the principal balance of the Obligations to the extent of such excess. 2.6 Crediting Payments; Application of Collections. The receipt of any wire transfer of funds, check, or other item of payment by Foothill (whether from transfers to Foothill by the Lock Box Banks pursuant to the Lock Box Agreements or otherwise) immediately shall be applied to provisionally reduce the Obligations, but shall not be considered a payment on account unless such wire transfer is of immediately available federal funds and is made to the appropriate deposit account of Foothill or unless and until such check or other item of payment is honored when presented for payment. Should any check or item of payment not be honored when presented for payment, then Borrower shall be deemed not to have made such payment, and interest shall be recalculated accordingly. Anything to the contrary contained herein notwithstanding, any wire transfer, check, or other item of payment shall be deemed received by Foothill on a Business Day only if it is received into Foothill's Operating Account (as such account is identified in the Lock Box Agreements) on or before 11:00 a.m. Los Angeles time on such Business Day. If any wire transfer, check, or other item of payment is received into Foothill's Operating Account (as such account is identified in the Lock Box Agreements) after 11:00 a.m. Los Angeles time it shall be deemed to have been received by Foothill as of the opening of business on the immediately following Business Day. 2.7 Statements of Obligations. Foothill shall render statements to Borrower of the Obligations, including principal, interest, fees, and including an itemization of all charges and expenses constituting Foothill Expenses owing or previously charged to the loan account, and such statements shall be conclusively presumed to be correct and accurate, absent manifest error, and constitute an account stated between Borrower and Foothill unless, within sixty (60) days after receipt thereof by Borrower, Borrower shall deliver to Foothill by registered or certified mail at its address specified in Section 12, written objection thereto describing the error or errors contained in any such statements. 2.8 Fees. Borrower shall pay to Foothill the following fees: (a) Closing Fee. A one time closing fee of Two Hundred Fifty Thousand Dollars ($250,000) which is earned, in full, on the Closing Date and is due and payable by Borrower to Foothill in connection with this Agreement on the Closing Date; (b) Unused Line Fee. On the first day of each month during the term of this Agreement, commencing July 1, 1995, a fee in an amount equal to three-eighths of one percent (0.375%) per annum times the Average Unused Portion of the Maximum Borrowing Amount (the "Unused Line Fee"); (c) Financial Examination, Documentation, and Appraisal Fees. Foothill's customary fee of Six Hundred Fifty Dollars ($650) per day per examiner, plus 23 29 out-of-pocket expenses for each periodic financial analysis and examination of Borrower performed by Foothill or its agents; fees and costs of outside appraisers used by Foothill to periodically appraise the Vehicles, the Real Property, the Additional Tranche A Collateral or the Tranche B Collateral, not more frequently than annually prior to the occurrence of an Event of Default; and, on each anniversary of the Closing Date, Foothill's customary fee of One Thousand Dollars ($1,000) per year for its loan documentation review; (d) Administrative Fee. On the first day of each month during the term of this Agreement, and thereafter so long as any Obligations are outstanding, and on the Maturity Date, an administrative fee in an amount equal to Thirty- Five Thousand Dollars ($35,000) per month, commencing June 1995; provided, however, such administrative fee shall be reduced to Thirty Thousand Dollars ($30,000) per month if Borrower's Operating Ratio is 2.0:1.0 or greater for the prior four fiscal quarters as set forth in the Certificate of Borrower's Chief Financial Officer delivered pursuant to Section 6.4. The change in the amount of the administrative fee resulting from a change in the Operating Ratio shall first be eligible on June 1, 1996; and (e) Additional Fees. Immediately upon any increase in the Maximum Credit resulting from Foothill receiving additional commitments from existing or new Participants, Borrower shall pay Foothill a fee in the amount of one and one- quarter percent (1.25%) of the increase in the Maximum Credit. Such fee shall be fully earned and non-refundable when paid. 3. CONDITIONS; TERM OF AGREEMENT. 3.1 Conditions Precedent to This Agreement. The obligation of Foothill to amend and restate the Prior Agreement in accordance with this Agreement is subject to the fulfillment, to the reasonable satisfaction of Foothill and its counsel, of each of the following conditions on or before June 5, 1995: (a) On the Closing Date and after giving effect to all borrowings maintained and incurred on such date hereto, there shall exist no Event of Default under the Prior Agreement, including, without limitation, all representations and warranties contained in the Prior Agreement 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 Closing Date unless such representation and warranty expressly indicates that it is being made as of any specific date; (b) Foothill shall have received the Stock Pledge duly executed, and such document shall be in full force and effect, and Foothill shall have received the stock certificates representing all of the issued and outstanding stock of the Pledged Subsidiaries owned by Borrower, together with stock powers endorsed in blank relating thereto; 24 30 (c) Foothill shall have received all of the fees due hereunder on the Closing Date; (d) Foothill shall have received a certificate from the Secretary or Assistant Secretary of Borrower attesting to the resolutions of Borrower's Board of Directors authorizing its execution and delivery of this Agreement and the other Loan Documents to which Borrower is a party and authorizing specific officers of Borrower to execute same; (e) Foothill shall have received copies of any amendments to Borrower's By-laws and Certificate of Incorporation since the date of the Prior Agreement certified by the Secretary or Assistant Secretary of Borrower; (f) Foothill shall have received a certificate of corporate status with respect to Borrower, dated within ten (10) days of the Closing Date, by the Secretary of State of the state of incorporation of Borrower, which certificate shall indicate that Borrower is in good standing in such state; (g) Foothill shall have received certificates of corporate status with respect to Borrower, each dated within fifteen (15) days of the Closing Date, such certificates to be issued by the Secretary of State of the states in which its failure to be duly qualified or licensed would have a material adverse effect on the financial condition or properties and assets of Borrower, which certificates shall indicate that Borrower is in good standing; (h) Foothill shall have received certificates respecting each of the policies of insurance, together with the endorsements thereto, as are required by Section 6.12, the form and substance of which shall be satisfactory to Foothill and its counsel, and Borrower will provide Foothill with certified copies of the same as soon as possible after the Closing Date; (i) Foothill shall have received an original mortgage, an amended and restated mortgage or an amendment to an existing Mortgage, as Foothill in its sole and absolute discretion shall require, together with an absolute assignment of leases and rents, on all of the Required Parcels; (j) Foothill shall have received original policies of title insurance or endorsements to existing policies of title insurance on all of the Required Parcels; (k) Foothill shall have received amendments to all of the Mortgages that are not covered by Section 3.1(i); (l) Foothill shall have received fully executed participation agreements from Participants for not less than Thirty-Five Million Dollars ($35,000,000); and 25 31 (m) all other legal opinions, documents, and legal matters in connection with the transactions contemplated by this Agreement, shall have been completed and delivered or executed or recorded and shall be in form and substance satisfactory to Foothill and its counsel. 3.2 Conditions Precedent to All Advances, L/Cs, or L/C Guarantees. The following shall be conditions precedent to all advances, L/Cs, or L/C Guarantees hereunder: (a) the representations and warranties contained in this Agreement and the other Loan Documents shall be true and correct in all material respects on and as of the date of such advance, L/C, or L/C Guaranty, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date); (b) no Event of Default or event which with the giving of notice or passage of time would constitute an Event of Default shall have occurred and be continuing on the date of such advance, L/C, or L/C Guaranty, nor shall either result from the making of the advance; and (c) no injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the making of such advance or the issuance of such L/C or L/C Guaranty shall have been issued and remain in force by any governmental authority against Borrower, Foothill, or any of their Affiliates. 3.3 Term. This Agreement shall become effective upon the execution and delivery hereof by Borrower and Foothill, and the fulfillment of all of the conditions in Section 3.1, and shall continue in full force and effect for a term ending on May 31, 1998 (the "Maturity Date"), unless sooner terminated pursuant to the terms hereof. The foregoing notwithstanding, Foothill shall have the right to terminate its obligations under this Agreement immediately and without notice upon the occurrence and during the continuation of an Event of Default. 3.4 Effect of Termination. On the date of termination, all Obligations (including any cash collateral required to be paid pursuant to Section 2.2(e)(i) in respect of contingent reimbursement obligations under any outstanding L/Cs or L/C Guarantees; and any accrued but unpaid portions of the Unused Line Fee) immediately shall become due and payable without notice or demand. No termination of this Agreement, however, shall relieve or discharge Borrower of Borrower's duties, Obligations, or covenants hereunder, and Foothill's continuing security interests in the Collateral shall remain in effect until all Obligations have been fully and finally discharged and Foothill's obligation to provide advances hereunder is terminated. 26 32 3.5 Early Termination by Borrower. Borrower has the option, at any time upon ninety (90) days prior written notice to Foothill, to terminate this Agreement prior to the Maturity Date by paying to Foothill, in cash, the Obligations (including an amount equal to the full amount of the L/Cs or L/C Guarantees to be held as cash collateral), provided, however, that such prepayment shall also be accompanied by a premium (the "Early Termination Premium") in an amount equal to that percent of the Maximum Credit, in effect at the time of such termination, which is indicated in the table below opposite the applicable period in which such termination occurs:
Period : Percent of Maximum Credit: -------------------------------------------------------- ------------------------- Closing Date to and including May 31, 1996 2% June 1, 1996 to and including May 31, 1997 1% June 1, 1997 up to, but not including, 1/8% the Maturity Date
3.6 Partial Reductions of Tranche A Borrowing Base. Borrower has the option, from time to time after April 1, 1996, upon not less than thirty (30) days prior written notice to Foothill, to permanently reduce the Tranche A Borrowing Base in increments of Five Million Dollars ($5,000,000). If the Tranche A Borrowing Base is equal to or greater than Forty Million Dollars ($40,000,000) at the time of such notice, the maximum reduction shall be Twenty Million Dollars ($20,000,000), and if the Tranche A Borrowing Base is less than Forty Million Dollars ($40,000,000) at the time of such notice, the maximum reduction shall be Ten Million Dollars ($10,000,000). Borrower shall not have any obligation to pay an Early Termination Premium in connection with any of the above described partial reductions unless, within six (6) months following the date of any such reduction, Borrower elects to terminate this Agreement in its entirety pursuant to Section 3.5. 3.7 Partial Reductions of Maximum Tranche B Credit Amount. Borrower has the option, from time to time after April 1, 1996, upon not less than thirty (30) days prior written notice to Foothill, to permanently reduce the Maximum Tranche B Credit Amount in increments of Two Million Dollars ($2,000,000); provided, however, that the maximum amount that the Maximum Tranche B Credit Amount may be reduced shall not exceed the greater of (a) Ten Million Dollars ($10,000,000) or (b) forty percent (40%) of the Maximum Tranche B Credit Amount. Borrower shall not have any obligation to pay an Early Termination Premium in connection with any of the above described partial reductions unless, within six (6) months following the date of any such reduction, Borrower elects to terminate this Agreement in its entirety pursuant to Section 3.5. 4. CREATION OF SECURITY INTEREST. 4.1 Grant of Security Interest. Borrower hereby grants to Foothill a continuing security interest in all currently existing and hereafter acquired or arising Collateral in order to secure prompt repayment of any and all Obligations and in order to secure prompt 27 33 performance by Borrower of each of its covenants and duties under the Loan Documents. Foothill's security interests in the Collateral shall attach to all Collateral without further act on the part of Foothill or Borrower. Except as specifically provided in this Agreement (including Section 7.4), Borrower has no authority, expressed or implied, to dispose of any item or portion of the Collateral. 4.2 Negotiable Collateral. In the event that any Collateral, including proceeds, is evidenced by or consists of Negotiable Collateral, Borrower shall, immediately upon the request of Foothill, endorse and assign such Negotiable Collateral to Foothill and deliver physical possession of such Negotiable Collateral to Foothill. 4.3 Collection of Accounts, General Intangibles, Negotiable Collateral. Foothill, Borrower, and the Lock Box Banks have entered into the Lock Box Agreements, pursuant to which all of Borrower's cash receipts, checks, and other items of payment (including, insurance proceeds, proceeds of cash sales, rental proceeds, and tax refunds, but excluding receipts generated from Mexico and Canada and proceeds of Investments) will be forwarded to Foothill on a daily basis. At any time that an Event of Default has occurred and is continuing or Foothill deems itself insecure (in accordance with Section 1208 of the Code), Foothill or Foothill's designee may: (a) notify customers or Account Debtors of Borrower that the Accounts, General Intangibles, or Negotiable Collateral have been assigned to Foothill or that Foothill has a security interest therein; and (b) collect the Accounts, General Intangibles, and Negotiable Collateral directly and charge the collection costs and expenses to Borrower's loan account. Borrower agrees that it will hold in trust for Foothill, as Foothill's trustee, any cash receipts, checks, and other items of payment (including, insurance proceeds, proceeds of cash sales, rental proceeds, and tax refunds) that it receives and immediately will deliver said cash receipts, checks, and other items of payment to Foothill in their original form as received by Borrower. 4.4 Delivery of Additional Documentation Required. At any time upon the request of Foothill, Borrower shall execute and deliver, and to the extent Borrower elects to pledge the Additional Tranche A Collateral, cause the Pledged Subsidiaries to execute and deliver, to Foothill all financing statements, continuation financing statements, fixture filings, security agreements (including the Subsidiary Security Agreements), chattel mortgages, pledges, assignments, endorsements of certificates of title, applications for title, affidavits, reports, notices, schedules of accounts, letters of authority, and all other documents that Foothill may reasonably request, in form and substance satisfactory to Foothill, to perfect and/or continue perfected Foothill's security interests in the Collateral and in order to fully consummate all of the transactions contemplated hereby and under the other Loan Documents. 4.5 Power of Attorney. Borrower hereby irrevocably makes, constitutes, and appoints Foothill (and any of Foothill's officers, employees, or agents designated by Foothill) as Borrower's true and lawful attorney, with power to: (a) if Borrower refuses to, or fails timely to execute and deliver any of the documents described in Section 4.4, sign the name of Borrower on any of the documents described in Section 4.4; (b) at any time 28 34 that an Event of Default has occurred and is continuing or Foothill deems itself insecure (in accordance with Section 1208 of the Code), sign Borrower's name on any invoice or bill of lading relating to any Account, drafts against Account Debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to Account Debtors; (c) send requests for verification of Accounts; (d) endorse Borrower's name on any checks, notices, acceptances, money orders, drafts, or other item of payment or security that may come into Foothill's possession; (e) at any time that an Event of Default has occurred and is continuing, notify the post office authorities to change the address for delivery of Borrower's mail to an address designated by Foothill, to receive and open all mail addressed to Borrower, and to retain all mail relating to the Collateral and forward all other mail to Borrower; (f) at any time that an Event of Default has occurred and is continuing, make, settle, and adjust all claims under Borrower's policies of insurance and make all determinations and decisions with respect to such policies of insurance; and (g) at any time that an Event of Default has occurred and is continuing, settle and adjust disputes and claims respecting the Accounts directly with Account Debtors, for amounts and upon terms which Foothill determines to be reasonable, and Foothill may cause to be executed and delivered any documents and releases which Foothill determines to be necessary. The appointment of Foothill as Borrower's attorney, and each and every one of Foothill's rights and powers, being coupled with an interest, is irrevocable until all of the obligations have been fully and finally repaid and performed and Foothill's obligation to extend credit hereunder is terminated. 4.6 Right to Inspect. Foothill (through any of its officers, employees, or agents) shall have the right, from time to time hereafter during normal business hours, or if an Event of Default has occurred, at any time, to inspect Borrower's Books and to check, test, and appraise the Collateral in order to verify Borrower's financial condition or the amount, quality, value, condition of, or any other matter relating to, the Collateral. 5. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Foothill as follows: 5.1 No Prior Encumbrances. Borrower has good and indefeasible title to the Collateral, free and clear of liens, claims, security interests, or encumbrances, except for Permitted Liens. 5.2 Eligible Accounts. The Eligible Accounts are, at the time of the creation thereof and as of each date on which Borrower includes them in a calculation or certification, bona fide existing obligations created by the sale and delivery of Inventory or the rendition of services to Account Debtors in the ordinary course of Borrower's business, unconditionally owed to Borrower without defenses, disputes, offsets, counterclaims, or rights of return or cancellation. At the time of the creation of an Eligible Account and as of each date on which Borrower includes an Eligible Account in a calculation or certification, Borrower has not received notice of actual or imminent bankruptcy, insolvency, or material impairment of the financial condition of any applicable Account Debtor regarding such Eligible Account. 29 35 5.3 Location of Vehicles. All Vehicles included in the Collateral on the date hereof are of the type and quantity, bear the vehicle identification numbers, and are titled in the jurisdictions listed on Schedule 5.3 hereto. All certificates of title evidencing Borrower's ownership of the Vehicles have been duly endorsed in favor of, and delivered to, Foothill and all other filings, registrations, releases, assignments, or recordings necessary or appropriate, to create, preserve, protect, and perfect the security interest granted by Borrower to Foothill hereby in respect of the Vehicles have been accomplished, except to the extent arrangements have been made to make such endorsements and deliveries, filings, registrations, releases, assignments, and recordings which arrangements are reasonably satisfactory to Foothill in its sole discretion and, upon the completion of such endorsements and deliveries, filings, registrations, releases, assignments, and recordings, the security interest granted to Foothill pursuant to this Agreement in and to the Vehicles will constitute a first priority perfected security interest therein superior and prior to the rights of all other Persons therein subject to no other liens and is entitled to all the rights, priorities and benefits afforded by the Code or other relevant law as enacted in any relevant jurisdiction to perfected security interests. 5.4 Location of Inventory and Equipment. The Inventory and Equipment (other than non-material amounts of Equipment located at ticket agents in the ordinary course of Borrower's business) are not stored with a bailee, warehouseman, or similar party (without Foothill's prior written consent) and, except for Vehicles, are located only at the locations identified on Schedule 6.15 (as the same may be updated from time to time) or otherwise permitted by Section 6.15. 5.5 Inventory Records. Borrower now keeps, and hereafter at all times shall keep, correct and accurate records itemizing and describing the kind, type, quality, and quantity of the Inventory, and Borrower's cost therefor. 5.6 Location of Chief Executive Office; FEIN. As of the Closing Date, the chief executive office of Borrower is located at the address indicated in the preamble to this Agreement and Borrower's FEIN is 86-0572343. 5.7 Due Organization and Qualification. Borrower is duly organized and existing and in good standing under the laws of the state of its incorporation and qualified and licensed to do business in, and in good standing in, any state where the failure to be so licensed or qualified could reasonably be expected to have a material adverse effect on the business, operations, condition (financial or otherwise), finances, or prospects of Borrower or on the value of the Collateral to Foothill. 5.8 Due Authorization; No Conflict. The execution, delivery, and performance of the Loan Documents are within Borrower's corporate powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in Borrower's Articles or Certificate of Incorporation, or By-laws, nor will they constitute an 30 36 event of default under any material agreement to which Borrower is a party or by which its properties or assets may be bound. 5.9 Litigation. Except as set forth on Schedule 5.9, there are no actions or proceedings pending by or against Borrower before any court or administrative agency and Borrower does not have knowledge or belief of any pending, threatened, or imminent litigation, governmental investigations, or claims, complaints, actions, or prosecutions involving Borrower or any guarantor of the Obligations, that, if decided adversely to Borrower (and such decision reasonably could be anticipated), would materially impair the prospect of repayment of the Obligations or materially impair the value or priority of Foothill's security interests in the Collateral. 5.10 No Material Adverse Change in Financial Condition. All financial statements relating to Borrower or any guarantor of the Obligations that have been delivered by Borrower to Foothill have been prepared in accordance with GAAP and fairly present Borrower's (or such guarantor's, as applicable) financial condition as of the date thereof and Borrower's results of operations for the period then ended. There has not been a material adverse change in the financial condition of Borrower (or such guarantor, as applicable) since the date of the latest financial statements submitted to Foothill on or before the Closing Date. 5.11 Solvency. Borrower is Solvent. No transfer of property is being made by Borrower and no obligation is being incurred by Borrower in connection with the transactions contemplated by this Agreement or the other Loan Documents with the intent to hinder, delay, or defraud either present or future creditors of Borrower. 5.12 Employee Benefits. To the best of Borrower's knowledge, each Plan is in compliance in all material respects with the applicable provisions of ERISA and the IRC. Except as set forth on Schedule 5.12, each Qualified Plan and, to the knowledge of Borrower, each Multiemployer Plan has been determined by the Internal Revenue Service to qualify under Section 401 of the IRC, and the trusts created thereunder have been determined to be exempt from tax under Section 501 of the IRC, and, to the best knowledge of Borrower, nothing has occurred that would cause the loss of such qualification or tax-exempt status. There are no outstanding liabilities under Title IV of ERISA with respect to any Plan maintained or sponsored by Borrower or any ERISA Affiliate, nor with respect to any Plan to which Borrower or any ERISA Affiliate contributes or is obligated to contribute which could reasonably be expected to have a material adverse effect on the financial condition of Borrower. No Plan subject to Title IV of ERISA has any Unfunded Benefit Liability which could reasonably be expected to have a material adverse effect on the financial condition of Borrower. Neither Borrower nor any ERISA Affiliate has transferred any Unfunded Benefit Liability to a person other than Borrower or an ERISA Affiliate or has otherwise engaged in a transaction that could be subject to Sections 4069 or 4212(c) of ERISA which could reasonably be expected to have a material adverse effect on the financial condition of Borrower. Neither Borrower nor any ERISA Affiliate has incurred nor reasonably expects to incur (x) any liability (and no event has occurred which, with the giving of notice under 31 37 Section 4219 of ERISA, would result in such liability) under Sections 4201 or 4243 of ERISA with respect to a Multiemployer Plan, or (y) any liability under Title IV of ERISA (other than premiums due but not delinquent under Section 4007 of ERISA) with respect to a Plan, which could, in either event, reasonably be expected to have a material adverse effect on the financial condition of Borrower. No application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the IRC has been made with respect to any Plan (other than a Multiemployer Plan). No ERISA Event has occurred or is reasonably expected to occur with respect to any Plan which could reasonably be expected to have a material adverse effect on the financial condition of Borrower. Borrower and each ERISA Affiliate have complied in all material respects with the notice and continuation coverage requirements of Section 4980B of the IRC. 5.13 Environmental Condition. (a) Borrower has not used Hazardous Materials at or affecting the Real Property in any manner which violates any Act governing the use, storage, treatment, transportation, manufacturing, refinement, handling, production, or disposal of Hazardous Materials, or that may make the owner of the premises liable in tort under a common law public or private nuisance action, except for such uses that either individually or, in the aggregate, could not reasonably be expected to have a material adverse effect on the prospect of repayment of the Obligations, the priority or value of Foothill's lien or security interest in the Collateral or the condition (financial or otherwise) of Borrower. (b) To the best knowledge of Borrower after due inquiry, no prior or current owner, occupant or operator of the Real Property has used Hazardous Materials at or affecting the Real Property in any manner which violates any Act governing the use, storage, treatment, transportation, manufacturing, refinement, handling, production, or disposal of Hazardous Materials, or that may make the owner of the premises liable in tort under a common law public or private nuisance action, except for such uses that either individually or, in the aggregate, could not reasonably be expected to have a material adverse effect on the prospect of repayment of the Obligations, the priority or value of Foothill's lien or security interest in the Collateral or the condition (financial or otherwise) of Borrower. 5.14 Compliance With The ADA. (a) To the best of Borrower's knowledge, Borrower has made all modifications or provided all accommodations which may be required to be made or provided by Borrower to the Real Property pursuant to the ADA, except where noncompliance with such requirements would not have a material adverse effect on the prospect of repayment of the Obligations, the priority or value of Foothill's lien or security interest in the Collateral or the condition (financial or otherwise) of Borrower. (b) To the best of Borrower's knowledge, Borrower has received no notice or complaint regarding any material noncompliance with the ADA of any 32 38 of the Real Property or of Borrower's employment practices and, to the best of Borrower's knowledge, there has been no threatened litigation alleging any such material noncompliance by Borrower or the Real Property, except where noncompliance with such requirements would not have a material adverse effect on the prospect of repayment of the Obligations, the priority or value of Foothill's lien or security interest in the Collateral or the condition (financial or otherwise) of Borrower. 