-----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, Hvf+BefhAkygfNodGMBGv2hrPjLUzEqOZlk0IXHX8986Geti2s18ehAJ5LpwqMdj OW8ZKNvtOyhHRq13qOFXHg== 0000950134-98-008776.txt : 19981116 0000950134-98-008776.hdr.sgml : 19981116 ACCESSION NUMBER: 0000950134-98-008776 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 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: SEC FILE NUMBER: 001-10841 FILM NUMBER: 98745651 BUSINESS ADDRESS: STREET 1: 15110 N DALLAS PKWY STE 600 CITY: DALLAS STATE: TX ZIP: 75248 BUSINESS PHONE: 9727897000 MAIL ADDRESS: STREET 1: 15110 N DALLAS PARKWAY STREET 2: SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLI HOLDING CO CENTRAL INDEX KEY: 0000813041 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] IRS NUMBER: 752146309 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-13588-01 FILM NUMBER: 98745652 BUSINESS ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 BUSINESS PHONE: 9727987415 MAIL ADDRESS: STREET 1: C/O GREYHOUND LINES STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATLANTIC GREYHOUND LINES OF VIRGINIA INC CENTRAL INDEX KEY: 0001041393 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 580869571 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-27267-01 FILM NUMBER: 98745653 BUSINESS ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 BUSINESS PHONE: 9727897415 MAIL ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FCA INSURANCE LTD CENTRAL INDEX KEY: 0001041395 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-27267-03 FILM NUMBER: 98745654 BUSINESS ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 N DALLAS PKWY STE 600 CITY: DALLAS STATE: TX ZIP: 75248 BUSINESS PHONE: 9727897415 MAIL ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREYHOUND DE MEXICO SA DE CV CENTRAL INDEX KEY: 0001041396 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-27267-05 FILM NUMBER: 98745655 BUSINESS ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 N DALLAS PKWY STE 600 CITY: DALLAS STATE: TX ZIP: 75248 BUSINESS PHONE: 9727897415 MAIL ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRUPO CENTRO INC CENTRAL INDEX KEY: 0001041397 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 752692522 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-27267-06 FILM NUMBER: 98745656 BUSINESS ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 N DALLAS PKWY STE 600 CITY: DALLAS STATE: TX ZIP: 75248 BUSINESS PHONE: 9727897415 MAIL ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SISTEMA INTERNACIONAL DE TRANSPORTE DE AUTOBUSES INC CENTRAL INDEX KEY: 0001041398 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 752548617 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-27267-08 FILM NUMBER: 98745657 BUSINESS ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 BUSINESS PHONE: 9727897415 MAIL ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEXAS NEW MEXICO & OKLAHOMA COACHES INC CENTRAL INDEX KEY: 0001041400 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 750605295 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-27267-10 FILM NUMBER: 98745658 BUSINESS ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 BUSINESS PHONE: 9727897415 MAIL ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TNM & O TOURS INC CENTRAL INDEX KEY: 0001041401 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 751188694 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-27267-11 FILM NUMBER: 98745659 BUSINESS ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 BUSINESS PHONE: 9727897415 MAIL ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VERMONT TRANSIT CO INC CENTRAL INDEX KEY: 0001041402 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 030164980 STATE OF INCORPORATION: VT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-27267-12 FILM NUMBER: 98745660 BUSINESS ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 BUSINESS PHONE: 9727897415 MAIL ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LOS BUENOS LEASING CO INC CENTRAL INDEX KEY: 0001041453 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 840434715 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-27267-07 FILM NUMBER: 98745661 BUSINESS ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 BUSINESS PHONE: 9727897415 MAIL ADDRESS: STREET 1: C/O GREYHOUND LINES INC STREET 2: 15110 NORTH DALLAS PARKWAY SUITE 600 CITY: DALLAS STATE: TX ZIP: 75248 10-Q 1 FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1998 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, 1998 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. and its Subsidiaries identified in Footnote (1) below (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) (972) 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 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 6, 1998 --------------------- -------------------------------- $.01 PAR VALUE 60,128,175 SHARES (1) This Form 10-Q is also being filed by the co-registrants specified under the caption "Co-Registrants", each of which is a wholly-owned subsidiary of Greyhound Lines, Inc. and each of which has met the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q for filing Form 10-Q in a reduced disclosure format. 2 CO-REGISTRANTS This Form 10-Q is also being filed by the following entities. Except as set forth below, each entity has the same principal executive offices, zip code and telephone number as that set forth for Greyhound Lines, Inc. on the cover of this report:
I.R.S. EMPLOYER COMMISSION IDENTIFICATION STATE OF NAME FILE NO. NO. INCORP. - ---- ---------- --------------- -------- Atlantic Greyhound Lines of Virginia, Inc. 333-27267-01 58-0869571 Virginia FCA Insurance Limited 333-27267-03 None Islands of Bermuda GLI Holding Company 333-27267-04 75-2146309 Delaware Greyhound de Mexico S.A. de C.V. 333-27267-05 None Republic of Mexico Grupo Centro, Inc. 333-27267-06 75-2692522 Delaware Los Buenos Leasing Co., Inc. 333-27267-07 85-0434715 New Mexico Sistema Internacional de Transporte de Autobuses, 333-27267-08 75-2548617 Delaware Inc. Texas, New Mexico & Oklahoma Coaches, Inc. 333-27267-10 75-0605295 Texas 1313 13th Street Lubbock, Texas 79408 (806) 763-5389 T.N.M. & O. Tours, Inc. 333-27267-11 75-1188694 Texas (Same as Texas, New Mexico & Oklahoma Coaches, Inc.) Vermont Transit Co., Inc. 333-27267-12 03-0164980 Vermont 106 Main Street Burlington, Vermont 05401 (802) 862-9671
As of September 30, 1998, Atlantic Greyhound Lines of Virginia, Inc. had 150 shares of common stock outstanding (at a par value of $50.00 per share); FCA Insurance Limited had 120,000 shares of common stock outstanding (at a par value of $1.00 per share); GLI Holding Company had 1,000 shares of common stock outstanding (at a par value of $0.01 per share); Greyhound de Mexico S.A. de C.V. had 10,000 shares of common stock outstanding (at a par value of $0.10 Mexican currency per share); Grupo Centro, Inc. had 1,000 shares of common stock outstanding (at a par value of $0.01 per share); Los Buenos Leasing Co., Inc. had 1,000 shares of common stock outstanding (at a par value of $1.00 per share); Sistema Internacional de Transporte de Autobuses, Inc. had 1,000 shares of common stock outstanding (at a par value of $0.01 per share); Texas, New Mexico & Oklahoma Coaches, Inc. had 1,000 shares of common stock outstanding (at a par value of $0.01 per share); T.N.M. & O. Tours, Inc. had 1,000 shares of common stock outstanding (at a par value of $1.00 per share); and Vermont Transit Co., Inc. had 505 shares of common stock outstanding (no par value). Each of the above named co-registrants (1) have 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 such co-registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. 2 3 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, 1998 (Unaudited) and December 31, 1997......................... 5 Interim Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 1998 and 1997 (Unaudited).......... 6 Condensed Interim Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1998 and 1997 (Unaudited).................... 7 Notes to Interim Consolidated Financial Statements (Unaudited)................. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................... 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings....................................................................... 24 Item 6. Exhibits and Reports on Form 8-K........................................................ 25 SIGNATURES ........................................................................................ 26
3 4 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS 4 5 GREYHOUND LINES, INC. AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31, 1998 1997 --------- --------- (UNAUDITED) Current Assets Cash and cash equivalents ................................................. $ 2,927 $ 2,052 Accounts receivable, less allowance for doubtful accounts of $223 and $268 ....................................................... 47,638 35,364 Inventories ............................................................... 5,238 4,658 Prepaid expenses .......................................................... 6,161 4,949 Assets held for sale ...................................................... 3,734 3,889 Buses held for sale and leaseback ......................................... 40,976 -- Current portion of deferred tax asset ..................................... 17,435 -- Other current assets ...................................................... 10,473 9,694 --------- --------- Total current assets ................................................... 134,582 60,606 Prepaid Pension Plans ......................................................... 25,378 25,378 Property, Plant and Equipment, net of accumulated depreciation of $144,426 and $124,374 .................................................. 338,541 341,292 Investments in Unconsolidated Affiliates ...................................... 5,716 6,076 Deferred Tax Asset ............................................................ 10,509 -- Insurance and Security Deposits ............................................... 73,115 72,693 Goodwill, net of accumulated amortization of $1,641 and $499 .................. 40,467 30,215 Intangible Assets, net of accumulated amortization of $26,029 and $22,188 ..... 30,713 30,333 --------- --------- Total assets ........................................................... $ 659,021 $ 566,593 ========= ========= Current Liabilities Accounts payable .......................................................... $ 25,577 $ 32,731 Accrued liabilities ....................................................... 62,498 62,237 Unredeemed tickets ........................................................ 8,635 10,325 Current portion of reserve for injuries and damages ....................... 21,374 21,374 Current maturities of long-term debt ...................................... 5,891 4,469 --------- --------- Total current liabilities .............................................. 123,975 131,136 Reserve for Injuries and Damages .............................................. 40,651 36,591 Long-Term Debt ................................................................ 257,157 207,953 Other Liabilities ............................................................. 23,796 11,314 --------- --------- Total liabilities ...................................................... 445,579 386,994 Commitments and Contingencies (Note 6) Stockholders' Equity Preferred stock (10,000,000 shares authorized; par value $.01) 8 1/2% Convertible Exchangeable Preferred Stock (2,760,000 shares authorized and 2,400,000 shares issued as of September 30, 1998 and December 31, 1997; aggregate liquidation preference $60,000) ....... 60,000 60,000 Series A junior preferred stock (1,500,000 shares authorized as of September 30, 1998 and December 31, 1997; none issued) ............. -- -- Common stock (100,000,000 shares authorized; par value $.01; 60,246,842 and 59,437,514 shares issued as of September 30, 1998 and December 31, 1997 respectively) ..................................................... 603 594 Capital in excess of par value ............................................ 235,949 229,365 Retained deficit .......................................................... (74,559) (101,809) Less: Unfunded accumulated pension obligation ............................ (7,513) (7,513) Less: Treasury stock, at cost (109,192 shares) ............................ (1,038) (1,038) --------- --------- Total stockholders' equity ............................................. 213,442 179,599 --------- --------- Total liabilities and stockholders' equity ......................... $ 659,021 $ 566,593 ========= =========
5 6 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, 1998 1997 1998 1997 --------- --------- --------- --------- (UNAUDITED) (UNAUDITED) OPERATING REVENUES Transportation Services Passenger services ....................................... $ 213,214 $ 196,737 $ 547,484 $ 488,138 Package express .......................................... 8,702 11,412 25,491 26,895 Food services and related .................................... 8,921 8,370 23,747 22,292 Other operating revenues ..................................... 13,297 12,005 39,379 33,877 --------- --------- --------- --------- Total operating revenues ............................. 244,134 228,524 636,101 571,202 --------- --------- --------- --------- OPERATING EXPENSES Maintenance .................................................. 21,849 20,175 62,384 57,994 Transportation ............................................... 53,914 50,577 151,339 140,059 Agents' commissions and station costs ........................ 41,813 38,832 115,366 104,672 Marketing, advertising and traffic ........................... 6,277 6,684 20,182 20,202 Insurance and safety ......................................... 13,147 12,327 37,589 32,566 General and administrative ................................... 26,633 24,766 77,594 68,520 Depreciation and amortization ................................ 8,888 7,941 26,730 22,908 Operating taxes and licenses ................................. 15,022 13,673 42,688 38,922 Operating rents .............................................. 16,988 15,950 48,886 43,735 Cost of goods sold - food services and related ............... 5,637 5,382 15,543 14,637 Other operating expenses ..................................... 1,316 728 2,605 2,237 --------- --------- --------- --------- Total operating expense .............................. 211,484 197,035 600,906 546,452 --------- --------- --------- --------- OPERATING INCOME ................................................ 32,650 31,489 35,195 24,750 Interest Expense ................................................ 7,263 6,618 21,222 20,730 --------- --------- --------- --------- INCOME BEFORE INCOME TAXES ...................................... 25,387 24,871 13,973 4,020 Income Tax Provision (Benefit) .................................. (16,250) 83 (17,167) 248 --------- --------- --------- --------- NET INCOME BEFORE EXTRAORDINARY ITEM ............................ 41,637 24,788 31,140 3,772 Extraordinary Item .............................................. -- -- -- 25,323 --------- --------- --------- --------- NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS BEFORE PREFERRED DIVIDENDS ........................ 41,637 24,788 31,140 (21,551) Preferred Dividends ............................................. 1,296 1,275 3,888 2,338 --------- --------- --------- --------- NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS ................................................... $ 40,341 $ 23,513 $ 27,252 $ (23,889) ========= ========= ========= ========= Net Income (Loss) Per Share of Common Stock: Basic Net Income Attributable to Common Stock- holders Before Extraordinary Item .................... $ 0.67 $ 0.40 $ 0.46 $ 0.02 Extraordinary Item ....................................... -- -- -- (0.43) --------- --------- --------- --------- Net Income (Loss) Attributable to Common Stockholders ......................................... $ 0.67 $ 0.40 $ 0.46 $ (0.41) ========= ========= ========= ========= Diluted Net Income Attributable to Common Stock- holders Before Extraordinary Item .................... $ 0.55 $ 0.34 $ 0.42 $ 0.02 Extraordinary Item ....................................... -- -- -- (0.43) --------- --------- --------- --------- Net Income (Loss) Attributable to Common Stockholders ......................................... $ 0.55 $ 0.34 $ 0.42 $ (0.41) ========= ========= ========= =========
6 7 GREYHOUND LINES, INC. AND SUBSIDIARIES CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, 1998 1997 --------- --------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) ................................................................ $ 31,140 $ (21,551) Extraordinary Items .............................................................. -- 25,323 Non-cash expenses and gains included in net loss ................................. 2,338 24,456 Net change in certain operating assets and liabilities ........................... (16,165) (18,095) --------- --------- Net cash provided by operating activities .................................... 17,313 10,133 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures ............................................................. (17,627) (31,540) Buses purchased for sale and leaseback ........................................... (40,976) (10,759) Proceeds from assets sold ........................................................ 1,133 5,693 Payments for business acquisitions, net of cash acquired ......................... (2,523) (40,070) Other investing activities ....................................................... 357 (1,654) --------- --------- Net cash used for investing activities ....................................... (59,636) (78,330) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Payments on debt and capital lease obligations ................................... (4,330) (16,319) Proceeds from issuance of 11 1/2% Senior Notes and 8 1/2% Convertible Exchangeable Preferred Stock ................................ -- 203,205 Redemption of 10% Senior Notes ................................................... -- (161,022) Proceeds from exercise of options ................................................ 2,595 839 Payment of quarterly preferred dividends ......................................... (3,888) (1,488) Retirement of interest rate swap ................................................. -- (3,010) Net change in revolving credit facility .......................................... 48,821 46,946 --------- --------- Net cash provided by financing activities .................................... 43,198 69,151 --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS ........................................... 875 954 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ...................................... 2,052 898 --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD ............................................ $ 2,927 $ 1,852 ========= =========
