-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B9UHAYLUVWtPNAbEztKA1Z7I12yEbvY2bKvaJ5gHImjmphFKM26oxGoFvNk7pl/v MVB2OSUi7VrhEBtsLZl3tA== 0000950134-95-002753.txt : 19951118 0000950134-95-002753.hdr.sgml : 19951118 ACCESSION NUMBER: 0000950134-95-002753 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951109 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: 95589006 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 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 September 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 NOVEMBER 8, 1995 --------------------- ------------------------------- $.01 PAR VALUE 58,163,326 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 September 30, 1995 (Unaudited) and December 31, 1994 . . . . . . . . . . 4 Interim Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 1995 and 1994 (Unaudited) . . 5 Interim Consolidated Statements of Cash Flows for the Nine Months Ended September 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 . . . . . . . . . . . . . . . . . . . . . . . . . . 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 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)
SEPTEMBER 30, DECEMBER 31, 1995 1994 ----------- ----------- (UNAUDITED) Current Assets Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 812 $ 9,454 Accounts receivable, less allowance for doubtful accounts of $309 and $840 . . . . . . . . . . . . . . . . . . . . . . . . . 31,357 33,584 Stock subscription receivable . . . . . . . . . . . . . . . . . . . . --- 15,150 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,303 3,779 Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 8,443 10,248 Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . 5,554 9,526 Other current assets . . . . . . . . . . . . . . . . . . . . . . . . 12,967 12,859 -------- -------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . 62,436 94,600 Prepaid Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . . . 23,787 22,250 Property, Plant and Equipment, net of accumulated depreciation of $77,892 and $68,388 . . . . . . . . . . . . . . . . . . . . . . . 279,940 288,250 Investments in Unconsolidated Affiliates . . . . . . . . . . . . . . . . 1,426 1,312 Insurance and Security Deposits . . . . . . . . . . . . . . . . . . . . . 85,007 84,548 Intangible Assets, net of accumulated amortization of $13,261 and $9,644 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,304 20,489 -------- -------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $471,900 $511,449 ======== ======== Current Liabilities Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,425 $ 14,916 Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 49,479 53,106 Unredeemed tickets . . . . . . . . . . . . . . . . . . . . . . . . . 5,898 10,259 Current portion of reserve for injuries and damages . . . . . . . . . 27,085 26,455 Current maturities of long-term debt . . . . . . . . . . . . . . . . 13,067 7,022 -------- -------- Total current liabilities . . . . . . . . . . . . . . . . . . . . 112,954 111,758 Reserve for Injuries and Damages . . . . . . . . . . . . . . . . . . . . 38,689 45,888 Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,924 197,125 Deferred Gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,009 1,277 Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,353 2,205 -------- -------- Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . 330,929 358,253 -------- -------- Commitments and Contingencies (Note 4) 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; 54,267,918 and 37,567,744 shares issued as of September 30, 1995 and December 31, 1994 respectively; par value $.01) . . . . . . . . . . . . . . . . 543 375 Common stock subscribed (16,279,070 shares as of December 31, 1994) . --- 163 Capital in excess of par value . . . . . . . . . . . . . . . . . . . 213,047 182,826 Capital in excess of par value, subscribed . . . . . . . . . . . . . --- 29,184 Retained deficit . . . . . . . . . . . . . . . . . . . . . . . . . . (70,082) (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 . . . . . . . . . . . . . . . . . . . . 140,971 153,196 -------- -------- Total liabilities and stockholders' equity . . . . . . . . . . $471,900 $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 NINE MONTHS ENDED ------------------ ----------------- SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 1995 1994 1995 1994 ---- ---- ---- ---- (UNAUDITED) (UNAUDITED) OPERATING REVENUES Transportation Services Passenger services . . . . . . . . . . . . . $ 172,715 $ 159,359 $ 418,832 $ 396,536 Package express . . . . . . . . . . . . . 9,171 10,329 26,816 30,527 Food services . . . . . . . . . . . . . . . . 6,145 5,870 15,532 15,723 Other operating revenues . . . . . . . . . . 10,915 10,178 30,926 27,875 ---------- --------- ---------- ---------- Total operating revenues . . . . . . . . 198,946 185,736 492,106 470,661 ---------- --------- ---------- ---------- OPERATING EXPENSES Maintenance . . . . . . . . . . . . . . . . . 17,517 17,338 51,205 54,664 Transportation . . . . . . . . . . . . . . . 44,958 37,232 117,670 99,763 Agents' commissions and station costs . . . . 35,311 32,661 92,875 89,485 Marketing, advertising and traffic . . . . . 6,378 8,339 18,821 31,634 Insurance and safety . . . . . . . . . . . . 15,796 14,086 39,990 45,955 General and administrative . . . . . . . . . 18,704 16,954 54,819 54,324 Depreciation and amortization . . . . . . . . 7,062 7,155 21,560 27,056 Operating taxes and licenses . . . . . . . . 13,044 13,080 37,772 36,663 Operating rents . . . . . . . . . . . . . . . 12,677 12,533 35,058 35,962 Cost of goods sold - food services . . . . . 3,518 3,082 9,447 10,248 Other operating expenses . . . . . . . . . . 2,017 2,612 5,616 10,061 Restructuring expense . . . . . . . . . . . --- 2,002 --- 2,002 ---------- --------- ---------- ---------- Total operating expense . . . . . . . . . 176,982 167,074 484,833 497,817 ---------- --------- ---------- ---------- OPERATING INCOME (LOSS) . . . . . . . . . . . . 21,964 18,662 7,273 (27,156) Interest Expense . . . . . . . . . . . . . . . 6,606 9,033 20,487 24,594 ---------- --------- ---------- ---------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM . . . . . . . . . . . . . 15,358 9,629 (13,214) (51,750) Income Tax Provision . . . . . . . . . . . . . 25 17,039 53 17,056 ---------- --------- ---------- ---------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM . . . . 15,333 (7,410) (13,267) (68,806) Extraordinary Item . . . . . . . . . . . . . . --- 3,158 --- 3,158 ---------- --------- ---------- ---------- NET INCOME (LOSS) . . . . . . . . . . . . . . $ 15,333 $ (10,568) $ (13,267) $ (71,964) ========== ========= ========== ========== Income (Loss) Per Share of Common Stock: Primary Income (Loss) Before Extraordinary Item . . $ 0.27 $ (0.51) $ (0.25) $ (4.69) Extraordinary Item . . . . . . . . . . . . --- (0.21) --- (0.22) ---------- --------- ---------- ---------- Net Income (Loss) . . . . . . . . . . . . . $ 0.27 $ (0.72) $ (0.25) $ (4.91) ========== ========= ========== ========== Fully Diluted Income (Loss) Before Extraordinary Item . . $ 0.27 $ (0.51) $ (0.25) $ (4.69) Extraordinary Item . . . . . . . . . . . . . --- (0.21) --- (0.22) ---------- --------- ---------- ---------- Net Income (Loss) . . . . . . . . . . . . . $ 0.27 $ (0.72) $ (0.25) $ (4.91) ========== ========= ========== ==========