5.15 Reliance by Foothill; cumulative. Each warranty and representation contained in this Agreement automatically shall be deemed repeated with each advance or issuance of an L/C or L/C Guaranty and shall be conclusively presumed to have been relied on by Foothill regardless of any investigation made or information possessed by Foothill. The warranties and representations set forth herein shall be cumulative and in addition to any and all other warranties and representations that Borrower now or hereafter shall give, or cause to be given, to Foothill. 6. AFFIRMATIVE COVENANTS. Borrower covenants and agrees that, so long as any credit hereunder shall be available and until full and final payment of the Obligations, and unless Foothill shall otherwise consent in writing, Borrower shall do all of the following: 6.1 Accounting System. Borrower shall maintain a standard and modern system of accounting in accordance with GAAP with ledger and account cards or computer tapes, discs, printouts, and records pertaining to the Collateral which contain information as from time to time may be requested by Foothill. 6.2 Collateral Reports. Borrower shall deliver to Foothill, no later than the tenth day of each month during the term of this Agreement, a detailed aging, by total, of the Accounts, a reconciliation statement, and a summary aging, by vendor, of all accounts payable and any book overdraft. Borrower shall also deliver to Foothill, monthly, a detailed Borrower prepared report setting forth all payables in respect of Borrower's interline obligations, payables to obligees for lottery ticket sales, obligations to return cash received from COD freight deliveries on behalf of freight customers, payables owing to American Express with respect to Moneygrams (or any other similar programs), and sales taxes due and payable on sales receipts (collectively, the "Designated Payables"). Borrower shall also deliver to Foothill, promptly upon its receipt, any reports delivered to Borrower by the National Bus Traffic Association Clearinghouse respecting Borrower's interline payables. Original sales invoices evidencing daily sales respecting Borrower's package express service shall be mailed by Borrower to each Account Debtor thereon with, at Foothill's request, a copy to Foothill, and, at any time that an Event of Default has occurred and is continuing or Foothill deems itself insecure (in accordance with Section 1208 of the Code), the invoices shall indicate on their face that the Account has been assigned to Foothill and that all payments are to be made directly to Foothill. Borrower shall deliver to Foothill, as Foothill may from time to time require, collection reports, sales journals, invoices, original delivery receipts, customer's 33 39 purchase orders, shipping instructions, bills of lading, and other documentation respecting shipment arrangements. Absent such a request by Foothill, copies of all such documentation shall be held by Borrower as custodian for Foothill. 6.3 Schedules of Certain Accounts. With such regularity as Foothill shall require, Borrower shall provide Foothill with schedules describing all Accounts. Foothill's failure to request such schedules or Borrower's failure to execute and deliver such schedules shall not affect or limit Foothill's security interests or other rights in and to the Accounts. 6.4 Financial Statements, Reports, Certificates. Borrower agrees to deliver to Foothill: (a) as soon as available, but in any event within forty-five (45) days after the end of each of the first eleven (11) months during each of Borrower's fiscal years, a company prepared balance sheet, income statement, and cash flow statement covering Borrower's operations during such period; (b) as soon as available, but in any event within ninety (90) days after the end of each of Borrower's fiscal years, financial statements of Borrower for each such fiscal year, audited by independent certified public accountants reasonably acceptable to Foothill and certified, without any qualifications, by such accountants to have been prepared in accordance with GAAP; and (c) each month together with the reports of Designated Payables provided pursuant to Section 6.2, a certificate signed by Borrower's Chief Financial Officer, to the effect that Borrower is keeping current on all such Designated Payables. Such audited financial statements shall include a balance sheet, profit and loss statement, and cash flow statement, and, if prepared, such accountants' letter to management. If Borrower is a parent company of one or more subsidiaries, or Affiliates, or is a subsidiary or Affiliate of another company, then, in addition to the financial statements referred to above, Borrower agrees to deliver financial statements prepared on a consolidating basis so as to present Borrower and each such related entity separately, and on a consolidated basis. Together with the above, Borrower also shall deliver to Foothill Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K Current Reports, and any other filings made by Borrower with the Securities and Exchange Commission, if any, as soon as the same are filed, or any other information that is provided by Borrower to its shareholders, and any other report reasonably requested by Foothill relating to the Collateral and financial condition of Borrower. Each month, together with the financial statements provided pursuant to Section 6.4(a), Borrower shall deliver to Foothill a certificate signed by its Chief Financial Officer to the effect that: (i) all reports, statements, or computer prepared information of any kind or nature delivered or caused to be delivered to Foothill hereunder have been prepared in accordance with GAAP and fairly present in all material respects the financial condition of Borrower; (ii) Borrower is in timely compliance with all of its covenants and agreements hereunder; (iii) the representations and warranties of Borrower contained in this Agreement and the other Loan Documents are true and correct in all material respects on and as of the date of such certificate, as though made on and as of such date (except to the 34 40 extent that such representations and warranties relate solely to an earlier date); and (iv) on the date of the certificate to Foothill there does not exist any condition or event that constitutes an Event of Default (or, in each case, to the extent of any non-compliance, describing such non-compliance as to which he or she may have knowledge and what action Borrower has taken, is taking, or proposes to take with respect thereto). Within forty-five (45) days after the end of each of Borrower's fiscal quarters (except for a quarter which is a fiscal year end, in which case it shall be ninety (90) days), commencing with the fiscal quarter ending December 31, 1995, Borrower shall deliver to Foothill a certificate signed by its Chief Financial Officer, indicating the Operating Ratio as of the end of such quarter, and containing such supporting data and calculations, in reasonable detail, as Foothill shall require. Borrower shall have issued written instructions to its independent certified public accountants authorizing them to communicate with Foothill and to release to Foothill whatever financial information concerning Borrower that Foothill may request. Borrower hereby irrevocably authorizes and directs all auditors and accountants to deliver to Foothill, at Borrower's expense, copies of Borrower's financial statements, papers related thereto, and other accounting records of any nature in their possession, and to disclose to Foothill any information they may have regarding Borrower's business affairs and financial conditions (other than such information which the accountants have obtained solely in their capacity as advisors to Borrower or any of its subsidiaries in any litigation between Borrower or any of its subsidiaries and Foothill). 6.5 Tax Returns. Borrower agrees to deliver to Foothill copies of each of Borrower's future federal income tax returns, and any amendments thereto, within thirty (30) days after the filing thereof with the Internal Revenue Service. 6.6 Guarantor Reports. Borrower agrees to cause any guarantor of any of the obligations to deliver its annual financial statements at the time when Borrower provides its audited financial statements to Foothill and copies of all federal income tax returns as soon as the same are available and in any event no later than thirty (30) days after the same are required to be filed by law. 6.7 Registration, Use, Maintenance, Identification of Vehicles. Borrower shall, at its own cost and expense, at all times cause its Vehicles to be and to remain duly titled and registered (as may be required by the jurisdiction in which each such title or registration is required by law) in the name of Borrower as owner. (a) Borrower shall use and operate its Vehicles in compliance with its established policies. (b) Borrower shall as to each Vehicle, and at its own expense, keep, maintain, service, repair, overhaul, and furnish all parts, replacements, mechanisms, 35 41 devices and servicing required therefor (or cause the same to be done), in compliance with customary industry standards. All such repairs, parts, mechanisms and devices shall immediately, without further act, become part of the Vehicles and subject to the security interests created herein. Any part added to the Vehicle in connection with any improvement, change, addition, or alteration shall immediately, without further act, become part of the Vehicle and subject to the security interest created herein. (c) If requested by Foothill in writing, Borrower shall, at its cost and expense attach to the inside of each Vehicle a notice reasonably satisfactory to Foothill disclosing Foothill's security interest in such Vehicle. 6.8 Additional Vehicles. If Borrower desires to add buses and motor vehicles to Tranche A Additional Collateral or Tranche B Collateral, it shall (i) give Foothill written notice of the type(s), quantity, vehicle identification numbers, certificate of title number(s), and jurisdiction(s) of registration of each such Vehicle and provide such other information in connection therewith as Foothill may reasonably request and (ii) take such action reasonably satisfactory to Foothill as is necessary or appropriate to create, preserve, protect, and perfect the security interest of Foothill in such Vehicle intended to be granted hereby. 6.9 Title to Equipment other than Vehicles. Upon Foothill's request, Borrower immediately shall deliver to Foothill, properly endorsed, any and all evidences of ownership of, certificates of title, or applications for title to any items of Equipment other than Vehicles. 6.10 Maintenance of Equipment other than Vehicles. Borrower shall keep and maintain the Equipment (other than Vehicles) in good operating condition and repair (ordinary wear and tear excepted), and make all necessary replacements thereto so that the value and operating efficiency thereof shall at all times be maintained and preserved. Borrower shall not permit any item of Equipment to become a fixture to real estate (other than real estate subject to a Mortgage) or an accession to other property, and the Equipment is now and shall at all times remain personal property. 6.11 Taxes. Except where contested in good faith by Borrower, all assessments and taxes, whether real, personal, or otherwise, due or payable by, or imposed, levied, or assessed against Borrower or any of its property have been paid, and shall hereafter be paid in full, before delinquency or before the expiration of any extension period. Borrower shall make due and timely payment or deposit of all federal, and all material state and local, taxes, assessments, or contributions required of it by law, and will execute and deliver to Foothill, on demand, appropriate certificates attesting to the payment thereof or deposit with respect thereto. Borrower will make timely payment or deposit of all tax payments and withholding taxes required of it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Foothill with proof satisfactory to Foothill indicating that Borrower has made such payments or deposits. 36 42 6.12 Insurance. (a) Borrower will, at all times maintain (at its expense) in full force and effect insurance on all of the Collateral in such amounts, covering such risks and liabilities and with such deductibles or self-insured retentions as are commercially reasonable and in accordance with normal industry practice and all applicable laws, rules and regulations, including, without limitation, those promulgated by the Interstate Commerce Commission, provided that in no event will any such deductible or self-insured retention in respect of liability claims or in respect of casualty damage exceed, in each such case, Five Million Dollars ($5,000,000) per occurrence (or such lower amounts as required by the Interstate Commerce Commission). A schedule of all such insurance presently maintained by Borrower is attached hereto as Schedule 6.12. At any time that insurance at the levels described as "Required Levels" in Schedule 6.12 is not being maintained by Borrower, Borrower will notify Foothill in writing thereof and, if thereafter notified by Foothill to do so, Borrower will obtain insurance at such levels at least equal to those set forth as "Required Levels" in Schedule 6.12. Borrower will furnish on the Closing Date and annually thereafter to Foothill a summary of the insurance carried in respect of Borrower and its assets together with certificates of insurance and other evidence of such insurance, if any, naming Foothill as an additional insured with respect to any liability policy and stating that such insurance shall not be cancelled or materially revised without thirty (30) days' prior written notice by the insurer to Foothill, and that any loss payable thereunder shall be payable notwithstanding any act or negligence of Borrower. (b) Original policies or certificates thereof satisfactory to Foothill evidencing such insurance shall be delivered to Foothill at least thirty (30) days prior to the expiration of the existing or preceding policies. Borrower shall give Foothill prompt notice of any loss covered by such insurance and, following an Event of Default, Foothill shall have the right to adjust any loss. Any monies received as payment for any loss under any insurance policy shall be paid over to Foothill to be applied to the Obligations; provided, however, that prior to an Event of Default, payments with respect to such losses of up to Fifty Thousand Dollars ($50,000) per bus and One Hundred Thousand Dollars ($100,000) per terminal, but in no event more than Two Hundred Fifty Thousand Dollars ($250,000) per year for all buses and Three Hundred Thousand Dollars ($300,000) per year for all terminals, may be retained by Borrower to rebuild, repair, or replace such property. (c) Notwithstanding anything to the contrary contained in this Agreement, so long as no Event of Default shall have occurred, Borrower may negotiate reductions of insurance deposits, and transfer such deposits from one carrier to another, and the amount of any reductions in such deposits may be used in Borrower's business without being applied to the Obligations. 37 43 6.13 FINANCIAL COVENANTS. Borrower shall maintain: (a) Net Worth. At all times Net Worth of greater than or equal to One Hundred Million Dollars ($100,000,000), which shall be measured at the end of each of its fiscal quarters; and (b) Operating Ratio. At all times on and after December 31, 1995, an Operating Ratio of not less than one to one (1.0:1.0), which ratio shall be measured at the end of each of its fiscal quarters, on a rolling, four (4) quarter basis. 6.14 No Setoffs or Counterclaims. All payments hereunder and under the other Loan Documents made by or on behalf of Borrower shall be made without setoff or counterclaim and free and clear of, and without deduction or withholding for or on account of, any federal, state, or local taxes. 6.15 Location of Inventory and Equipment. Borrower shall keep the Inventory and Equipment only at the locations identified on Schedule 6.15; provided, however, that Borrower may amend Schedule 6.15 so long as such amendment occurs by written notice provided quarterly to Foothill and so long as any such new location is within the continental United States, and so long as, at the time of such written notification, Borrower provides any financing statements or fixture filings necessary to perfect and continue perfected Foothill's security interests in such assets and also provides to Foothill a landlord's waiver in form and substance satisfactory to Foothill. 6.16 Compliance with Laws. Borrower shall comply with the requirements of all applicable laws, rules, regulations, and orders of any governmental authority, including the Interstate Commerce Commission, any federal, state and local laws respecting common carriers, the Fair Labor Standards Act, and the ADA except for noncompliance which could not reasonably be expected to result in a material impairment in the prospect of repayment of any portion of the Obligations or a material impairment in the value or priority of Foothill's security interests in the Collateral. 6.17 Employee Benefits. (a) Borrower shall deliver to Foothill a written statement by the Chief Financial Officer of Borrower specifying the nature of any of the following events and the actions which Borrower proposes to take with respect thereto promptly, and in any event within thirty (30) days of becoming aware of any of them, and when known, any action taken or threatened by the Internal Revenue Service, PBGC, Department of Labor, or other party with respect thereto: (i) an ERISA Event with respect to any Plan which would cause a breach of Borrower's representation set forth in Section 5.12; (ii) the incurrence of an obligation to pay additional premium to the PBGC under Section 4006(a)(3)(E) of ERISA with respect to any Plan; and (iii) any lien on the assets of Borrower arising in connection with any Plan. 38 44 (b) Borrower shall also promptly furnish to Foothill copies prepared or received by Borrower or an ERISA Affiliate of: (i) at the request of Foothill, each annual report (Internal Revenue Service Form 5500 series) and all accompanying schedules, actuarial reports, financial information concerning the financial status of each Plan, and schedules showing the amounts contributed to each Plan by or on behalf of Borrower or its ERISA Affiliates for the most recent three (3) plan years; (ii) all notices of intent to terminate or to have a trustee appointed to administer any Plan; (iii) all written demands by the PBGC under Subtitle D of Title IV of ERISA; (iv) all notices required to be sent to employees or to the PBGC under Section 302 of ERISA or Section 412 of the IRC; (v) all written notices received with respect to a Multiemployer Plan concerning (x) the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA, (y) a termination described in Section 4041A of ERISA, or (z) a reorganization or insolvency described in Subtitle E of Title IV of ERISA; (vi) the adoption of any new Plan that is subject to Title IV of ERISA or Section 412 of the IRC by Borrower or any ERISA Affiliate; (vii) the adoption of any amendment to any Plan that is subject to Title IV of ERISA or Section 412 of the IRC, if such amendment results in a material increase in benefits or Unfunded Benefit Liability; or (viii) the commencement of contributions by Borrower or any ERISA Affiliate to any Plan that is subject to Title IV of ERISA or Section 412 of the IRC. 6.18 Environmental Condition. (a) Borrower will not generate, use, treat, store, release or dispose, or permit the generation, use, treatment, storage, release, or disposal of Hazardous Materials on the Real Property, except for such Hazardous Materials generated, used, treated, stored, released or disposed of in material compliance with all applicable Acts and required in connection with the normal operation, use and maintenance of such Real Property in conduct of the business undertaken on such Real Property, unless such noncompliance either individually, or in the aggregate, could reasonably be expected to have a material adverse effect on the prospect of repayment of the Obligations, the priority or value of Foothill's lien or security interest in the Collateral or the condition (financial or otherwise) of Borrower. (b) Borrower will and will use its best efforts to cause all operators, occupants and other third parties to comply with all applicable Acts, except where noncompliance would not reasonably be expected to have a material adverse effect on the prospect of repayment of the Obligations, the priority or value of Foothill's lien or security interest in the Collateral or the condition (financial or otherwise) of Borrower. (c) At any time following an Event of Default, or if Foothill deems itself insecure (in accordance with Section 1208 of the Code) or reasonably believes that a material environmental problem may exist with respect to one or more parcels of the Real Property, and upon the reasonable request of Foothill: (i) Borrower shall conduct and complete all investigations, studies, samplings, and testings relative to Hazardous Materials at or affecting the Real Property; (ii) Borrower shall provide Foothill at Borrower's sole cost and expense and without any liability to Foothill, with an environmental site assessment or an 39 45 environmental audit report, or an update of such assessment or report, by an environmental engineering firm acceptable to Foothill, which acceptance shall not be unreasonably withheld, all in scope, form, and content reasonably satisfactory to Foothill, to assess with a reasonable degree of certainty the presence or absence of Hazardous Materials and the potential cost in connection with the Remediation of any Hazardous Materials at or related to the Real Property; and (iii) at Borrower's sole cost and expense, Borrower shall promptly take all actions required by applicable Acts to Remediate the Real Property. All such work shall be performed by one or more contractors selected by Borrower and approved in advance by Foothill, which approval shall not be unreasonably withheld. Borrower shall proceed continuously and diligently with such investigatory and remedial actions, provided that in all cases, such actions shall be in accordance with all applicable requirements of all Acts. Any such actions shall be performed in a good, safe, and workmanlike manner and shall minimize any material adverse impact on the business or occupation at or near the Real Property. Borrower shall pay all costs in connection with such investigatory and remedial activities, including but not limited to, all power and utility costs, any and all taxes or fees that may be applicable to such activities. Borrower shall provide Foothill with copies of all material reports generated in compliance with the above activities; provided Borrower shall have no such obligation unless the problem giving rise to the investigation or Remediation could reasonably be expected to materially or adversely effect the Real Property. This notwithstanding, upon reasonable request, Borrower will provide Foothill with copies of any and all such reports. Within ten (10) days of demand therefor, Borrower shall provide Foothill with a bond, letter of credit, or similar financial insurance evidencing that the necessary funds are available for the obligations established by this subparagraph. (d) The obligations of Borrower and the rights of Foothill with respect to Hazardous Materials are in addition to and not in substitution of the obligations of Borrower and the rights of Foothill under all applicable, federal, state, and local laws, regulations, and ordinances relating to health and safety, and protection of the environment. The obligations of Borrower and the rights of Foothill, notwithstanding anything contained herein or in any other document or agreement which may be construed to the contrary, (i) shall not be subject to any antideficiency laws or protections, if any, (ii) shall survive (y) a non-judicial sale, judicial sale or deed or other transaction in lieu of such sale hereunder, and (z) the repayment of the Obligations. In the event Borrower does not timely perform any of its obligations with respect to Hazardous Materials, Foothill may perform such obligations, but is not obligated to, at the expense of Borrower and such expense shall be added to the obligations and shall not cure Borrower's breach under this Agreement. 6.19 Compliance With The ADA. (a) Borrower shall promptly provide Foothill with copies of all material claims which may be received by Borrower made by any individual, entity, or governmental agency as to any alleged noncompliance of the Real Property with the requirements of the ADA. 40 46 (b) Borrower shall observe and comply in all material respects with all obligations and requirements of the ADA as it applies to the Real Property or future additional building improvements, which shall include (to the extent required by the ADA), without limitation, installing or constructing all improvements or alterations which may be necessary to cause the Real Property to be accessible to all persons if the use of any of the Real Property or any part thereof becomes a "public accommodation," as defined in the ADA, and making any reasonable accommodations which may be necessary to accommodate the needs or requirements of any existing or future employee of Borrower. 6.20 Second Lien. Borrower shall use its commercially reasonable efforts to obtain the consent of Bankers Trust Company ("BT Co.") to grant a second lien to Foothill on the real property covered by the mortgages in favor of BT Co., listed on Schedule 3.1 (the "BT Mortgages"). 7. NEGATIVE COVENANTS. Borrower covenants and agrees that, so long as any credit hereunder shall be available and until full and final payment of the Obligations, Borrower will not, and will not permit any of the Pledged Subsidiaries to, as to Section 7.1 only, do any of the following without Foothill's prior written consent: 7.1 Indebtedness. Create, incur, assume, permit, guarantee, or otherwise become or remain, directly or indirectly, liable with respect to any Indebtedness, except: (a) Indebtedness evidenced by this Agreement; (b) Indebtedness set forth in the latest financial statements of Borrower submitted to Foothill on or prior to the Closing Date; (c) Indebtedness secured by Permitted Liens (including Indebtedness in respect of leases and purchase money financing of buses); (d) the Interest Rate Protection Agreements; (e) Indebtedness owed by Borrower to its Subsidiaries, from time to time, and Indebtedness of Borrower's subsidiaries to Borrower to the extent permitted by Section 7.14(g); (f) Indebtedness incurred in connection with a Permitted Acquisition; (g) refinancings, renewals, or extensions of Indebtedness permitted under clauses (b) and (c) of this Section 7.1, including the refinancing of buses under 41 47 the Conditional Sale Contract and Security Agreements, dated May 10, 1994, and August, 1994, between Borrower and Motor Coach Industries, Inc., and its assigns, (and continuance or renewal of any Permitted Liens associated therewith) so long as: (i) the terms and conditions of such refinancings, renewals, or extensions do not materially impair the prospects of repayment of the Obligations by Borrower, (ii) such refinancings, renewals, refundings, or extensions do not result in the average weighted maturity of the Indebtedness so refinanced, renewed, or extended to be at or prior to the Maturity Date, and (iii) to the extent that Indebtedness that is refinanced was subordinated in right of payment to the Obligations, then the subordination terms and conditions of the refinancing Indebtedness must be at least as favorable to Foothill as those applicable to the refinanced Indebtedness. 7.2 Liens. Create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of its property or assets, of any kind, whether now owned or hereafter acquired, or any income or profits therefrom, except for Permitted Liens (including liens that are replacements of Permitted Liens to the extent that the original Indebtedness is refinanced under Section 7.1(g) and so long as the replacement liens secure only those assets or property that secured the original Indebtedness). 7.3 Restrictions on Fundamental Changes. Except for a Permitted Note Redemption, capital expenditures for Vehicles or other capital expenditures permitted under Section 7.10, and except for Investments permitted under Section 7.14, enter into any acquisition, merger, consolidation, reorganization, or recapitalization, or reclassify its capital stock, or liquidate, wind up, or dissolve itself (or suffer any liquidation or dissolution), or convey, sell (other than a sale of a Pledged Subsidiary in accordance with Section 7.4), assign, lease, transfer, or otherwise dispose of, in one transaction or a series of transactions, all or any substantial part of its business, property, or assets, whether now owned or hereafter acquired, or acquire by purchase or otherwise all or substantially all of the properties, assets, stock, or other evidence of beneficial ownership of any Person, other than a Permitted Acquisition. 7.4 Extraordinary Transactions and Disposal of Assets. Enter into any transaction not in the ordinary and usual course of its business, including the sale, lease, or other disposition of, moving, relocation, or transfer, whether by sale or otherwise, of any of its properties or assets (other than sales of Inventory to buyers in the ordinary course of its business as currently conducted); provided, however, that (i) so long as no Event of Default has occurred and is continuing, Borrower may make Permitted Note Redemptions, sales of Real Property or Vehicles so long as the proceeds of such sales are applied in accordance with Section 2.1(a)(ii), sale of real estate and buses that do not constitute Real Property or Vehicles, sales of Equipment (other than buses) for up to Five Million Dollars ($5,000,000) in the aggregate in any fiscal year, and the sale/leasebacks of hereafter acquired buses; (ii) so long as no Event of Default has occurred and is continuing, Borrower may sell any or all of the Pledged Subsidiaries; (iii) Borrower may make conveyances to any insurance company or its designee pursuant to the settlement of a claim; (iv) Borrower may make conveyances to a governmental or quasi-governmental entity, or designee thereof, pursuant to condemnation, eminent domain or transfer in lieu thereof; and Borrower may incur liens in accordance with 42 48 Section 7.2; and (v) so long as no Event of Default has occurred and is continuing, Borrower may lease and sublease real or personal property and may dispose of obsolete or worn out assets. 