7 8 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 (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, 1998, the results of its operations for the three and nine months ended September 30, 1998 and 1997 and cash flows for the nine months ended September 30, 1998 and 1997. Due to the seasonality of the Company's operations, the results of its operations for the interim period ended September 30, 1998 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, 1997. 2. SIGNIFICANT ACCOUNTING POLICIES Certain Reclassifications Certain reclassifications have been made to the prior period statements to conform them to the September 30, 1998 and December 31, 1997 classifications. Earnings/Loss Per Share Basic earnings (loss) per common share is calculated by dividing net income (loss) attributable to common stockholders by the weighted average shares of common stock of the Company ("Common Stock"). The calculation of diluted earnings (loss) per share of Common Stock considers the effect of Common Stock equivalents outstanding during the period, the conversion of the Company's 8 1/2% Convertible Subordinated Debentures due 2007 (the "Convertible Debentures") and 8 1/2% Convertible Exchangeable Preferred Stock (the "Preferred Stock"). Common Stock equivalents represent the dilutive effect of the assumed exercise of certain outstanding stock options. For the three months ended September 30, 1998, and September 30, 1997, the assumed exercise of outstanding in-the-money stock options and conversion of Convertible Debentures and Preferred Stock is dilutive and thus included in the final determination for the weighted average shares outstanding. For the nine months ended September 30, 1998, the assumed exercise of outstanding in-the-money stock options and conversion of Preferred Stock are dilutive and thus are included in the final determination for the weighted average shares outstanding. For the nine months ended September 30, 1997, the assumed exercise of outstanding in-the-money stock options and conversion of Convertible Debentures and Preferred Stock have an anti-dilutive effect and thus are excluded from the final determination of the weighted average shares outstanding. The earnings per share calculation reflects earnings (loss) attributable to common stockholders after payment of preferred dividends. The following tables detail the components utilized to calculate earnings per share for the three and nine months ended September 30, 1998 and 1997. 8 9
THREE MONTHS ENDED SEPTEMBER 30, 1998 ------------------------------------- PER-SHARE NET INCOME SHARES AMOUNT ---------- ------ --------- BASIC EARNINGS PER SHARE Net Income attributable to common stockholders ............................ $ 40,341,000 60,124,416 $ 0.67 ============ ========== ============ Common Stock Equivalents (Options) .......... -- 2,456,870 8 1/2% Convertible Debentures ............... 208,000 792,242 8 1/2% Convertible Exchangeable Preferred Stock .......... 1,296,000 12,307,692 DILUTED EARNINGS PER SHARE Net Income attributable to common stockholders ............................ $ 41,845,000 75,681,220 $ 0.55 ============ ========== ============
NINE MONTHS ENDED SEPTEMBER 30, 1998 ------------------------------------ PER-SHARE NET INCOME SHARES AMOUNT ---------- ------ --------- BASIC EARNINGS PER SHARE Net Income attributable to common stockholders ............................ $ 27,252,000 59,822,905 $ 0.46 ============ ========== ============ Common Stock Equivalents (Options) .......... -- 2,610,993 8 1/2% Convertible Debentures ............... -- -- 8 1/2% Convertible Exchangeable Preferred Stock .......... 3,888,000 12,307,692 DILUTED EARNINGS PER SHARE Net Income attributable to common stockholders ............................ $ 31,140,000 74,741,590 $ 0.42 ============ ========== ============
THREE MONTHS ENDED SEPTEMBER 30, 1997 ------------------------------------- PER-SHARE NET INCOME SHARES AMOUNT ---------- ------ --------- BASIC EARNINGS PER SHARE Net Income (Loss) attributable to common stockholders ..................... $ 23,513,000 59,268,776 $ 0.40 ============ ========== ============ Common Stock Equivalents (Options) .......... -- 1,592,765 8 1/2% Convertible Debentures ............... 208,000 792,242 8 1/2% Convertible Exchangeable Preferred Stock .......... 1,275,000 12,307,692 DILUTED EARNINGS PER SHARE Net Income (Loss) attributable to common stockholders ..................... $ 24,996,000 73,961,475 $ 0.34 ============ ========== ============
NINE MONTHS ENDED SEPTEMBER 30, 1997 ------------------------------------ PER-SHARE NET LOSS SHARES AMOUNT ---------- ------ --------- BASIC EARNINGS PER SHARE Net Income (Loss) attributable to common stockholders ..................... $(23,889,000) 58,844,971 $ (0.41) ============ ========== ============ Common Stock Equivalents (Options) .......... -- -- 8 1/2% Convertible Debentures ............... -- -- 8 1/2% Convertible Exchangeable Preferred Stock .......... -- -- DILUTED EARNINGS PER SHARE Net Income (Loss) attributable to common stockholders ..................... $(23,889,000) 58,844,971 $ (0.41) ============ ========== ============
Accounting Changes The Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income", effective for the Company's fiscal year beginning January 1, 1998. SFAS No. 130 established standards for the reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. Comprehensive income is defined as the total of net income and all other non-owner changes in equity. For the nine months ended September 30, 1998, the Company had no non-owner changes in equity. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities," to establish accounting plan and reporting standards for derivatives. This new standard is effective for fiscal years beginning after June 15, 1999 (January 1, 2000 for the Company) and requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are to be recorded each period in current earnings or other comprehensive income, depending upon the intended use of the derivative. Due to the Company's minimal use of derivatives, the new standard is expected to have no material impact on its financial position or results of operations. 3. ACQUISITION On February 9, 1998, the Company completed its acquisition of a 51% interest in Gonzalez, Inc., d/b/a Golden State Transportation ("Golden State"), a Southern California bus carrier. This purchase was accounted for using the purchase method of accounting. Accordingly, the acquired company's results of operations are included in the consolidated financial statements from the date of acquisition. The amount of the purchase price in excess of net assets has been recorded as goodwill and is being amortized over a 20-year period. 9 10 4. INCOME TAXES Income Tax Provision The income tax provision (benefit) consisted of the following (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED ------------------ ----------------- SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 1998 1997 1998 1997 -------- -------- -------- -------- Current Federal ..................................................... $ 6,218 $ -- $ 6,218 -- State ....................................................... 323 83 562 248 -------- -------- -------- -------- Total Current ............................................ 6,541 83 6,780 248 Deferred Federal ..................................................... (21,244) -- (21,832) -- State ....................................................... (1,547) -- (2,115) -- -------- -------- -------- -------- Total Deferred ........................................... (22,791) -- (23,947) -- -------- -------- -------- -------- Income Tax provision (benefit) ........................... $(16,250) $ 83 $(17,167) $248 ======== ======== ======== ========
Effective Tax Rate The differences, expressed as a percentage of income before taxes, between the statutory and effective federal income tax rates for the years ended December 31, 1998 and 1997 are as follows (1998 amounts are projected):
YEARS ENDED DECEMBER 31, ------------ 1998 1997 ------ ------ Statutory tax rate.................................. 35.0% 34.0% State income taxes.................................. (6.9) 6.1 Recognition of previously unrecognized deferred tax assets......................................... (119.9) (31.0) Other............................................... 5.7 2.0 ------ ------ Effective tax rate (86.1)% 11.1% ====== ======
For the three months ended September 30, 1998, the Company recorded a net income tax benefit of $16.3 million. During the third quarter, the Company recognized deferred tax assets primarily related to net operating losses from prior years expected to be realized in future years. These tax assets had been previously reserved; however, as a result of the Company's continued trend of earnings improvement and current and future expected positive earnings, as well as, the successful negotiation of the new union agreement, the reserve was reduced by $27.7 million. This reduction resulted in a deferred tax benefit related to future periods of $24.5 million and a $3.2 million increase in capital in excess of par value for amounts related to tax assets generated prior to the fresh start date of October 31, 1991. The deferred tax benefit related to future periods was offset by $1.7 million of deferred tax expense related to tax assets realized in the third quarter. This includes a $0.8 million increase in capital in excess of par value for amounts related to tax assets generated prior to the fresh start date of October 31, 1991. The Company reported current tax expense of $6.5 million in the third quarter of 1998. This amount consists of approximately $6.0 million for identified tax exposures, $0.2 million for federal alternative minimum tax and $0.3 million for state income tax. 10 11 5. PROPOSED MERGER On October 16, 1998, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Laidlaw Inc. ("Laidlaw") and Laidlaw Transit Acquisition Corp., a wholly owned subsidiary of Laidlaw ("Laidlaw Transit"), pursuant to which Laidlaw Transit will merge with and into the Company (the "Merger"), with the Company as the surviving corporation. On November 5, 1998, the Company, Laidlaw and Laidlaw Transit entered into an agreement modifying the Merger Agreement (the "Restated Merger Agreement"). In the Merger, each outstanding share of the Company's Common Stock will be converted into the right to receive $6.50 (the "Merger Consideration"). The Merger Consideration will be payable in cash, provided that Laidlaw has the option to satisfy up to $4.00 of the Merger Consideration with shares of Laidlaw common shares valued as the weighted average market price for Laidlaw common shares for the five trading days immediately preceding the fifth trading day prior to the date of the Company's special stockholders meeting to be held to consider the Merger. Laidlaw is required to exercise its option at least five trading days before the Company's stockholder meeting. The Restated Merger Agreement provides that the shares of the Company's Preferred Stock will remain outstanding after the Merger. Under the terms of the Preferred Stock, after the Merger, the Preferred Stock will be convertible into the same Merger Consideration that is paid to holders of Common Stock in the Merger (i.e., cash or a combination of cash and Laidlaw common shares) multiplied by the conversion ratio set forth in the terms of the Preferred Stock. Each Preferred Stock is currently convertible into approximately 5.128 shares of the Company's Common Stock. Laidlaw will not issue its common shares to any former stockholder of the Company if such holder would receive less than 100 Laidlaw common shares as a result of the Merger. In lieu of receiving Laidlaw common shares, these holders would receive an amount in cash based upon the price received for such shares, which shall be sold as promptly as practicable following the Merger. The obligations of the parties to consummate the Merger are conditioned upon, among other things, approval of the Restated Merger Agreement by the holders of a majority of the outstanding Common Stock and Preferred Stock (voting together as one class) and other customary closing conditions. The Company has obtained copies of two complaints filed in Delaware Chancery Court purportedly filed by certain individual stockholders of the Company on behalf of themselves and all other stockholders of the Company. The Company and its directors were served with one of these complaints on October 28, 1998. The complaints name the Company, each of its directors and Laidlaw as defendants. In the complaints, the plaintiffs allege, among other things, that (i) the provisions of the Merger Agreement permitting Laidlaw to make the election to pay a portion of the Merger Consideration in Laidlaw common shares five trading days prior to the special meeting violates Delaware law, (ii) the defendant directors breached their fiduciary duties in approving the Merger, and (iii) Laidlaw aided and abetted the Company's directors' breach of their fiduciary duties. The plaintiffs purport to seek orders enjoining the consummation of the Merger (or the recission of the transaction if the Merger is completed), damages, costs, including attorneys' and experts' fees, and other relief. The absence of an injunction, among other things, is a condition to the Company's and Laidlaw's obligation to complete the Merger. The Company intends to defend these suits vigorously. 6. COMMITMENTS AND CONTINGENCIES 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 10% Senior Notes retired in May 1997 ("10% Senior Notes") against the Company and certain of its former officers and directors. The suits sought unspecified damages for securities laws violations as a result of statements made in public reports and press releases and to securities analysts during 1993 and 1994 that were 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) were 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 were pending under a case styled In re Greyhound 11 12 Securities Litigation, Civil Action 3-94-CV-1793-G (the "Federal Court Action"). A joint pretrial order was entered in the litigation which consolidated 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 the Company, 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, Lynch and Taff were subsequently dismissed from the case by the plaintiffs. In September 1995, the various defendants filed motions to dismiss plaintiffs' complaints. In October 1995, plaintiffs filed a motion seeking to certify the class of plaintiffs. On October 3, 1996, the Court ruled in favor of the Company and all other defendants, granting defendants' motions to dismiss. Pursuant to the Court's order, the complaints were dismissed, with leave granted to the plaintiffs to refile amended complaints within 20 days thereafter. On October 23, 1996, an amended complaint was tendered to the Court. All seven class representatives involved in the prior complaints were dropped from the case. A new purported class plaintiff, John Clarkson, was named. A motion was filed seeking leave to permit Mr. Clarkson to intervene as the new class representative. The amended complaint alleged a class period of May 4, 1993 to October 26, 1993 and was brought only on behalf of holders of Common Stock. The amended complaint named the same defendants involved in the dismissed cases (the Company, Messrs. Schmieder, Doyle, Duty and Seaquist and Smith Barney Incorporated); no new defendants were added and none were dropped. The Court advised the parties that no responsive pleading needed to be filed to the amended complaint until such time as the Court ruled on the motion for intervention filed by Mr. Clarkson. In December 1996, the defendants filed responses to plaintiff's motion for intervention. In January 1997, the plaintiff filed a reply brief. On August 15, 1997, the Court denied Mr. Clarkson leave to intervene and dismissed the litigation, noting that all claims asserted had been adjudicated. On September 12, 1997, a notice of appeal was filed by counsel for the original seven plaintiffs, seeking a review of the Court's ruling of October 3, 1996. On February 9, 1998, plaintiffs dismissed their appeal, without prejudice, with a right to re-file the appeal within six months. 