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)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------ 1995 1994 --------- -------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (13,267) $ (71,964) Noncash expenses, gains and losses included in net loss Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 21,560 27,056 Amortization of deferred gain . . . . . . . . . . . . . . . . . . . . . . (268) (242) Amortization of debt issuance costs . . . . . . . . . . . . . . . . . . . 733 1,268 Amortization of discount on Senior Notes . . . . . . . . . . . . . . . . . 2,239 1,966 Net loss on assets sold . . . . . . . . . . . . . . . . . . . . . . . . . 393 638 Unfunded net pension gain . . . . . . . . . . . . . . . . . . . . . . . . (1,757) (4,253) Reserve for deferred income taxes . . . . . . . . . . . . . . . . . . . . --- 17,000 Write-down of assets held for sale . . . . . . . . . . . . . . . . . . . --- 2,817 Write-off of debt issue costs . . . . . . . . . . . . . . . . . . . . . . --- 3,158 Net changes in certain operating assets and liabilities Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,684 6,448 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 476 969 Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,805 (543) Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . (108) (5,463) Insurance and security deposits . . . . . . . . . . . . . . . . . . . . . (459) 13,752 Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,965) (3,017) Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,397 (5,658) Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 828 3,525 Reserve for injuries and damages . . . . . . . . . . . . . . . . . . . . . (6,569) 3,959 Unredeemed tickets . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,361) (1,896) --------- --------- Net cash provided by (used for) operating activities . . . . . . . . . 3,361 (10,480) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,411) (77,869) Proceeds from assets sold . . . . . . . . . . . . . . . . . . . . . . . . . 6,157 28,641 Proceeds from termination of interest rate swap . . . . . . . . . . . . . . --- 1,609 Deposit to collateralize operating leases . . . . . . . . . . . . . . . . . --- (7,127) Other investing activities . . . . . . . . . . . . . . . . . . . . . . . . (114) 140 --------- --------- Net cash provided by (used for) investing activities . . . . . . . . . (6,368) (54,606) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Payments on debt and capital lease obligations . . . . . . . . . . . . . . (17,320) (5,450) Proceeds from long-term borrowings . . . . . . . . . . . . . . . . . . . . --- 31,541 Net proceeds from Rights Offering . . . . . . . . . . . . . . . . . . . . . 11,685 --- Proceeds from issuance of Common Stock . . . . . . . . . . . . . . . . . . --- 13 Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . --- 89 Net change in revolving credit facility . . . . . . . . . . . . . . . . . . --- --- --------- --------- Net cash provided by (used for) financing activities . . . . . . . . . (5,635) 26,193 --------- --------- NET DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . (8,642) (38,893) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . . . . . . . . . . . 9,454 39,643 --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . . . . . . . $ 812 $ 750 ========= =========
The accompanying notes are an integral part of these statements. 6 7 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 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 September 30, 1995, and the results of its operations for the three and nine months ended September 30, 1995 and 1994. Due to the seasonality of the Company's operations, the results of its operations for the interim period ended September 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 EARNINGS (LOSS) PER SHARE Primary earnings (loss) per common share is calculated by dividing net income (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 earnings (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. The weighted average shares outstanding used in the calculation of primary and fully diluted earnings (loss) per share of Common Stock for the three and nine months ended September 30, 1995 and 1994 are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED ------------------ ----------------- SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- WEIGHTED AVERAGE SHARES OUTSTANDING 1995 1994 1995 1994 - ----------------------------------- ---- ---- ---- ---- Primary . . . . . . . . . . . . . . . . . . . . . . . 56,041,151 14,667,004 53,422,096 14,656,962 Fully diluted . . . . . . . . . . . . . . . . . . . . 56,041,151 14,667,004 53,422,096 14,656,962
CERTAIN RECLASSIFICATIONS Certain reclassifications have been made to the prior period statements to conform them to the September 30, 1995 classifications. 3. STOCKHOLDERS' EQUITY On October 3, 1995, the Company completed a public offering of 10,004,144 shares of Common Stock of which 4,000,000 shares were issued and sold by the Company and 6,004,144 were sold by Motor Coach Industries Limited, a selling stockholder. The shares were sold at a price to the public of $4.125 per share. The proceeds of the offering to the Company, after deducting all associated costs including a fee to the selling agent of $700,000, were $15.4 million. The Company will use approximately $9.7 million of the net proceeds to repurchase approximately $10.7 million aggregate principal of its 10% Senior Notes due 2001 (the "Senior Notes"). The repurchased Senior Notes will be applied toward future sinking fund obligations. The Company will use the remaining proceeds for general corporate purposes. 7 8 4. 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 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 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 EBS 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 believes that any such liability exposure would not materially exceed the amounts recorded. 