7.5 Change Name. Change its name, FEIN, business structure, or identity, or add any new fictitious name. 7.6 Guarantee. Except to the extent permitted by Section 7.14(g) and except for indemnities in favor of title insurers and reimbursement obligations for letters of credit guaranteed by Foothill, guarantee or otherwise become in any way liable with respect to the obligations of any third Person except by endorsement or instruments or items of payment for deposit to the account of Borrower or which are transmitted or turned over to Foothill. 7.7 Restructure. Except for a Permitted Note Redemption, make any change in its financial structure, the principal nature of its business operations, or the date of its fiscal year. 7.8 Prepayments. Except in connection with a Permitted Note Redemption, or refinancing permitted by Section 7.1(g), prepay any Indebtedness owing to any third Person. 7.9 Change of Control. Cause, permit, or suffer, directly or indirectly, any Change of Control. 7.10 Capital Expenditures. Make any non-Vehicle capital expenditures, or any commitment therefor, in excess of Twenty-Five Million Dollars ($25,000,000) in the aggregate in any fiscal year of Borrower; provided, however, the difference between Twenty-Five Million Dollars ($25,000,000) and the amount of Borrower's actual non-Vehicle capital expenditures in any fiscal year may be carried forward, cumulatively to succeeding fiscal years to increase the foregoing annual limitation by the amount of such carry-forward until such has been used by Borrower. 7.11 Intentionally Omitted. 7.12 Distributions. Make any cash distribution or declare or pay any cash dividends on, or purchase, acquire, redeem, or retire for cash or debt any of its capital stock, of any class, whether now or hereafter outstanding. 7.13 Accounting Methods. Modify or change its method of accounting (except in conformity with changes in GAAP) or enter into, modify, or terminate any agreement currently existing, or at any time hereafter entered into with any third party accounting firm or service bureau for the preparation or storage of its accounting records without said accounting firm or service bureau agreeing to provide Foothill information 43 49 regarding the Collateral or its financial condition. Borrower waives the right to assert a confidential relationship, if any, it may have with any accounting firm or service bureau in connection with any information requested by Foothill pursuant to or in accordance with this Agreement, and agrees that Foothill may contact directly any such accounting firm or service bureau in order to obtain such information. 7.14 Advances, Investments and Loans. Lend any money or credit to or make advances to any Person, or purchase or acquire any stock, obligations, or securities of, or any other interest in, or make any capital contribution to any Person except: (a) Borrower may invest in cash and Cash Equivalents; (b) Borrower may acquire and hold Accounts, if created or acquired in its ordinary course of business and payable or dischargeable in accordance with its customary trade terms of Borrower; (c) loans and advances to employees for moving and travel expenses and other similar expenses and bridge loans for purchase of homes, in each case incurred in the ordinary course of business, in an aggregate principal amount not to exceed One Million Dollars ($1,000,000) at any time outstanding (determined without respect to any write-down or write-off of any such loans or advances); (d) existing Interest Rate Protection Agreements may be continued; (e) Borrower may acquire and own investments (including debt obligations) received in connection with the bankruptcy or reorganization of suppliers and customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; (f) Borrower may acquire and hold (i) the capital stock of its wholly-owned subsidiaries and (ii) the capital stock of its non-wholly owned subsidiaries; (g) Borrower may hold evidence of previous advances or loans to its subsidiaries, and hereafter may: (i) make advances or loans to its subsidiaries in an aggregate amount not to exceed Twelve Million Dollars ($12,000,000) outstanding at any one time, provided that all such indebtedness shall be evidenced by an instrument and be secured by the available assets of such subsidiaries and such instrument and Borrower's liens and security interests shall be pledged and assigned to Foothill hereunder; and (ii) make equity investments in its subsidiaries in an amount not to exceed Seven Million Dollars ($7,000,000) in any year; provided, however, the difference between Seven Million Dollars ($7,000,000) and the amount of Borrower's actual contributions to its subsidiaries in any fiscal year of Borrower may be carried forward cumulatively to succeeding fiscal years to increase the 44 50 forgoing annual contribution limitation by the amount of such carryforward until same has been used by Borrower; (h) Borrower may invest the deposits held pursuant to the cash collateral arrangement entered into in connection with its leveraged bus leases in the investments permitted pursuant to the documents therefor; (i) Borrower and its subsidiaries may make additional investments, not otherwise permitted pursuant to this Section 7.14 in an amount not to exceed Five Million Dollars ($5,000,000); (j) Borrower may hold non-cash consideration permitted to be received pursuant to sales of assets to the extent such sales are permitted pursuant to Section 7.14 or allowed by Foothill; and (k) Borrower may acquire and hold the stock of a Person pursuant to a Permitted Acquisition so long as the stock of such Person is pledged to Foothill. 7.15 Transactions with Affiliates. Enter into any transaction or series of transactions, whether or not in the ordinary course of business, with any Affiliate other than on terms and conditions substantially as favorable (or more favorable) to Borrower as would be obtainable by Borrower at the time in a comparable arm's-length transaction with a Person other than an Affiliate, except the foregoing shall not prohibit (a) intercompany loans in compliance with Section 7.14, or (b) cash contributions made to subsidiaries pursuant to Section 7.14. 7.16 Suspension. Suspend or go out of a substantial portion of its business. 7.17 Intentionally Omitted. 7.18 Use of Proceeds. Use the proceeds of the advances made hereunder for any purpose other than: (a) on the Closing Date, to refinance the Prior Agreement; (b) to pay transactional fees, costs and expenses incurred in connection with this Agreement; and (c) thereafter, consistent with the terms and conditions hereof, for its lawful and permitted corporate purposes. 7.19 Change in Location of Chief Executive Office; Inventory and Equipment with Bailees. Without thirty (30) days prior written notification to Foothill, relocate its chief executive office to a new location and so long as, at the time of such written notification, Borrower provides any financing statements or fixture filings necessary to perfect and continue perfected Foothill's security interests and also provides to Foothill a landlord's waiver in form and substance satisfactory to Foothill. The Inventory and Equipment shall not 45 51 at any time now or hereafter be stored with a bailee, warehouseman, or similar party without Foothill's prior written consent other than incidental Equipment kept with ticket agents. 8. EVENTS OF DEFAULT. Any one or more of the following events shall constitute an event of default (each, an "Event of Default") under this Agreement: 8.1 If Borrower fails to pay when due and payable or when declared due and payable, any portion of the Obligations (whether of principal, interest (including any interest which, but for the provisions of the Bankruptcy Code, would have accrued on such amounts), fees and charges due Foothill, reimbursement of Foothill Expenses, or other amounts constituting Obligations); 8.2 (a) If Borrower fails or neglects to perform, keep, or observe any term, provision, condition, covenant, or agreement contained in Sections 6.3 and 6.9 of this Agreement and such failure continues for a period of five (5) days from the date of such failure or neglect; (b) If Borrower fails or neglects to perform, keep, or observe any term, provision, condition, covenant, or agreement contained in Sections 6.2, 6.4, 6.5, 6.6, 6.10, 6.11, 6.15, 6.16, or 6.17 of this Agreement and such failure continues for a period of fifteen (15) days from the date of such failure or neglect; or (c) If Borrower fails or neglects to perform, keep, or observe any other term, provision, condition, covenant, or agreement contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between Borrower and Foothill (other than any such term, provision, condition, covenant, or agreement that is the subject of another provision of this Article 8). 8.3 If Borrower fails or neglects to perform, keep, or observe: (a) any term, provision, condition, or agreement contained in the Mortgages respecting the Required Parcels within the time periods set forth in such Mortgages; or (b) any term, provision, condition, or agreement contained in any other Mortgage which would result in a material adverse effect on the prospect of repayment of the Obligations, the priority or value of Foothill's lien or security interest in the Collateral or the condition (financial or otherwise) of Borrower; 8.4 If there is a material impairment of the prospect of repayment of any portion of the Obligations or a material impairment of the value or priority of Foothill's security interests in the Collateral; 8.5 If any material portion of Borrower's properties or assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any third Person; 8.6 If an Insolvency Proceeding is commenced by Borrower; 46 52 8.7 If an Insolvency Proceeding is commenced against Borrower and any of the following events occur: (a) Borrower consents to the institution of the Insolvency Proceeding against it; (b) the petition commencing the Insolvency Proceeding is not timely controverted; (c) the petition commencing the Insolvency Proceeding is not dismissed within sixty (60) calendar days of the date of the filing thereof; provided, however, that, during the pendency of such period, Foothill shall be relieved of its obligation to make additional advances or issue additional L/Cs or L/C Guarantees hereunder; (d) an interim trustee is appointed to take possession of all or a substantial portion of the properties or assets of, or to operate all or any substantial portion of the business of, Borrower; or (e) an order for relief shall have been issued or entered therein; 8.8 If Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs; 8.9 (a) If a notice of lien, levy, or assessment is filed of record with respect to any of Borrower's assets by the United States Government, or any department, agency, or instrumentality thereof, or if any taxes or debts owing at any time hereafter to the United States Government, or any department, agency, or instrumentality thereof, becomes a lien, whether choate or otherwise, upon any of Borrower's properties and assets; or (b) if a notice of lien, levy, or assessment is filed of record with respect to any material portion of Borrower's assets by any state, county, municipal, or governmental agency, or if any taxes or debts in an aggregate amount of Two Hundred Fifty Thousand Dollars ($250,000), or more, owing at any time hereafter to any one or more of such entities becomes a lien, whether choate or otherwise, upon any of Borrower's properties or assets and the same is not paid on the payment date thereof; 8.10 If a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrower's properties or assets; 8.11 If there is a default in any material agreement to which Borrower is a party with one or more third Persons resulting in a right by such third Persons, irrespective of whether exercised, to accelerate the maturity of Borrower's obligations thereunder, or any such Person has accelerated any such obligations (including any acceleration of the Senior Notes or the Convertible Debentures); 8.12 If Borrower makes any payment on account of Indebtedness that has been contractually subordinated in right of payment to the payment of the obligations, except to the extent such payment is permitted by the terms of the subordination provisions applicable to such Indebtedness or pursuant to a Permitted Note Redemption; 8.13 If any material misstatement or misrepresentation exists now or hereafter in any warranty, representation, statement, or report made to Foothill by Borrower or any officer, employee, agent, or director of Borrower, or if any such warranty or representation is withdrawn; 47 53 8.14 If the obligation of any guarantor under any Loan Document is limited or terminated by operation of law or terminated or purported to be terminated by the guarantor, or any such guarantor becomes the subject of an Insolvency Proceeding; 8.15 If (a) with respect to any Plan, there shall occur any of the following which could reasonably be expected to have a material adverse effect on the financial condition of Borrower: (i) the violation of any of the provisions of ERISA; (ii) the loss by a Plan intended to be a Qualified Plan of its qualification under Section 401(a) of the IRC; (iii) the incurrence of liability under Title IV of ERISA; (iv) a failure to make full payment when due of all amounts which, under the provisions of any Plan or applicable law, Borrower or any ERISA Affiliate is required to make; (v) the filing of a notice of intent to terminate a Plan under Sections 4041 or 4041A of ERISA; (vi) a complete or partial withdrawal of Borrower or an ERISA Affiliate from any Plan; (vii) the receipt of a notice by the plan administrator of a Plan that the PBGC has instituted proceedings to terminate such Plan or appoint a trustee to administer such Plan; (viii) a commencement or increase of contributions to, or the adoption of or the amendment of, a Plan; and (ix) the assessment against Borrower or any ERISA Affiliate of a tax under Section 4980B of the IRC; or (b) the Unfunded Benefit Liability of all of the Plans of Borrower and its ERISA Affiliates shall, in the aggregate, exceed One Million Dollars ($1,000,000); or 8.16 If: (a) there shall occur during any consecutive twelve (12) month period, one or more uninsured losses, thefts, damage or destruction of the Real Property, or any part thereof, having an aggregate value in excess of Two Hundred Thousand Dollars ($200,000); or (b) an event of default shall occur under a prior Permitted Lien, if any. 9. FOOTHILL'S RIGHTS AND REMEDIES. 9.1 Rights and Remedies. Upon the occurrence of an Event of Default Foothill may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower: (a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable; (b) Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement, under any of the Loan Documents, or under any other agreement between Borrower and Foothill; (c) Terminate this Agreement and any of the other Loan Documents as to any future liability or obligation of Foothill, but without affecting Foothill's rights and security interests in the Collateral and without affecting the Obligations; (d) Settle or adjust disputes and claims directly with Account Debtors for amounts and upon terms which Foothill considers advisable, and in such cases, 48 54 Foothill will credit Borrower's loan account with only the net amounts received by Foothill in payment of such disputed Accounts after deducting all Foothill Expenses incurred or expended in connection therewith; (e) Without notice to or demand upon Borrower or any guarantor, make such payments and do such acts as Foothill considers necessary or reasonable to protect its security interests in the Collateral. Borrower agrees to assemble the Collateral if Foothill so requires, and to make the Collateral available to Foothill as Foothill may designate. Borrower authorizes Foothill to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien that in Foothill's determination appears to conflict with its security interests and to pay all expenses incurred in connection therewith. With respect to any of Borrower's owned premises, Borrower hereby grants Foothill a license to enter into possession of such premises and to occupy the same, without charge, for up to one hundred twenty (120) days in order to exercise any of Foothill's rights or remedies provided herein, at law, in equity, or otherwise; (f) Without notice to Borrower (such notice being expressly waived), and without constituting a retention of any collateral in satisfaction of an obligation (within the meaning of Section 9505 of the Code), set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Foothill (including any amounts received in the Lock Boxes), or (ii) indebtedness at any time owing to or for the credit or the account of Borrower held by Foothill; (g) Hold, as cash collateral, any and all balances and deposits of Borrower held by Foothill, and any amounts received in the Lock Boxes, to secure the full and final repayment of all of the unmatured Obligations; (h) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein or in the Mortgages) the Collateral. Foothill is hereby granted a license or other right to use, without charge, Borrower's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and Borrower's rights under all licenses and all franchise agreements shall inure to Foothill's benefit; (i) Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower's premises) as Foothill determines is commercially reasonable. It is not necessary that the Collateral be present at any such sale; (j) Foothill shall give notice of the disposition of the Collateral as follows: 49 55 (1) Foothill shall give Borrower and each holder of a security interest in the Collateral who has filed with Foothill a written request for notice, a notice in writing of the time and place of public sale, or, if the sale is a private sale or some other disposition other than a public sale is to be made of the Collateral, then the time on or after which the private sale or other disposition is to be made; (2) The notice shall be personally delivered or mailed, postage prepaid, to Borrower as provided in Section 12, at least five (5) days before the date fixed for the sale, or at least five (5) days before the date on or after which the private sale or other disposition is to be made; no notice needs to be given prior to the disposition of any portion of the Collateral that is perishable or threatens to decline speedily in value or that is of a type customarily sold on a recognized market. Notice to Persons other than Borrower claiming an interest in the Collateral shall be sent to such addresses as they have furnished to Foothill; (3) If the sale is to be a public sale, Foothill also shall give notice of the time and place by publishing a notice one time at least five (5) days before the date of the sale in a newspaper of general circulation in the county in which the sale is to be held; (k) Foothill may credit bid and purchase at any public sale; and (l) Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower. Any excess will be returned, without interest and subject to the rights of third Persons, by Foothill to Borrower. 9.2 Remedies Cumulative. Foothill's rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Foothill shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Foothill of one right or remedy shall be deemed an election, and no waiver by Foothill of any Event of Default shall be deemed a continuing waiver. No delay by Foothill shall constitute a waiver, election, or acquiescence by it. 9.3 Foreclosure Not A Discharge. Foreclosure shall not operate as a discharge to Borrower's Obligations to Foothill as to Hazardous Materials and the indemnity provisions in Section 11.3; and in the event Borrower tenders a deed in lieu of foreclosure for all or part of the Real Property, Borrower shall deliver such property to Foothill (or its designee) free of any and all Hazardous Materials. The indemnity provisions in Section 11.3 shall not be discharged or affected in any way by foreclosure or by Foothill's acceptance of a deed in lieu thereof, and the same shall continue for a period equal to the longest living child born in Los Angeles County on May 31, 1995, plus twenty-one (21) years. 50 56 9.4 Release of Trust Monies. To the extent that any monies retained by Foothill from collections or otherwise in respect of Designated Payables do not constitute property of Borrower, Foothill agrees and Borrower authorizes Foothill from and after an Event of Default, or at any time that there is a delinquency in paying the Designated Payables, to segregate and deliver such monies into a separate deposit account controlled by Borrower. Any such repayment shall constitute an advance under Section 2.1 to the extent such repayment was previously applied against the Obligations. Borrower agrees to provide Foothill with accurate and complete reporting as frequently as required by Foothill in order to correctly track the amount of such monies. 10. TAXES AND EXPENSES REGARDING THE COLLATERAL. If Borrower fails to pay any monies (whether taxes, rents, assessments, insurance premiums, or otherwise) due to third Persons, or fails to make any deposits or furnish any required proof of payment or deposit, all as required under the terms of this Agreement or the Mortgages, then, to the extent that Foothill determines that such failure by Borrower could have a material adverse effect on Foothill's interests in the Collateral, in its discretion and without prior notice to Borrower, Foothill may do any or all of the following: (a) make payment of the same or any part thereof unless such payment obligations are being contested by Borrower, in good faith, as permitted by this Agreement; (b) set up such reserves in Borrower's loan account as Foothill deems necessary to protect Foothill from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type described in Section 6.12, and take any action with respect to such policies as Foothill deems prudent. Any such amounts paid by Foothill shall constitute Foothill Expenses. Any such payments made by Foothill shall not constitute an agreement by Foothill to make similar payments in the future or a waiver by Foothill of any Event of Default under this Agreement. Foothill need not inquire as to, or contest the validity of, any such expense, tax, security interest, encumbrance, or lien and the receipt of the usual official notice for the payment thereof shall be conclusive evidence that the same was validly due and owing unless Borrower notifies Foothill as to the existence of a dispute being contested as permitted by this Agreement. 11. WAIVERS; INDEMNIFICATION. 11.1 Demand; Protest; etc. Except as otherwise provided in this Agreement, Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees at any time held by Foothill on which Borrower may in any way be liable. 11.2 Foothill's Liability for Collateral. So long as Foothill complies with its obligations, if any, under Section 9207 of the Code, Foothill shall not in any way or manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any 51 57 diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other Person. All risk of loss, damage, or destruction of the Collateral shall be borne by Borrower. 11.3 Indemnification. Borrower agrees to defend, indemnify, save, and hold all Indemnified Persons harmless against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other Person arising out of or relating to the transactions contemplated by this Agreement or any other Loan Document, and (b) all Losses in any way suffered, incurred, or paid by Foothill as a result of or in any way arising out of, following, or consequential to the transactions contemplated by this Agreement or any other Loan Document; and (c) all Losses (including attorneys' fees) suffered or incurred by any Indemnified Person, regardless of negligence, whether as a holder of security interests in Real Property, as mortgagee in possession, or as successor in interest to Borrower as owner of the Real Property by virtue of foreclosure or acceptance of a deed or other transaction in lieu of foreclosure, or after partial or total reconveyance of the mortgage, arising from, in respect of, as a consequence of (whether foreseeable or unforeseeable) or in connection with the use, storage, disposal, generation, transportation, spill, or treatment of any Hazardous Materials at or related to the Real Property whether or not originating or emanating from the Real Property. Notwithstanding the foregoing, Borrower shall not be required to indemnify any Indemnified Person for such Person's gross negligence or wilful misconduct or any action by Foothill occurring after foreclosure. This provision shall survive the termination of this Agreement. 12. NOTICES. Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other Loan Document shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by registered or certified mail, postage prepaid, return receipt requested, or by prepaid telex, TWX, telefacsimile, or telegram (with messenger delivery specified) to Borrower or to Foothill, as the case may be, at its address set forth below: If to Borrower: GREYHOUND LINES, INC. 15110 North Dallas Parkway Dallas, Texas 75248 Attn.: Chief Financial Officer Telefacsimile No. (214) 387-1874 with a copy to: Contracts Administration Telefacsimile No. (214) 777-6221 52 58 If to Foothill: FOOTHILL CAPITAL CORPORATION 11111 Santa Monica Boulevard Suite 1500 Los Angeles, California 90025-3333 Attn.: Business Finance Division Manager Telefacsimile No. (310) 479-2690 The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other. All notices or demands sent in accordance with this Section 12, other than notices by Foothill in connection with Sections 9504 or 9505 of the Code, shall be deemed received on the earlier of the date of actual receipt or three (3) days after the deposit thereof in the mail. Borrower acknowledges and agrees that notices sent by Foothill in connection with Sections 9504 or 9505 of the Code shall be deemed sent when deposited in the mail or transmitted by telefacsimile or other similar method set forth above. 13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO ITS CONFLICT OF LAWS PRINCIPLES. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF BORROWER AND FOOTHILL WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13. BORROWER AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER AND FOOTHILL REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND 53 59 VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 14. DESTRUCTION OF BORROWER'S DOCUMENTS. All documents, schedules, invoices, agings, or other papers delivered to Foothill may be destroyed or otherwise disposed of by Foothill four (4) months after they are delivered to or received by Foothill, unless Borrower requests, in writing, the return of said documents, schedules, or other papers and makes arrangements, at Borrower's expense, for their return. 15. GENERAL PROVISIONS. 15.1 Effectiveness. This Agreement shall be binding and deemed effective when executed by Borrower and Foothill. 15.2 Successors and Assigns. This Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties; provided, however, that Borrower may not assign this Agreement or any rights or duties hereunder without Foothill's prior written consent and any prohibited assignment shall be absolutely void. No consent to an assignment by Foothill shall release Borrower from its Obligations. Foothill may assign this Agreement and its rights and duties hereunder and no consent or approval by Borrower is required in connection with any such assignment; provided, however, that no such assignment shall be effective against Borrower until Foothill or any subsequent assignor shall have notified Borrower of the identity of the assignee and the extent of the assignee's interest under this Agreement and in the Obligations. Foothill reserves the right to sell, assign, transfer, negotiate, or grant participations in all or any part of, or any interest in Foothill's rights and benefits hereunder. In connection with any such assignment or participation, Foothill may disclose all documents and information which Foothill now or hereafter may have relating to Borrower or Borrower's business, subject to the terms of Section 15.11. To the extent that Foothill assigns its rights and obligations hereunder to a third Person, Foothill shall thereafter be released from such assigned obligations to Borrower and such assignment shall effect a novation between Borrower and such third Person. 15.3 Section Headings. Headings and numbers have been set forth herein for convenience only. Unless the contrary is compelled by the context, everything contained in each section applies equally to this entire Agreement. 15.4 Interpretation. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against Foothill or Borrower, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by 54 60 all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of all parties hereto. 15.5 Severability of Provisions. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 15.6 Amendments in Writing. This Agreement can only be amended by a writing signed by both Foothill and Borrower. 15.7 Counterparts; Telefacsimile Execution. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. Delivery of an executed counterpart of this Agreement by telefacsimile shall be equally as effective as delivery of a manually executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by telefacsimile also shall deliver a manually executed counterpart of this Agreement but the failure to deliver a manually executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement. 