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 (the "Delaware Action"). Pursuant to a stipulation, the time for all defendants to answer, move or otherwise plead with respect to the complaint in the Delaware Action 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 sought unspecified damages for securities laws 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, was styled James Illius and Theodore J. Krawec v. Greyhound Bus Lines, Inc., Frank J. Schmieder and J. Michael Doyle, Civil Action No. 1-95-CV-1140. The defendants filed a motion to transfer venue seeking to have the case transferred to the United States District Court for the Northern District of Texas where the Federal Court Action was pending. In September 1995, the defendants' motion was granted, and the matter was transferred and was consolidated into the Federal Court Action. On October 29, 1996, a purported class action lawsuit was brought by a purported holder of Common Stock against the Company, certain of its former officers and directors and Smith Barney and Morgan Stanley & Company, Inc. The suit seeks unspecified damages for alleged federal and Texas state securities laws violations in connection with a Common Stock offering made by the Company in May 1993. The suit, filed in the 44th Judicial District Court of Dallas County, Texas, is styled John Clarkson v. Greyhound Lines, Inc., Frank Schmieder, J. Michael Doyle, Robert R. Duty, Don T. Seaquist, Smith Barney, Inc. and Morgan Stanley & Company, Inc., Case No. 96-11329-B. Plaintiff, John Clarkson, is the same individual who sought to intervene in the Federal Court Action and the same 12 13 law firms have appeared for the plaintiff in both cases. On December 20, 1996, the defendants filed their answers to the lawsuit and pleas in abatement asking the Court to stay all proceedings pending resolution of the intervention motion and Federal Court Action. On February 28, 1997, the suit was transferred to a different judge in the 68th Judicial District Court in Dallas. On March 28, 1997, the Court denied the defendants' pleas in abatement requesting the stay. On September 12, 1997, plaintiff filed a motion seeking to certify the class of plaintiffs. On June 22, 1998, the parties to the State Court Action entered into a Stipulation and Agreement of Compromise and Settlement (the "Stipulation"). Pursuant to the Stipulation, persons who purchased Common Stock on or in connection with a stock offering made by the Company on May 4, 1993 and who continued to hold the Common Stock through September 22, 1993, will be entitled to share, on a claims-made basis, in a settlement fund of up to $3.0 million plus interest, less attorneys' fees and costs. On June 22, 1998, the Court preliminarily approved the Stipulation, conditionally certified the plaintiff class for purposes of settlement and directed plaintiffs' counsel to provide notice to the class of the terms of the settlement. On November 2, 1998, the Court approved the Stipulation but continued, until January 25, 1999, final approval of the plaintiff attorneys' fees. Effective June 22, 1998, the parties to the Delaware Action entered into a settlement stipulation whereby the derivative claims would be dismissed in return for the payment of $50,000 in attorneys' fees for the plaintiff. To facilitate a global settlement of the Federal Court Action, the State Court Action and the Delaware Action, on May 20, 1998, plaintiff re-filed the derivative action in the same court in which the State Court Action is pending. This case is captioned 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 and Charles J. Lee, Civil Action No. DV 98-03990-C (the "Texas Derivative Action"). On August 6, 1998, the Court preliminarily approved the settlement and directed plaintiffs' counsel to notify shareholders of the terms of the settlement. On November 2, 1998 the Court gave its final approval of this settlement. To be consummated, all of the foregoing litigation must be resolved or dismissed and the settlements must become final. If consummated, the foregoing settlements would be funded entirely by the Company's directors' and officers' liability insurance carrier and, thus, would not have a material adverse effect on the Company's business, financial condition, results of operations and liquidity. Should the settlements not be consummated, based on a review of the litigation, a limited investigation of the underlying facts and discussions with internal and outside legal counsel, the Company does not believe that the ultimate outcome of the above described lawsuits would have a material adverse effect on its business, financial condition, results of operations and liquidity. If the settlements are not completed and the litigation were to continue, the Company would 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 is conducting a formal, non-public investigation into possible securities laws violations allegedly involving the Company and certain of its former officers, directors and employees and other persons. The Commission's Order of Investigation (the "Order of Investigation") states that the Commission 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 Commission 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 Commission 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 Commission served a document subpoena on the Company requiring the production of documents, most of which the Company had voluntarily produced to the Commission in late 1994. The Company has fully cooperated with the Commission's investigation of these matters. The Company has had limited contact with the Commission in connection with the investigation since January 1996. The probable outcome of this investigation cannot be predicted at this stage in the proceeding. 13 14 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 solely by Company personnel or its experts, 49 locations have been identified as remaining sites requiring potential clean-up and/or remediation as of September 30, 1998. The Company has estimated the clean-up and/or remediation costs of these sites to be $3.8 million, of which approximately $0.4 million is indemnifiable by Viad Corp ("Viad"). As a result the Company has recorded a total environmental reserve of $3.1 million at September 30, 1998, a portion of which has also been recorded as a receivable from Viad for indemnification. The environmental reserve relates to sites identified for potential clean-up and/or remediation and represents the present value of estimated cash flows discounted at 8.0%. The Company has potential liability with respect to two locations which the Environmental Protection Agency ("EPA") has designated Superfund sites. The Company, as well as other parties designated by the EPA as potentially responsible parties, face exposure for costs related to the clean-up of those sites. Based on the EPA's enforcement activities to date, the Company believes its liability at these sites will not be material because its involvement was as a de minimis generator of wastes disposed of at the sites. In light of its minimal involvement, the Company has been negotiating to be released from liability in return for the payment of immaterial settlement amounts. Additionally, there are 12 Superfund sites that Viad had initially assumed responsibility and liability for addressing under the indemnity provisions of the 1987 acquisition agreement, as amended in 1991. All of these locations involve alleged disposal of hazardous wastes occurring years prior to the Company's corporate existence. In late 1997, Viad notified the Company, and asserted that the Company was responsible for any liabilities at such sites. The Company is contesting Viad's assertions and believes that the acquisition agreement, as amended, requires Viad to bear these liabilities. Viad had previously acknowledged in writing to the Company its responsibility for certain of the sites; in some cases, Viad has been managing the liability since mid-1991. Since mid-1998, Viad has notified the Company of two additional sites at which Viad believes the Company is responsible for the liabilities. Viad has advised the Company that, to date, it has incurred approximately $0.2 million in clean-up costs at these sites. Based on a preliminary assessment by the Company, the on-going or future potential liabilities at these 14 sites could range from $1.5 to $2.5 million. As of the date of this filing, the Company is not aware of any additional sites to be identified, and management believes that adequate accruals have been made related to all known environmental matters. OTHER LEGAL PROCEEDINGS In addition to the litigation discussed above, the Company is a defendant in various lawsuits arising in the ordinary course of business, primarily cases involving personal injury and property damage claims and employment-related 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 internal and outside legal counsel and risk management personnel, management believes that there is no proceeding either threatened or pending against the Company 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. 14 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Greyhound is the only nationwide provider of scheduled intercity bus transportation services in the United States. The Company's primary business consists of scheduled passenger service, package express service and food services at certain terminals, which accounted for 87.3%, 3.6% and 3.7%, respectively, of the Company's total operating revenues for the three months ended September 30, 1998 and 86.1%, 4.0% and 3.7%, respectively, for the nine months ended September 30, 1998. The Company's operations include a nationwide network of terminal and maintenance facilities, a fleet of approximately 2,500 buses and approximately 1,650 sales outlets. RESULTS OF OPERATIONS The following table sets forth the Company's results of operations as a percentage of total operating revenue for the three and nine months ended September 30, 1998 and 1997:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1998 1997 1998 1997 ----- ----- ----- ----- Operating Revenues Transportation services Passenger services..................... 87.3% 86.1% 86.1% 85.5% Package express........................ 3.6 5.0 4.0 4.7 Food services and related................... 3.7 3.7 3.7 3.9 Other operating revenues.................... 5.4 5.2 6.2 5.9 ----- ----- ----- ----- Total operating revenues........... 100.0 100.0 100.0 100.0 Operating Expenses Maintenance................................. 8.9 8.8 9.8 10.2 Transportation.............................. 22.1 22.1 23.8 24.5 Agents' commissions and station costs....... 17.1 17.0 18.1 18.3 Marketing, advertising and traffic.......... 2.6 2.9 3.2 3.5 Insurance and safety........................ 5.4 5.4 5.9 5.7 General and administrative.................. 10.9 10.8 12.2 12.0 Depreciation and amortization............... 3.6 3.5 4.2 4.0 Operating taxes and licenses................ 6.2 6.0 6.7 6.8 Operating rents............................. 7.0 7.0 7.7 7.7 Cost of goods sold - food services and related 2.3 2.4 2.4 2.6 Other operating expenses.................... 0.5 0.3 0.5 0.4 ----- ----- ----- ----- Total operating expenses........... 86.6 86.2 94.5 95.7 ----- ----- ----- ----- Operating Income.............................. 13.4 13.8 5.5 4.3 Interest Expense.............................. 3.0 2.9 3.3 3.6 ----- ----- ----- ----- Income Before Income Taxes.................... 10.4 10.9 2.2 0.7 Income Tax Provision (Benefit) ............... (6.7) 0.0 (2.7) 0.0 ----- ----- ----- ----- Net Income Before Extraordinary Item.......... 17.1 10.9 4.9 0.7 Extraordinary Item............................ 0.0 0.0 0.0 4.4 ----- ----- ----- ----- Net Income (Loss) Attributable to Common Stockholders Before Preferred Dividends....... 17.1 10.9 4.9 (3.8) Preferred Dividends........................... 0.6 0.6 0.6 0.4 ----- ----- ----- ----- Net Income (Loss) Attributable to Common Stockholders.................................. 16.5% 10.3% 4.3% (4.2)% ===== ===== ===== =====
15 16 The following table sets forth certain consolidated operating data for the Company for the three and nine months ended September 30, 1998 and 1997. Certain statistics have been adjusted and restated from that previously published to provide consistent comparisons.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, PERCENTAGE SEPTEMBER 30, PERCENTAGE 1998 1997 CHANGE 1998 1997 CHANGE ---- ---- ------ ---- ---- ------ Regular Service Miles (000's)....... 90,075 81,511 10.5 237,311 212,270 11.8 Total Bus Miles (000's)............. 91,282 82,529 10.6 243,030 216,648 12.2 Passenger Miles (000's)............. 2,338,434 2,105,662 11.1 5,947,375 5,251,821 13.2 Passengers Carried (000's).......... 6,531 5,873 11.2 16,922 14,614 15.8 Average Trip Length (passenger miles/ passengers carried)....... 358 359 (0.3) 351 359 (2.2) Load (avg. number of passengers per regular service mile)............ 26.0 25.8 0.8 25.1 24.7 1.6 Load Factor (% of available seats filled).......................... 54.7 55.2 (0.9) 53.1 52.8 0.6 Yield (regular route revenue/passenger miles)........ $0.0912 $0.0934 (2.4) $0.0921 $0.0929 (0.9) Total Revenue Per Total Bus Mile... 2.67 2.77 (3.6) 2.62 2.64 (0.8) Operating Income Per Total Bus Mile 0.36 0.38 (5.3) 0.14 0.11 27.3 Cost Per Total Bus Mile: Maintenance..................... $ 0.239 $0.244 (2.0) $0.257 $0.268 (4.1) Transportation.................. 0.591 0.613 (3.6) 0.623 0.646 (3.6)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 RESULTS OF OPERATIONS The Company's results of operations include the operating results of Carolina Coach Company, and affiliates ("Carolina"), Valley Transit, Inc. and affiliates ("Valley") and Golden State (collectively the "acquisitions"). The purchases of Carolina and Valley both occurred during the third quarter of 1997 and the purchase of Golden State was completed in February 1998. The results for the acquisitions are included as of their respective purchase dates. Operating Revenues. Total operating revenues increased $15.6 million, up 6.8%, for the quarter and $64.9 million, up 11.4%, for the nine months ended September 30, 1998, compared to the same period in 1997. Increases in all operating revenue categories, except package express, were achieved for both the quarter and year to date periods. Transportation services revenues increased $13.8 million, or 6.6%, and $57.9 million, or 11.3%, for the three and nine months ended September 30, 1998 compared to 1997. The increased revenues are primarily due to a $16.5 million, or 8.4%, and $59.3 million, or 12.2%, increase in regular route revenues for the three and nine months ended September 30, 1998. Included in the regular route revenue increase for the three months ended September 30, 1998, is $5.4 million related to the acquisition of Golden State and Valley Transit and $26.8 million related to the acquisitions for the nine month period. Package express revenues were down $2.7 million and $1.4 million for the three months and nine months ended September 30, 1998 primarily due to the 1997 UPS strike that generated approximately $3.1 million in additional package express revenues during the third quarter of 1997. Excluding the impact of the UPS strike, the Company estimates that package express revenues increased $0.4 million and $1.7 million for the three and nine months ended September 30, 1998 compared to 1997. The increases in regular route revenues reflect the consolidated impact of an 11.2% and 15.8% increase in the number of passengers carried, for the three and nine months, partially offset by a 2.4% and 0.9% decrease in yield and a 0.3% and 2.2% decrease in average trip length for the three and nine months ended September 30, 1998. The decrease in average trip length in the Company's consolidated operating statistics, as compared to the prior year, reflect the impact of the acquisitions which carry passengers traveling on much shorter trip lengths. Excluding the impact of the acquisitions, the Company realized a 6.0% and a 8.1% increase in regular route revenues and an 8.7% and 9.8% increase in passenger miles for the three and nine months ended September 30, 1998. This growth reflected a 6.8% and a 6.4% increase in passengers carried and a 1.7% and 3.0% increase in average trip length per passenger, slightly offset by decreases in yield of 2.5% and 1.6% for the three and nine months ended September 30, 1998. The longer trip lengths and slightly lower yield reflects significant growth in long-haul traffic (passengers traveling more than 450 miles) as the Company promoted and priced this product for growth. 