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 involved 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. In September 1995, the Company agreed with the DOJ to the entry of a consent decree that would end the investigation. Under the provisions of the consent decree, the Company has agreed not to enforce a provision in its bus terminal lease agreements prohibiting a tenant bus carrier from selling its tickets within 25 miles of the Company's terminal and has agreed not to adopt any comparable provision. The Company rarely enforced this lease provision and recently revised its lease agreements to eliminate the provision. The consent decree is subject to the approval of a federal district court. Management of the Company believes that the consent decree will have no material impact on the Company's business, financial condition or results of operations. 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 1990 Chapter 11 bankruptcy case. That claim related to sales taxes which the OTC 8 9 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. In April 1995, the United States Supreme Court upheld the constitutionality of a sales tax imposed on interstate bus tickets by the State of Oklahoma in a case involving another bus company. Subsequent to the Supreme Court's decision, the Company's case has been remanded to the Bankruptcy Court where additional proceedings concerning the claim will be heard. Additionally, 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 Between August and December 1994, seven purported class action lawsuits were filed by purported owners of the Company's Common Stock, Convertible Debentures and Senior Notes against the Company and certain of its former officers and directors. The suits seek 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. All the purported class action cases referred to above (with the exception of one suit that was dismissed before being served on any defendants) have been transferred to the United States District Court for the Northern District of Texas, the Court in which the first purported class action suit was filed, and are 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. In July 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 as defendants. Messrs Lee and Lynch were subsequently dismissed from the case by the plaintiffs. In September 1995, the defendants filed a Motion to Dismiss plaintiffs' complaints. The motion remains pending before the Court. Also in September 1995, plaintiffs filed a Motion seeking to certify the class of plaintiffs. In November 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. In May 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. Schmieder 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. In 9 10 September 1995, the defendant's motion was granted and the case is in the process of being transferred to the Dallas court. 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. In January 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. In September 1995, the SEC served a document subpoena on the Company requiring the production of documents, most of which the Company voluntarily produced to the SEC in late 1994. 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. CHRISS STREET & COMPANY, INC., ET AL V. GREYHOUND LINES, INC., ET AL On June 12, 1995, Chriss Street & Company, Inc. and James R. Moriarty, former holders of Convertible Debentures, filed a lawsuit against the Company and Stephen M. Peck and Ernest P. Werlin seeking to invalidate the appointment of Messrs. Peck and Werlin to the Company's Board of Directors. On August 29, 1995 the parties to the litigation entered into a settlement agreement of all claims and the litigation was dismissed by the Delaware Chancery Court. Under the settlement agreement, the challenge to the appointment of Messrs. Peck and Werlin was withdrawn and both will continue to serve on the Company's board for the remainder of their respective terms. 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, 78 locations have been identified as sites requiring potential clean-up and/or remediation as of September 30, 1995. The Company has estimated the clean-up and/or remediation cost of these sites to be $5.0 million of which approximately $0.8 million is indemnifiable by The Dial Corp ("Dial") pursuant to indemnity obligations arising out of the 1987 acquisitions of the domestic bus operations of 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 three 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 September 30, 1995, including costs associated with previously remediated sites. The Company has also recorded an environmental reserve of $4.6 million, at September 30, 1995, for noncapitalizable expenses related to the sites identified for potential clean-up and/or remediation. The receivable and reserve amounts for these 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. 10 11 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 materially exceed the amounts recorded. 11 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAPITAL RESOURCES AND LIQUIDITY Public Offering. 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. The registration statement was declared effective on September 28, 1995, and on October 3, 1995, the sale of the stock was completed. Four million shares were sold by the Company and 6,004,144 shares were sold by Motor Coach Industries Limited, a selling stockholder. The Company did not receive any portion of the proceeds from the sale of shares of Common Stock by the selling stockholder. Net proceeds to the Company from the sale of the 4,000,000 shares of Common Stock offered by the Company were $15.4 million. The Company intends to use $9.7 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 with one of the Company's principal stockholders. The purchase price for the Senior Notes was based on arm's-length negotiations. The Company will use the remaining net proceeds from the sale of the Common Stock for general corporate purposes. Pending use, the net proceeds to the Company from the Offering are 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 $175.9 million in long-term debt outstanding (excluding $17.8 million of issued and undrawn standby letters of credit) at September 30, 1995, which primarily consisted 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. 