15.8 Revival and Reinstatement of Obligations. If the incurrence or payment of the Obligations by Borrower or any guarantor of the obligations or the transfer by either or both of such parties to Foothill of any property of either or both of such parties should for any reason subsequently be declared to be void or voidable under any state or federal law relating to creditors' rights, including provisions of the Bankruptcy Code relating to fraudulent conveyances, preferences, and other voidable or recoverable payments of money or transfers of property (collectively, a "Voidable Transfer"), and if Foothill is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that Foothill is required or elects to repay or restore, and as to all reasonable costs, expenses, and attorneys fees of Foothill related thereto, the liability of Borrower or such guarantor automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never been made. 15.9 Lending Relationship. Nothing contained in the this Agreement or any of the other Loan Documents shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent, partnership, joint venture, or any association between Borrower and Foothill, it being expressly understood and agreed that nothing contained in this Agreement or the other Loan Documents shall be deemed to create any relationship between Borrower and Foothill other than the relationship of borrower and lender. 15.10 Integration. This Agreement, together with the other Loan Documents, reflect the entire understanding of the parties with respect to the transactions 55 61 contemplated hereby and shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof. In the event that any term contained in any of the Existing Credit Documents (as defined in the Prior Agreement) is inconsistent with an express term contained in this Agreement, then the term contained in this Agreement shall govern. 15.11 Confidentiality. (a) Subject to the provisions of clause (b) of this Section 15.11, Foothill agrees that it will use its best efforts not to disclose without the prior consent of Borrower (other than to its employees, authorities, advisors or counsel, provided, however, that such Persons shall be subject to the provisions of this Section 15.11 to the same extent as Foothill) any information with respect to Borrower or any of its subsidiaries which is now or in the future furnished pursuant to this Agreement or any other Loan Document and which is designated by Borrower to Foothill in writing as confidential, provided, however, that Foothill may disclose any such information (i) as has become generally available to the public, (ii) as may be required or appropriate in any report, statement or testimony submitted to any municipal, state, or Federal regulatory body having or claiming to have jurisdiction over Foothill, (iii) as may be required or appropriate in respect to any summons or subpoena or in connection with any litigation, (iv) in order to comply with any law, order, regulation or ruling applicable to Foothill, and (v) to any prospective or actual transferee or Participant in connection with any contemplated transfer or participation of this Agreement, the Obligations, or any interest therein by Foothill, provided, however, that such prospective transferee executes an agreement with Foothill containing provisions substantially the same as to those contained in this Section. (b) Borrower hereby acknowledges and agrees that Foothill may share with any of its affiliates any information related to Borrower or any of its subsidiaries (including, without limitation, any nonpublic customer information regarding the creditworthiness of Borrower and its subsidiaries), provided such Persons shall be subject to the provisions of this Section 15.11 to the same extent as Foothill. 15.12 Post-Closing Matters. Borrower agrees to accomplish the post-closing matters set forth in the letter agreement between Borrower and Foothill, dated as of the date hereof, within the time limits set forth therein. 15.13 Amendment and Restatement. Borrower acknowledges and agrees that the security interest granted by it pursuant to the Existing Credit Documents (as defined in the Prior Agreement) and in the Prior Agreement (and maintained pursuant to this Agreement) continues (without interruption) in full force and effect in favor of Foothill. Upon 56 62 the effectiveness of this Agreement, the terms and conditions of the Prior Agreement are hereby amended and restated in their entirety by this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in Los Angeles, California. FOOTHILL CAPITAL CORPORATION, a California corporation By /s/ Kent Dahl -------------------------------------- Kent Dahl Title: Senior Vice President/ Treasurer GREYHOUND LINES, INC., a Delaware corporation By /s/ Steven L. Korby ------------------------------------- Steven L. Korby Title: Executive Vice President, Chief Financial Officer and Treasurer 57 EX-10.1 3 EXHIBIT 10.1 LONG TERM STOCK INCENTIVE PLAN 1 EXHIBIT 10.1 GREYHOUND LINES, INC. 1995 LONG TERM STOCK INCENTIVE PLAN _________________________________________ FEBRUARY 27, 1995 _________________________________________ PREAMBLE: 1. Greyhound Lines, Inc., a Delaware corporation ("Greyhound" or the "Company"), by means of this 1995 Long Term Stock Incentive Plan (the "Plan") desires to afford certain of its and its Parent s and Subsidiaries employees, officers and consultants an opportunity to acquire a proprietary interest in the Company and thus to create in such persons an increased interest in and a greater concern for the welfare of the Company. 2. The Company has determined that the foregoing objectives will be promoted by granting Awards (as hereinafter defined) under this Plan to certain officers, employees and consultants of the Company and of its Parent and Subsidiaries, if any, pursuant to this Plan. TERMS: ARTICLE 1. DEFINITIONS. Section 1.1. General. Certain words and phrases used in this Plan shall have the meanings given to them below in this section: "Award" means a grant of Options, Stock Appreciation Rights, Performance Units or Unrestricted Stock, or the right to purchase Restricted Stock under the Plan. "Base Price" means, with respect to a Performance Unit, the per Share amount that is the basis for the calculation thereunder. "Board of Directors" means the board of directors of Greyhound. "Change in Control" means (a) the acquisition by any person (defined for the purposes of this definition to mean any person within the meaning of Section 13(d) of the Exchange Act), other than Greyhound or an employee benefit plan created by the Board of Directors for the benefit of its Employees, either directly or indirectly, of the beneficial ownership (determined under Rule 13d-3 of the Regulations promulgated by the SEC under Section 13(d) of the Exchange Act) of securities issued by Greyhound having 30% or more of the voting power of all the voting securities issued by Greyhound in the election of Directors at the next meeting of the holders of voting securities to be held for such purpose, (b) the election of a majority of the Directors elected at any meeting of the holders of voting securities of Greyhound who are persons who were not nominated for such election by the Board of Directors or a duly constituted committee of the Board of Directors having authority in such matters; (c) the approval by the 2 stockholders of Greyhound of a merger or consolidation with another person, other than a merger or consolidation in which the holders of Greyhound s voting securities issued and outstanding immediately before such merger or consolidation continue to hold voting securities in the surviving or resulting corporation (in the same relative proportions to each other as existed before such event) comprising 80% or more of the voting power for all purposes of the surviving or resulting corporation; or (d) the approval by the stockholders of Greyhound of a transfer of substantially all of the assets of Greyhound to another person other than a transfer to a transferee, 80% or more of the voting power of which is owned or controlled by Greyhound or by the holders of Greyhound s voting securities issued and outstanding immediately before such transfer in the same relative proportions to each other as existed before such event. "Code" means the Internal Revenue Code of 1986 and the regulations thereunder, as now in effect or hereafter amended. "Committee" means the Committee of the Board of Directors that administers the Plan under Section 2.1 below. "Common Stock" means the common stock, par value $.01 per share, of the Company. "Consultant" means any person who provides services to the Company or any Parent or Subsidiary (other than in connection with the offer or sale of securities of the Company or any Parent or Subsidiary in a capital raising transaction), who is neither an Employee nor a Director and who is a consultant or an adviser to the Company or any Parent or Subsidiary within the meaning of General Instruction A.1. to Form S-8 promulgated by the SEC under the Securities Act of 1933. "Date of Grant" means the date an Award is first granted. "Director" means a member of the Board of Directors. "Effective Date" means the date this Plan is first adopted by the Board of Directors. "Employee" means any common law employee of Greyhound or any Parent or Subsidiary of Greyhound and any person who is an officer of Greyhound or any Parent or Subsidiary of Greyhound pursuant to the Bylaws or comparable governing document of such company. "Exchange Act" means the Securities Exchange Act of 1934 and the regulations thereunder, as now in effect or hereafter amended. "Exercise Price" means, with respect to an Option, the amount of consideration that must be delivered to the Company in order to purchase a single Share thereunder and, with respect to a Stock Appreciation Right that is not granted in tandem with an Option, the per Share amount that is the basis for the calculation of the payment thereunder. "Fair Market Value of a Share" means the arithmetic mean between the high and low per Share prices on the principal national securities exchange or the NASDAQ -2- 3 - - National Market System on which the Shares are listed or admitted to trading, on the date of determination or, if such price cannot be determined for the date of determination, the most recent date for which such prices can reasonably be ascertained. "Grantee" means any person to whom an Award has been granted and any heir or legal representative to whom an Award has been transferred by will or the laws of descent and distribution. "Incentive Stock Option" or "ISO" means an Option intended to comply with the terms and conditions set forth in Section 422 of the Code. "Nonqualified Option" means a Stock Option other than an Incentive Stock Option. "Officer" means an officer of the Company as defined in 17 C.F.R. Section 240.16a-1(f) as now in effect or hereafter amended. "Option" or "Stock Option" means a right granted under Article 5 or 6 of the Plan to a Participant to purchase a stated number of Shares. "Option Agreement" means an agreement evidencing an Option substantially in the form of Exhibit A or Exhibit B attached hereto. "Parent" means a parent of a given corporation as such term is defined in Section 424(e) of the Code. "Participant" means a person who is eligible to receive and has received an Award under the Plan. "Performance Unit" means a performance unit granted to a Participant under Article 9 of the Plan. "Performance Unit Agreement" means a Performance Unit Agreement in the form of Exhibit E attached hereto. "Plan" means this Plan as it may be amended or restated from time to time. "Restricted Stock" means Shares purchased under Article 7 of the Plan that are subject to restrictions on transfer and risks of forfeiture under the Plan. "Restricted Stock Purchase Agreement" means a Restricted Stock Purchase Agreement in the form of Exhibit C attached hereto. "Rule 16b-3" means Rule 16b-3 (17 C.F.R. Section 240.16b-3) promulgated under Section 16(b) of the Exchange Act as now in effect or hereafter amended. "SAR Agreement" means a Stock Appreciation Right Agreement in the form of Exhibit D attached hereto. "SEC" means the Securities and Exchange Commission. "Shares" means shares of Common Stock. -3- 4 "Stock Appreciation Right" or "SAR" means a stock appreciation right granted to a Participant under Article 8 of the Plan. "Subsidiary" means a subsidiary of a given corporation as such term is defined in Section 424(f) of the Code. "Ten Percent Stockholder" means a person who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary of the Company. Ownership shall, for the purposes of the previous sentence, be determined under the rules set forth in Section 424 of the Code. "Termination without cause" means a termination by the Company or any Parent or Subsidiary of the Company of the employment of a Grantee with the Company or any such Parent or Subsidiary that is not for cause and is not occasioned by the resignation, death or disability of the Grantee. "Unrestricted Stock" means Shares granted to a Participant under Article 10 of the Plan. Section 1.2. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. Section 1.3. Effect of Definitions. The definitions set forth in Section 1.1 above shall apply equally to the singular, plural, adjectival, adverbial and other forms of any of the words and phrases defined regardless of whether they are capitalized. ARTICLE 2. ADMINISTRATION. Section 2.1. Committee. The Plan shall be administered by a committee of the Board of Directors consisting of two or more Directors, each of whom is a "disinterested person" as described in paragraph (C)(2)(i) of Rule 16b-3 and is an "outside director" as described in Code Section 162(m) and the regulations thereunder. Unless the Board of Directors designates another of its committees to administer the Plan, the Plan shall be administered by a committee consisting of those members of the Compensation Committee of the Board of Directors who are disinterested persons and are outside directors, but, if the Compensation Committee is abolished or its membership does not contain two persons who comply with the requirements of the first sentence of this Section 2.1, the Board of Directors shall either reconstitute the Compensation Committee in compliance with or create another Committee that complies with the requirements of the first sentence of this Section 2.1 to administer the Plan. The Committee may be referred to as the Stock Option Committee. Section 2.2. Authority. Subject to the express provisions of the Plan and in addition to the powers granted by other sections of the Plan, the Committee has the authority, in its discretion, to: (a) determine the Participants, grant Awards and determine their timing, pricing and amount; (b) define, prescribe, amend and rescind rules, regulations, procedures, terms and conditions relating to the Plan; (c) make all other determinations necessary or advisable for administering the Plan, including, but not limited to, interpreting the Plan, -4- 5 correcting defects, reconciling inconsistencies and resolving ambiguities; and (d) review and resolve all claims of Employees, Consultants, Grantees and Participants. The actions and determinations of the Committee on matters related to the Plan shall be conclusive and binding upon the Company and all Employees, Consultants, Grantees and Participants. ARTICLE 3. SHARES. Section 3.1. Number. The aggregate number of Shares in respect of which Awards may be granted under the Plan shall not exceed 4,000,000 (which number of Shares is hereby reserved for issuance under the Plan out of the authorized but unissued Shares) of which no more than an aggregate of 600,000 may be Shares of either Restricted Stock under Article 7 below or Unrestricted Stock under Article 10 below. Section 3.2. Cancellations. Except as otherwise provided in the next sentence, if any Awards granted under the Plan are canceled, terminate or expire for any reason without having been exercised or matured in full, or if Stock Appreciation Rights are exercised for cash or if Performance Units are paid in cash, the Shares related to the unexercised portion of an Award or to the portion of a Stock Appreciation Right exercised for, or the Performance Units paid in, cash shall be available again for the purposes of the Plan. If any Shares acquired under the Plan are forfeited for any reason, the Shares shall be available again for the purposes of the Plan. If any unexpired Option granted hereunder is canceled in connection with the exercise of a Stock Appreciation Right that is granted in tandem with such Option and is payable in Shares, any Shares covered by the canceled Option shall not again become available for the granting of Awards. Section 3.3. Anti-Dilution. (a) If the Shares are split or if a dividend of Shares is paid on the Shares, the number of Shares on which each then outstanding Award is based and the number of Shares as to which Awards may be granted under this Plan shall be automatically increased by the ratio between the number of Shares outstanding immediately after such event and the number of Shares outstanding immediately before such event and the Exercise Price or Base Price thereof shall be automatically decreased by the same ratio, and if the Shares are combined into a lesser number of Shares, the number of Shares for which each then outstanding Award is based and the number of Shares as to which Awards may be granted under the Plan shall be automatically decreased by such ratio and the Exercise Price or Base Price thereof shall be automatically increased by such ratio. (b) In the event of any other change in the Shares, through recapitalization, merger, consolidation or exchange of shares or otherwise, there shall automatically be substituted for each Share subject to an unexercised Award and each Share available for additional grants of Awards, the number and kind of shares or other securities into which each outstanding Share was changed, and the Exercise Price or Base Price shall be increased or decreased proportionally so that the aggregate Exercise Price or Base Price for the securities subject to each Award shall remain the same as immediately before such event; and the Committee may make such further equitable adjustments in the Plan and the then outstanding Awards as are both (i) allowed by Section 162(m) of the Code and the -5- 6 regulations thereunder and (ii) deemed necessary and appropriate by the Committee including, but not limited to, changing the number of Shares reserved under the Plan or covered by outstanding Awards, the Exercise Price or Base Price of outstanding Awards and the vesting conditions of outstanding Awards. Section 3.4. Source. Except as otherwise determined by the Board of Directors, the Shares issued under the Plan shall be authorized but unissued Shares. However, Shares which are to be delivered under the Plan may be obtained by the Company from its treasury, by purchases on the open market or from private sources, or by issuing authorized but unissued Shares. The proceeds of the exercise of any Award shall be general corporate funds of the Company. No Shares may be sold under any Option Agreement or Restricted Stock Purchase Agreement for less than the par value thereof. No fractional Shares shall be issued or sold under the Plan nor will any cash payment be made in lieu of fractional Shares. Section 3.5. Rights of a Stockholder. Except as otherwise provided in any Restricted Stock Purchase Agreement, no Grantee or other person claiming under or through any Grantee shall have any right, title or interest in or to any Shares allocated or reserved under the Plan or subject to any Award except as to such Shares, if any, for which certificates representing such Shares have been issued to such Grantee. Section 3.6. Securities Laws. No Award shall be exercised nor shall any Shares or other securities be issued or transferred pursuant to an Award unless and until all applicable requirements imposed by federal and state securities laws and by any stock exchanges upon which the Shares may be listed, have been fully complied with. As a condition precedent to the exercise of an Award or the issuance of Shares pursuant to the grant or exercise of an Award, the Company may require the Grantee to take any reasonable action to meet such requirements including providing undertakings as to the investment intent of the Grantee, accepting transfer restrictions on the Shares issuable thereunder and providing opinions of counsel, in form and substance acceptable to the Company, as to the availability of exemptions from such requirements. ARTICLE 4. ELIGIBILITY. Section 4.1. Article 5. Only Employees who are not members of the Committee shall be eligible to receive Options under Article 5 below. Section 4.2. Article 6. Only Consultants shall be eligible to receive Options under Article 6 below. Section 4.3. Article 7. Only Employees who are not members of the Committee shall be eligible to purchase Restricted Stock under Article 7 below. Section 4.4. Article 8. Only Employees who are not members of the Committee shall be eligible to receive Stock Appreciation Rights under Article 8 below. Section 4.5. Article 9. Only Employees who are not members of the Committee shall be eligible to receive Performance Units under Article 9 below. Section 4.6. Article 10. Only Employees who are not members of the Committee shall be eligible to receive Unrestricted Stock under Article 10 below. -6- 7 ARTICLE 5. EMPLOYEES STOCK OPTIONS. Section 5.1. Determinations. The Committee shall determine which eligible Employees shall be granted Options, the number of Shares for which the Options may be exercised (subject to Section 11.1), the times when they shall receive them and the terms and conditions of individual Option grants (which need not be identical). Section 5.2. Exercise Price. The Committee shall determine the Exercise Price of each Option at the time that it is granted, but in no event shall the Exercise Price of an Option be less than the Fair Market Value of a Share on the Date of Grant. If no express determination of the Exercise Price of an Option is made by the Committee, the Exercise Price thereof is equal to the Fair Market Value of a Share on the Date of Grant. Section 5.3. Term. Subject to the rule set forth in the next sentence, the Committee shall determine the times when an Option vests and the term during which an Option is exercisable at the time that it is granted. No Option shall be exercisable after the expiration of ten years from the Date of Grant. If no express determination of the times when Options are exercisable is made by the Committee: (a) each Option shall vest and first become exercisable (subject to the rule set forth in Section 5.4(c) below) as to 25% of the Shares subject to such Option on each of the first four anniversaries of the Date of Grant provided the Participant has been an Employee continuously during the time beginning on the Date of Grant and ending on the date when such portion vests and first becomes exercisable; and (b) each Option shall lapse and cease to be exercisable upon the earliest of: (i) the expiration of ten years from the Date of Grant, (ii) subject to the rule set forth in Section 5.4(d) below, six months after the Participant ceases to be an Employee because of death or disability, (iii) 30 days after the termination without cause of Participants employment with the Company or any Parent or Subsidiary of the Company by the Company or any such Parent or Subsidiary of the Company, or (iv) immediately upon termination of the Participant s employment with the Company or any Parent or Subsidiary by the Company or any such Parent or Subsidiary of the Company for cause or by the Participants resignation. Where both an Incentive Stock Option and a Nonqualified Option are granted, the number of Shares which become exercisable under clause (a) of the previous sentence at any time shall be calculated on the basis of the total of the Shares subject to both Options and the Options shall become exercisable as to that number of Shares first under the Incentive Stock Option and then under the Nonqualified Option, unless the rule set forth in Section 5.4(c) below would defer the exercisability of such Incentive Stock Option, in which case such Nonqualified Options shall become exercisable first. Notwithstanding the terms -7- 8 of any Option, the preceding sentence, and Section 5.4, all Options that have not previously been exercised nor lapsed and ceased to be exercisable, shall vest fully and become exercisable upon the occurrence of any Change in Control. Section 5.4. Incentive Stock Options. (a) The Committee shall determine whether any Option is an Incentive Stock Option or a Nonqualified Option at the time that it is granted and, if no express determination is made by the Committee, all Options shall be Nonqualified Options. (b) If the Committee grants Incentive Stock Options, they shall be on such terms and conditions as may be necessary to render them "incentive stock options" pursuant to Section 422 of the Code. (c) The aggregate Fair Market Value of the Shares, determined as of the time the Option is granted, which first become exercisable under all Incentive Stock Options granted under this Plan or any other plan of the Company or any Parent or Subsidiary of the Company, shall not exceed $100,000 during any calendar year and, if the foregoing limit would be exceeded in any given calendar year by the terms of any Incentive Stock Option granted hereunder, the exercisability of such portion of such Option as would exceed such limit shall be deferred to the first day of the next calendar year and if such excess involves more than one Option, the exercisability of the most recently granted Option shall be deferred first. (d) If the employment of a Participant, who holds an ISO, with the Company is terminated because of a "disability" (within the meaning of Section 22(e)(3) of the Code), the unexercised portion of the ISO may be exercised only within six months after the date on which employment was terminated, and only to the extent that such Participant could have otherwise exercised such ISO as of the date of termination. If a Participant, who holds an ISO, dies while employed by the Company (or within six months after termination of employment by reason of a disability or within 30 days after termination of employment without cause), the unexercised portion of the ISO at the time of death may be exercised only within six months after the date of death, and only to the extent that the Participant could have otherwise exercised such ISO at the time of death. In such event, such ISO may be exercised by the executor or administrator of the Participant s estate or by anyone who has acquired it from the Participant by bequest or inheritance. (e) No Ten Percent Stockholder shall be granted an Incentive Stock Option unless, at the time such Incentive Stock Option is granted, the Exercise Price thereof is at least 110% of the Fair Market Value of a Share on the Date of Grant and the Incentive Stock Option by its terms is not exercisable after the expiration of five years from the Date of Grant. (f) If a Grantee exercises an Incentive Stock Option and disposes of any of the Shares received by such Grantee as a result of such exercise within two years from the Date of Grant or within one year after the issuance of such Shares to such Grantee upon such exercise, such Grantee shall notify the Company of such disposition and the consideration received as a result thereof and pay or provide for the withholding taxes on such disposition as required by Section 11.3 below. -8- 9 (g) An Option that is designated as a Nonqualified Option under this Plan shall not be treated as an "incentive stock option" as such term is defined in Section 422(b) of the Code. Section 5.5. Exercise. An Option shall be exercised by the delivery of the Option Agreement therefor with the notice of exercise attached thereto properly completed and duly executed by the Grantee named therein to the Treasurer of the Company, together with the aggregate Exercise Price for the number of Shares as to which the Option is being exercised and the SAR Agreement for any Stock Appreciation Right that is in tandem with the Option being exercised, after the Option has become exercisable and before it has ceased to be exercisable. An Option may be exercised as to less than all of the Shares purchasable thereunder, but not for a fractional share. No Option may be exercised as to less than 50 Shares unless it is exercised as to all of the Shares then available thereunder. The Committee may, in its sole discretion, and upon such terms and conditions as it shall determine at or after the Date of Grant, permit the Exercise Price to be paid in cash, by the tender to the Company of Shares owned by the Grantee or by a combination thereof. If the Committee does not make such determination, the Exercise Price shall be paid in cash. If any portion of the Exercise Price of an Option is payable in cash, it may be paid by (a) delivery of a certified or cashier s check payable to the order of the Company in such amount, or (b) wire transfer of immediately available funds to a bank account designated by the Company. If any portion of the Exercise Price of an Option is payable in Shares it may be paid by delivery of certificates representing a number of Shares having a total fair market value on the date of exercise equal to or greater than the required amount, duly endorsed for transfer with all signatures guaranteed by a medallion signature guarantee. If more Shares than are necessary to pay such Exercise Price based on their fair market value on the date of exercise are delivered to the Company, it shall return to the Grantee a certificate for the balance of the whole number of Shares and a check payable to the order of the Grantee for any fraction of a Share. Shares may not be delivered to the Company as payment for the exercise of an Option if such Shares have been owned by the Grantee (together with his or her decedent or testator) for less than six months or if the disposition of such Shares would require the giving of a notice under Section 5.4(f) above. Promptly after an Option is properly exercised, the Company shall issue to the Grantee a certificate representing the Shares