16 17 Food services and related revenues increased $0.6 million, up 6.6%, and $1.5 million, up 6.5%, for the three and nine months ended September 30, 1998 compared to 1997. Food services and related revenues have been reclassified to include sales of retail products. Previously, sales of retail products were included in other operating revenues. Food services and related revenues, as reclassified, increased over the prior year due primarily to the increase in passenger traffic discussed above. Other operating revenues, consisting primarily of revenue from charter and other in-terminal sales and services, increased $1.3 million, up 10.8%, and $5.5 million, up 16.2%, for the three months and nine months ended September 30, 1998, compared to the same periods in 1997. The increase was primarily attributable to a $1.1 million, up 48.7%, and $3.8 million, up 52.0%, increase in charter service revenue for the three and nine months ended September 30, 1998, as well as increases in revenues from other in-terminal services, reflecting the increase in passenger volume. Operating Expenses. Total operating expenses increased $14.4 million, up 7.3%, and $54.5 million, up 10.0%, for the three and nine months ended September 30, 1998, compared to the same periods in 1997. The increase is due primarily to an increase in bus miles operated (10.6% and 12.2% for the three and nine months ended September 30, 1998 compared to the 1997 periods), higher driver wages and training costs, increased terminal salaries, increased ticket and express commissions due to higher sales, and an increase in the number of buses operated under operating leases. Also, expenses attributable to the operations of the acquisitions were $5.2 million and $23.8 million for the three and nine months ended September 30, 1998. Maintenance costs increased $1.7 million, up 8.3%, and $4.4 million, up 7.6%, for the three and nine months ended September 30, 1998, compared to the same periods in 1997 due to increased bus miles and passenger traffic and the inclusion of the acquisitions. Despite these increases, maintenance costs decreased on a cost per bus mile basis. Transportation expenses increased $3.3 million, up 6.6%, and $11.3 million, up 8.1%, for the three and nine months ended September 30, 1998, compared to the same periods in 1997 due to increased bus miles operated, a contractual driver wage increase, training of additional drivers to prepare for anticipated growth and the inclusion of the acquisitions. The increased expenses were partially offset by a decrease in the cost per gallon of diesel fuel for the three and nine months ended September 30, 1998 as compared to the same periods in 1997. The average cost per gallon of fuel decreased to $0.50 and $0.54 per gallon for the three and nine months ended September 30, 1998 compared to $0.63 and $0.67 per gallon during the 1997 periods. The lower fuel prices resulted in a reduction in fuel costs of $2.0 million and $5.4 million for the three and nine months ended September 30, 1998 compared to the 1997 periods. On a cost per bus mile basis, transportation expenses decreased due primarily to the impact of the lower fuel prices partially offset by driver wage increases and higher training costs. Agents' commissions and station costs increased $3.0 million, up 7.7%, and $10.7 million, up 10.2%, for the three and nine months ended September 30, 1998, compared to the same periods in 1997 primarily due to commissions associated with increased ticket sales, pay increases for terminal staff and the inclusion of the acquisitions. Marketing, advertising and traffic expenses decreased $0.4 million, down 6.1%, for the three months ended September 30, 1998 due primarily to less advertising in the third quarter this year compared to prior year. Year to date expenses are comparable to the prior year. Insurance and safety costs increased $0.8 million, up 6.7%, and $5.0 million, up 15.4%, for the three and nine months ended September 30, 1998, compared to the same periods in 1997 due primarily to increased bus miles and the inclusion of the acquisitions. Additionally, an increase in auto and general liability insurance reserves related to recent claims settlement trends and accident trends contributed to the increase but was partially offset by lower workers compensation claims. General and administrative expenses increased $1.9 million, up 7.5%, and $9.1 million, up 13.2%, for the three and nine months ended September 30, 1998 compared to the same periods in 1997 due primarily to increased salaries and higher health and welfare expenses associated with the increase in drivers and terminal employee head-counts and the inclusion of the acquisitions. Depreciation and amortization increased by $0.9 million, up 11.9%, and $3.8 million, up 16.7%, for the three and nine months ended September 30, 1998, compared to the same periods in 1997 due primarily to depreciation and 17 18 goodwill amortization attributable to the acquisitions and increased depreciation related to increased capital expenditures in prior periods. Operating taxes and licenses expense increased $1.3 million, up 9.9%, and $3.8 million, up 9.7%, for the three and nine months ended September 30, 1998, compared to the same periods in 1997. This increase results from higher payroll taxes due to increased salaries, wages and head-counts related to higher business volume, as well as increased fuel and oil taxes resulting from an increase in total bus miles. Operating rents increased $1.0 million, up 6.5%, and $5.2 million, up 11.8%, for the three and nine months ended September 30, 1998, compared to the same periods in 1997 due to an increase in fleet size as the Company financed most of its new buses near the end of 1997 under operating leases. The increase in bus operating leases reflects the Company's growth strategy to add resources to accommodate growth in the passenger business during the peak periods and generate additional charter revenues during the off-peak periods utilizing those added resources when available. Food services and related cost of goods sold increased $0.3 million, up 4.7%, and $0.9 million, up 6.2%, for the three and nine months ended September 30, 1998, compared to the same periods in 1997, primarily due to the 6.6% and 6.5% increase in Food services and related revenues for the same period. Food services and related cost of goods sold have been reclassified to include the costs associated with sales of retail products. Previously those costs were recorded in other operating expenses. Interest expense increased $0.6 million, up 9.7%, and $0.5 million, up 2.4%, for the three and nine months ended September 30, 1998, compared to the same periods in 1997. The increase during the quarter reflects a higher average balance outstanding on the Revolving Credit Facility related primarily to the Company's purchase of buses for sale-leaseback and the acquisitions which were funded during the last half of 1997, partially offset by the lower interest rates negotiated under the Revolving Credit Facility. For the nine months ended September 30, 1998 the increase reflects a higher average balance outstanding on the Revolving Credit Facility offset by lower interest rates on the Revolving Credit Facility, the lower effective interest rates associated with the 11 1/2% Senior Notes issued in April 1997 ("11 1/2% Senior Notes") compared to the 10% Senior Notes retired in May 1997, and the termination of the interest rate swap agreements. For the three months ended September 30, 1998, the Company recorded a net income tax benefit of $16.3 million. During the third quarter, the Company recognized deferred tax assets primarily related to net operating losses from prior years expected to be realized in future years. These tax assets had been previously reserved; however, as a result of the Company's continued trend of earnings improvement and current and future expected positive earnings, as well as, the successful negotiation of the new union agreement, the reserve was reduced by $27.7 million. This reduction resulted in a deferred tax benefit related to future periods of $24.5 million and a $3.2 million increase in capital in excess of par value for amounts related to tax assets generated prior to the fresh start date of October 31, 1991. The deferred tax benefit related to future periods was offset by $1.7 million of deferred tax expense related to tax assets realized in the third quarter. This includes a $0.8 million increase in capital in excess of par value for amounts related to tax assets generated prior to the fresh start date of October 31, 1991. The Company reported current tax expense of $6.5 million in the third quarter of 1998. This amount consists of approximately $6.0 million for identified tax exposures, $0.2 million for federal alternative minimum tax and $0.3 million for state income tax. Since the Company has currently recognized the benefit of its deferred tax assets, the effective tax rate beginning in the first quarter of 1999 will not include a reduction for net operating loss carryforwards and other previously unrecognized deferred tax assets. The Company's 1998 combined federal and state effective tax rate without this reduction would have been an estimated 44.0%. LIQUIDITY AND CAPITAL RESOURCES The Company's principal liquidity requirements are working capital, capital expenditures, including bus acquisitions, debt service requirements, including the payment of principal and interest on borrowings under the Revolving Credit Facility and interest on the 11 1/2% Senior Notes, and dividends on the Preferred Stock. The Company's principal sources of liquidity are expected to be cash flow from operations and borrowings under the Revolving Credit Facility. The Company believes that its cash flow from operations, together with borrowings under the Revolving Credit Facility, will be sufficient to meet its liquidity needs for the foreseeable future. 18 19 Net cash provided by operating activities increased $7.2 million, or 70.9%, to $17.3 million for the nine months ended September 30, 1998 from $10.1 million in 1997. The increase in cash provided by operating activities is primarily due to the increased net income, adjusted for the prior year extraordinary item. Net cash used for investing activities decreased $18.7 million, to $59.6 million in 1998 from $78.3 million in 1997, principally due to a $37.5 million decrease in payments for business acquisitions combined with a $13.9 million decrease in capital expenditures offset by a $30.2 million increase in buses purchased for sale and leaseback. Net cash provided by financing activities decreased $26.0 million, or 37.5%, to $43.2 million in 1998 from $69.2 million in 1997. This decrease can primarily be attributed to the proceeds received in 1997 from the issuance of the 11 1/2% Senior Notes and the 8 1/2% Convertible Exchangeable Preferred Stock offset by the redemption of the 10% Senior Notes, the net effect of which was a decrease in cash provided of $42.2 million. Additionally, payments on debt and capital lease obligations decreased $12.0 million. As a part of its operating strategy, the Company anticipates continuing to make significant capital expenditures in connection with improvements to its infrastructure, including acquiring buses, making improvements to its terminals and upgrading its computer systems. The Company believes that acquiring new buses and improving the Company's terminals and computer systems will permit the Company to continue to improve customer service, which the Company believes has contributed significantly to its improved operating results over the last three years. The Company accepted delivery of 89 new buses during the first quarter, 79 new buses in the second quarter and 28 buses in the third quarter and expects deliveries of 37 additional new buses in the fourth quarter. The first, second and third quarter deliveries were, and future deliveries will be, temporarily financed by the vendor or one of its affiliates and/or through borrowings under the Revolving Credit Facility. As of November 6, 1998, the Company has completed operating leases for 64 of these buses and the Company intends to seek permanent operating lease financing for a substantial portion of the remaining buses during the fourth quarter of 1998. The Company generally uses lease financing with purchase options as the principal source of bus financing in order to achieve the lowest net cost of bus financing. Depending on the specific terms of a lease, such lease may be accounted for as either an operating or capital lease. The Company may also acquire buses outright and may purchase buses and subsequently engage in sale-leaseback transactions with respect to such buses. The Company requires significant cash flows to meet its debt service and other continuing obligations. As of September 30, 1998, the Company had $263.0 million of long-term indebtedness outstanding (including current portions), including $74.6 million of borrowings under the Revolving Credit Facility and $150.0 million of 11 1/2% Senior Notes. As of September 30, 1998, the Company had total availability of $56.9 million under the Revolving Credit Facility. The Company is a party to a Revolving Credit Facility which was amended on April 20, 1998. The amended facility increased the borrowing availability from $125.0 million to $150.0 million. The amended Revolving Credit Facility consists of (i) a revolving facility providing for advances of up to $117.5 million based on the liquidation value of certain bus collateral, (ii) a revolving facility providing for advances of up to $2.5 million based on a formula of eligible accounts receivable and (iii) a real estate facility providing for borrowings of up to $35.0 million based on fair market value of certain core real property collateral (the "Real Estate Facility") with a maximum combined borrowing base of $150.0 million. The Revolving Credit Facility has two interest rate options, prime and LIBOR. As of November 6, 1998, the Company had borrowings under the Revolving Credit Facility bearing interest at LIBOR plus 2.00% and prime plus 0.25% (weighted average of 7.5738%). Borrowings under the Revolving Credit Facility mature on May 21, 2002, although availability under the Real Estate Facility will be subject to yearly reductions commencing in November 1999. The Revolving Credit Facility is secured by liens on substantially all of the assets of the Company. The Revolving Credit Facility is subject to certain operating and financial covenants, including maintenance of a minimum consolidated net worth, ratio of total indebtedness to cash flow and ratio of cash flow to interest expense. In addition, non-bus capital expenditures are limited to $30.0 million annually with no spending limitations on bus purchases. As of September 30, 1998, the Company was in compliance with all such covenants. The Company has entered into two advance purchase commitments for fuel. Under these agreements the Company agrees to take delivery of fuel at a specific location at a fixed price at a specific date in the future. The agreements have been entered into, with two suppliers, for approximately 22% of projected fuel needs through October 1999, at an average price per gallon of $0.53. Management believes that this strategy is a conservative methodology of mitigating the impact of fuel price fluctuations. 19 20 PROPOSED MERGER On October 16, 1998, the Company entered into an Agreement and Plan of Merger with Laidlaw Inc. and Laidlaw Transit Acquisition Corp., a wholly owned subsidiary of Laidlaw. See Note 5 to the Interim Consolidated Financial Statements for the period ended September 30, 1998, included elsewhere in this filing. NEW UNION AGREEMENT The Amalgamated Transit Union (the "ATU") represents certain of the Company's employees, including drivers, telephone information agents in the Omaha location, terminal workers in certain locations and about one-half of the Company's mechanics. The Company's largest ATU agreement, which covers approximately 4,500 drivers and 350 of its mechanics, was to expire on January 31, 1999. In January 1998, the Company and the executive board of the National Local 1700 of the ATU recorded a tentative agreement for a new labor contract. The agreement was submitted to the ATU membership for ratification and on March 14, 1998, the ATU membership rejected this agreement. On July 22, 1998, the Company and the ATU's executive board reached a new tentative agreement for a labor contract. The agreement was submitted to the ATU membership for ratification and on September 1, 1998, the agreement was ratified. As a result, this contract became effective October 1, 1998, and will continue until January 31, 2004. This contract provides the drivers annual raises of 3.5% for the first, second and fourth year of the contract and 4.0% raises in the third and fifth years. Additionally, the contract provided certain work rule changes and increased the Company's contribution to the ATU's 401(k) retirement plan. ACQUISITION On February 9, 1998, the Company completed its acquisition of a 51% interest in Golden State, a Southern California bus carrier. This purchase was accounted for using the purchase method of accounting. Accordingly, the acquired company's results of operations are included in the consolidated financial statements from the date of acquisition. The amount of the purchase price in excess of net assets has been recorded as goodwill and is being amortized over a 20-year period. SUBSTANTIAL LEVERAGE The Company has consolidated indebtedness that is substantial in relation to its stockholders' equity. As of September 30, 1998, the Company had outstanding consolidated long-term indebtedness (including current portions) of approximately $263.0 million and total stockholders' equity of approximately $213.4 million. The seasonal fluctuations in the Company's cash flows can be significant. The second quarter of each year typically represents the Company's greatest period of leverage. Generally, the first quarter and most of the second quarter are loss periods requiring the financing of substantial cash outflows for operations. However, the last half of the year (primarily the third quarter) provides substantial positive cash flows and, as a result, the Company is typically at its least leveraged point at year end. HISTORY OF LOSSES The Company reported a net loss in each of its last four fiscal years. Although the Company has implemented strategic and operational initiatives that have increased revenues and operating income, the Company's operations generally are subject to economic, financial, competitive, seasonal and other factors, many of which are beyond its control. COMPETITION The transportation industry is highly competitive. The Company's primary sources of competition for passengers are automobile travel, low-cost air travel from both regional and national airlines, and in certain markets, regional bus companies and trains. SELF INSURANCE Insurance coverage and risk management expense are key components of the Company's cost structure. The DOT is currently studying whether to continue or modify the self-insurance program available to the motor carrier industry. The loss of self-insurance authority from the DOT or a decision by the Company's insurers to modify the 20 21 Company's program substantially, by either increasing cost, reducing availability or increasing collateral, could have a material adverse effect on the Company's liquidity, financial