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 of the application of the remaining Senior Note Repurchase, the July 1997 sinking fund payment will be reduced from $10.0 million to approximately $5.6 million. The Company will also require $2.4 million in the aggregate for other debt service and $9.2 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 aggregate amounts outstanding were $6.9 million as of September 30, 1995. 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 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 nine months ended September 30, 1995, operating activities provided net cash of $3.4 million. The net cash required for financing activities, as well as cash required for investing activities, were funded by proceeds received from the Rights Offerings (see - "Financial Restructuring"), the sale of surplus assets, and cash provided by operating activities. At September 30, 1995, the Company had cash and cash equivalents of $0.8 million and $52.2 million in available borrowing capacity under the New Credit Facility (defined herein) for general purposes. 12 13 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 $5.8 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 $70.0 million at November 8, 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 $44.5 million (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 $22.0 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 September 30, 1995, there were approximately $17.8 million in issued and undrawn standby letters of credit outstanding under the New Credit Facility, and no 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 was collateralized with a $2.0 million letter of credit which was released to the Company 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 nine months ended September 30, 1995, the Company's capital expenditures totalled $12.4 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 January 1, 1996, the Company must either purchase the buses, find refinancing for the buses or convert to a seven year operating lease with MCII or its assignee. The Company took delivery of and purchased 13 buses from MCII in September 1995, and currently plans to purchase an additional 10 buses it will receive from MCII in the last quarter of 1995. The Company has placed an order for another 50 buses for delivery in November 1995. Financing for these buses has been offered by MCII. 13 14 As of September 30, 1995, approximately 31% of the Company's bus fleet was 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. While the Company could continue to use these older buses, the Company intends, over time, to replace these older, less reliable vehicles with new buses. 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, including the 50 buses mentioned above, 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 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. THIRD 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 first quarter typically being a net loss period and the second quarter generally reflecting a net loss or minimal net income. The third quarter, which includes the summer peak travel season, generally provides the largest contribution to the Company's annual operating income. However, in the third quarter of 1994, the Company experienced a net loss. 14 15 The following table presents certain of the Company's consolidated operating statistics for the three and nine months ended September 30, 1995 and 1994:
THREE MONTHS ENDED NINE MONTHS ENDED ------------------ ----------------- SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 1995 1994 1995 1994 ---- ---- ---- ---- Regular Service Miles (000) . . . . . . . . . . . . . 74,842 67,238 191,992 177,567 Total Bus Miles (000) . . . . . . . . . . . . . . . 75,390 67,780 194,408 179,734 Passenger Miles (000) . . . . . . . . . . . . . . . . 1,894,440 1,623,528 4,461,006 4,101,402 Available Seat Miles (000) . . . . . . . . . . . . . 3,442,732 3,092,948 8,831,632 8,128,616 Passengers Carried (000) (a) . . . . . . . . . . . . 5,179 4,692 12,839 11,943 Average Trip Length (miles) (a) . . . . . . . . . . . 366 346 347 343 Load Factor (% of available seats filled) . . . . . . 55.0 52.5 50.5 50.5 Yield (Revenue Per Passenger Mile) (cents) . . . . . 9.12 9.82 9.39 9.67 Passenger Revenue Per Regular Service Mile (dollars) 2.31 2.37 2.18 2.23 Total Operating Revenue per Total Bus Mile (dollars) 2.64 2.74 2.53 2.62 Total Operating Expense per Total Bus Mile (dollars) 2.35 2.46 2.49 2.77 Cost per Mile (cents): Maintenance . . . . . . . . . . . . . . . . . . . 23.2 25.6 26.3 30.4 Transportation . . . . . . . . . . . . . . . . . . 59.6 54.9 60.5 55.5 Insurance and Safety . . . . . . . . . . . . . . . 21.0 20.8 20.6 25.6 Station Costs as a % of Total Revenue (%) . . . . . . 17.7 17.6 18.9 19.0
(a) See Operating Revenues for discussion of 1994 restatements Operating Income (Loss). Operating income for the three months ended September 30, 1995 was $22.0 million compared to $18.7 million for the same period in 1994. Operating income for the nine months ended September 30, 1995 was $7.3 million compared to an operating loss of $27.2 million for the same period in 1994. Operating revenues increased $13.2 million (or 7.1%) and $21.4 million (or 4.6%) for the three and nine months ended September 30, 1995, while operating expenses increased $9.9 million (or 5.9%) for the three months ended September 30, 1995 and decreased $13.0 million (or 2.6%) for the nine months ended September 30, 1995, compared to the same periods in 1994. Operating income for the three months ended September 30, 1994 included $3.2 million of certain operating charges which were primarily comprised of restructuring-related severance costs. Operating loss for the nine months ended September 30, 1994 included $24.2 million of certain operating charges for a number of items including: claims from the Company's 1990 bankruptcy; increased cost estimates for environmental remediation; an adjustment to depreciation of $6.0 million to recognize impairment of certain operating facilities which are less than fully utilized; and the above mentioned restructuring-related severance costs. Operating Revenues. Passenger service revenues increased $13.4 million (or 8.4%) and $22.3 million (or 5.6%) for the three and nine months ended September 30, 1995, compared to the same periods in 1994 due to increased ridership. The number of passengers carried increased 10.4% for the third quarter of 1995 compared to 1994 and 7.5% for the nine months ended September 30, 1995, compared to 1994. Management believes the increase in ridership resulted from the introduction of everyday low pricing, improvements in handling customer telephone calls and more convenient bus schedules. Although the short-haul business has increased, average trip length increased 5.8% for the third quarter of 1995 and 1.2% for the nine months ending September 30, 1995, due to greater growth of the long-haul business versus last year as the every day low pricing strategy had a more significant impact on long-distance travel. 