purchased thereunder. Section 5.6. Option Agreement. Promptly after the Date of Grant, Greyhound shall duly execute and deliver to the Grantee an Option Agreement setting forth the terms of the Option. Option Agreements are not negotiable instruments or securities (as such term is defined in Article 8 of the Uniform Commercial Code). Lost and destroyed Option Agreements may be replaced without bond. Section 5.7. New Hires. A person to whom the Company is offering employment may be granted a Nonqualified Option under this Article 5, but any such grant shall lapse if the person does not subsequently become an Employee pursuant to such offer. -9- 10 ARTICLE 6. CONSULTANTS STOCK OPTIONS. Section 6.1. Determinations. The Committee shall determine which eligible Consultants shall be granted Options, the number of Shares for which the Options may be exercised, the times when they shall receive them and the terms and conditions of individual Option grants (which need not be identical). Section 6.2. Exercise Price. The Committee shall determine the Exercise Price of each Option at the time that it is granted, but in no event shall the Exercise Price of an Option be less than the Fair Market Value of a Share on the Date of Grant. If no express determination of the Exercise Price of an Option is made by the Committee, the Exercise Price thereof is equal to the Fair Market Value of a Share on the Date of Grant. Section 6.3. Term. Subject to the rule set forth in the next sentence, the Committee shall determine the times when an Option vests and the term during which an Option is exercisable at the time that it is granted. No Option shall be exercisable after the expiration of ten years from the Date of Grant. If no express determination of the times when Options are exercisable is made by the Committee: (a) each Option shall vest and first become exercisable as to 25% of the Shares subject to such Option on each of the first four anniversaries of the Date of Grant provided the Participant s consulting relationship with the Company has not been terminated either (i) by the Consultant s death or disability, (ii) by the Company for cause, or (iii) by the Consultant s resignation on or before the date when such portion vests and first becomes exercisable; and (b) each Option shall lapse and cease to be exercisable upon the earliest of: (i) the expiration of ten years from the Date of Grant, (ii) six months after the Participant ceases to be a Consultant because of death or disability, or (iii) immediately upon termination of the Participant s consulting relation with the Company or any Parent or Subsidiary of the Company by the Company or any such Parent or Subsidiary for cause or by the Participants resignation (but not upon termination of the relation by reason of successful completion of the consulting project). Notwithstanding the terms of any Option, all Options that have not previously been exercised nor lapsed and ceased to be exercisable, shall vest fully and become exercisable upon the occurrence of any Change in Control. Section 6.4. Not Incentive Stock Options. An Option under this Article 6 shall not be treated as an Incentive Stock Option. Section 6.5. Exercise. An Option shall be exercised by the delivery of the Option Agreement therefor with the notice of exercise attached thereto properly completed and duly executed by the Grantee named therein to the Treasurer of the Company, together with the aggregate Exercise Price for the number of Shares as -10- 11 to which the Option is being exercised, after the Option has become exercisable and before it has ceased to be exercisable. An Option may be exercised as to less than all of the Shares purchasable thereunder but not for a fractional Share. No Option may be exercised as to less than 50 Shares unless it is exercised as to all of the Shares then available thereunder. The Committee may, in its sole discretion, and upon such terms and conditions as it shall determine at or after the Date of Grant, permit the Exercise Price to be paid in cash, by the tender to the Company of Shares owned by the Grantee or by a combination thereof. If the Committee does not make such determination, the Exercise Price shall be paid in cash. If any portion of the Exercise Price of an Option is payable in cash, it may be paid by (a) delivery of a certified or cashier s check payable to the order of the Company in such amount, or (b) wire transfer of immediately available funds to a bank account designated by the Company. If any portion of the Exercise Price of an Option is payable in Shares, it may be paid by delivery of certificates representing a number of Shares having a total fair market value on the date of exercise equal to or greater than the required amount, duly endorsed for transfer with all signatures guaranteed by a medallion signature guarantee. If more Shares than are necessary to pay such Exercise Price based on their fair market value on the date of exercise are delivered to the Company, it shall return to the Grantee a certificate for the balance of the whole number of Shares and a check payable to the order of the Grantee for any fraction of a Share. Shares may not be delivered to the Company as payment for the exercise of an Option if such Shares have been owned by the Grantee (together with his or her decedent or testator) for less than six months. Promptly after an Option is properly exercised, the Company shall issue to the Grantee a certificate representing the Shares purchased thereunder. Section 6.6. Option Agreement. Promptly after the Date of Grant, Greyhound shall duly execute and deliver to the Grantee an Option Agreement setting forth the terms of the Option. Option Agreements are neither negotiable instruments nor securities (as such term is defined in Article 8 of the Uniform Commercial Code). Lost and destroyed Option Agreements may be replaced without bond. Section 6.7. Article 5. The provisions of Article 5 above shall not apply to Options granted under this Article 6. ARTICLE 7. RESTRICTED STOCK. Section 7.1. Determinations. The Committee shall determine which eligible Employees may purchase Restricted Stock, the number of shares of Restricted Stock each eligible Employee may purchase (subject to Section 11.1), the times when they may purchase Restricted Stock, the parameters of the performance goals, if any, and the vesting and forfeiture provisions of the Restricted Stock and the purchase price of the Restricted Stock. Notwithstanding the terms of any Award granted under this Section 7, all shares of Restricted Stock that have not previously been forfeited shall vest fully and become transferable upon the occurrence of any Change in Control. Section 7.2. Agreements. Once the Committee has made the determinations required by Section 7.1 above with respect to any Participant, the appropriate officers of the Company shall enter into a Restricted Stock Purchase Agreement with the Participant setting forth the terms determined by the Committee. No Participant shall have any right to purchase Restricted Stock, hold Restricted -11- 12 Stock, or exercise any rights as a stockholder of the Company unless and until he or she has executed and delivered an appropriately completed form of Restricted Stock Purchase Agreement to the Company and the Company has delivered a counterpart thereof, executed by an appropriate officer of the Company, to the Participant. Restricted Stock Purchase Agreements are neither negotiable instruments nor securities (as such term is defined in Article 8 of the Uniform Commercial Code). Lost and destroyed Restricted Stock Purchase Agreements may be replaced without bond. ARTICLE 8. STOCK APPRECIATION RIGHTS. Section 8.1. Determinations. The Committee shall determine which Participants shall receive Stock Appreciation Rights, the times when they shall receive them, the number of Shares to which each Stock Appreciation Right relates (subject to Section 11.1), whether or not a Stock Appreciation Right is to be in tandem with an Option, and the terms and conditions of individual Stock Appreciation Right grants (which need not be identical). Section 8.2. Tandem Grants. (a) A Stock Appreciation Right may be granted in tandem with an Option, either at the time of grant or at any time thereafter during the term of the Option, or may be granted unrelated to an Option. A Stock Appreciation Right granted to an individual Participant at the same time as the grant of an Option shall be deemed to be in tandem with such Option unless the Committee expressly provides otherwise. (b) The exercise of a Stock Appreciation Right tandem to an Option shall cancel the related Option with respect to the number of Shares as to which such Stock Appreciation Right is exercised. The exercise of an Option granted in tandem with a Stock Appreciation Right shall cancel the related Stock Appreciation Right with respect to the number of Shares as to which such Option is exercised. (c) Except as otherwise provided by the Committee at the time it is granted, a Stock Appreciation Right tandem to an Option will be exercisable at such times as, and only to the extent that, the related Option is exercisable. Notwithstanding the terms of any Stock Appreciation Right tandem to an Option, all Stock Appreciation Rights shall vest fully and become exercisable upon the occurrence of a Change in Control. (d) Upon the exercise of a Stock Appreciation Right tandem to an Option, the Grantee will be entitled to receive payment of an amount determined by multiplying: (i) The excess of the Fair Market Value of a Share on the date of exercise of such Stock Appreciation Right over the Exercise Price of the related Option, by (ii) The number of Shares as to which such Stock Appreciation Right has been exercised. -12- 13 Section 8.3. Stock Appreciation Rights Not in Tandem with Option. (a) The Committee shall determine the Exercise Price of each Stock Appreciation Right that is not in tandem with an Option at the time of the granting of the Stock Appreciation Right, but in no event shall the Exercise Price be less than the Fair Market Value of a Share on the Date of Grant of such Stock Appreciation Right. If no express determination of the Exercise Price of a Stock Appreciation Right that is not in tandem with an Option is made by the Committee, the Exercise Price thereof is equal to the Fair Market Value of a Share on the Date of Grant. (b) Subject to the rule set forth in the next sentence, the Committee shall determine the times when a Stock Appreciation Right that is not in tandem with an Option vests and the term during which a Stock Appreciation Right that is not in tandem with an Option is exercisable. No such Stock Appreciation Right shall be exercisable after the expiration of ten years from the Date of Grant. If no express determination of the times when a Stock Appreciation Right that is not in tandem with an Option is exercisable is made by the Committee: (i) each such Stock Appreciation Right shall vest and first become exercisable as to 25% of the Shares subject to such Stock Appreciation Right on each of the first four anniversaries of the Date of Grant provided the Participant has been an Employee continuously during the time beginning on the Date of Grant and ending on the date when such portion of such Stock Appreciation Right vests and first becomes exercisable; and (ii) each such Stock Appreciation Right shall lapse and cease to be exercisable upon the earliest of: (A) the expiration of ten years from the Date of Grant, (B) six months after the Participant ceases to be an Employee because of death or disability, (C) 30 days after a termination without cause of the Participant's employment with the Company or any Parent or Subsidiary of the Company by the Company or any such Parent or Subsidiary of the Company, or (D) immediately upon termination of the Participant's employment with the Company or any Parent or Subsidiary of the Company by the Company or any such Parent or Subsidiary for cause or by the Participant's resignation. Notwithstanding the terms of any Stock Appreciation Right, all Stock Appreciation Rights shall vest fully and become exercisable upon the occurrence of a Change in Control. -13- 14 (c) A Stock Appreciation Right not in tandem with an Option will entitle the Grantee, upon exercise of the Stock Appreciation Right, to receive payment of an amount determined by multiplying: (i) The excess of the Fair Market Value of a Share on the date of exercise of such Stock Appreciation Right over the Exercise Price thereof, by (ii) The number of Shares as to which such Stock Appreciation Right has been exercised. Section 8.4. Exercise. Stock Appreciation Rights shall be exercised by the delivery of the SAR Agreement therefor with the notice of exercise attached thereto properly completed and duly executed by the Grantee named therein to the Secretary or the Treasurer of the Company together with the Option Agreement for any Option that is in tandem with such Stock Appreciation Right after it has become exercisable and before it has ceased to be exercisable. A Stock Appreciation Right may be exercised as to less than all of the Shares to which it relates but not as to a fractional Share. No Stock Appreciation Right may be exercised as to less than 50 Shares unless it is exercised as to all of the Shares then available thereunder. Section 8.5. Limitations. The Committee may place limitations on the amount payable upon exercise of a Stock Appreciation Right. Any such limitation must be determined as of the Date of Grant. The Committee may impose such additional conditions or limitations on the exercise of a Stock Appreciation Right as it may deem necessary or desirable to secure for Grantees of Stock Appreciation Rights the benefits of Rule 16b-3, or as it may otherwise deem advisable. Section 8.6. Payment. Payment to the Grantee of the amount realized upon exercise of a Stock Appreciation Right may be made, in the sole discretion of the Committee unless otherwise provided in the grant thereof, in cash, whole Shares valued at the Fair Market Value of a Share on the date of exercise of the Stock Appreciation Right, or a combination thereof. Such payment shall be made promptly after the exercise of the Stock Appreciation Right. If a Stock Appreciation Right is payable in Shares and the amount payable results in a fractional Share, no fractional Share may be issued nor may any cash payment be made in lieu of such fractional Share. Section 8.7. Officers and Directors. Stock Appreciation Rights of which a Grantee who is an Officer or Director at the time of exercise may be exercised only during the period beginning on the third business day following the date of release for publication of the Company's regular quarterly or annual summary statement of sales and earnings (assuming such financial data appears on a wire service, in a financial news service, or in a newspaper of general circulation, or is otherwise made publicly available) and ending on the twelfth business day following such date. Section 8.8. SAR Agreement. Promptly after the Date of Grant, Greyhound shall duly execute and deliver to the Grantee an SAR Agreement setting forth the terms of the SAR. No term that does not vary from those set forth in this Plan need be set forth in an SAR Agreement. SAR Agreements are not negotiable instruments or securities (as such term is defined in Article 8 of the Uniform Commercial Code). Lost and destroyed SAR Agreements may be replaced without -14- 15 bond. ARTICLE 9. PERFORMANCE UNITS. Section 9.1. Determinations. The Committee shall determine which Participants shall receive Performance Units, the times when they shall receive them, the number of Shares to which each Performance Unit relates (subject to Section 11.1), and the terms and conditions of individual Performance Unit grants (which need not be identical). Section 9.2. Grants. (a) The Committee shall determine the Base Price of each Performance Unit at the time of the granting of the Performance Unit. The Base Price may not be less than zero dollars. If no express determination of the Base Price of a Performance Unit is made by the Committee, the Base Price thereof shall equal zero dollars. (b) Subject to the rule set forth in the next sentence, the Committee shall set performance goals to be met over a period (the "Performance Period") specified by the Committee and shall determine any vesting provisions. No such Performance Unit shall mature after the expiration of ten years from the Date of Grant. If no express determination of the times when a Performance Unit vests and matures is made by the Committee, each such Performance Unit shall vest and mature on the earlier of (i) the fifth anniversary of the Date of Grant or (ii) the date the Participant ceases to be an Employee because of death or disability, provided, in either case, that the Performance Units have not previously lapsed or matured and that the Participant has been an Employee continuously during the time beginning on the Date of Grant and ending on the date when such Performance Unit matures. If the employment of a Participant is terminated by reason of death or disability or retirement during a Performance Period, the Participant shall receive a prorated payout of the Performance Units. The prorated payout shall be determined by the Committee, in its sole discretion, shall be based upon the length of time that the Participant held the Performance Units during the Performance Period, and shall further be adjusted based on the achievement of the preestablished performance goals. Payment of such Performance Units shall be made at the same time as payments are made to Participants who did not terminate employment during the applicable Performance Period. Notwithstanding the terms of any Performance Unit, all Performance Units which have not previously lapsed or matured shall mature upon the occurrence of a Change in Control. The number of Shares as to which a Performance Unit maturing upon a Change in Control is paid shall be reduced by the ratio between the number of full calendar months elapsed between the Date of Grant and the date of the Change in Control and the total number of calendar months which would have elapsed between the Date of Grant and the original maturity date in the absence of death or disability. (c) The Committee will determine the amount or formula for determining the amount to be paid out on the Performance Unit at the end of the Performance Period (subject to Section 11.1). (d) At the sole discretion of the Committee, Participants may be granted the right to receive amounts equal to or formulated in relation to dividends declared with respect to that number of Shares which have been earned but not yet -15- 16 distributed under any Performance Unit (such dividends may be, in the discretion of the Committee, subject to the same accrual, forfeiture, and payout restrictions as may apply to dividends earned with respect to Shares of Restricted Stock, if any). Section 9.3. Limitations. The Committee may place limitations on the amount payable on a Performance Unit. Any such limitation must be determined as of the Date of Grant. The Committee may impose such additional conditions or limitations on the maturity of a Performance Unit as it may deem necessary or desirable to secure for Grantees of Performance Units the benefits of Rule 16b-3, or as it may otherwise deem advisable. Section 9.4. Payment. Payment to the Grantee of the amount realized at the end of the Performance Period may be made, in the sole discretion of the Committee unless otherwise provided in the grant thereof, in cash, whole Shares valued at the Fair Market Value of a Share on the date of maturity of the Performance Unit, or a combination thereof. Such payment shall be made as promptly as reasonably practicable after the last day of the Performance Period and the determination by the Company of whether the applicable performance goals have been met. If a Performance Unit is payable in Shares and the amount payable results in a fractional Share, no fractional Share may be issued nor may any cash payment be made in lieu of such fractional Share. Section 9.5. Performance Unit Agreement. Promptly after the Date of Grant, Greyhound shall duly execute and deliver to the Grantee a Performance Unit Agreement setting forth the terms of the Performance Unit. No term that does not vary from those set forth in this Plan need be set forth in a Performance Unit Agreement. Performance Unit Agreements are not negotiable instruments or securities (as such term is defined in Article 8 of the Uniform Commercial Code). Lost and destroyed Performance Unit Agreements may be replaced without bond. ARTICLE 10. UNRESTRICTED STOCK. The Committee shall determine which eligible Employees will receive Unrestricted Stock, the number of shares of Unrestricted Stock each eligible Employee will receive (subject to Section 11.1), the times when each eligible Employee shall receive Unrestricted Stock, and the terms and conditions of individual Unrestricted Stock Awards (which need not be identical). Promptly after the grant of an Award of Unrestricted Stock, the Company shall issue to the Grantee a certificate representing the Shares received thereunder. The Committee shall grant Awards of Unrestricted Stock in consideration for services rendered by the Participant which are deemed by the Committee to have a value to the Company in excess of the par value of the Shares so awarded. ARTICLE 11. PROVISIONS APPLICABLE TO ALL TYPES OF AWARDS. Section 11.1. Maximum Shares. Notwithstanding any other provision of this Plan, the maximum number of Shares with respect to which Awards may be granted during any fiscal year of the Company to any Employee shall be 500,000 Shares. In addition, the maximum aggregate cash payout granted to any Grantee in any fiscal year of the Company with respect to such Grantee s Performance Units or receipt of Restricted Stock shall not exceed $1,000,000. -16- 17 Section 11.2. Corporate Mergers and Acquisitions. The Committee may grant Awards having terms and conditions which vary from those specified in the Plan if such Awards are granted in substitution for, or in connection with the assumption of, existing options granted by another business entity and assumed or otherwise agreed to be provided for by Greyhound pursuant to or by reason of a transaction involving a merger or consolidation of or acquisition of substantially all of the assets or stock of another business entity that is not a Subsidiary of Greyhound prior to such acquisition, with or by Greyhound or its Subsidiaries. Section 11.3. Withholding. The Company shall have the right to withhold from any payments due under any Award or due to any Grantee from the Company as compensation or otherwise the amounts of any federal, state or local withholding taxes not paid by the Grantee at the time of the exercise or vesting of any Award or upon a disposition of Shares received upon the exercise of an Incentive Stock Option. If cash payments sufficient to allow for withholding of taxes are not made at the time of exercise or vesting of an Award, the Grantee exercising such Award shall pay to Greyhound an amount equal to the withholding required to be made less the withholding otherwise made in cash or, if allowed by the Committee in its discretion and pursuant to rules adopted by the Committee consistent with Section 5.5 above, Shares previously owned by the Grantee. The Company may make such other provisions as it deems appropriate to withhold any taxes the Company determines are required to be withheld in connection with the exercise of any Award or upon a disqualifying disposition of Shares received upon the exercise of an Incentive Stock Option, including, but not limited to, the withholding of Shares from an Award upon such terms and conditions as the Committee may provide. The Company may require the Participant to satisfy any relevant withholding requirements before issuing Shares or delivering any Award to the Participant. Section 11.4. Disability. If a Grantee who is an Employee with the Company is absent from work with the Company because of a physical or mental disability, for purposes of the Plan, such Grantee will not be considered to have ended his or her employment with the Company while such Grantee has that disability, unless he or she resigns or the Committee decides otherwise. ARTICLE 12. GENERAL PROVISIONS. Section 12.1. No Right to Employment. Nothing in the Plan or any Award or any instrument executed pursuant to the Plan will confer upon any Participant any right to continue to be employed by or provide services to the Company or affect the right of the Company to terminate the employment of any Participant or its other relationship with any Participant. Section 12.2. Limited Liability. The liability of the Company under this Plan or in connection with any exercise of any Award is limited to the obligations expressly set forth in the Plan and in the grant of any Award, and no term or provision of this Plan nor of any Award shall be construed to impose any duty, obligation or liability on the Company not expressly set forth in the Plan or any grant of any Award. Section 12.3. Assumption of Awards. Upon the dissolution or liquidation of the Company, or upon a reorganization, merger or consolidation of the Company with one or more other entities as a result of which the Company is not the -17- 18 surviving entity, or upon a sale of substantially all the assets of the Company to another entity, any Awards outstanding theretofore granted or sold hereunder must be assumed by the surviving or purchasing entity, with appropriate adjustments as to the number and kind of shares and price. Nothing in this Section 12.3 shall be deemed to alter or supersede any provision of the Plan relating to the vesting or maturity of Awards upon a Change in Control. Section 12.4. No Transfer. No Award or other benefit under the Plan may be sold, pledged or otherwise transferred other than by will or the laws of descent and distribution; and no Award may be exercised during the life of the Participant to whom it was granted except by such Participant. Section 12.5. Expenses. All costs and expenses incurred in connection with the administration of the Plan including any excise tax imposed upon the transfer of Shares pursuant to the exercise of an Award shall be borne by the Company. Section 12.6. Notices. Notices and other communications required or permitted to be made under the Plan shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by first class mail addressed (a) if to a Grantee, at his or her residence address set forth in the records of the Company or (b) if to the Company, to its President at its principal executive office. Section 12.7. Third Parties. Nothing herein expressed or implied is intended or shall be construed to give any person other than the Grantees any rights or remedies under this Plan. Section 12.8. Saturdays, Sundays and Holidays. Where this Plan authorizes or requires a payment or performance on a Saturday, Sunday or public holiday, such payment or performance shall be deemed to be timely if made on the next succeeding business day; provided, however, that this Section 12.8 shall not be construed to extend the ten year period referred to in Sections 5.3, 6.3, 8.3 and 9.2 above or the five year period referred to in Section 5.4(e) above. Section 12.9. Rules of Construction. The captions and section numbers appearing in this Plan are inserted only as a matter of convenience. They do not define, limit or describe the scope or intent of the provisions of this Plan. In this Plan words in the singular number include the plural, and in the plural include the singular; and words of the masculine gender include the feminine and the neuter, and when the sense so indicates words of the neuter gender may refer to any gender. Section 12.10. GOVERNING LAW. THE VALIDITY, TERMS, PERFORMANCE AND ENFORCEMENT OF THIS PLAN SHALL BE GOVERNED BY LAWS OF THE STATE OF DELAWARE THAT ARE APPLICABLE TO AGREEMENTS NEGOTIATED, EXECUTED, DELIVERED AND PERFORMED SOLELY IN THE STATE OF DELAWARE. Section 12.11. Effective Date of the Plan. The Plan shall become effective upon its approval by the affirmative vote of the holders of a majority of the outstanding Shares present, or represented, and entitled to vote at a meeting of the stockholders of Greyhound. Awards may be granted by the Committee before such approval, but all Awards so granted shall be conditioned on such approval and shall be void if such approval is not given within 12 months after the -18- 19 Effective Date. Section 12.12. Amendment and Termination. No Award shall be granted under the Plan more than ten years after the Effective Date. The Board of Directors may at any time terminate the Plan, or make such amendment of the Plan as it may deem advisable; provided, however, that no amendment shall be effective without the approval of the stockholders of the Company by the affirmative vote of the holders of a majority of the outstanding Shares present, or represented, and entitled to vote at a meeting of stockholders duly held, if it were to: (a) materially increase the benefits accruing to Participants under the Plan; (b) materially increase the number of Shares which may be issued under the Plan; or (c) materially modify the requirements as to eligibility for participation in the Plan; and, further, provided, however, that no amendment or termination of the Plan shall be effective to materially alter or impair the rights of a Grantee under any Award made before the adoption of such amendment or termination by the Board of Directors, without the written consent of such Grantee. No termination or amendment of this Plan or any Award nor waiver of any right or requirement under this Plan or any Award shall be binding on the Company unless it is in a writing duly entered into its records and executed by a duly authorized Officer. -19- EX-10.2 4 EXHIBIT 10.2 DIRECTORS' STOCK INCENTIVE PLAN 1 EXHIBIT 10.2 GREYHOUND LINES, INC. 1995 DIRECTORS STOCK INCENTIVE PLAN _________________________________________ FEBRUARY 27, 1995 _________________________________________ PREAMBLE: 1. Greyhound Lines, Inc., a Delaware corporation ("Greyhound" or the "Company"), by means of this 1995 Directors Stock Incentive Plan (the "Plan") desires to afford certain of its and its Parent s and Subsidiaries directors an opportunity to acquire a proprietary interest in the Company and thus to create in such persons an increased interest in and a greater concern for the welfare of the Company. 