condition, and results of operations. The Company maintains cash deposits that secure insurance claims, which as of September 30, 1998 aggregated approximately $46.5 million, including the following deposits. The Company maintains $15.0 million on deposit in a trust fund to support its self-insurance program pursuant to the U.S. Department of Transportation's ("DOT") approval of such program. Additionally, as of September 30, 1998, the Company had pledged $31.5 million in cash and $9.7 million in letters of credit to secure its other liability insurance obligations. Depending on the Company's future claims history and the policies with its insurance carriers, the amount of collateral that the Company is obligated to pledge to secure its liability insurance obligations may vary. OTHER DEPOSITS The Company maintains deposits that secure bus leases associated with sale leaseback transactions. These deposits are in the form of marketable securities. These deposits are recorded at cost plus amortization of discounts on the underlying securities, which as of September 30, 1998 are approximately $31.0 million. As of September 30, 1998, at market value, these deposits are for $24.0 million pledged as collateral in connection with the sale and leaseback of 319 buses and $8.9 million pledged as collateral in connection with the sale and leaseback of 125 buses. Under generally accepted accounting principles, the gain associated with the current market value is not recorded by the Company until such time as the securities are sold and the gain is realized. PENSION PLAN FUNDING The Company maintains nine defined benefit pension plans, the most significant of which (the ATU Plan) covers approximately 15,650 current and former employees, fewer than 1,500 of which are active employees of the Company. The ATU Plan was closed to new participants in 1983 and, as a result, over 85% of its participants are over the age of 50. For financial reporting and investment planning purposes, the Company currently uses an actuarial mortality table that closely matches the actual experience related to the existing participant population. Based upon the application of this table and other actuarial and investments assumptions, the Company believes that the ATU Plan is adequately funded. For funding purposes, legislation passed by the United States Congress in 1994, and amended in 1997, mandates the use of a prescribed actuarial mortality table and discount rates that differ from those used by the Company for financial reporting and investment planning purposes. Nevertheless, based upon the application of the actuarial mortality table, discount rates and funding calculations prescribed by the legislation, as amended, the Company does not anticipate that it will be required to make any contributions to the ATU Plan in the foreseeable future. However, there is no assurance that the ATU Plan will be able to earn the assumed rate of return or that contributions to the ATU Plan will not be significant. COMPUTER SYSTEMS / YEAR 2000 READINESS Many existing computer systems, communications equipment, control devices and software products, including several used by the Company, are coded to accept only two-digit entries in the date code field. Beginning in the year 2000, these date code fields will need to accept four-digit entries to distinguish 21st century dates from 20th century dates. As a result, the Company's date critical functions related to the year 2000 and beyond, such as scheduling, dispatch, sales, purchasing, planning and financial systems may be materially adversely affected unless these systems are or become year 2000 ready. During the past three years, the Company has been replacing or upgrading its computer systems to improve operating efficiencies. Through some of these efforts, year 2000 ready applications or systems have been installed. The Company is preparing both its information technology ("IT") systems and its non-IT, technology enabled systems for the year 2000 by implementing the year 2000 Readiness Process, comprised of five phases: Assessment, Planning, Implementation, Testing and Clean Management. The first phase is an assessment of the Company's systems with respect to year 2000 readiness. During the Assessment phase, the Company, with the assistance of consultants, reviews individual applications and the hardware and network infrastructure supporting those applications. The assessment also includes non-"information technology" (non-IT) systems, such as fax machines, time clocks and bus maintenance test equipment. A 21 22 comprehensive review and inventory of non-IT technology enabled equipment and functions will be completed in this phase. The assessment of all of the Company's IT systems was completed during the third quarter of 1998. The assessment of the Company's non-IT systems will be completed during the fourth quarter of 1998. The Assessment phase also involves an assessment of the readiness of third party vendors and suppliers. The Company has already issued year 2000 readiness questionnaires to some vendors and will continue this effort. However, responses to these inquiries have been limited. Nevertheless, as a normal course of business, the Company has contingency plans in place to deal with failures of most of the critical third-party systems. Where such contingency plans are not in place, the Company is in the process of developing those plans. The purpose of the Planning phase is to develop a detailed set of plans for bringing the Company's systems to year 2000 readiness. The Company is first developing plans to prepare individual applications and platforms for year 2000 readiness. These individual plans are then consolidated into an overall plan for remediation of the IT systems. Priority is given to the mission critical functions. For those non-mission critical systems that might not be ready for the year 2000, the overall plan will ensure that contingency plans exist to minimize disruption to the business. Our first iteration of the overall plan for IT systems was completed during the third quarter of 1998. The planning phase for non-IT systems is targeted for completion in the first quarter of 1999, following the completion of the Company's non-IT systems Assessment Phase. In the Implementation phase, the Company will bring the IT systems to a state of readiness as stand-alone units. Each application and its supporting infrastructure components will be remediated, replaced or upgraded, as appropriate. Each application will be tested to ensure the accuracy of current functionality and to ensure the continuance of the functionality into the year 2000 and beyond. To date, a significant number of infrastructure components and several applications have been remediated. The Company expects to complete the Implementation phase for mission critical IT systems in the first quarter of 1999. Non-mission critical IT systems and non-IT systems are expected to be made year 2000 ready by the end of the second quarter of 1999. The Testing phase is the most complicated phase of the year 2000 Readiness Process. In this phase, IT systems are tested for year 2000 readiness, meaning that a series of tests using the same data but different dates is performed to ensure readiness of the IT systems both prior to and after the year 2000. Testing of individual infrastructure components and applications will continue with the majority of testing completed by the third quarter of 1999. Clean Management is confirming that any newly acquired components or applications are deemed year 2000 ready before their introduction into the Company. The Clean Management phase of the year 2000 Readiness Process is conducted at the same time as all other phases. The Company currently has a disaster recovery plan that has put contingency planning in place to address problems that might occur in the ordinary course of business. However, the Company is starting to re-evaluate its contingency planning for critical operational areas that might be specifically affected by the year 2000 problem if the Company or suppliers are not ready. Throughout 1999, the Company will review the extent to which contingency plans may be required for any third parties that do not achieve year 2000 readiness, and the Company expects to complete those necessary contingency plans by the third quarter of 1999. The Company's total costs related to year 2000 assessment and remediation are based on presently available information. The total remaining costs related to the year 2000 assessment and remediation efforts are estimated to be between $15.0 million and $20.0 million, including internal salaries that would be incurred without remediation efforts. The Company estimates that approximately half of this amount will be capitalized, with the remainder being expensed as incurred. The costs which include expenditures in fourth quarter of 1998, as well as 1999 and 2000 exceed the previous rate of IT related expenditures, including capitalized expenditures, by approximately $5.0 million to $10.0 million. These costs will be funded through operating cash flows or borrowings. Since the Company has been replacing and upgrading its computer systems in the ordinary course of business, the Company cannot estimate the costs incurred to date related specifically to remediating year 2000 issues. The costs of the Company's year 2000 readiness project and the date on which the Company plans to complete the year 2000 modifications are based on management's estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third-party modification plans and other factors. The year 2000 issues present a number of risks that are beyond the Company's reasonable control, such as the failure of utility companies to deliver electricity, the failure of telecommunications companies to provide voice 22 23 and data services, the failure of financial institutions to process transactions and transfer funds, and the impact on the Company of the effects of year 2000 issues on the economy in general or on the Company's business partners and customers. Although the Company believes that its year 2000 readiness program is designed to appropriately identify and address those year 2000 issues that are subject to the Company's reasonable control, the Company can make no assurance that its efforts will be fully effective or that the year 2000 issues will not have a material adverse effect on the Company's business, financial condition or results of operations. SEASONALITY The Company's business is seasonal in nature and generally follows the pattern of the travel industry as a whole, with peaks during the summer months and the Thanksgiving and Christmas holiday periods. As a result, the Company's cash flows are also seasonal with a disproportionate amount of the Company's annual cash flows being generated during the peak travel periods. Therefore, an event that adversely affects ridership during any of these peak periods could have a material adverse effect on the Company's financial condition and results of operations for that year. The day of the week on which certain holidays occur, the length of certain holiday periods, and the date on which certain holidays occur within a fiscal quarter, may also affect the Company's quarterly results of operations. GOVERNMENT REGULATION The Company is subject to regulation under the Americans with Disabilities Act (the "ADA"). Under final regulations issued by DOT in September 1998, beginning in October 2000, all new buses received by the Company for its fixed route operations will have to be equipped with wheelchair lifts. Additionally, by October 2006, one-half of the Company's fleet involved in fixed route operations will be required to be lift-equipped, and by October 2012, such fleet will need to be entirely lift-equipped. The regulations do not require the retrofitting of existing buses with lift equipment. Nor do the regulations require the purchase of accessible used buses. Moreover, beginning in October 2001, until the fleet is fully equipped, the Company will be required to provide an accessible bus to any disabled passenger who provides at least 48 hours notice. Also beginning in October 2001, larger charter/tour operators will be required to provide an accessible bus to any disabled passenger who provides at least 48 hours notice. The Company currently estimates that a built-in lift device will add $20,000 to $40,000 to the cost of a new bus and that maintenance and employee training costs will increase. The Company does not expect such maintenance and training costs to be materially higher than the costs currently incurred in complying with the interim bus access regulations promulgated under the ADA. Passenger revenues could also be impacted by the loss of seating capacity when wheelchair passengers are on the bus, offset by potentially increased ridership by disabled persons. LITIGATION The Company is a party to various lawsuits the outcome of which, if adverse to the Company, could have a material adverse effect on the business, financial condition, results of operations and liquidity. See Note 6 to the Interim Consolidated Financial Statements for the period ended September 30, 1998, included elsewhere in this filing. 23 24 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS SECURITIES AND DERIVATIVE LITIGATION; SEC INVESTIGATION Between August 1994 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. 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 October 1996, a purported class action lawsuit was filed by a purported owner of the Company's Common Stock in the State Court of Texas. The parties have entered into settlement agreements, which are not yet final, to resolve the foregoing litigation. 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 6 to the Interim Consolidated Financial Statements for the period ended September 30, 1998, included elsewhere in this filing. 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 and employment-related 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 the personal injury and property damage 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 relating to such personal injury and/or property damage claims arising in the ordinary course of business that, if resolved against the Company, would materially exceed the amounts recorded. 24 25 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS 2.1 - Amended and Restated Agreement and Plan of Merger dated as of November 5, 1998 (the "Merger Agreement") by and among Greyhound Lines, Inc., Laidlaw Inc. and Laidlaw Transit Acquisition Corp. (In accordance with Item 601 of the Regulation S-K, this copy of the Merger Agreement does not include the schedules thereto, which schedules are listed in the table of schedules to the Merger Agreement. The Company agrees to furnish supplementary to the Securities and Exchange Commission a copy of such schedules upon request.) 10.1 - First Amended Executive Employment Agreement by and between the Company and Craig R. Lentzsch, dated as of September 15, 1998. 10.2 - First Amended Executive Employment Agreement by and between the Company and John Werner Haugsland, dated as of September 15, 1998. 10.3 - Greyhound Lines, Inc. Change in Control Severance Pay Program. 10.4 - Form of Change in Control Agreement between the Company and certain officers of the Company. 10.5 - Memorandum of Agreement, dated September 30, 1998, between the Registrant and the Amalgamated Transit Union National Local 1700. 10.6 - 1998 Stock Option Plan for ATU Represented Drivers and Mechanics, dated July 22, 1998. 10.7 - 1998 Non-officer Long Term Stock Incentive Plan, dated January 21, 1998. 27 - Financial Data Schedule as of and for the three months and nine months ended September 30, 1998.(1) - ------------------------------------------------------------------------------- (1) Filed only in EDGAR format with the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998. (b) REPORTS ON FORM 8-K During the quarter ended September 30, 1998, the Company did not file any current reports on Form 8-K with the Securities and Exchange Commission. 25 26 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 12, 1998 GREYHOUND LINES, INC. By: /s/ T. Scott Kirksey -------------------------------- T. Scott Kirksey Chief Accounting Officer (Duly Authorized Officer and Chief Accounting Officer) ATLANTIC GREYHOUND LINES OF VIRGINIA, INC. By: /s/ T. Scott Kirksey -------------------------------- T. Scott Kirksey Chief Accounting Officer FCA INSURANCE LIMITED By: /s/ T. Scott Kirksey -------------------------------- T. Scott Kirksey Chief Accounting Officer GLI HOLDING COMPANY By: /s/ T. Scott Kirksey -------------------------------- T. Scott Kirksey Chief Accounting Officer GREYHOUND de MEXICO S.A. de C.V. By: /s/ T. Scott Kirksey -------------------------------- T. Scott Kirksey Chief Accounting Officer GRUPO CENTRO, INC. By: /s/ T. Scott Kirksey -------------------------------- T. Scott Kirksey Chief Accounting Officer 26 27 LOS BUENOS LEASING CO., INC. By: /s/ T. Scott Kirksey -------------------------------- T. Scott Kirksey Chief Financial Officer and Secretary SISTEMA INTERNACIONAL de TRANSPORTE de AUTOBUSES, INC. By: /s/ T. Scott Kirksey -------------------------------- T. Scott Kirksey Chief Accounting Officer TEXAS, NEW MEXICO & OKLAHOMA COACHES, INC. By: /s/ T. Scott Kirksey -------------------------------- T. Scott Kirksey Chief Accounting Officer T.N.M. & O. TOURS, INC. By: /s/ T. Scott Kirksey -------------------------------- T. Scott Kirksey Chief Accounting Officer VERMONT TRANSIT CO., INC. By: /s/ T. Scott Kirksey -------------------------------- T. Scott Kirksey Chief Accounting Officer 27 28 INDEX TO EXHIBITS Exhibit No. Description - ------- ----------- 2.1 - Amended and Restated Agreement and Plan of Merger dated as of November 5, 1998 (the "Merger Agreement") by and among Greyhound Lines, Inc., Laidlaw Inc. and Laidlaw Transit Acquisition Corp. (In accordance with Item 601 of the Regulation S-K, this copy of the Merger Agreement does not include the schedules thereto, which schedules are listed in the table of schedules to the Merger Agreement. The Company agrees to furnish supplementary to the Securities and Exchange Commission a copy of such schedules upon request.) 