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. As a result, the statistical information for 1994 has been changed from that previously published. Also contributing to higher passenger revenues was an improvement in interline activity, which reflects an increase in the number of tickets being sold by other carriers for all or a portion of the travel occurring on Greyhound. The Company expects improvements in its interline relationships to continue. Package express delivery service revenues declined $1.2 million (or 11.2%) and $3.7 million (or 12.2%) in the three and nine months ended September 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 15 16 from overnight carriers. This decline is likely to continue until the Company develops and implements a turnaround strategy for package express. Other operating revenues increased approximately $0.7 million (or 7.2%) and $3.1 million (or 10.9%) for the three and nine months ended September 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 1995, interest earned on the Company's deposits increased. Prepaid ticket order revenue has also increased. Operating Expenses. Total operating expenses increased $9.9 million (or 5.9%) for the three months ended September 30, 1995, and decreased $13.0 million (or 2.6%) for the nine months ended September 30, 1995 compared to the same periods in 1994. Regular service miles operated for the three and nine months ended September 30, 1995 compared to 1994 increased by 7.6 million miles (or 11.3%) and 14.4 million miles (or 8.1%). Operating expenses for the three and nine months ended September 30, 1994 included a total of $3.2 million and $23.2 million, respectively, of the certain operating charges discussed above. Maintenance costs for the three months ended September 30, 1995 compared to the same period in 1994, increased by only $0.2 million to $17.5 million. However, maintenance expenses for the nine months ended September 30, 1995 were well below 1994 expenses for the same time period. In spite of increased miles operated, maintenance labor costs, utilities and building repairs have decreased due to the downsizing and closure of several facilities since the first half of 1994, and closure of the New York City garage in January 1995. However, due to seasonal demands that require high fleet utilization and low down time, during the third quarter of 1995, fleet utilization (average miles per bus) increased approximately 9% over the third quarter of 1994, and it was necessary to defer some maintenance procedures from the third quarter of 1995 until late 1995 or early 1996, a lower demand, lower utilization period. As a result, maintenance costs, on a per mile basis, during the next six months may exceed current levels as the maintenance catch up is performed in addition to normal maintenance during those periods. Such deferral and catch up is a normal practice due to the seasonality of the business. 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 $7.7 million (or 20.8%) and $17.9 million (or 17.9%) for the three and nine months ended September 30, 1995 compared to the same periods in 1994, primarily due to an increase of 7.6 million miles operated and 14.7 million miles operated, respectively. The added miles produced cost increases for drivers' wages, drivers' expenses and fuel costs of $3.6 million and $6.9 million for the three and nine months ended September 30, 1995 compared to the same periods in 1994. In addition, transportation expense increased due to a contractual wage increase, higher drivers' expenses due to increased extra section activity (which are generally more expensive miles to operate), the delayed availability of the New York Dormitory and increased driver hiring and training. Driver hiring and training contributed $0.6 and $3.8 million to the variance for the three and nine months ended September 30, 1995 compared to the same periods in 1994. Agents' commissions and station costs increased $2.7 million (or 8.1%) and $3.4 million (or 3.8%) for the three and nine months ended September 30, 1995 compared to the same periods in 1994. The Company handled 1.9 million (or 37.8%) and 3.4 million (or 23.7%) more calls for the three and nine month periods ended September 30, 1995 compared to the same periods in 1994. The Company achieved the improved call handling by opening a new telephone center and improving staffing and compensation in its other center. As a result, telephone information salaries and communication costs are the primary cause for increases in this expense category. Ticket commission expenses have increased due to higher sales through commission agencies compared to 1994. Interline commissions paid have also risen due to an increase in the number of interline tickets honored by Greyhound in 1995. Marketing, advertising and traffic costs decreased $2.0 million (or 23.5%) and $12.8 million (or 40.5%) for the three and nine months ended September 30, 1995 compared to the same periods in 1994, due primarily to a planned spending reduction of $11.7 million in the first three quarters of 1995 in direct advertising expenditures. This year's advertising focus has targeted customers or potential customers with disposable income to spend on incremental trips. Insurance and safety costs increased $1.7 million (or 12.1%) for the three months ended September 30, 1995 and decreased $6.0 million (or 13.0%) for the nine months ended September 30, 1995 compared to the same periods in 1994. The automobile and general liability expense increased in the third quarter of 1995 due to the additional 16 17 claims exposure related to the increased miles operated, as well as the impact of a change in the Company's claims management strategy. A significant component of the claims management strategy is to settle claims more quickly which is reflected in the reduction of $6.6 million in the Reserve for Injuries and Damages of $65.8 million at September 30, 1995 from $72.3 million at December 31, 1994. This strategy is expected to reduce insurance claims expense for automobile and general liability over the longer term. However, management continues to monitor trends in exposure and to review the adequacy of related reserves. Baggage claims expense decreased by $0.3 million and $1.8 million for the three and nine months ended September 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. 