2. The Company has determined that the foregoing objectives will be promoted by granting Options (as hereinafter defined) under this Plan to certain directors of the Company and of its Parent and Subsidiaries, if any, pursuant to this Plan. TERMS: ARTICLE 1. DEFINITIONS. Section 1.1. General. Certain words and phrases used in this Plan shall have the meanings given to them below in this section: "Board of Directors" means the board of directors of Greyhound. "Change in Control" means (a) the acquisition by any person (defined for the purposes of this definition to mean any person within the meaning of Section 13(d) of the Exchange Act), other than Greyhound or an employee benefit plan created by the Board of Directors for the benefit of its Employees, either directly or indirectly, of the beneficial ownership (determined under Rule 13d-3 of the Regulations promulgated by the SEC under Section 13(d) of the Exchange Act) of securities issued by Greyhound having 30% or more of the voting power of all the voting securities issued by Greyhound in the election of directors at the next meeting of the holders of voting securities to be held for such purpose, (b) the election of a majority of the Directors elected at any meeting of the holders of voting securities of Greyhound who are persons who were not nominated for such election by the Board of Directors or a duly constituted board of directors of the Board of Directors having authority in such matters; (c) the approval by the stockholders of Greyhound of a merger or consolidation with another person, other than a merger or consolidation in which the holders of Greyhound s voting securities issued and outstanding immediately before such merger or consolidation continue to hold voting securities in the surviving or resulting corporation (in the same relative proportions to each other as existed before such event) comprising 80% or more of the voting power for all purposes of the surviving or resulting corporation; or (d) the approval by the stockholders of Greyhound of a transfer of substantially all of the assets of Greyhound to another person other than a transfer to a transferee, 80% or more of the voting power of which is owned or controlled by Greyhound or by the holders of Greyhound s voting securities issued and outstanding immediately before such transfer in the same relative proportions to each other as existed before such event. "Code" means the Internal Revenue Code of 1986 and the regulations thereunder, as now in effect or hereafter amended. 2 "Common Stock" means the common stock, par value $.01 per share, of the Company. "Date of Grant" means the date an Option is first granted. "Director" means a member of the Board of Directors. "Disability" shall have the meaning ascribed in the Company s long-term disability plan; provided, however, that "Disability" shall mean a permanent and total disability, as defined in Code Section 22(e)(3) if required to satisfy the "formula plan exception" under Rule 16b-3(c)(2)(i)(A) of Section 16 of the Exchange Act. "Effective Date" means the date this Plan was first adopted by the Board of Directors. "Employee" means any common law employee of Greyhound or any Parent or Subsidiary of Greyhound and any person who is an officer of Greyhound or any Parent or Subsidiary of Greyhound pursuant to the Bylaws or comparable governing document of such company. "Exchange Act" means the Securities Exchange Act of 1934 and the regulations thereunder, as now in effect or hereafter amended. "Exercise Price" means, with respect to an Option, the amount of consideration that must be delivered to the Company in order to purchase a single Share thereunder. "Fair Market Value of a Share" means the arithmetic mean between the high and low per share prices on the principal national securities exchange or the NASDAQ - National Market System on which the Shares are listed or admitted to trading, on the date of determination or, if such price can not be determined for the date of determination, the most recent date for which such prices can reasonably be ascertained. "Grantee" means any person to whom an Option has been granted and any heir or legal representative to whom an Option has been transferred by will or the laws of descent and distribution. "Incentive Stock Option" or "ISO" means an Option intended to comply with the terms and conditions set forth in Section 422 of the Code. "Meeting Date" means the date of each annual meeting of the stockholders of Greyhound at which Directors are elected. "Nonqualified Option" means a Stock Option other than an Incentive Stock Option. "Officer" means an officer of the Company as defined in 17 C.F.R. Section 240.16a-1(f) as now in effect or hereafter amended. "Option" or "Stock Option" means a right granted under the Plan to a Participant to purchase a stated number of Shares. "Option Agreement" means an agreement evidencing an Option substantially in the form of Exhibit A hereto. "Parent" means a parent of a given corporation as such term is defined in Section 424(e) of the Code. "Participant" means a person who is eligible to receive and has received an Option under the Plan. "Plan" means this Plan as it may be amended or restated from time to time. -2- 3 "Rule 16b-3" means Rule 16b-3 (17 C.F.R. Section 240.16b-3) promulgated under Section 16(b) of the Exchange Act as now in effect or hereafter amended. "SEC" means the Securities and Exchange Commission. "Shares" means shares of Common Stock. "Subsidiary" means a subsidiary of a given corporation as such term is defined in Section 424(f) of the Code. Section 1.2. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. Section 1.3. Effect of Definitions. The definitions set forth in Section 1.1 above shall apply equally to the singular, plural, adjectival, adverbial and other forms of any of the words and phrases defined regardless of whether they are capitalized. ARTICLE 2. SHARES. Section 2.1. Number. The aggregate number of Shares in respect of which Options may be granted under the Plan shall not exceed 300,000 (which number of Shares is hereby reserved for issuance under the Plan out of the authorized but unissued Shares). Section 2.2. Cancellations. Except as otherwise provided in the next sentence, if any Options granted under the Plan are canceled, terminate or expire for any reason without having been exercised or matured in full, the Shares related to the unexercised portion of an Option shall be available again for the purposes of the Plan. Section 2.3. Anti-Dilution. (a) If the Shares are split or if a dividend of Shares is paid on the Shares, the number of Shares on which each then outstanding Option is based and the number of Shares as to which Options may be granted under this Plan shall be automatically increased by the ratio between the number of Shares outstanding immediately after such event and the number of Shares outstanding immediately before such event and the Exercise Price thereof shall be automatically decreased by the same ratio, and if the Shares are combined into a lesser number of Shares, the number of Shares for which each then outstanding Option is based and the number of Shares as to which Options may be granted under the Plan shall be automatically decreased by such ratio and the Exercise Price thereof shall be automatically increased by such ratio. (b) In the event of any other change in the Shares, through recapitalization, merger, consolidation or exchange of shares or otherwise, there shall automatically be substituted for each Share subject to an unexercised Option and each Share available for additional grants of Options, the number and kind of shares or other securities into which each outstanding Share was changed, and the Exercise Price shall be increased or decreased proportionally so that the aggregate Exercise Price for the securities subject to each Option shall remain the same as immediately before such event. Section 2.4. Source. Except as otherwise determined by the Board of Directors, the Shares issued under the Plan shall be authorized but unissued Shares. However, Shares which are to be delivered under the Plan may be obtained by the Company from its treasury, by purchases on the open market or from private sources, or by issuing authorized but unissued Shares. The proceeds of the exercise of any Option shall be general corporate funds of the Company. No Shares may be sold under any Option Agreement for less than the par value thereof. No fractional Shares shall be issued or sold under the Plan nor will any cash payment be made in lieu of fractional Shares. Section 2.5. Rights of a Stockholder. No Grantee or other person claiming under or through any Grantee shall have any right, title or interest in or to any Shares allocated or reserved under the Plan or subject to any Option -3- 4 except as to such Shares, if any, for which certificates representing such Shares have been issued to such Grantee. Section 2.6. Securities Laws. No Option shall be exercised nor shall any Shares or other securities be issued or transferred pursuant to an Option unless and until all applicable requirements imposed by federal and state securities laws and by any stock exchanges upon which the Shares may be listed, have been fully complied with. As a condition precedent to the exercise of an Option or the issuance of Shares pursuant to the grant or exercise of an Option, the Company may require the Grantee to take any reasonable action to meet such requirements including providing undertakings as to the investment intent of the Grantee, accepting transfer restrictions on the Shares issuable thereunder and providing opinions of counsel, in form and substance acceptable to the Company, as to the availability of exemptions from such requirements. ARTICLE 3. ELIGIBILITY. Only Directors who are not Employees shall be eligible to receive Options under this Plan. ARTICLE 4. DIRECTORS STOCK OPTIONS. Section 4.1. Grant. (a) On each Meeting Date, an Option on 20,000 Shares or such lesser number as remain available for granting under Article 2 above shall be automatically granted to each Director who is elected as a Director at the meeting of stockholders held on such date or at any adjournment thereof. (b) On any date when a person is appointed as a Director to fill a vacancy on the Board of Directors, an Option shall be automatically granted to such person on the number of Shares equal to 20,000 multiplied by a fraction, the numerator of which equals the number of whole calendar months remaining in the term for which such Director is appointed at the date of such appointment and the denominator of which equals the number of whole calendar months of such term. Section 4.2. Exercise Price. The Exercise Price of an Option shall be equal to the Fair Market Value of a Share on the Date of Grant. Section 4.3. Term. (a) Each Option shall vest and first become exercisable as to one-third of the Shares originally subject to the Option on each of the first three anniversaries of the Date of Grant if the Participant is then a Director; and (b) each Option shall lapse and cease to be exercisable upon the earliest of: (i) the expiration of ten years from the Date of Grant, (ii) six months after the Participant ceases to be a Director because of death or Disability, (iii) immediately if the Participant is removed from office for cause by action of the stockholders of the Company in accordance with the Bylaws of the Company and the General Corporation Law of the State of Delaware or if the Participant voluntarily terminates service on the Board of Directors without the consent of the Company, (iv) five years after the Participant ceases to be a Director for any reason other than death, Disability, termination by the stockholders for cause or voluntary termination without consent if, at the time of termination, the Participant has served at least a three year term of office on the Board of Directors, or (v) 30 days after the Participant ceases to be a Director for any reason other than death, Disability, -4- 5 termination by the stockholders for cause or voluntary termination without consent if, at the time of termination, the Participant has served less than a three year term of office on the Board of Directors. Notwithstanding the foregoing, all Options that have not previously been exercised nor lapsed and ceased to be exercisable shall vest fully and become exercisable upon the occurrence of any Change in Control. Section 4.4. Not Incentive Stock Options. An Option under this Article 4 shall not be treated as an Incentive Stock Option. Section 4.5. Exercise. An Option shall be exercised by the delivery of the Option Agreement therefor with the notice of exercise attached thereto properly completed and duly executed by the Grantee named therein to the Treasurer of the Company, together with the aggregate Exercise Price for the number of Shares as to which the Option is being exercised, after the Option has become exercisable and before it has ceased to be exercisable. An Option may be exercised as to less than all of the Shares purchasable thereunder but not for a fractional Share. No Option may be exercised as to less than 50 Shares unless it is exercised as to all of the Shares then available thereunder. The Exercise Price shall be paid in cash by (a) delivery of a certified or cashier s check payable to the order of the Company in such amount, or (b) wire transfer of immediately available funds to a bank account designated by the Company. Promptly after an Option is properly exercised, the Company shall issue to the Grantee a certificate representing the Shares purchased thereunder. Section 4.6. Option Agreement. Promptly after the Date of Grant, Greyhound shall duly execute and deliver to the Grantee an Option Agreement setting forth the terms of the Option. Option Agreements are neither negotiable instruments nor securities (as such term is defined in Article 8 of the Uniform Commercial Code). Lost and destroyed Option Agreements may be replaced without bond. Section 4.7. Disability. If a Participant is absent from meetings of the Board of Directors because of a physical or mental Disability, for purposes of the Plan, such Participant will not be considered to have ended his or her service with the Board of Directors while such Participant has that Disability, unless he or she resigns or is not re-elected by the stockholders. ARTICLE 5. GENERAL PROVISIONS. Section 5.1. No Rights. Nothing in the Plan or any Option or any instrument executed pursuant to the Plan will confer upon any Participant any right to continue to be a Director of the Company or affect the right of the stockholders to terminate the directorship of any Participant. Section 5.2. Limited Liability. The liability of the Company under this Plan or in connection with any exercise of any Option is limited to the obligations expressly set forth in the Plan and in the grant of any Option, and no term or provision of this Plan nor of any Option shall be construed to impose any duty, obligation or liability on the Company not expressly set forth in the Plan or any grant of any Option. Section 5.3. Assumption of Options. Upon the dissolution or liquidation of the Company, or upon a reorganization, merger or consolidation of the Company with one or more other entities as a result of which the Company is not the surviving entity, or upon a sale of substantially all the assets of the Company to another entity, any Options outstanding theretofore granted or sold hereunder must be assumed by the surviving or purchasing entity, with appropriate adjustments as to the number and kind of shares and price. Nothing in this Section 5.3 shall be deemed to alter or supersede any provision of the Plan relating to the vesting or maturity of Options upon a Change in Control. Section 5.4. No Transfer. No Option or other benefit under the Plan may be sold, pledged or otherwise transferred other than by will or the laws of descent and distribution; and no Option may be exercised during the life of the Participant to whom it was granted except by such Participant. -5- 6 Section 5.5. Expenses. All costs and expenses incurred in connection with the administration of the Plan including any excise tax imposed upon the transfer of Shares pursuant to the exercise of an Option shall be borne by the Company. Section 5.6. Notices. Notices and other communications required or permitted to be made under the Plan shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by first class mail addressed (a) if to a Grantee, at his or her residence address set forth in the records of the Company or (b) if to the Company, to its President at its principal executive office. Section 5.7. Third Parties. Nothing herein expressed or implied is intended or shall be construed to give any person other than the Grantees any rights or remedies under this Plan. Section 5.8. Saturdays, Sundays and Holidays. Where this Plan authorizes or requires a payment or performance on a Saturday, Sunday or public holiday, such payment or performance shall be deemed to be timely if made on the next succeeding business day; provided, however, that this Section 5.8 shall not be construed to extend the ten year period referred to in Sections 4.3, above. Section 5.9. Rules of Construction. The captions and section numbers appearing in this Plan are inserted only as a matter of convenience. They do not define, limit or describe the scope or intent of the provisions of this Plan. In this Plan words in the singular number include the plural, and in the plural include the singular; and words of the masculine gender include the feminine and the neuter, and when the sense so indicates words of the neuter gender may refer to any gender. Section 5.10. GOVERNING LAW. THE VALIDITY, TERMS, PERFORMANCE AND ENFORCEMENT OF THIS PLAN SHALL BE GOVERNED BY LAWS OF THE STATE OF DELAWARE THAT ARE APPLICABLE TO AGREEMENTS NEGOTIATED, EXECUTED, DELIVERED AND PERFORMED SOLELY IN THE STATE OF DELAWARE. Section 5.11. Effective Date of the Plan. The Plan shall become effective upon its approval by the affirmative vote of the holders of a majority of the outstanding Shares present, or represented, and entitled to vote at a meeting of the stockholders of Greyhound. Section 5.12. Amendment and Termination. No Option shall be granted under the Plan more than ten years after the Effective Date. The Board of Directors may at any time terminate the Plan, or make such amendment of the Plan as it may deem advisable; provided, however, that no amendment shall be effective without the approval of the stockholders of the Company by the affirmative vote of the holders of a majority of the outstanding Shares present, or represented, and entitled to vote at a meeting of stockholders duly held, if it were to: (a) materially increase the benefits accruing to Participants under the Plan; (b) materially increase the number of Shares which may be issued under the Plan; or (c) materially modify the requirements as to eligibility for participation in the Plan; and, further, provided, however, that no amendment or termination of the Plan shall be effective to materially alter or impair the rights of a Grantee under any Option made before the adoption of such amendment or termination by the Board of Directors, without the written consent of such Grantee. No termination or amendment of this Plan or any Option nor waiver of any right or requirement under this Plan or any Option shall be binding on the Company unless it is in a writing duly entered into its records and executed by a duly authorized Officer. The provisions of this Plan setting forth the formulae that determine the Exercise Price of Options granted hereunder, the number of Shares as to which they are exercisable, the times when they are granted and the persons who are Participants may not be amended more than once every six months, other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder. -6- EX-10.3 5 EXHIBIT 10.3 EXECUTIVE EMPLOYMENT AGREEMENT 1 EXHIBIT 10.3 EXECUTIVE EMPLOYMENT AGREEMENT This EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of the 25th day of July, 1995, to be effective March 31, 1995 (the "Effective Date"), by and between GREYHOUND LINES, INC. (together with its successors, the "Company") and STEVEN L. KORBY (the "Executive"). WHEREAS, the Executive has considerable experience, expertise and training in financial management related to the types of services offered by the Company; and WHEREAS, the Company desires and intends to employ the Executive as Executive Vice President and Chief Financial Officer of the Company pursuant to the terms and conditions set forth in this Agreement; and WHEREAS, both the Company and the Executive have read and understood the terms and provisions set forth in this Agreement, and have been afforded a reasonable opportunity to review this Agreement with their respective legal counsel. NOW, THEREFORE, in consideration of the mutual promises and covenants set forth in this Employment Agreement, the Executive and the Company agree as follows: 1. COMPENSATION: During his employment pursuant to this Agreement, the Company agrees to provide the Executive the following compensation: a. BASE SALARY: From the Effective Date until changed as provided in this section, the Company agrees to pay the Executive an annual salary of $212,400.00 (the "Base Salary"), payable in at least equal monthly installments in accordance with the Company's ordinary payroll policies and procedures for executive compensation. The Company and the Executive acknowledge that during the employment of the Executive pursuant to this Agreement, the Executive's Base Salary will be subject to an annual review and adjustment by the Board of Directors of the Company (the "Board of Directors") but, in no event, will the Executive's annual Base Salary be less than the amount set forth in this section. b. BUSINESS EXPENSES: The Company agrees that the Executive shall be entitled to reimbursement by the Company for all reasonable expenses that the Executive may incur in the performance of his duties and obligations under this Agreement, consistent with the Company's policies for documentation, reimbursement and payment. c. FIRST TRANSITION BONUS: The Company agrees that, upon the date of execution of this Agreement, the Executive shall be paid a lump sum bonus of $75,000.00. 2 d. SECOND TRANSITION BONUS: On or before February 29, 1996 the Executive will be paid an additional lump sum transition bonus of $50,000.00. This amount will reduce any MIP Award payment earned for calendar year 1995, as set forth below at subsection 1(e)(1). If the Executive terminates his employment prior to the payment date of the second transaction bonus, Executive shall forfeit any right to payment of such bonus. e. INCENTIVE BONUS: (1) Commencing on the first day of the Executive's employment he will be entitled to participate in the 1995 Management Incentive Plan ("MIP"). The MIP Target Award will be 45% of the Base Salary paid during 1995. However, any MIP Award for 1995 will be reduced by the $50,000.00 Second Transition Bonus, and the Executive shall receive only the difference between the applicable 1995 MIP Award, if any, and the $50,000.00 Second Transition Bonus. (2) During each subsequent year of his employment pursuant to this Agreement, the Executive will be entitled to participate in the MIP for the respective year, with a Target Award of at least 45% of Base Salary for each such respective year. f. EMPLOYEE BENEFITS: The parties acknowledge and agree that certain employee benefits will be provided to the Executive incident to his employment as Chief Financial Officer of the Company. Except as specifically modified by this section, these employee benefits shall be governed by the applicable plan documents. The Company agrees, however, that the following provisions shall, to the extent not prohibited by law, apply to any employee benefits provided by the Company: (1) 401K PLAN: For purposes of the Greyhound Lines, Inc. and Affiliated Companies Master Salaried Employees' Cash or Deferred Profit Sharing Plan (the "401k Plan") (whether qualified or unqualified), as of the Effective Date the Executive shall be eligible to participate in the 401k Plan and shall be immediately 100% vested with respect to all employer contributions made by the Company in accordance with the terms of the 401k Plan. (2) MEDICAL PLAN: For purposes of the Greyhound Lines, Inc. Medical Plan (the "Medical Plan"), the following shall apply: (a) The Executive and his dependents, as defined in the Medical Plan ("Dependents"), shall immediately be provided coverage under the Medical Plan under the option elected by the Executive, with all monthly contributions by the Executive waived. (3) SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN: The Executive shall be a designated person eligible for coverage and benefits under the Greyhound Lines, Inc. Supplemental Employee Retirement Plan (the "SERP"), as of the Effective Date. 2 3 (4) AUTOMOBILE ALLOWANCE: During the term of his employment with the Company, the Executive shall be entitled to an automobile allowance, of not less than $1,000.00 per month, commencing on the Effective Date of this Agreement. (5) LIFE INSURANCE: At all times during his employment with the Company, the Executive will be provided with Company-paid life insurance which will provide death benefits in the event of his death in an amount of at least $1,500,000.00 payable to the beneficiary or beneficiaries named by the Executive. The Company shall have the right to purchase insurance to fund its obligations to the Executive under this section; provided, however, that any insurance company or companies selected by the Company to fund its obligations under this section must be the company or companies that underwrite life insurance benefits covering other officers of the Company. (6) PHYSICAL EXAMINATIONS: At least once a year, the Executive will be entitled to a Company-paid physical examination at a clinic or doctor mutually acceptable to the Executive and the Company. (7) OTHER BENEFITS: For purposes of any and all other benefits provided by the Company to its Chief Financial Officer, the Executive shall be eligible for such benefits immediately on the Effective Date. 2. DURATION: The duration of this Agreement shall be defined and determined as follows: a. INITIAL TERM: This Agreement shall continue in full force and effect for two (2) years (the "Initial Term"), commencing on the Effective Date and expiring on March 30, 1997 (the "Expiration Date"), unless terminated prior to the Expiration Date in accordance with Section 2(c). b. RENEWAL: Notwithstanding Section 2(a), this Agreement shall automatically renew for a period of two (2) years (the "Renewal Term") on the Expiration Date unless either party gives effective written notice to the other party of the party's intention not to renew this Agreement ("Notice of Non-Renewal"), with or without Good Cause, at least ninety (90) days prior to the Expiration Date. Thereafter, this Agreement shall automatically renew for additional one (1) year extensions (the "Extensions"), unless and until either party terminates the Agreement in accordance with Section 2(c). c. TERMINATION AND NON-RENEWAL: This Agreement may be terminated as follows: (1) DEATH: The Company shall be entitled to terminate this Agreement in the event of the Executive's death, provided, however, that the Executive's estate shall be paid the Base Salary that the Executive would have earned for the then current calendar month and the Incentive Bonus that the Executive would have earned for the remainder of the then current calendar year, in the time and manner in which the Executive would have been paid such compensation. In addition, the Executive's designated beneficiaries shall be entitled to receive 3 4 any life insurance benefits provided to the Executive in accordance with the applicable plan documents and/or insurance policies governing such benefits, including but not limited to, the Life Insurance benefits set forth in Section 1(f)(5) of this Agreement. (2) DISABILITY: The Company shall be entitled to terminate this Agreement in the event the Executive becomes "disabled," as that term is defined in the Greyhound Lines, Inc. Employee Long Term Disability Plan ("the LTD Plan"), and is unable to perform the essential functions of his position, with reasonable accommodation, for a period of one hundred eighty (180) consecutive days. (3) GOOD CAUSE: (a) The Company shall be entitled to terminate this Agreement by providing the Executive with written notice that the Company is terminating the Agreement for Good Cause, as defined herein ("Notice of Termination for Good Cause") at any time during his employment. (b) The Company shall be entitled to terminate this Agreement by communicating Notice of Non-Renewal for Good Cause, as defined herein, at least ninety (90) days prior to the Expiration Date, or at least ninety (90) days prior to the expiration of any Renewal Term or Extension. (c) For purposes of this Agreement, "Good Cause" shall be defined as follows: i) Any act or omission constituting fraud under the law of the State of Texas; or ii) Conviction of, or a plea of nolo contendere to, a felony; or iii) Use of illegal drugs; or iv) Embezzlement of Company property or funds; or v) The material breach of any provision of this Agreement; or continued gross neglect of his duties under this Agreement; or unauthorized competition with the Company during his employment pursuant to this Agreement; or unauthorized use of Confidential Information (as defined in Section 9); which is materially detrimental to the Company; 4 5 (d) In the event the Company believes "Good Cause" exists for terminating this Agreement pursuant to subsection (c)(v), the Company shall be required to give the Executive written Notice of the acts or omissions constituting "Good Cause" ("Cause Notice"). (e) No Notice of Termination for Good Cause or Notice of Non-Renewal for Good Cause pursuant to subsection (c)(v) shall be