10.1 - First Amended Executive Employment Agreement by and between the Company and Craig R. Lentzsch, dated as of September 15, 1998. 10.2 - First Amended Executive Employment Agreement by and between the Company and John Werner Haugsland, dated as of September 15, 1998. 10.3 - Greyhound Lines, Inc. Change in Control Severance Pay Program. 10.4 - Form of Change in Control Agreement between the Company and certain officers of the Company. 10.5 - Memorandum of Agreement, dated September 30, 1998, between the Registrant and the Amalgamated Transit Union National Local 1700. 10.6 - 1998 Stock Option Plan for ATU Represented Drivers and Mechanics, dated July 22, 1998. 10.7 - 1998 Non-officer Long Term Stock Incentive Plan, dated January 21, 1998. 27 - Financial Data Schedule as of and for the three months and nine months ended September 30, 1998.(1) EX-2.1 2 AMENDED & RESTATED AGREEMENT & PLAN OF MERGER 1 EXHIBIT 2.1 ================================================================================ AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER BY AND AMONG LAIDLAW INC. LAIDLAW TRANSIT ACQUISITION CORP. and GREYHOUND LINES, INC. Dated as of November 5, 1998 ================================================================================ 2 TABLE OF CONTENTS ARTICLE I THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.2 Effective Time . . . . . . . . . . . . . . . . . . . . 2 SECTION 1.3 Effect of the Merger . . . . . . . . . . . . . . . . . 2 SECTION 1.4 Certificate of Incorporation, By-Laws . . . . . . . . 2 SECTION 1.5 Directors and Officers . . . . . . . . . . . . . . . . 2 SECTION 1.6 Effect on Capital Stock . . . . . . . . . . . . . . . 3 SECTION 1.7 Exchange of Certificates . . . . . . . . . . . . . . . 4 SECTION 1.8 Stock Transfer Books . . . . . . . . . . . . . . . . . 6 SECTION 1.9 No Further Ownership Rights in Company Common Shares . . . . . . . . . . . . . . . . . . . . 7 SECTION 1.10 Lost, Stolen or Destroyed Certificates . . . . . . . . 7 SECTION 1.11 Taking of Necessary Action; Further Action . . . . . . 7 SECTION 1.12 Stockholders' Meeting . . . . . . . . . . . . . . . . 7 SECTION 1.13 Material Adverse Effect . . . . . . . . . . . . . . . 8 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . 8 SECTION 2.1 Organization and Qualification; Subsidiaries . . . . . 8 SECTION 2.2 Certificate of Incorporation and By-Laws . . . . . . . 9 SECTION 2.3 Capitalization . . . . . . . . . . . . . . . . . . . . 9 SECTION 2.4 Authority Relative to this Agreement . . . . . . . . . 10 SECTION 2.5 No Conflict; Required Filings and Consents . . . . . . 10 SECTION 2.6 Compliance . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 2.7 SEC Filings; Financial Statements . . . . . . . . . . 12 SECTION 2.8 Absence of Certain Changes or Events . . . . . . . . . 13 SECTION 2.9 No Undisclosed Liabilities . . . . . . . . . . . . . . 13 SECTION 2.10 Absence of Litigation . . . . . . . . . . . . . . . . 13 SECTION 2.11 Employee Benefit Plans, Employment Agreements . . . . 13 SECTION 2.12 Labor Matters . . . . . . . . . . . . . . . . . . . . 15 SECTION 2.13 Restrictions on Business Activities . . . . . . . . . 15 SECTION 2.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . 15 SECTION 2.15 Intellectual Property . . . . . . . . . . . . . . . . 17 SECTION 2.16 Rights Agreement . . . . . . . . . . . . . . . . . . . 17 SECTION 2.17 Opinion of Financial Advisor . . . . . . . . . . . . . 18 SECTION 2.18 Brokers . . . . . . . . . . . . . . . . . . . . . . . 18 SECTION 2.19 Section 203 of the Delaware Law Not Applicable . . . . 18
i 3 ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION . . . . . . . . . . . . . . . . . . . . . . . . . . 18 SECTION 3.1 Organization and Qualification; Subsidiaries . . . . . 18 SECTION 3.2 Certificate and Articles of Amalgamation and By-Laws . 19 SECTION 3.3 Capitalization . . . . . . . . . . . . . . . . . . . . 19 SECTION 3.4 Authority Relative to this Agreement . . . . . . . . . 19 SECTION 3.5 No Conflict, Required Filings and Consents . . . . . . 20 SECTION 3.6 Compliance . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 3.7 SEC Filings; Financial Statements . . . . . . . . . . 21 SECTION 3.8 Absence of Certain Changes or Events . . . . . . . . . 22 SECTION 3.9 No Undisclosed Liabilities . . . . . . . . . . . . . . 22 SECTION 3.10 Absence of Litigation . . . . . . . . . . . . . . . . 22 SECTION 3.11 Labor Matters . . . . . . . . . . . . . . . . . . . . 22 SECTION 3.12 Restrictions on Business Activities . . . . . . . . . 23 SECTION 3.13 No Prior Activities; Financing . . . . . . . . . . . . 23 SECTION 3.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 3.15 Intellectual Property . . . . . . . . . . . . . . . . 24 SECTION 3.16 Brokers . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE IV ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 4.1 Preparation of Form S-4; Proxy Statement/Prospectus . 25 SECTION 4.2 Company Information . . . . . . . . . . . . . . . . . 25 SECTION 4.3 Parent Information . . . . . . . . . . . . . . . . . . 26 SECTION 4.4 Meeting of the Company's Stockholders . . . . . . . . 26 SECTION 4.5 Reasonable Best Efforts . . . . . . . . . . . . . . . 26 SECTION 4.6 Letter of the Company's Accountants . . . . . . . . . 27 SECTION 4.7 Letter of Parent's Accountants . . . . . . . . . . . . 27 SECTION 4.8 Stock Exchange Listings . . . . . . . . . . . . . . . 27 SECTION 4.9 Stock Options . . . . . . . . . . . . . . . . . . . . 27 SECTION 4.10 Access to Information; Confidentiality . . . . . . . . 28 SECTION 4.11 Consents; Approvals . . . . . . . . . . . . . . . . . 28 SECTION 4.12 Indemnification and Insurance . . . . . . . . . . . . 29 SECTION 4.13 Continuation of Company Employee Plans . . . . . . . . 31 SECTION 4.14 Notification of Certain Matters . . . . . . . . . . . 31 SECTION 4.15 Further Action . . . . . . . . . . . . . . . . . . . . 32 SECTION 4.16 Public Announcements . . . . . . . . . . . . . . . . . 32 SECTION 4.17 Conveyance Taxes . . . . . . . . . . . . . . . . . . . 32 SECTION 4.18 Company Preferred Shares . . . . . . . . . . . . . . . 32
ii 4 ARTICLE V CONDUCT OF BUSINESS PENDING THE MERGER . . . . . . . . . . . . . . . . 33 SECTION 5.1 Conduct of Business by the Company Pending the Merger . . . . . . . . . . . . . . . . . . . . 33 SECTION 5.2 No Solicitation . . . . . . . . . . . . . . . . . . . 35 ARTICLE VI CONDITIONS TO THE MERGER . . . . . . . . . . . . . . . . . . . . . . . 36 SECTION 6.1 Conditions to Obligation of Each Party to Effect the Merger . . . . . . . . . . . . . . . . 36 SECTION 6.2 Conditions to Obligations of Parent and Acquisition . 37 SECTION 6.3 Conditions to Obligation of the Company . . . . . . . 37 ARTICLE VII TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 7.1 Termination . . . . . . . . . . . . . . . . . . . . . 38 SECTION 7.2 Effect of Termination . . . . . . . . . . . . . . . . 39 SECTION 7.3 Fees and Expenses . . . . . . . . . . . . . . . . . . 39 ARTICLE VIII GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 8.1 Effectiveness of Representations, Warranties and Agreements; Knowledge, Etc. . . . . . . . . . 40 SECTION 8.2 Notices . . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 8.3 Certain Definitions . . . . . . . . . . . . . . . . . 41 SECTION 8.4 Amendment . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 8.5 Waiver . . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 8.6 Headings . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 8.7 Severability . . . . . . . . . . . . . . . . . . . . . 43 SECTION 8.8 Entire Agreement . . . . . . . . . . . . . . . . . . . 43 SECTION 8.9 Assignment; Guarantee of Acquisition Obligations . . . 43 SECTION 8.10 Parties in Interest . . . . . . . . . . . . . . . . . 43 SECTION 8.11 Failure or Indulgence Not Waiver; Remedies Cumulative . . . . . . . . . . . . . . . 43 SECTION 8.12 Governing Law . . . . . . . . . . . . . . . . . . . . 44 SECTION 8.13 Consent to Jurisdiction and Service of Process . . . . 44 SECTION 8.14 Counterparts . . . . . . . . . . . . . . . . . . . . . 45
iii 5 TABLE OF SCHEDULES COMPANY DISCLOSURE SCHEDULE - --------------------------- Section 1.5 -- Directors and Officers Section 2.1 -- Organization and Qualification; Subsidiaries Section 2.3 -- Capitalization Section 2.5(a) -- Material Contracts Section 2.5(b) -- Conflicts Section 2.5(c) -- Required Filings and Consents Section 2.6(a) -- Compliance Section 2.6(b) -- Company Permits Section 2.7 -- SEC Filings Section 2.8 -- Changes and Events Section 2.9 -- Undisclosed Liabilities Section 2.10 -- Litigation Section 2.11(a) -- Employee Benefit Plans Section 2.11(b) -- Retiree Welfare Benefits; Prohibited Transactions and Compliance Section 2.11(c) -- Employee Stock Options Section 2.11(d) -- Employment/Severance Agreements Section 2.12 -- Labor Matters Section 2.13 -- Restrictions on Business Activities Section 2.14(b) -- Taxes Section 2.15 -- Intellectual Property Section 4.13(c) -- Continuation of Company Employee Benefit Plans Section 5.1 -- Conduct of Business by the Company Pending the Merger Section 5.1(e) -- Permitted Acquisitions Section 5.1(f) -- Compensation Increases to Officers or Employees PARENT DISCLOSURE SCHEDULE - -------------------------- Section 3.5(a) -- Conflicts Section 3.5(b) -- Required Filings and Consents Section 3.6 -- Compliance Section 3.7 -- SEC Filings Section 3.8 -- Changes and Events Section 3.9 -- Undisclosed Liabilities Section 3.10 -- Litigation Section 3.11 -- Labor Matters Section 3.12 -- Restrictions on Business Activities Section 3.14 -- Taxes Section 3.15 -- Intellectual Property
iv 6 AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of October 16, 1998 and amended and restated as of November 5, 1998, is among Greyhound Lines, Inc., a Delaware corporation (the "Company"), Laidlaw Inc., a Canadian corporation ("Parent"), and Laidlaw Transit Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Parent ("Acquisition"). For the purposes of this Agreement the date of this Agreement shall be deemed to be October 16, 1998. WHEREAS, the Boards of Directors of Parent and Acquisition have each approved the merger of Acquisition with and into the Company (the "Merger") upon the terms and subject to the conditions set forth herein; WHEREAS, the Board of Directors of the Company (the "Board") (i) determined that the Merger and the transactions contemplated thereby are fair to and in the best interests of the Company and its stockholders and (ii) on the terms and subject to the provisions hereinafter set forth, approved this Agreement and the transactions contemplated hereby and resolved to recommend the adoption of this Agreement by the stockholders of the Company; and WHEREAS, the Company, Parent and Acquisition desire to amend and restate the Agreement on the terms and subject to the conditions set forth below. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, the Company, Parent and Acquisition hereby agree as follows: ARTICLE I THE MERGER SECTION 1.1 The Merger. (a) Effective Time. At the Effective Time (as defined below), and subject to and upon the terms and conditions of this Agreement and the Delaware General Corporation Law (the "Delaware Law"), Acquisition shall be merged with and into the Company, the separate corporate existence of Acquisition shall cease, and the Company shall continue as the surviving corporation. The Company as the surviving corporation after the Merger is hereinafter sometimes referred to as the "Surviving Corporation." 7 (b) Closing. Unless this Agreement shall have been terminated and the transactions herein contemplated shall have been abandoned pursuant to Section 7.1, and subject to the satisfaction or waiver of the conditions set forth in Article VI, the consummation of the Merger will take place as promptly as practicable (and in any event within one business day) after satisfaction or waiver of the conditions set forth in Article VI, at the offices of Jones, Day, Reavis & Pogue, Dallas, Texas, unless another date, time or place is agreed to in writing by the parties hereto (the "Closing Date"). SECTION 1.2 Effective Time. As promptly as practicable after the satisfaction or waiver of the conditions set forth in Article VI, the parties hereto shall cause the Merger to be consummated by filing a certificate of merger as contemplated by the Delaware Law (the "Certificate of Merger"), together with any required related certificates, with the Secretary of State of the State of Delaware, in such form as required by, and executed in accordance with the relevant provisions of, the Delaware Law (the time of such filing being the "Effective Time"). SECTION 1.3 Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in this Agreement, the Certificate of Merger and the applicable provisions of the Delaware Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all the property, rights, privileges, powers and franchises of the Company and Acquisition shall vest in the Surviving Corporation, and all debts, liabilities, obligations and duties of the Company and Acquisition shall become the debts, liabilities, obligations and duties of the Surviving Corporation. SECTION 1.4 Certificate of Incorporation, By-Laws. (a) Certificate of Incorporation. Unless otherwise determined by Parent prior to the Effective Time, at the Effective Time the Certificate of Incorporation of the Surviving Corporation shall be amended to become identical to the Certificate of Incorporation of Acquisition, as in effect immediately prior to the Effective Time; provided, however, that such amendment to the Certificate of Incorporation of the Surviving Corporation shall not amend (i) the name of the Surviving Corporation (ii) the terms of the Company Preferred Shares (as defined in Section 1.6(a)(ii)) provided in the Certificate of Designations with respect to the Company Preferred Shares, (iii) the voting rights as specified in Article Fourth of the Certificate of Incorporation of the Company with respect to the Company Preferred Shares and (iv) the provisions regarding indemnification and insurance as described in Section 4.12. (b) By-Laws. The By-Laws of Acquisition, as in effect immediately prior to the Effective Time, shall be the By-Laws of the Surviving Corporation until thereafter amended as provided by the Delaware Law, the Certificate of Incorporation of the Surviving Corporation and such By-Laws. 2 8 SECTION 1.5 Directors and Officers. The directors of Acquisition immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and By-Laws of the Surviving Corporation, and, except as set forth in Section 1.5 of the Company Disclosure Schedule, the officers of the Company immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualified. SECTION 1.6 Effect on Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Acquisition, the Company or the holders of any of the following securities: (a) Conversion of Securities. (i) Each share of common stock, par value $.01 per share of the Company (each a "Company Common Share" and collectively, the "Company Common Shares") issued and outstanding immediately prior to the Effective Time (excluding any Company Common Shares to be canceled pursuant to Section 1.6(c)) shall be converted into the right to receive $6.50 in value (the "Merger Consideration"). The Merger Consideration shall be payable in cash, subject to Parent's option in Section 1.6(b) below. (ii) Each share of 8 1/2% Convertible Exchangeable Preferred Stock, par value $.01 per share, of the Company (each a "Company Preferred Share" and collectively, the "Company Preferred Shares") issued and outstanding immediately prior to the Effective Time shall remain issued and outstanding and have, as to the Surviving Corporation, the identical powers, preferences, rights, qualifications, limitations and restrictions as such Company Preferred Shares presently have. (b) Option to Substitute Parent Common Shares. Parent, in its sole discretion, may elect to satisfy up to $4.00 of the Merger Consideration with shares of common stock, no par value, of Parent ("Parent Common Shares"), having a value determined by reference to the Parent Share Price (as defined below) equal to the portion of the Merger Consideration to be satisfied with such shares (the "Stock Election Value"). Parent must make such election prior to the opening for trading on the fifth trading day prior to the date of the Special Meeting (as defined in Section 1.12) by issuing a press release to the Dow Jones News Service indicating such election. Parent will substantially simultaneously notify the Company of such election. "Parent Share Price" shall mean the weighted average price (rounded to the nearest one hundred thousandth) of Parent Common Shares on the Toronto Stock Exchange (the "TSE") and the New York Stock Exchange (the "NYSE") for the five trading days immediately preceding the fifth trading day prior to the date of the Special Meeting. For purposes of determining the Parent Share Price, transactions occurring on the TSE shall be translated into U.S. dollars based on the noon 3 9 buying rate in New York City for cable transfers payable in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York on the date of such transaction. The number of Parent Common Shares (rounded to the nearest one hundred thousandth) having a value equal to the Stock Election Value is referred to as the "Stock Merger Consideration," and the amount of cash equal to $6.50 less the Stock Election Value is referred to as the "Cash Merger Consideration." (c) Cancellation. Each Company Common