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. General and administrative expenses increased $1.8 million (or 10.3%) and $0.5 million (or 0.9%) for the three and nine months ended September 30, 1995 compared to the same periods in 1994, due in part, to approximately $0.8 million and $2.3 million recorded in the three and nine months ended September 30, 1995, respectively, to accrue for expense under the Company's management incentive plan. There was no similar expense recorded during 1994. Also, pension income was $0.7 million (or 48.6%) and $1.6 million (or 48.6%) lower for the three and nine month period ended September 30, 1995 compared to the same periods in 1994. Further, accounting salaries increased for the three month period ended September 30, 1995 compared to the same period in 1994 due to the increased use of temporaries and increased headcounts. Offsetting these increases was a decrease for the nine months ended September 30, 1995 as compared to 1994, in group insurance expenses and a decrease in legal expenses for the three and nine months ended September 30, 1995 compared to the same periods in 1994. Depreciation and amortization decreased by $0.1 million (or 1.3%) and $5.5 million (or 20.3%) for the three and nine months ended September 30, 1995 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 were less than fully utilized. Operating taxes and licenses increased $1.1 million (or 3.0%) for the nine months ended September 30, 1995 compared to the same period 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. Fuel and oil taxes have increased for the three and nine months ended September 30, 1995 compared to the same periods in 1994 due to the increase in miles run by the Company, but these increases were 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 increased by $0.1 million (or 1.1%) for the three months ended September 30, 1995 and decreased $0.9 million (or 2.5%) for the nine months ended September 30, 1995 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 September 30, 1995 and 1994 was $6.2 million and $6.1 million, respectively, and for the nine month periods ended September 30, 1995 and 1994 was $17.6 million and $16.8 million, respectively. Other operating expenses decreased $0.6 million (or 22.8%) and $4.4 million (or 44.2%) for the three and nine months ended September 30, 1995 compared to the same periods in 1994. Included in the three and nine months ended September 30, 1994 are certain operating charges of $0.9 million and $5.7 million, respectively, which relate primarily to a $2.8 million write-down in the second quarter of 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. Expenses of $2.0 million were recorded during the third quarter of 1994 relating to the Company's restructuring. This amount was made up primarily of severance costs related to management overhead reductions. Interest Expense. For the three and nine months ended September 30, 1995, interest expense was $6.6 million and $20.5 million, including net expense of $0.3 million and $0.5 million, respectively, resulting from the interest rate swap agreements entered into during 1993 (see - "Capital Resources and Liquidity"). Interest expense decreased $2.4 million (or 26.9%) and $4.1 million (or 16.7%) for the three and nine months ending September 30, 1995 compared to 1994, due to a $1.9 million and $5.7 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 17 18 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 the 1987, 1988 and 1989 federal tax returns. The Company's weighted average interest rate on long-term debt outstanding as of September 30, 1995 was 9.9%. Income Taxes. The Company did not provide an income tax benefit on the loss for the three months ended September 30, 1994. In addition, during the third quarter of 1994, the valuation allowance for the deferred tax asset was increased to reserve for the remaining $17.0 million deferred tax asset. Due to the uncertainty as a result of the restructuring, the Company believed it no longer met the "more likely than not" realization criteria of SFAS No. 109. In 1995, the Company will not record a profit and has not recorded any tax benefit for the nine months ended September 30, 1995. Extraordinary Item. The Company recorded an extraordinary loss of $3.2 million during the third quarter of 1994, for the write-off of debt issue costs related to the prior credit facility. 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 4 to the Interim Consolidated Financial Statements for the three and nine months ended September 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 4 to the Interim Consolidated Financial Statements for the three and nine months ended September 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 4 to the Interim Consolidated Financial Statements for the three and nine months ended September 30, 1995, included elsewhere in this filing. SECURITIES AND DERIVATIVE LITIGATION; SEC INVESTIGATION Between August 1994 to May 1995, seven purported class action lawsuits and one other lawsuit were filed by purported owners of the Company's Common Stock, Convertible Debentures and Senior Notes against the Company and certain of its former officers and directors. 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, in January 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 4 to the Interim Consolidated Financial Statements for the three and nine months ended September 30, 1995, included elsewhere in this filing. CHRISS STREET & COMPANY, INC., ET AL V. GREYHOUND LINES, INC., ET AL On June 12, 1995, Chriss Street & Company, Inc. and James R. Moriarty, former holders of Convertible Debentures, filed a lawsuit against the Company and Stephen M. Peck and Ernest P. Werlin seeking to invalidate the appointment of Messrs. Peck and Werlin to the Company's Board of Directors. On August 29, 1995, the parties to the litigation entered into a settlement agreement of all claims, and the litigation was dismissed by the Delaware Chancery Court. Under the settlement agreement, the challenge to the appointment of Messrs. Peck and Werlin was withdrawn, and both will continue to serve on the Company's board for the remainder of their respective terms. 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 19 20 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 materially exceed the amounts recorded. ITEM 5. OTHER INFORMATION PUBLIC OFFERING On July 27, 1995, the Company filed a registration statement relating to the sale of up to 10,004,144 shares of Common Stock. On September 28, 1995, the registration statement was declared effective, and on October 3, 1995, the sale was completed. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Registration Statement." ABRAMSON RESIGNATION On November 9, 1995, the Company announced that Herbert Abramson had resigned as a director of the Company. Mr. Abramson joined the Board of Directors in August 1994 after being nominated by the Company's largest shareholder, Connor, Clark & Company, Ltd., which sought board representation after the Company's poor financial performance during the first half of 1994. Mr. Abramson advised the Company that it was no longer necessary for him to serve as a director to protect the interest of Connor, Clark & Company, Ltd. or its clients. 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 - Employment Agreement dated September 18, 1995 between Registrant and John Werner Haugsland. (10) 11.1 - Computation of Registrant's earnings per share for the three and nine months ended September 30, 1994. (5) 11.2 - Computation of Registrant's earnings per share for the three and nine months ended September 30, 1995. (10) 27 - Financial Data Schedule as of and for the nine months ended September 30, 1995. (10) - -------------------------------------------------------------------------------- (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 September 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) Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995. (10) Filed herewith. (b) REPORTS ON FORM 8-K During the quarter ended September 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: November 9, 1995 GREYHOUND LINES, INC. By: /s/ Steven L. Korby ------------------------- Steven L. Korby Executive Vice President, Chief Financial Officer and Treasurer (Duly Authorized Officer and Principal Financial and Accounting Officer) 22 23 INDEX TO EXHIBITS Exhibit Number - ------ Exhibits -------- 10.1 - Employment Agreement dated September 18, 1995 between Registrant and John Werner Haugsland. 11.2 - Computation of Registrant's earnings per share for the three and nine months ended September 30, 1995. 27 - Financial Data Schedule as of and for the nine months ended September 30, 1995. EX-10.1 2 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.1 EXECUTIVE EMPLOYMENT AGREEMENT This EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of the 18 day of September, 1995, to be effective May 15, 1995 (the "Effective Date"), by and between GREYHOUND LINES, INC. (together with its successors, the "Company") and JOHN WERNER HAUGSLAND (the "Executive"). WHEREAS, the Executive has considerable experience, expertise and training in management related to the types of services offered by the Company; and WHEREAS, the Company desires and intends to employ the Executive as the Executive Vice President and Chief Operating 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 $225,000 (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 $125,000.00. d. SECOND TRANSITION BONUS: On or before February 1, 1996 the Executive will be paid an additional lump sum transition bonus of $64,000.00. This amount will reduce any Management Incentive Plan ("MIP") Award payment earned for calendar year 1995, as set forth below at subsection 1(e)(1). e. INCENTIVE BONUS: (1) Commencing on the first day of the Executive's employment he will be entitled to participate in the 1995 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 $64,000.00 Second Transition Bonus, and the Executive shall receive only the difference between the applicable 1995 MIP Award and the $64,000.00 Second Transition Bonus, if any. (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. 2 f. EMPLOYEE BENEFITS: The parties acknowledge and agree that certain employee benefits will be provided to the Executive incident to his employment as Chief Operating 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), the Executive's prior service with Greyhound Lines, Inc. shall be deemed to be service with the Company such that, upon execution of this Agreement, the Executive shall be immediately 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: For purposes of the Greyhound Lines, Inc. Supplemental Employee Retirement Plan (the "SERP"), all of the Executive's prior service with Greyhound Lines, Inc. will be credited for all purposes under the SERP, and the Executive shall be a designated person eligible for coverage and benefits under the SERP as of the Effective Date. (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) COUNTRY CLUB DUES: The Company agrees to pay all monthly membership dues on behalf of the Executive at a country club mutually selected by the Executive and the Company. (8) ESTATE, TAX AND FINANCIAL PLANNING: During the term of his employment with the Company, the Executive shall be entitled to a maximum of $10,000.00 per year for estate, tax and financial planning as of the Effective Date of this Agreement. Such reimbursement payments shall be paid by the Company within a reasonable time after such expenses are incurred by the Executive. (9) OTHER BENEFITS: For purposes of any and all other benefits provided by the Company to its Chief Operating Officer, the Executive shall be eligible for such benefits immediately on the Effective Date. Additionally, for purposes of determining eligibility, funding or vesting with respect to any other benefits, the Executive's prior service with Greyhound Lines, Inc. shall be deemed to be prior service with the Company. 2 3 g. LEGAL FEES AND EXPENSES: The Company agrees that the Executive shall be entitled to reimbursement from the Company for those reasonable legal expenses incurred by the Executive in preparing, drafting and negotiating this Agreement, not to exceed $10,000.00. 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 May 14, 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 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 3 4 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; (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 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: 4 5 (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. (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 Operating 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. 4. CHANGE OF CONTROL: The parties acknowledge that the Executive has agreed to assume the position of Executive Vice President and Chief Operating 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. 5 6 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 (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 who 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). 