communicated by the Company unless and until the Executive fails to cure such acts or omissions within thirty (30) days after receipt of the Cause Notice. (f) In the event the Company communicates a Notice of Termination For Good Cause or Notice of Non- Renewal for Good Cause pursuant to this section, the Executive shall have the right to a hearing before the President/Chief Executive Officer, on a date determined by the President/Chief Executive Officer not later than thirty (30) days after the date such Notice is received, to contest the alleged "Good Cause" for the Notice of Termination or Notice of Non-Renewal. The President/Chief Executive Officer shall provide the Executive with written notice of his decision resolving any contest under this section, and no termination or non-renewal of this Agreement shall be deemed to be effective until such written notice is received by the Executive. In the event that the President/Chief Executive Officer affirms the "Good Cause" for termination or non-renewal, the Executive shall have the right to give Arbitration Notice under Section 10(a) within fifteen (15) days after such termination or non-renewal becomes effective. (4) WITHOUT GOOD CAUSE: (a) The Company shall be entitled to terminate this Agreement by providing a written Notice of Termination "Without Good Cause" at any time during his employment, or by providing a written Notice of Non-Renewal "Without Good Cause," as defined herein, at least ninety (90) days prior to the Expiration Date or at least ninety (90) days prior to the expiration of any Renewal Term or Extension. Provided, however, that in the event of any Notice of Termination Without Good Cause or Notice of Non-Renewal Without Good Cause, the Company shall be required to pay Severance Pay in accordance with the SEVERANCE provisions in Section 5. (b) Any termination or non-renewal of this Agreement which is not for "Good Cause," as defined above in Section 2(c)(3), or which does not result from the death of the Executive, or the disability of the Executive, shall be deemed to be a termination or non-renewal "Without Good Cause." Furthermore, in the event that the Company communicates a Notice of Termination for Good Cause or a Notice of Non-Renewal for Good Cause, and either the President/Chief Executive Officer [under Section 2(c)(3)(f)] or the arbitrators [under Section 10(c)] determine that no Good Cause exists or existed for the Notice of Termination or Notice of Non-Renewal that was originally communicated, then such Notice of Termination or Notice of Non-Renewal shall be deemed to have been communication of a Notice of Termination 5 6 Without Good Cause or Notice of Non-Renewal Without Good Cause, as appropriate, for all purposes under this Agreement. (5) RESIGNATION: The Executive shall be entitled to terminate this Agreement by providing the Company with a written Notice of Resignation at least ninety (90) days prior to his intended resignation date, subject to the following provisions: (a) RESIGNATION FOR GOOD REASON: The Executive shall have the right to resign for any "Good Reason," as defined herein, and such resignation shall be deemed to be a termination "Without Good Cause" as defined in Section 2(c)(4) for all purposes under this Agreement, including the CHANGE OF CONTROL provisions set forth in Section 4 and the SEVERANCE provisions set forth in Section 5. For purposes of this Section, the term "Good Reason" shall be defined as: i) The Company's failure to perform any material provision of this Agreement; or ii) Any material changes by the Company or the Board of Directors in the duties and responsibilities of the Executive under this Agreement, without the written consent of the Executive, other than a termination or non-renewal for "Good Cause," as defined herein; or iii) Any request by the Board of Directors that the Executive perform, assist, abet or approve any act which is or could be construed to be illegal under any federal, state or local law; or iv) Any requirement by the Board of Directors that the Executive relocate from the Dallas, Texas, metropolitan area without his consent. v) In the event the Company fails to maintain adequate liability insurance coverage in accordance with Section 8 of this Agreement, without the written consent of the Executive. (b) OPPORTUNITY TO CURE: In the event he believes "Good Reason" exists for his resignation, the Executive shall be required to give the President/Chief Executive Officer of the Company written notice of the acts or omissions constituting Good Reason, and no Notice of Resignation with Good Reason shall be communicated to the Company unless and until the Company fails to cure such acts or omissions within thirty (30) days after receipt of the notice described in this sentence. Any Notice of Resignation with Good Reason shall be deemed to be effective immediately, and no other notice or opportunity to cure shall be required. 6 7 (c) RESIGNATION WITHOUT GOOD REASON: Any resignation by the Executive for any reason other than "Good Reason," as defined above, shall be deemed to be a resignation "Without Good Reason." In the event of a Resignation Without Good Reason, the CHANGE OF CONTROL provisions in Section 4 and the SEVERANCE provisions in Section 5 shall be inapplicable. 3. RESPONSIBILITIES: The Executive acknowledges and agrees that he shall be employed as Executive Vice President and Chief Financial Officer of the Company. The Executive covenants and agrees that he will faithfully devote his best efforts and full time, attention and skill to the business of the Company as is necessary to perform his obligations under this Agreement. The Executive shall have or perform no other business responsibilities or obligations during the term of this Agreement without the prior written approval of the President of the Company, with the exception of the responsibilities currently held by Employee for Highland Park Cafeterias, Ltd. 4. CHANGE OF CONTROL: The parties acknowledge that the Executive has agreed to assume the position of Executive Vice President and Chief Financial Officer and to enter into this Agreement based upon his confidence in the current shareholders of the Company and the support of the Board of Directors for the development of a new strategy for the Company. Accordingly, if the Company should undergo a "Change of Control" while the Executive is employed by the Company or any parent or subsidiary corporation of the Company, the parties agree as follows: a. VESTING OF STOCK OPTIONS: In the event of a Change of Control, as defined in this section, all Stock Options provided in Section 6 of this Agreement shall immediately become vested and exercisable, effective on the date of the Change of Control. b. COMPENSATION: In the event of any termination, non-renewal or resignation at any time within twenty-four (24) months after the date of a Change of Control, as defined in this section, except for a Termination For Good Cause, the Company agrees to pay the Executive as follows: (1) If such Change of Control occurs on or prior to the end of the Initial Term or Renewal Term of this Agreement, as defined in Section 2(a) and (b), the Executive will receive a lump sum payment equal to two (2) times the sum of: (x) an amount equal to the Executive's then current, annualized Base Salary, and (y) an amount equal to the sum of all of the Incentive Bonus payments received by the Executive in the twelve (12) calendar months preceding and, in the calendar month of, the date of the termination, non-renewal or resignation, which payment shall be paid within thirty (30) days after the effective date of termination, non-renewal or resignation. In addition, the Company agrees to continue any and all Employee Benefits received by the Executive during his employment with the Company, as modified pursuant to the terms of Section 1(f), for twenty-four (24) months after the effective date of termination, non-renewal or resignation; or 7 8 (2) If such Change of Control occurs during any Extension of this Agreement, the Executive will receive an additional lump sum payment equal to one and one-half (1.5) times the sum of: (x) an amount equal to the Executive's then current, annualized Base Salary, and (y) an amount equal to the sum of all of the Incentive Bonus payments received by the Executive in the twelve (12) calendar months preceding and, in the calendar month of, the date of the termination, non- renewal or resignation, which payment shall be paid within thirty (30) days after the effective date of termination, non- renewal or resignation. In addition, the Company agrees to continue any and all Employee Benefits received by the Executive during his employment with the Company, as modified pursuant to the terms of Section 1(f), for twenty-four (24) months after the effective date of termination, non-renewal or resignation. c. DEFINITIONS: For purposes of this Agreement, a "Change of Control" shall be deemed to exist in the event that any of the following occurs: (1) the acquisition, directly or indirectly, by a person (other than the Company or an employee benefit plan established by the Board of Directors) of beneficial ownership of 30% or more of the Company's securities with voting power in the next meeting to elect the directors; (2) a majority of the directors elected at any meeting of the holders of the Company's voting securities are persons who were not nominated by the Company's then current Board of Directors or an authorized committee thereof; (3) the approval by the stockholders of the Company of a merger or consolidation with another person, other than a merger or consolidation in which the holders of the Company's voting securities issued and outstanding immediately before such merger or consolidation continue to hold voting securities in the surviving or resulting corporation (in the same relative proportions to each other as existed before such event) comprising 80% or more of the voting power for all purposes of the surviving or resulting corporation; or (4) the approval by the stockholders of the Company of a transfer of substantially all of the assets of the Company to another person other than a transfer to a transferee, 80% or more of the voting power of which is owned or controlled by the Company or by the holders of the Company's voting securities issued and outstanding immediately before such transfer in the same relative proportions to each other as existed before such event. A Change of Control shall include any other transactions or series of related transactions occurring which have substantially the same effect as the transactions specified in any of the preceding clauses of Section 4(c). 8 9 d. In the event a definition of CHANGE OF CONTROL is adopted which is more favorable to the Executive than the definition set forth in Subsection 4(c), in any stock option plan or in employment agreements applying to any Company executives, other than the President and Chief Executive Officer, at the option of the Executive, such language will immediately supersede and replace the language set forth in Section 4(c). e. TAX LIABILITY: In the event that any compensation payable under this section (the "Payment") is determined to be an "excess parachute payment" under section 280G of the Internal Revenue Code of 1986, as amended (the "Code") or any successor provision, subject to the excise tax imposed by section 4999 of the Code or any successor provision (the "Excise Tax"), the Company agrees to pay to the Executive an additional sum (the "Gross Up") in an amount such that the net amount retained by the Executive, after receiving both the Payment and the Gross Up and after paying: (i) any Excise Tax on the Payment and the Gross Up, and (ii) any Federal, state and local income taxes on the Gross Up, is equal to the amount of the Payment. For purposes of determining the Gross Up, the Executive shall be deemed to pay state and local income taxes at the highest marginal rate of taxation in his filing status for the calendar year in which the Payment is to be made based upon the Executive's domicile on the date of the Change of Control. The determination of whether such Excise Tax is payable and the amount of such Excise Tax shall be based upon the opinion of tax counsel selected by the Company subject to the approval of the Executive. If such opinion is not finally accepted by the Internal Revenue Service, then appropriate adjustments shall be calculated (with Gross Up, if applicable) by such tax counsel based upon the final amount of Excise Tax so determined. The final amount shall be paid, if applicable, within thirty (30) days after such calculations are completed. 5. SEVERANCE: Severance shall be paid as follows: a. NON-RENEWAL WITHOUT GOOD CAUSE. In the event that this Agreement is not renewed by the Company (except where the nonrenewal is for Good Cause): (1) At the end of the Initial Term or Renewal Term, as defined at Section 2(a) and (b), the Company agrees to pay the Executive a lump sum severance payment equal to two (2) times the sum of: (i) an amount equal to his then current, annualized Base Salary, and (ii) the greater of: (x) the applicable Incentive Bonus set forth in Section 1(e), or (y) $48,000.00. (2) At the end of any subsequent Extension, as defined in Section 2(b), the Company agrees to pay the Executive a lump sum severance payment equal to one and one-half (1.5) times the sum of (i) an amount equal to his then current, annualized Base Salary, and (ii) the greater of: (x) the applicable Incentive Bonus set forth in Section 1(e), or (y) $48,000.00. b. RESIGNATION FOR GOOD REASON OR TERMINATION WITHOUT GOOD CAUSE. In the event the Company terminates this Agreement without "Good Cause," as defined in Section 2(c)(3), 9 10 or the Executive resigns for "Good Reason," the Executive shall be entitled to receive the following severance payments: (1) In the event such Termination Without Good Cause or Resignation for Good Reason occurs on or prior to the end of the Initial Term or Renewal Term of this Agreement, as defined in Section 2(a) and (b), the Executive shall also receive a lump sum payment equal to two (2) times the sum of: (i) an amount equal to his then current, annualized Base Salary, and (ii) the greater of: (x) the applicable Incentive Bonus for the then current bonus year, as provided in Section 1(e), or (y) $48,000.00; or (2) In the event a Termination Without Good Cause or Resignation Without Good Reason occurs during any Extension of this Agreement, the Executive shall also receive a lump sum payment equal to one and one-half (1.5) times the sum of: (i) an amount equal to his then current, annualized Base Salary, and (ii) the greater of: (x) the applicable Incentive Bonus for the then current bonus year, as provided in Section 1(e), or (y) $48,000.00. c. TERMS OF PAYMENT: Severance Pay required pursuant to this section shall be payable in cash in full within thirty (30) days after the termination date, non-renewal date or resignation date of the Executive's employment; provided, however, that with respect to any severance payment under Section 5(a) or Section 5(b) which is required to be calculated based upon the amount of any Incentive Bonus under Section 1(e), the Company agrees to pay to the Executive an initial lump sum severance payment equal to two (2) times [or where applicable, one and one-half (1.5) times] the sum of: (i) an amount equal to his then current, annualized Base Salary, and (ii) $48,000.00, within thirty (30) days of the termination date, non-renewal date or resignation date of the Executive's employment; and an additional lump sum payment equal to two (2) times [or where applicable, one and one-half (1.5) times] the difference between (x) the applicable Incentive Bonus, and (y) $48,000.00, payable within thirty (30) days after the applicable Incentive Bonus is calculated. d. CONTINUATION OF BENEFITS: In the event of a Non-Renewal Without Good Cause or a Termination Without Good Cause or a Resignation For Good Reason, the Company agrees to continue any and all Employee Benefits received by the Executive during his employment with the Company, as modified pursuant to the terms of Section 1(f), for twenty-four (24) months after the effective date of termination, non-renewal or resignation. e. EXCEPTIONS: Severance Pay shall not be payable under this section in any of the following circumstances: (1) In the event that this Agreement is terminated as a result of the death or disability of the Executive, as provided in Sections 2(c)(1)-(2); or (2) In the event that this Agreement is terminated pursuant to a Notice of Termination For Good Cause or a Notice of Non-Renewal for Good Cause communicated by the Company, as provided in Section 2(c)(3), and such termination or non- renewal is affirmed 10 11 by the both the President/Chief Executive Officer (if applicable), and by the arbitrators after an arbitration proceeding under Section 10(c), if either party requests arbitration in accordance with the Arbitration procedures set forth in Section 10 of this Agreement; or (3) In the event the provisions of Section 4 are applicable as a result of a "Change of Control" having occurred, and the payments provided for in Section 4 are paid by the Company; or (4) In the event that the Executive communicates Notice of Resignation Without Good Reason as defined in Section 2(c)(5). f. EXCLUSIVITY: The Company and the Executive acknowledge and agree that the Severance Payments required under this section are intended to be exclusive and to supersede any severance pay plans or policies adopted by the Company and that the Executive shall not be entitled to any additional severance compensation under any other severance plan or policy adopted by the Company. 6. STOCK OPTIONS: In addition to the other compensation set forth in this Agreement, the Company agrees to grant the Executive a non-qualified option (as used in the Greyhound Lines, Inc. 1993 Management Stock Option Plan) under the Greyhound Lines, Inc. 1993 Management Stock Option Plan, using the form attached to this Agreement as Exhibit A, to purchase the Company's common stock (the "Option") under the following terms: a. GRANT OF OPTIONS: Subject to the terms and provisions of this Agreement, the Company agrees to grant the Executive an Option to purchase from the Company an aggregate of three hundred thousand (300,000) shares of the Company's common stock (the "Option Stock") at a price per share equal to "$2 3/8" (the "Option Price"). The Grant Date for purposes of this Option shall be March 31, 1995. b. VESTING AND EXERCISE OF OPTIONS: The Executive shall have the right to exercise the Option with respect to all or part of any portion of the Option Stock that has vested in accordance with the following vesting schedule, immediately upon its vesting: (1) On April 30, 1996, the Executive's Option to purchase one hundred twenty thousand (120,000) shares of the Option Stock, at the Option Price, shall vest. (2) On April 30, 1997, the Executive's Option to purchase an additional one hundred twenty thousand (120,000) shares of the Option Stock, at the Option Price, shall vest. 11 12 (3) On April 30, 1998, the Executive's Option to purchase an additional sixty thousand (60,000) shares of the Option Stock, at the Option Price, shall vest. (4) In the event that a Change of Control (as defined in Section 4(c) of this Agreement) occurs at any time during the Executive's employment, or in the event of a termination or non-renewal Without Good Cause or a valid Notice of Resignation for Good Reason prior to April 30, 1998, the Executive's Option to purchase all three hundred thousand (300,000) shares of the Option Stock, at the Option Price, shall, to the extent not already fully vested, immediately become fully vested and exercisable on the date the Change of Control occurs, or on the effective date of his termination or resignation. c. EXERCISE OF OPTIONS: (1) The Executive shall have the right to exercise his Option to purchase all or part of the Option Stock after such Option has vested in accordance with the vesting provisions set forth in Section 6(b). Any exercise by the Executive of his Option to purchase all or part of the Option Stock shall be in writing addressed to the Corporate Secretary of the Company at its principal place of business (a copy of the form of exercise to be used will be available upon written request to the Secretary), and shall be accompanied by a certified or bank check to the order of the Company in the full amount of the Option Price of the whole number of Option Stock so purchased. In no event shall the Executive exercise the Option for a fraction of a share of Option Stock. (2) The Option may not be exercised after the tenth (10th) anniversary of the Grant Date. The unexercised portion of the Option, if any, will automatically, and without notice, terminate and become null and void upon the expiration of ten (10) years from the Grant Date. If, however, the Executive's employment with the Company terminates before the expiration of ten (10) years from the Grant Date, the Option will terminate on the applicable date as described in Section 6(c)(3) below. (3) Upon the termination of the Executive's employment with the Company, the Option shall automatically terminate and become null and void as to shares of Option Stock not vested either immediately prior to the date of the Executive's termination or as a result of his termination, and as to shares of Option Stock vested for any reason on the date of his termination, shall to the extent not previously exercised, be exercisable and then terminate only as follows: (a) if the Executive dies while in the employ of the Company, the Executive's estate may, until the earlier of: (x) six (6) months after the date of death, or (y) the expiration of ten (10) years from the Grant Date, exercise the Option with respect to all or any part of the Option Stock which the Executive was entitled to purchase immediately prior to the date of his death; 12 13 (b) in the case of termination of the Executive's employment due to Disability, the Executive may, until the earlier of: (x) six (6) months after the date his employment terminates, or (y) the expiration of ten (10) years from the Grant Date, exercise the Option with respect to all or any part of the Option Stock which the Executive was entitled to purchase immediately prior to the date of his termination; (c) in the case of a Termination Without Good Cause or a Non-Renewal Without Good Cause, or the event the Executive communicates Notice of Resignation for Good Reason, as that term is defined in Section 2(c)(5), the Executive may, until the earlier of: (x) one (1) year after the date the Executive's employment terminates, or (y) the expiration of ten (10) years from the Grant Date; exercise the Option with respect to all or any part of the Option Stock which the Executive was entitled to purchase immediately prior to the time of such termination, non-renewal or resignation; and (d) in the case of termination or resignation for any reason other than those specified in (a), (b) or (c) above, the Executive may, until the earlier of: (x) thirty (30) days after the date of his termination from employment or (y) the expiration of ten (10) years from the Grant Date, exercise his Option with respect to all or any part of the Option Stock which the Executive was entitled to purchase immediately prior to the time of such termination or resignation; provided, however, that if the Executive is terminated for Good Cause, as defined in Section 2(c)(3), the Executive shall forfeit his rights under the Option, except as to those shares of Option Stock already purchased. d. REGISTRATION: The Option shall specifically provide: (i) an agreement from the Company to at all times maintain an effective registration on Form S-8 covering the registration of the Option Stock under the Securities Act of 1933, as amended ("the Act"); (ii) the Option Stock shall be issued free of all restrictions (except those imposed by law), legends and stop transfer instructions; and, (iii) the Option Stock shall not constitute "restricted securities" within the meaning of Rule 144 of the Securities and Exchange Commission. Concurrently with the execution of this Agreement, the Company shall enter into a Registration Rights Agreement with the Executive, in the form attached hereto as Exhibit "B," pursuant to which the Company shall grant certain rights to the Executive to include the Option Stock on any registration statement filed by the Company under the Act relating to a public offering of any equity or debt securities by the Company. e. STATUS OF THE EXECUTIVE: The Executive shall not be considered a stockholder of the Company with respect to any shares of Option Stock subject to the Option, except to the extent that the shares of Option Stock have been purchased by and transferred to the Executive. 7. SUCCESSORS AND ASSIGNS: The parties acknowledge and agree that this Agreement may not be assigned by either party without the written consent of the other party. In the event of a "Change of Control" as defined in Section 4(c), the Company shall be entitled to assign this Agreement to any successor or assignee; provided, however, that such assignment shall not or be construed to, in any way whatsoever, release, limit or excuse the Company from the 13 14 performance of its obligations and the payment of its liabilities under this Agreement, regardless of whether such obligations or liabilities accrued or accrue before, after or as a result of such assignment, and regardless of whether such obligations or liabilities are or were assumed by any successor or assignee. In the event of the Executive's death, this Agreement shall be enforceable by the Executive's estate, executors or legal representatives, but only to the extent that such persons may collect any compensation (including stock options) due to the Executive under this Agreement. 8. INDEMNIFICATION: During and after the employment of the Executive pursuant to this Agreement, the Company shall indemnify the Executive against all judgments, penalties, fines, assessments, losses, amounts paid in settlement and reasonable expenses (including, but not limited to, attorneys' fees) for which the Executive may become liable as a result of his performance of his duties and responsibilities pursuant to this Agreement, and pursuant to his duties and responsibilities as a Trustee of the Greyhound Lines, Inc. - Amalgamated Council Retirement and Disability Trust, to the fullest extent permissible under the laws of the State of Delaware. In addition, the Company agrees to purchase liability insurance for any such judgments, penalties, fines, assessments, losses, amounts paid in settlement and reasonable expenses (including, but not limited to, attorneys' fees) for which the Executive may become liable as a result of his performance of his duties and responsibilities pursuant to this Agreement in an amount not less than the amount of director and officer liability insurance in effect on the Effective Date of this Agreement, and consistent with coverage provided to other officers of the Company. 9. NON-COMPETITION AND NON-DISCLOSURE: The Company and the Executive agree as follows: a. During and after his employment by the Company, the Executive agrees that he shall not directly or indirectly disclose any Confidential Information, as defined in this section, unless such disclosure is: (i) to an employee of the Company or its subsidiaries; or (ii) to a person to whom disclosure is reasonably necessary or appropriate in connection with the performance of his duties as an executive of the Company; or (iii) authorized in writing by the Board of Directors; or (iv) required by any Court or administrative agency. b. In the event that this Agreement is terminated for any reason, the Executive agrees that he shall promptly return all records, files, documents, materials and copies relating to the business of the Company or its subsidiaries which came into the possession of the Executive during his employment pursuant to this Agreement; provided, however, that nothing in this section shall be construed as any limitation on the Executive's right to retain any documents or other information which was in the possession of the Executive prior to the Effective Date of this Agreement. c. For purposes of this Agreement, the term "Confidential Information" shall be defined as any information relating to the business of the Company or its subsidiaries which is not generally available to the public and which the Company takes affirmative steps to maintain 14 15 as confidential. The term shall not include any information that the Executive was aware of prior to the Effective Date of this Agreement, information that is a matter of any public record, information contained in any document filed or submitted to any governmental entity, any information that is common knowledge in any industry in which the Company does business, any information that has previously been made available to persons who are not employees of the Company or any information that is known to the Company's competitors. d. Both the Company and the Executive recognize that in his employment at the Company, the Executive will be provided with Confidential Information, as defined above. Both the Company and the Executive recognize that the disclosure of such Confidential Information to a competitor of the Company could place the Company at a competitive disadvantage. Accordingly, in consideration of the Company agreeing to provide Confidential Information to him, and to prevent the disclosure or use of such information to the competitive disadvantage of the Company, the parties agree that in the event that the Executive's employment with the Company is terminated as a result of either: (i) Notice of Termination for Good Cause or Notice of Non-Renewal for Good Cause, as defined in Section 2(c)(3); or (ii) the resignation of the Executive "Without Good Reason," as defined by Section 2(c)(5), the Executive covenants and agrees not to compete with the Company for twelve (12) calendar months subsequent to such termination, non- renewal or resignation from employment, in the business of providing inter-city transport of passengers or cargo by automobile or motorbus in any city in which the Company engaged in such business during the twelve (12) calendar months prior to such termination, non-renewal or resignation. This provision shall not apply in the event that the employment of the Executive is terminated for any reason other than "Good Cause" or in the event of a "Resignation for Good Reason." e. Unless the Board of Directors provides prior written approval, for one (1) year following the termination of the Executive's employment by the Company, the Executive shall not, directly or indirectly: (1) solicit, entice, persuade or induce any employee of the Company, or its subsidiaries, to terminate his/her employment with the Company, or its subsidiaries, or to become employed by any Person other than the Company, or its subsidiaries; or (2) approach any such employee for any of the foregoing purposes; or (3) authorize or assist in the taking of such actions by any third party. 