Share held in the treasury of the Company and each Company Common Share owned by Parent, Acquisition or any direct or indirect wholly owned subsidiary of the Company or Parent immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, cease to be outstanding, be canceled and retired without payment of any consideration therefor and cease to exist. (d) Capital Stock of Acquisition. Each share of common stock, $.01 par value, of Acquisition issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock, $.01 par value, of the Surviving Corporation. SECTION 1.7 Exchange of Certificates. (a) Paying Agent and Procedures. Prior to the Effective Time, a bank or trust company shall be designated by Parent (the "Paying Agent") to act as agent in connection with the Merger to receive the Merger Consideration to which holders of Company Common Shares shall become entitled pursuant to Section 1.6. Promptly after the Effective Time, the Surviving Corporation shall cause to be mailed to each record holder, as of the Effective Time, of a certificate or certificates (the "Certificates") that, prior to the Effective Time, represented Company Common Shares, a customary form of letter of transmittal and instructions for use in effecting the surrender of the Certificates for payment of the Merger Consideration in exchange therefor. Upon the surrender of each such Certificate which represented Company Common Shares, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, the Paying Agent shall deliver to the holder of such Certificate in exchange therefor (i) the Cash Merger Consideration multiplied by the number of Company Common Shares formerly represented by such Certificate and (ii) if applicable, and subject to Section 1.7(f), the Stock Merger Consideration multiplied by the number of Company Common Shares formerly represented by such Certificate, and such Certificate shall forthwith be canceled. Until so surrendered and exchanged, each such Certificate (other than Certificates representing Company Common Shares canceled pursuant to Section 1.6(c)) shall represent solely the right to receive the Merger Consideration. No interest shall be paid or accrue on the Merger Consideration. If the Merger Consideration (or any portion thereof) is to be delivered to any person other than the person in whose name the Certificate surrendered in exchange therefor is registered, it shall be a condition 4 10 to such exchange that the Certificate so surrendered shall be properly endorsed or otherwise be in proper form for transfer and that the person requesting such exchange shall pay to the Paying Agent any transfer or other taxes required by reason of the payment of the Merger Consideration to a person other than the registered holder of the Certificate surrendered, or shall establish to the satisfaction of the Paying Agent that such tax has been paid or is not applicable. (b) Consideration. At the Effective Time, Parent or Acquisition shall deposit, or cause to be deposited, in trust with the Paying Agent for the benefit of the holders of Company Common Shares the Merger Consideration to which holders of Company Common Shares shall be entitled at the Effective Time pursuant to Section 1.6 hereof. (c) Investment of Merger Consideration. The Cash Merger Consideration shall be invested by the Paying Agent, as directed by Parent, provided such investments shall be limited to direct obligations of the United States of America, obligations for which the full faith and credit of the United States of America is pledged to provide for the payment of principal and interest, commercial paper rated of the highest quality by Moody's Investors Service, Inc. or Standard & Poor's Corporation, or certificates of deposit issued by a commercial bank having at least $25,000,000,000 in assets. (d) Termination of Duties. Promptly following the date which is six months after the Effective Time, Parent will cause the Paying Agent to deliver to the Surviving Corporation all cash and documents in its possession relating to the transactions described in this Agreement, and the Paying Agent's duties shall terminate. Thereafter, each holder of a Certificate may surrender such Certificate to Parent and (subject to applicable abandoned property, escheat and similar laws) receive in exchange therefor the Merger Consideration, without any interest thereon. (e) No Liability. Neither Parent, Acquisition nor the Company shall be liable to any holder of Company Common Shares for any Merger Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. (f) No Certificates For Small Lots or Fractional Shares. (i) No certificates or scrip representing (A) less than 100 Parent Common Shares or (B) fractional Parent Common Shares shall be issued upon the surrender for exchange of Certificates that immediately prior to the Effective Time represented Company Common Shares which have been converted pursuant to Section 1.6, and such interests will not entitle the surrendering Certificate holder to vote or to any rights of a shareholder of Parent. (ii) As promptly as practicable following the Effective Time, the Paying Agent shall determine the aggregate number of Parent Common Shares with 5 11 respect to which certificates or scrip will not be issued pursuant to Section 1.7(f)(i)(A) or (B) (after taking into account all Company Common Shares held at the Effective Time by such holder) (collectively, the "Excess Shares") and, on behalf of former holders of Certificates representing Company Common Shares shall sell the Excess Shares at then- prevailing prices on the NYSE, all in the manner provided in Section 1.7(f)(iii). (iii) The sale of the Excess Shares by the Paying Agent shall be executed on the NYSE through one or more member firms of the NYSE and shall be executed in round lots to the extent practicable. The Paying Agent shall use reasonable efforts to complete the sale of the Excess Shares as promptly following the Effective Time as, in the Paying Agent's sole judgment, is practicable consistent with obtaining the best execution of such sales in light of prevailing market conditions. Until the net proceeds of such sale or sales have been distributed to the holders of Certificates formerly representing Company Common Shares, the Paying Agent shall hold such proceeds in trust for such holders (the "Excess Shares Trust"). Parent shall pay all commissions, transfer taxes and other out- of-pocket transaction costs, including the expenses and compensation of the Paying Agent, incurred in connection with such sale of the Excess Shares. (iv) The Paying Agent shall determine the portion of the Excess Shares Trust to which each former holder of Company Common Shares is entitled, if any, by multiplying the amount of the aggregate net proceeds comprising the Excess Shares Trust by the quotient (rounded to the nearest one hundred thousandth) of the number of Parent Common Shares such former holder of Company Common Shares would have been entitled to receive pursuant to Section 1.6 hereof but for the provisions of Section 1.7(f) hereof divided by the aggregate number of Excess Shares. As soon as practicable after such determination, the Paying Agent shall make available such amounts to such holders of Certificates formerly representing Company Common Shares subject to and in accordance with the terms of this Agreement. (g) Withholding Rights. Parent or the Paying Agent shall be entitled to deduct and withhold from the Merger Consideration otherwise payable pursuant to this Agreement to any holder of Company Common Shares such amounts as Parent or the Paying Agent is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the "Code"), or any provision of state, local or foreign tax law. Any such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Company Common Shares in respect of which such deduction and withholding was made by Parent or the Paying Agent. SECTION 1.8 Stock Transfer Books. At the Effective Time, the stock transfer books of the Company shall be closed, and there shall be no further registration of 6 12 transfers of the Company Common Shares thereafter on the records of the Company or the Surviving Corporation. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article I. SECTION 1.9 No Further Ownership Rights in Company Common Shares. The Merger Consideration delivered upon the surrender for exchange of Certificates in accordance with the terms hereof shall be deemed to have been issued and/or paid, as the case may be, in full satisfaction of all rights pertaining to the Company Common Shares formerly represented by such Certificates. SECTION 1.10 Lost, Stolen or Destroyed Certificates. In the event any Certificates shall have been lost, stolen or destroyed, the Paying Agent shall deliver in exchange for such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact by the holder thereof, the Merger Consideration as may be required pursuant to Section 1.6; provided, however, that Parent may, in its discretion and as a condition precedent to the issuance of the Merger Consideration, require the owner of such lost, stolen or destroyed Certificates to deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against Parent or the Paying Agent with respect to the Certificates alleged to have been lost, stolen or destroyed. SECTION 1.11 Taking of Necessary Action; Further Action. Subject to Sections 1.12 and 5.2 and Article VII hereof, each of Parent, Acquisition and the Company will take all such reasonable and lawful action as may be necessary or appropriate in order to effectuate the Merger in accordance with this Agreement as promptly as possible. If, at any time after the Effective Time, any such further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Company and Acquisition, the officers and directors of the Company and Acquisition immediately prior to the Effective Time are fully authorized in the name of their respective corporations or otherwise to take, and will take, all such lawful and necessary action. SECTION 1.12 Stockholders' Meeting. The Company, acting through the Board, shall in accordance with applicable law and subject to the fiduciary duties of the Board (as determined by the Board after consultation with counsel), as soon as practicable following the date of this Agreement: (a) duly call, give notice of, convene and hold an annual or special meeting of its stockholders on a date to be determined by the Board and reasonably satisfactory to Parent, but in no event later than March 31, 1999 (the "Special Meeting") for the purpose of considering and taking action upon this Agreement; 7 13 (b) include in the Proxy Statement/Prospectus (as defined in Section 4.1) the recommendation of the Board that stockholders of the Company vote in favor of the adoption of this Agreement; and (c) use its reasonable best efforts (i) to obtain and furnish the information required to be included by it in the Proxy Statement/Prospectus and, after consultation with Parent, respond promptly to any comments made by the Securities and Exchange Commission (the "SEC") with respect to the Proxy Statement/Prospectus and any preliminary version thereof and cause the Proxy Statement/Prospectus to be mailed to its stockholders at the earliest practicable time and (ii) to obtain the necessary approvals by its stockholders of this Agreement. At the Special Meeting, Parent and Acquisition will vote all Company Common Shares owned by them in favor of the adoption of this Agreement. SECTION 1.13 Material Adverse Effect. When used in connection with the Company or any of its subsidiaries, or Parent or any of its subsidiaries, as the case may be, the term "Material Adverse Effect" means any change, effect or circumstance that is materially adverse to the business, financial condition or results of operations of the Company and its subsidiaries, or Parent and its subsidiaries, as the case may be, in each case taken as a whole, other than any such changes, effects or circumstances: (i) set forth or contemplated by the written disclosure schedule delivered on or prior to the date hereof by the Company to Parent (the "Company Disclosure Schedule") or the written disclosure schedule delivered on or prior to the date hereof, by Parent to the Company (the "Parent Disclosure Schedule"), as the case may be; (ii) set forth or described in the Company Filed SEC Reports (as defined in Section 2.8) or the Parent Filed SEC Reports (as defined in Section 3.8), as the case may be; or (iii) affecting the scheduled intercity bus transportation industry or the North American economy generally. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as disclosed in the Company Filed SEC Reports or as set forth in the Company Disclosure Schedule, the Company hereby represents and warrants to Parent and Acquisition that: SECTION 2.1 Organization and Qualification; Subsidiaries. The Company and each of its significant subsidiaries (as that term is defined in Rule 1-02 of Regulation S-X) is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has the corporate or 8 14 similar power and authority necessary to own, lease and operate the properties it purports to own, operate or lease and to carry on its business as it is now being conducted, except where the failure to be so organized, existing and in good standing or to have such power and authority would not have a Material Adverse Effect. The Company and each of its significant subsidiaries is duly qualified or licensed to do business, and is in good standing (with respect to jurisdictions that recognize such concept), in each jurisdiction where the character of its properties owned, leased or operated by it or the nature of its activities makes such qualification or licensing necessary, except for such failures to be so duly qualified or licensed and in good standing that would not in the aggregate have a Material Adverse Effect. A true and complete list of all of the Company's subsidiaries, together with the jurisdiction of organization of each subsidiary and the percentage of each significant subsidiary's outstanding capital stock owned by the Company or another subsidiary, is set forth in Section 2.1 of the Company Disclosure Schedule. Except as set forth in Section 2.1 of the Company Disclosure Schedule, the Company does not directly or indirectly own any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for, any equity or similar interest in, any corporation, partnership, joint venture or other business association or legal entity, with respect to which interest the Company or any of its subsidiaries has invested or is required to invest $1,000,000 or more, excluding securities held by trusteed benefit plans and trusts. SECTION 2.2 Certificate of Incorporation and By-Laws. The Company has heretofore furnished to Parent a complete and correct copy of its Certificate of Incorporation and By-Laws, and has furnished or made available to Parent the Certificate of Incorporation and By-Laws (or equivalent organizational documents) of each of its subsidiaries (the "Subsidiary Documents"), in each case as amended to the date of this Agreement. Such Certificate of Incorporation, By-Laws and Subsidiary Documents are in full force and effect. Neither the Company nor any of its subsidiaries is in violation of any of the provisions of such documents. SECTION 2.3 Capitalization. The authorized capital stock of the Company consists of (i) 100,000,000 Company Common Shares and (ii) 10,000,000 shares of preferred stock, $.01 par value per share, including (A) 2,760,000 Company Preferred Shares, and (B) 2,000,000 shares of Series A Junior Preferred Stock, $.01 par value. As of September 30, 1998: (i) 60,137,650 Company Common Shares were issued and outstanding, all of which are validly issued, fully paid and nonassessable, and 109,192 Company Common Shares were held in treasury, (ii) no Company Common Shares were held by subsidiaries of the Company, (iii) 6,769,021 Company Common Shares were reserved for future issuance pursuant to outstanding stock options granted under the Company Stock Option Plans (as defined in Section 4.9), 12,307,692 Company Common Shares were reserved for issuance upon conversion of the Company Preferred Shares and 792,242 Company Common Shares were reserved for issuance upon conversion of the Company's 8 1/2% Convertible Subordinated Debentures due March 31, 2007, (iv) 2,400,000 Company Preferred Shares were issued and outstanding, and (v) no shares 9 15 of the Company's Series A Junior Preferred Stock were issued and outstanding. No material change in such capitalization has occurred between September 30, 1998 and the date hereof. Except as set forth in this Section 2.3 or Section 2.11 or in the related sections of the Company Disclosure Schedule, there are no options, warrants or other similar rights, agreements, arrangements or commitments of any character relating to the issued or unissued capital stock of the Company or any of its subsidiaries or obligating the Company or any of its subsidiaries to issue or sell any shares of capital stock of, or other equity interests in, the Company or any of its subsidiaries. All of the Company Common Shares subject to issuance as aforesaid, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, shall be duly authorized, validly issued, fully paid and nonassessable. Except as disclosed in Section 2.3 of the Company Disclosure Schedule, there are no obligations, contingent or otherwise, of the Company or any of its subsidiaries to repurchase, redeem or otherwise acquire any Company Common Shares or Company Preferred Shares or the capital stock of any subsidiary or to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any such subsidiary or any other entity other than guarantees of leases and bank obligations of subsidiaries entered into in the ordinary course of business. Except as set forth in Sections 2.1 and 2.3 of the Company Disclosure Schedule, all of the outstanding shares of capital