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 6 7 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) $51,000.00. (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) $51,000.00. 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), 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) $51,000.00; 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) $51,000.00. 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 7 8 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) $51,000.00, 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) $51,000.00, 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 by 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 May 14, 1996, the Executive's Option to purchase one hundred twenty thousand (120,000) shares of the Option Stock, at the Option Price, shall vest. 8 9 (2) On May 14, 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. (3) On May 14, 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 May 14, 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; (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 9 10 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 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, 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. 10 11 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 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 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 11 12 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: 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. 12 13 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: John Werner Haugsland Greyhound Lines, Inc. 17824 Cedar Creek Canyon 15110 No. Dallas Parkway Dallas, Texas 75252 Dallas, Texas 75248 With a copy to: Robert E. Sheeder, Esq. Craig Lentzsch 1445 Ross Avenue, Suite 3200 President and Chief Executive Officer Dallas, Texas 75202 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 18th day of September, 1995. ---- --------- JOHN WERNER HAUGSLAND /s/ John Werner Haugsland -------------------------- GREYHOUND LINES, INC. By: /s/ Craig Lentzsch ----------------------- Title: President ------------------- 13 14 EXHIBIT A TO EMPLOYMENT AGREEMENT BETWEEN GREYHOUND LINES, INC. AND JOHN W. HAUGSLAND OPTION AGREEMENT October 11, 1995 Mr. John W. Haugsland 17824 Cedar Creek Canyon Dallas, Texas 75252 RE: GRANT OF NON-QUALIFIED STOCK OPTION Dear Mr. Haugsland: On March 26, 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 $2.3125 (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: (i) 40% of the Option Shares (120,000 shares) on May 14, 1996 pursuant to your Employment Agreement; (ii) 40% of the Option Shares (120,000 shares) on May 14, 1997 pursuant to your Employment Agreement; and (iii) 20% of the Option Shares (60,000 shares) on May 14, 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) 15 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 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 determine 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; 2 16 (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; (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 months from the date hereof. 3 17 VII. REGISTRATION (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 Shares 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. (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. 4 18 (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. 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: /s/ Craig Lentzsch -------------------------------- CRAIG R. LENTZSCH, PRESIDENT AND CEO ACCEPTED: JOHN W. HAUGSLAND /s/ J. W. Haugsland - ----------------------------- Date: November 1, 1995 ----------------------- 5 EX-11.2 3 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11.2 PAGE 1 OF 2 GREYHOUND LINES, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED SEPTEMBER 30, 1995 ----------------------- PRIMARY EARNINGS PER SHARE Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,333,000 ============== Shares Weighted average number of common shares issued . . . . . . . . . . . . . . . . 54,240,857 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 . . 1,909,486 -------------- Weighted average number of common shares outstanding, as adjusted . . . . . . . 56,041,151 -------------- Net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.27 ============== FULLY DILUTED EARNINGS PER SHARE Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,333,000 Plus interest expense on Convertible Debentures . . . . . . . . . . . . . . . . . . --- ** -------------- Adjusted net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,333,000 ============== Shares Weighted average number of common shares issued . . . . . . . . . . . . . . . . 54,240,857 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 . . 1,909,486 Assuming conversion of Convertible Debentures into shares of Common Stock . . . --- ** -------------- Weighted average number of common shares outstanding, as adjusted . . . . . . . 56,041,151 -------------- Net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.27 ==============
** 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 11.2 PAGE 2 OF 2 GREYHOUND LINES, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE
NINE MONTHS ENDED SEPTEMBER 30, 1995 --------------------- PRIMARY LOSS PER SHARE Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (13,267,000) ============== Shares Weighted average number of common shares issued . . . . . . . . . . . . . . . . 53,531,288 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 . . . . . . . 53,422,096 -------------- Net loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.25) ============== FULLY DILUTED LOSS PER SHARE Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (13,267,000) Plus interest expense on Convertible Debentures . . . . . . . . . . . . . . . . . . --- ** -------------- Adjusted net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (13,267,000) ============== Shares Weighted average number of common shares issued . . . . . . . . . . . . . . . . 53,531,288 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 . . . . . . . 53,422,096 -------------- Net loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.25) ==============
* 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 4 FINANCIAL DATA SCHEDULE
5 ART. 5 FDS FOR 3RD QUARTER 10-Q 1,000 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 812 0 31,666 309 3,303 62,436 357,832 77,892 471,900 112,954 175,924 543 0 0 140,428 471,900 0 492,106 0 344,027 0 0 20,487 (13,214) 53 (13,267) 0 0 0 (13,267) (0.25) (0.25)
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