10. ARBITRATION: The Company and the Executive agree as follows: a. Any claim or controversy arising out of or relating to this Agreement, or any breach of this Agreement, shall be settled by final and binding arbitration in the city of Dallas, Texas in accordance with the Commercial Arbitration Rules of the American Arbitration Association in effect on the date the claim or controversy arises. The Executive and the Company agree that either party must request arbitration of any claim or controversy on or 15 16 before the earlier of: (i) the fifteenth (15th) business day after the termination or non-renewal of this Agreement becomes effective; or (ii) the sixtieth (60th) business day after the date the claim or controversy first arises, by giving written notice of the party's request for arbitration ("Arbitration Notice"). Failure to effectively communicate the Arbitration Notice within the time limitation set forth in this section shall constitute a waiver of the claim or controversy. b. In the event that any dispute arising under this Agreement concerns any payment required to be made under any provision of this Agreement, either party agrees to deposit the amount of the disputed payment in an interest bearing account with a financial institution acceptable to the other party within five (5) days after either party effectively communicates its Arbitration Notice. In the event that any dispute arising under this Agreement concerns the amount of any payment required to be made under any provision of this Agreement, either party agrees to pay the undisputed portion of the payment to the other party and deposit the disputed portion of the payment in an interest bearing account with a financial institution acceptable to the other party within five (5) days after either party effectively communicates its Arbitration Notice. c. All claims or controversies subject to arbitration under this Agreement shall be submitted to an arbitration hearing within thirty (30) days after the Arbitration Notice is communicated. All claims or controversies shall be resolved by a panel of three (3) arbitrators selected in accordance with the applicable Commercial Arbitration Rules. Either party may request that the arbitration proceeding be stenographically recorded by a Certified Shorthand Reporter. The arbitrators shall issue a written decision with respect to all claims or controversies submitted under this section within thirty (30) days after the completion of the arbitration hearing. The parties are entitled to be represented by legal counsel at any arbitration hearing and each party shall be responsible for its own attorneys' fees. The Company shall be responsible for paying for all of the arbitrators' fees and expenses in the event of any arbitration under this section, except that in the event an arbitration panel finds against the Executive, he may be required to reimburse the Company for up to one-half (1/2) of the arbitrators' fees and expenses. d. The parties agree that this section may be specifically enforced by either party, and submission to arbitration compelled, by any court of competent jurisdiction. The parties further acknowledge and agree that the decision of the arbitrators may be specifically enforced by either party in any court of competent jurisdiction. 11. RULES OF CONSTRUCTION: The following provisions shall govern the interpretation and enforcement of this Agreement: 16 17 a. SEVERABILITY: The parties acknowledge and agree that each provision of this Agreement shall be enforceable independently of every other provision. Furthermore, the parties acknowledge and agree that, in the event any provision of this Agreement is determined to be unenforceable for any reason, the remaining covenants and/or provisions will remain effective, binding and enforceable. b. WAIVER: The parties acknowledge and agree that the failure of either to enforce any provision of this Agreement shall not constitute a waiver of that particular provision, or of any other provisions, of this Agreement, except as otherwise stated in this Agreement. c. CHOICE OF LAW: The parties acknowledge and agree that except as specifically provided otherwise in this Agreement, the law of Texas will govern the validity, interpretation and effect of this Agreement and any other dispute relating to, or arising out of, the employment relationship between the Company and the Executive. d. MODIFICATION: The parties acknowledge and agree that this Agreement constitutes the complete and entire agreement between the parties; that the parties have executed this Agreement based upon the express terms and provisions set forth herein; that the parties have not relied on any representations, oral or written, which are not set forth in this Agreement; that no previous agreement, either oral or written, shall have any effect on the terms or provisions of this Agreement; and that all previous agreements, either oral or written, are expressly superseded and revoked by this Agreement. In addition, the parties acknowledge and agree that the provisions of this Agreement may not be modified by any subsequent agreement unless the modifying agreement (i) is in writing (ii) contains an express provision referencing this Agreement (iii) is signed by the Executive and (iv) is approved by the Board of Directors. e. EXECUTION: The parties agree that this Agreement may be executed in multiple counterparts, each of which shall be deemed an Original for all purposes. f. HEADINGS: The parties agree that the subject headings set forth at the beginning of each section in this Agreement are provided for ease of reference only, and shall not be utilized for any purpose in connection with the construction, interpretation or enforcement of this Agreement. 12. LEGAL CONSULTATION: The parties acknowledge and agree that both parties have been accorded a reasonable opportunity to review this Agreement with legal counsel prior to executing the agreement. 13. NOTICES: The parties acknowledge and agree that any and all Notices required to be delivered under the terms of this Agreement shall be forwarded by personal delivery or certified U.S. mail. Either party may change their respective address for the purpose of receiving notices only by providing written notification via certified mail, five (5) days in advance of such change. Notices shall be deemed to be communicated and effective on the day of receipt. Such Notices shall be addressed to each party as follows: 17 18 Steven L. Korby Greyhound Lines, Inc. 3131 Maple Avenue, Apt. 3C 15110 North Dallas Parkway Dallas, Texas 75201 Dallas, Texas 75248 With a copy to: Craig Lentzsch President and Chief Executive Officer Greyhound Lines, Inc. 15110 North Dallas Parkway Dallas, Texas 75248 Mark Southerst General Counsel Greyhound Lines, Inc. 15110 North Dallas Parkway Dallas, Texas 75248 EXECUTED on this 25th day of July, 1995. STEVEN L. KORBY /s/ Steven L. Korby GREYHOUND LINES, INC. Approved as to form By MES ---------------- Attorney By: /s/ Craig R. Lentzsch Title:________________________ 18 19 EXHIBIT A TO EMPLOYMENT AGREEMENT BETWEEN GREYHOUND LINES, INC. AND STEVEN L. KORBY OPTION AGREEMENT March 31, 1995 Mr. Steven L. Korby 3131 Maple Avenue, Apt. 3C Dallas, Texas 75201 RE: GRANT OF NON-QUALIFIED STOCK OPTION Dear Mr. Korby: On __________, 1993, the Board of Directors of Greyhound Lines, Inc. (the "Company") adopted the Company's 1993 Management Stock Option Plan (the "Plan"). A copy of the Plan is annexed to this Option Agreement and shall be deemed a part of this Option Agreement as if fully set forth herein. Unless the context otherwise requires, all terms defined in the Plan shall have the same meaning when used herein. I. THE GRANT The Company hereby grants to you, effective as of March 31, 1995 (the "Grant Date"), as a matter of separate inducement and not in lieu of any salary or other compensation for your services, the right and option to purchase (the "Option") an aggregate of 300,000 shares of Common Stock of the Company (the "Option Shares") at a price per share equal to $2 3/8 (the "Option Price"), in accordance with the terms of, and subject to the limitations set forth in, this Option Agreement, your Executive Employment Agreement (the "Employment Agreement") and the Plan. This Option is not intended to be an incentive stock option within the meaning of section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). It is intended to be a non-qualified stock option, within the purview of section 83 of the Code, granted under Paragraph 6 of the Plan. II. VESTING AND EXERCISE (a) The Option shall vest as to the right to purchase, and simultaneously become immediately exercisable, as follows: 20 (i) 40% of the Option Shares (120,000 shares) on April 30, 1996 pursuant to your Employment Agreement; (ii) 40% of the Option Shares (120,000 shares) on April 30, 1997 pursuant to your Employment Agreement; and (iii) 20% of the Option Shares (60,000 shares) on April 30, 1998, pursuant to your Employment Agreement. No further vesting of the Option shall occur following termination of your employment; provided, however, that in the event of: (i) a "Change of Control," as defined in Section 4(c) of your Employment Agreement, at any time during your employment; or (ii) in the event that your employment is terminated or not renewed by the Company without "Good Cause," as defined in Section 2(c)(3) of your Employment Agreement, prior to May 14, 1998; or, (iii) you communicate a valid Notice of Resignation for "Good Reason," as defined in Section 2(c)(5)(a) of your Employment Agreement, prior to May 14, 1998, then your Option to purchase all three hundred thousand (300,000) shares of the Option Stock at the Option Price shall, to the extent not already fully vested, immediately become fully vested and exercisable on the date the Change of Control occurs, or on the effective date of your termination or resignation. (b) The Option may not be exercised after the tenth (10th) anniversary of the Grant Date. The unexercised portion of the Option, if any, will automatically, and without notice, terminate and become null and void upon the expiration of ten (10) years from the Grant Date. If, however, your employment with the Company terminates before the expiration of ten (10) years from the Grant Date, the Option will terminate on the applicable date as described in Paragraph IV below. (c) Any exercise by you of the Option shall be in writing addressed to the Corporate Secretary of the Company at its principal place of business (a copy of the form of exercise to be used will be available upon written request to the Secretary), and shall be accompanied by a certified or bank check to the order of the Company in the full amount of the Option Price of the whole number of Option Shares so purchased, or in such other manner as described in the Plan. In no event shall you exercise the Option for a fraction of an Option Share. III. DEFINITIONS (a) For purposes of this Option Agreement, the term "Change of Control" shall mean that one of the events set forth at Section 4(c) of your Employment Agreement occurs, or any other transaction or series of related transactions occur which have substantially the same effect as any one of the events set forth at Section 4(c) of your Employment Agreement. (b) For purposes of this Option Agreement, the term "Without Good Cause" shall mean that your Employment Agreement is terminated or not renewed by the Company without "Good Cause," as defined in Section 2(c)(3)(c) of your Employment Agreement, or your employment is terminated by the Company by communicating a Notice of Termination for Good 2 21 Cause or Notice of Non-Renewal for Good Cause, and either the President/Chief Executive Officer [under Section 2(c)(3)(f) of your Employment Agreement] or the arbitrators [under Section 10(c) of your Employment Agreement] thereafter determines that no Good Cause exists or existed for the termination or non-renewal. (c) For purposes of this Option Agreement, the term "Notice of Resignation for Good Reason" shall mean that you communicate at least ninety (90) days notice of your intention to resign from your position with the Company, for any reason constituting "Good Reason" under Section 2(c)(5)(a) of your Employment Agreement. IV. TERMINATION OF EMPLOYMENT Upon the termination of your employment with the Company, this Option shall automatically terminate and become null and void as to Option Shares not vested as to the right to purchase and not then exercisable either immediately prior to the date of your termination or as a result of your termination. With respect to any and all Option Shares vested as to the right to purchase and exercisable for any reason on the date of your termination, shall to the extent not previously exercised, be exercisable and then terminate only as follows: (a) DEATH: If you die while in the employ of the Company, your estate may, until the earlier of: (x) six (6) months after the date of death or (y) the expiration of ten (10) years from the Grant Date, exercise the Option with respect to all or any part of the Option Shares which you were entitled to purchase immediately prior to the date of your death; (b) DISABILITY: In the case of termination of your employment due to Disability (as defined in Section 2(c)(2) of your Employment Agreement), you may, until the earlier of: (x) six (6) months after the date your employment terminates, or (y) the expiration of ten (10) years from the Grant Date, exercise the Option with respect to all or any part of the Option Shares which you were entitled to purchase immediately prior to the date of your termination; (c) TERMINATION WITHOUT GOOD CAUSE: In the event that your employment is terminated by the Company without "Good Cause," as defined in Section 2(c)(3) of your Employment Agreement, you may, until the earlier of: (x) one (1) year after the date your employment terminates; or (y) the expiration of ten (10) years from the Grant Date, exercise the option with respect to all or any part of the Option Shares which you were entitled to purchase immediately prior to or as a result of such termination; (d) NON-RENEWAL WITHOUT GOOD CAUSE: In the event that your Employment Agreement is not renewed by the Company, without "Good Cause," as defined in Section 2(c)(3) of your Employment Agreement, you may, until the earlier of: (x) one (1) year after your employment terminates as a result of the Company's non-renewal; or (y) ten (10) years from the Grant Date, exercise the Option with respect to all or any part of the Option Shares you were entitled to purchase at the time your employment terminated as a result of the Company's non-renewal; 3 22 (e) RESIGNATION FOR GOOD REASON: In the event you resign from employment for "Good Reason," as that term is defined in Section 2(c)(5)(a) of your Employment Agreement, you may, until the earlier of: (x) one (1) year after the date your employment terminates; or (y) the expiration of ten (10) years from the Grant Date, exercise the Option with respect to all or any part of the Option Shares which you were entitled to purchase immediately prior to or as a result of such resignation; and (f) RESIGNATION WITHOUT GOOD REASON: In the case of a resignation for any reason other than "Good Reason," as that term is defined in Section 2(c)(5)(a) of your Employment Agreement, you may, until the earlier of (x) thirty (30) days after the date of your resignation from employment or (y) the expiration of ten (10) years from the Grant Date, exercise your Option with respect to all or any part of the Option Shares which you were entitled to purchase at the time of such resignation. (g) GOOD CAUSE: If you were terminated for Good Cause (as defined in Section 2(c)(3) of your Employment Agreement), you shall forfeit your rights under the Option, except as to those Option Shares already purchased. V. CHANGE OF CONTROL Upon the occurrence of an event constituting a Change of Control (as that term is defined in Section 4(c) of your Employment Agreement) while you are employed by the Company or any parent corporation or subsidiary corporation of the Company, the Option will become immediately fully vested, to the extent not already fully vested, and immediately exercisable in full, effective on the date of the Change of Control. VI. TRANSFERABILITY The Option is not transferable by you otherwise than by will or the laws of descent and distribution and is exercisable, during your lifetime, only by you. The Option may not be assigned, transferred (except by will or the laws of descent and distribution), pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar proceeding. Any attempted assignment, transfer, pledge, hypothecation or other disposition of this Option contrary to the provisions hereof or of the Plan, and the levy of any attachment or similar proceeding upon the Option, shall be null and void and without effect. The continuing validity of the Option shall not be impaired by this provision, by the attempted assignment, transfer, pledge, hypothecation or other disposition or by the voided levy or similar proceeding. By your acceptance of this Option Agreement, you agree that you will not sell or otherwise dispose of the Option, any common stock acquired pursuant to the Option or any other "derivative security" (as defined by Rule 16a-1(c) under the Securities Exchange Act of 1934, as amended) during the period ending six (6) months from the date hereof. VII. REGISTRATION 4 23 (a) REGISTRATION OF OPTIONS SHARES: The Company represents and warrants to you that the Plan is covered by an effective registration statement on Form S-8 filed with the Securities and Exchange Commission relating to the Option Shares issuable upon exercise of this Option, and the Option Shares issuable upon exercise of this Option are and shall continue at all times to be registered under the Securities Act of 1933, as amended (the "Act") and the Option Shares issuable upon exercise of this Option shall be issued free of any and all restrictive legends and stop transfer instructions. Without limitation upon the generality of the foregoing, the Option Shares issuable upon exercise of this Option shall not constitute "restricted securities" with the meaning of Rule 144 under the Act, and shall be freely transferable by you in the open market and otherwise. The Company agrees that so long as this Option is outstanding, it shall at all times maintain an effective registration statement under the Act covering the issuance of the Option Shares to you. (b) OBLIGATIONS OF THE COMPANY: Concurrently with the execution of this Agreement, the Company shall enter into a Registration Rights Agreement with the Executive, in the form attached hereto as Exhibit "B," pursuant to which the Company shall grant certain rights to the Executive to include the Option Stock on any registration statement filed by the Company under the Act relating to a public offering of any equity or debt securities by the Company. VIII. WITHHOLDING TAXES By your acceptance hereof, and in accordance with Section 10(d) of the Plan, you agree that in the case of issuance of Option Shares hereunder, the Company, as a condition of such issuance, may require the payment (through withholding from any payment otherwise due you from the Company or any parent corporation or subsidiary corporation of the Company, reduction of the number of Option Shares to be issued hereunder, or otherwise) of any federal, state, local or foreign taxes required by law to be withheld with respect to such issuance. IX. MISCELLANEOUS (a) This Option Agreement is subject to all the terms, conditions, limitations and restrictions contained in the Plan, except as specifically modified by this Option Agreement and your Employment Agreement. In the event of any conflict between this Option Agreement, your Employment Agreement and/or the Plan, the terms of this Option Agreement shall be controlling. (b) This Option Agreement is not a contract of employment and the terms of your employment shall not be affected hereby or by any agreement referred to herein except to the extent specifically so provided herein or therein. Nothing herein shall be construed to impose any obligation on the Company or on any parent corporation or subsidiary corporation of the Company to continue your employment, and it shall not impose any obligation on your part to remain in the employ of the Company or of any parent corporation or subsidiary corporation of the Company. (c) SUCCESSORS: The obligations of this Option Agreement shall bind the corporate successors of the Company, and the corporate successors of such successors. 5 24 (d) NO IMPAIRMENT: The Company will not, by amendment of its certificate of incorporation or through reorganization, consolidation, merger, dissolution, issue or sale of securities, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Option, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the holders of the Options against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock receivable upon the exercise of the Option above the amount payable therefore upon such exercise and (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable stock. The Company agrees that the shares issuable upon exercise of this Option shall be duly authorized, fully paid and non-assessable shares, free of pre-emption rights. (e) RESERVATION OF STOCK ISSUABLE ON EXERCISE OF OPTIONS: The Company covenants and agrees that during the period within which the rights represented by this Option may be exercised, the Company will at all times have authorized, and in reserve, solely for issuance and delivery upon the exercise of this Option, all such shares of Common Stock and other stock, securities and property as from time to time shall be receivable upon the exercise of this Option. X. ARBITRATION (a) Any claim or controversy arising out of or relating to this Option Agreement, or any breach of this Option Agreement, shall be settled by final and binding arbitration in the city of Dallas, Texas in accordance with the Commercial Arbitration Rules of the American Arbitration Association in effect on the date the claim or controversy arises. The Executive and the Company agree that either party must request arbitration of any claim or controversy within sixty (60) days of the date the claim or controversy first arises, by giving written notice of the party's request for arbitration ("Arbitration Notice"). Failure to effectively communicate the Arbitration Notice within the time limitation set forth in this section shall constitute a waiver of the claim or controversy. (b) In the event that any dispute arising under this Option Agreement concerns any payment required to be made under any provision of this Option Agreement, either party agrees to deposit the amount of the disputed payment in an interest bearing account with a financial institution acceptable to the other party within five (5) days after either party effectively communicates its Arbitration Notice. In the event that any dispute arising under this Option Agreement concerns the amount of any payment required to be made under any provision of this Option Agreement, either party agrees to pay the undisputed portion of the payment to the other party and deposit the disputed portion of the payment in an interest bearing account with a financial institution acceptable to the other party within five (5) days after either party effectively communicates its Arbitration Notice. (c) All claims or controversies subject to arbitration under this Option Agreement shall be submitted to an arbitration hearing within thirty (30) days after the Arbitration Notice is communicated. All claims or controversies shall be resolved by a panel of three (3) arbitrators selected in accordance with the applicable Commercial Arbitration Rules. 6 25 Either party may request that the arbitration proceeding be stenographically recorded by a Certified Shorthand Reporter. The arbitrators shall issue a written decision with respect to all claims or controversies submitted under this section within thirty (30) days after the completion of the arbitration hearing. The parties are entitled to be represented by legal counsel at any arbitration hearing and each party shall be responsible for its own attorneys' fees. The Company shall be responsible for paying for all expenses in the event of any arbitration under this section. (d) The parties agree that this section may be specifically enforced by either party, and submission to arbitration compelled, by any court of competent jurisdiction. The parties further acknowledge and agree that the decision of the arbitrators may be specifically enforced by either party in any court of competent jurisdiction. Please indicate your acceptance of all the terms and conditions of the Option and the Plan by signing and returning a copy of this Option Agreement. Very truly yours, GREYHOUND LINES, INC. By:_________________________________ ACCEPTED: STEVEN L. KORBY _____________________________________ Date:________________________________ 7 EX-11.1 6 EXHIBIT 11.1 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11.1 PAGE 1 OF 2 GREYHOUND LINES, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED JUNE 30, 1995 ------------------ PRIMARY LOSS PER SHARE Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (9,883,000) =============== Shares Weighted average number of common shares issued . . . . . . . . . . . . . . . . 53,852,874 Less weighted average treasury stock . . . . . . . . . . . . . . . . . . . . . . (109,192) Assuming exercise of options reduced by the number of common shares which could have been purchased with the proceeds from exercise of such options . . --- * --------------- Weighted average number of common shares outstanding, as adjusted . . . . . . . 53,743,682 --------------- Net loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.18) =============== FULLY DILUTED LOSS PER SHARE Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (9,883,000) Plus interest expense on Convertible Debentures . . . . . . . . . . . . . . . . . . --- ** --------------- Adjusted net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (9,883,000) =============== Shares Weighted average number of common shares issued . . . . . . . . . . . . . . . . 53,852,874 Less weighted average treasury stock . . . . . . . . . . . . . . . . . . . . . . (109,192) Assuming exercise of options reduced by the number of common shares which could have been purchased with the proceeds from exercise of such options . . --- * Assuming conversion of Convertible Debentures into shares of Common Stock . . . --- ** --------------- Weighted average number of common shares outstanding, as adjusted . . . . . . . 53,743,682 --------------- Net loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.18) ===============
* Option exercises not considered in calculation as exercise would not have a dilutive effect. ** Not used in calculation of weighted average number of common shares due to the antidilutive effect of the assumed conversion of the Convertible Debentures. 2 EXHIBIT 11.1 PAGE 2 OF 2 GREYHOUND LINES, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE
SIX MONTHS ENDED JUNE 30, 1995 ------------------ PRIMARY LOSS PER SHARE Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (28,600,000) =============== Shares Weighted average number of common shares issued . . . . . . . . . . . . . . . . . 53,171,044 Less weighted average treasury stock . . . . . . . . . . . . . . . . . . . . . . . (109,192) Assuming exercise of options reduced by the number of common shares which could have been purchased with the proceeds from exercise of such options . . . --- * --------------- Weighted average number of common shares outstanding, as adjusted . . . . . . . . 53,061,852 --------------- Net loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.54) =============== FULLY DILUTED LOSS PER SHARE Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (28,600,000) Plus interest expense on Convertible Debentures . . . . . . . . . . . . . . . . . . . --- ** --------------- Adjusted net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (28,600,000) =============== Shares Weighted average number of common shares issued . . . . . . . . . . . . . . . . . 53,171,044 Less weighted average treasury stock . . . . . . . . . . . . . . . . . . . . . . . (109,192) Assuming exercise of options reduced by the number of common shares which could have been purchased with the proceeds from exercise of such options . . . --- * Assuming conversion of Convertible Debentures into shares of Common Stock . . . . --- ** --------------- Weighted average number of common shares outstanding, as adjusted . . . . . . . . 53,061,852 --------------- Net loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.54) ===============
* Option exercises not considered in calculation as exercise would not have a dilutive effect. ** Not used in calculation of weighted average number of common shares due to the antidilutive effect of the assumed conversion of the Convertible Debentures. EX-27 7 EXHIBIT 27 FINANCIAL DATA SCHEDULE
5 ART. 5 FDS FOR 2ND QUARTER 10-Q 1,000 6-MOS DEC-31-1995 JAN-01-1995 JUN-30-1995 893 0 32,514 846 3,200 68,045 352,332 72,550 471,802 116,219 186,863 538 0 0 124,133 471,802 0 293,160 0 217,002 0 0 13,881 (28,572) 28 (28,600) 0 0 0 (28,600) (0.54) (0.54)
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