stock of each of the Company's subsidiaries is duly authorized, validly issued, fully paid and nonassessable, and all such shares are owned by the Company or another subsidiary of the Company free and clear of all security interests, liens, pledges, agreements, limitations in the Company's voting rights, charges or other encumbrances of any nature whatsoever. SECTION 2.4 Authority Relative to this Agreement. The Company has all necessary corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action, and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions so contemplated (other than the adoption of this Agreement by the holders of at least a majority of the outstanding Company Common Shares and the outstanding Company Preferred Shares (voting together as one class) entitled to vote in accordance with the Delaware Law and the Company's Certificate of Incorporation and By- Laws). As of the date of this Agreement, the Board of Directors of the Company has determined that the Merger and the transactions contemplated thereby, upon the terms and subject to the conditions of this Agreement, are fair to and in the best interests of the Company and its stockholders. This Agreement has been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery by Parent and Acquisition, and adoption of the Agreement by the requisite vote of the stockholders of the Company, constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms. 10 16 SECTION 2.5 No Conflict; Required Filings and Consents. (a) Section 2.5(a) of the Company Disclosure Schedule includes a list of all agreements to which the Company or any of its subsidiaries is a party or by which any of them is bound which, as of the date of this Agreement: (i) are required to be filed as "material contracts" with the SEC pursuant to the requirements of the Exchange Act; (ii) under which the consequences of a default, nonrenewal or termination would have a Material Adverse Effect on the Company; or (iii) pursuant to which payments might be required or acceleration of benefits may be required upon a "change of control" of the Company (collectively, the "Material Contracts"). (b) Except as set forth in Section 2.5(b) of the Company Disclosure Schedule, the execution and delivery of this Agreement by the Company does not, and the performance of this Agreement by the Company will not, (i) conflict with or violate the Certificate of Incorporation or By-Laws of the Company, (ii) conflict with or violate any law, rule, regulation, order, judgment or decree in effect as of the date of this Agreement applicable to the Company or any of its subsidiaries or by which its or any of their respective properties is bound or affected, or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair the Company's or any of its subsidiaries' rights or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, any Material Contract, or result in the creation of a lien or encumbrance on any of the properties or assets of the Company or any of its subsidiaries pursuant to any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or its or any of their respective properties is bound or affected, except in any such case for any such conflicts, violations, breaches, defaults or other occurrences that would not have a Material Adverse Effect. (c) Except as set forth in Section 2.5(c) of the Company Disclosure Schedule, the execution and delivery of this Agreement by the Company does not, and the performance of this Agreement by the Company will not, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, domestic or foreign, except (i) for applicable requirements, if any, of the Securities Act, the Exchange Act, state securities laws ("Blue Sky Laws"), the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act"), and the filing and recordation of appropriate merger or other documents as required by the Delaware Law, (ii) the applicable requirements of the United States Department of Transportation Surface Transportation Board ("STB"), and (iii) where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not prevent or delay consummation of the Merger, or otherwise prevent or delay the 11 17 Company from performing its obligations under this Agreement, and would not otherwise in the aggregate have a Material Adverse Effect. SECTION 2.6 Compliance. (a) Except as disclosed in Section 2.6(a) of the Company Disclosure Schedule, neither the Company nor any of its subsidiaries is in conflict with, or in default or violation of, (i) any law (including, without limitation, environmental laws), rule, regulation, order, judgment or decree applicable to the Company or any of its subsidiaries or by which its or any of their respective properties is bound or affected or (ii) any Material Contract to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or its or any of their respective properties is bound or affected, except for any such conflicts, defaults or violations which would not in the aggregate have a Material Adverse Effect. (b) Section 2.6(b) of the Company Disclosure Schedule sets forth a list of all motor carrier operating authorities from governmental authorities that are material to the operation of the business of the Company and its subsidiaries taken as a whole as it is being conducted as of the date of this Agreement (collectively, the "Company Permits"). The Company and its subsidiaries are in compliance with the terms of the Company Permits, except where the failure to be in such compliance would not, individually or in the aggregate, have a Material Adverse Effect. SECTION 2.7 SEC Filings; Financial Statements. (a) Except as set forth in Section 2.7 of the Company Disclosure Schedule, the Company has filed all forms, reports and documents required to be filed with the SEC and has made available to Parent (i) its Annual Reports on Form 10-K for the fiscal years ended December 31, 1996 and 1997, (ii) its Quarterly Reports on Form 10-Q for the periods ended March 31, 1998 and June 30, 1998, (iii) all proxy statements relating to the Company's meetings of stockholders (whether annual or special) held since January 1, 1998, (iv) all other reports or registration statements filed by the Company with the SEC since January 1, 1998, and (v) all amendments and supplements to all such reports and registration statements filed by the Company with the SEC since January 1, 1998 (collectively, the "Company SEC Reports"). Except as disclosed in Section 2.7 of the Company Disclosure Schedule, the Company SEC Reports (i) were prepared in all material respects in accordance with the requirements of the Securities Act or the Exchange Act, as the case may be, as in effect on the date such Company SEC Reports were filed, and (ii) did not at the time they were filed (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Except as set forth in Section 2.7 of the Company Disclosure 12 18 Schedule, none of the Company's subsidiaries is required to file any forms, reports or other documents with the SEC. (b) Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in the Company SEC Reports was prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto), and each fairly presents in all material respects the consolidated financial position of the Company and its subsidiaries as at the respective dates thereof and the consolidated results of its operations and cash flows for the periods indicated, except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments which were not or are not expected to be material in amount. SECTION 2.8 Absence of Certain Changes or Events. Except as set forth in Section 2.8 of the Company Disclosure Schedule or the Company SEC Reports filed and publicly available prior to the date of this Agreement (the "Company Filed SEC Reports"), since January 1, 1998, the Company has conducted its business in the ordinary course and there has not occurred: (i) any Material Adverse Effect; (ii) any amendments or changes in the Certificate of Incorporation or By-laws of the Company; (iii) any damage to, destruction or loss of any asset of the Company (whether or not covered by insurance) that would have a Material Adverse Effect; (iv) any material change by the Company in its accounting methods, principles or practices; (v) any material revaluation by the Company of any of its assets, including, without limitation, writing down the value of inventory or writing off notes or accounts receivable other than in the ordinary course of business; (vi) any other action or event that would have required the consent of Parent pursuant to Section 5.1 had such action or event occurred after the date of this Agreement; or (vii) any sale of a material amount of property of the Company or any of its subsidiaries, except in the ordinary course of business. SECTION 2.9 No Undisclosed Liabilities. Except as is disclosed in Section 2.9 of the Company Disclosure Schedule, neither the Company nor any of its subsidiaries has any liabilities (absolute, accrued, contingent or otherwise, including, without limitation, environmental liabilities arising under environmental laws), except liabilities (i) in the aggregate adequately provided for in the Company's unaudited balance sheet (including any related notes thereto) as of June 30, 1998 (the "1998 Company Balance Sheet"), (ii) incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected on the 1998 Company Balance Sheet, (iii) incurred since June 30, 1998 in the ordinary course of business consistent with past practice, (iv) incurred in connection with this Agreement, (v) disclosed in the Company Filed SEC Reports or (vi) which would not have a Material Adverse Effect. SECTION 2.10 Absence of Litigation. Except as set forth in Section 2.10 of the Company Disclosure Schedule, there are no claims, actions, suits, proceedings or 13 19 investigations pending or, to the knowledge of the Company, overtly threatened against the Company or any of its subsidiaries, or any properties or rights of the Company or any of its subsidiaries, before any court, arbitrator or administrative, governmental or regulatory authority or body, domestic or foreign, that would have a Material Adverse Effect. SECTION 2.11 Employee Benefit Plans, Employment Agreements. (a) Section 2.11 (a) of the Company Disclosure Schedule lists (i) all employee pension plans (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), all material employee welfare plans (as defined in Section 3(1) of ERISA) and all other material bonus, stock option, stock purchase, incentive, deferred compensation, supplemental retirement and severance plans, programs or arrangements, and any material employment, executive compensation, consulting or severance agreements, written or otherwise, for the benefit of, or relating to, any employee of or consultant to the Company or any subsidiary of the Company other than a multiemployer plan as defined in Section 3(37) of ERISA ("Multiemployer Plan") (collectively the "Company Employee Plans") and (ii) each Multiemployer Plan to which the Company or any subsidiary of the Company has an obligation to contribute. There have been made available to Parent copies of (A) each such written Company Employee Plan (other than those referred to in Section 4(b)(4) of ERISA), (B) the most recent annual report on Form 5500 series, with accompanying schedules and attachments, filed with respect to each Company Employee Plan required to make such a filing, and (C) the most recent actuarial valuation for each Company Employee Plan subject to Title IV of ERISA. For purposes of this Section 2.11(a), the term "material," used with respect to any Company Employee Plan, shall mean that the Company or a subsidiary of the Company has incurred or may incur obligations in an annual amount exceeding $1,000,000 with respect to such Company Employee Plan. (b) (i) Except as set forth in Section 2.11(b) of the Company Disclosure Schedule, none of the Company Employee Plans promises or provides retiree medical or other retiree welfare benefits to any person; (ii) to the knowledge of the Company, there has been no "prohibited transaction," as such term is defined in Section 406 of ERISA and Section 4975 of the Code, with respect to any Company Employee Plan, which could result in any material liability of the Company or any of its subsidiaries; (iii) all Company Employee Plans are in compliance in all material respects with the requirements prescribed by any and all statutes (including ERISA and the Code), orders, or governmental rules and regulations currently in effect with respect thereto and the Company and each of its subsidiaries have performed all material obligations required to be performed by them under, are not in any material respect in default under or violation of, and have no knowledge of any default or violation by any other party to, any of the Company Employee Plans; (iv) each Company Employee Plan intended to qualify under Section 401(a) of the Code and each trust established under such a Company Employee Plan intended to be exempt from tax under Section 501(a) of the Code is the subject of a favorable 14 20 determination letter from the Internal Revenue Service ("IRS"), and nothing has occurred which may reasonably be expected to impair such determination; (v) all contributions required to be made to any Company Employee Plan pursuant to Section 412 of the Code, or the terms of the Company Employee Plans or any collective bargaining agreement, have been made on or before their due dates; (vi) with respect to each Company Employee Plan, no "reportable event" within the meaning of Section 4043 of ERISA (excluding any such event for which the 30 day notice requirement has been waived under the regulations to Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of ERISA has occurred; and (vii) neither the Company nor any subsidiary of the Company has incurred, nor reasonably expects to incur, any liability under Title IV of ERISA (other than liability for premium payments to the Pension Benefit Guaranty Corporation ("PBGC") arising in the ordinary course). (c) Section 2.11(c) of the Company Disclosure Schedule sets forth a true and complete list of each current or former employee, officer or director of the Company or any of its subsidiaries who holds any Stock Option (as defined in Section 4.9) as of the date of this Agreement, together with the number of shares of Company Common Stock subject to such Stock Option, the option price of such Stock Option (to the extent determined as of the date hereof), whether such Stock Option is intended to qualify as an incentive stock option within the meaning of Section 422(b) of the Code (an "ISO"), and the expiration date of such Stock Option. (d) Section 2.11(d) of the Company Disclosure Schedule sets forth a true and complete list of (i) all written employment agreements with officers of the Company or any of its subsidiaries; (ii) all agreements with consultants who are individuals obligating the Company or any of its subsidiaries to make annual cash payments in an amount exceeding $200,000; (iii) all severance agreements, programs and policies of the Company or any of its subsidiaries with or relating to its employees, in each case with outstanding commitments exceeding $300,000 to any individual, excluding programs and policies required to be maintained by law; and (iv) all plans, programs, agreements and other arrangements of the Company or any of its subsidiaries with or relating to its employees which contain change in control provisions. SECTION 2.12 Labor Matters. Except as set forth in Section 2.12 of the Company Disclosure Schedule, (i) neither the Company nor any of its subsidiaries is a party to any collective bargaining agreement or other labor union contract applicable to persons employed by the Company or its subsidiaries, nor does the Company or any of its subsidiaries know of any activities or proceedings of any labor union to organize any such employees; and (ii) neither the Company nor any of its subsidiaries has any knowledge of any strikes, slowdowns, work stoppages, lockouts or threats thereof, by or with respect to any employees of the Company or any of its subsidiaries which would in the aggregate have a Material Adverse Effect. 15 21 SECTION 2.13 Restrictions on Business Activities. Except for this Agreement or as set forth in Section 2.13 of the Company Disclosure Schedule, there is no agreement, judgment, injunction, order or decree binding upon and specifically applicable to the Company or any of its subsidiaries which has or could reasonably be expected to have the effect of prohibiting or impairing any material business practice of the Company or any of its subsidiaries, any acquisition of property by the Company or any of its subsidiaries or the conduct of business by the Company or any of its subsidiaries as currently conducted or as proposed to be conducted by the Company, except for any prohibitions or impairments as would not in the aggregate have a Material Adverse Effect. SECTION 2.14 Taxes. (a) For purposes of this Agreement, (i) "Tax" or "Taxes" shall mean taxes, fees, levies, duties, tariffs, imposts, and governmental impositions or charges of any kind in the nature of (or similar to) taxes, payable to any federal, state, local or foreign taxing authority, including (without limitation) income, franchise, profits, gross receipts, ad valorem, net worth, value added, sales, use, service, real or personal property, special assessments, capital stock, license, payroll, withholding, employment, social security, workers' compensation, unemployment compensation, utility, severance, production, excise, stamp, occupation premiums, windfall profits, transfer and gains taxes and interest, penalties, additional taxes and additions to tax imposed with respect thereto and (ii) "Tax Returns" shall mean returns, reports, estimates and information returns and statements with respect to Taxes required to be filed with the IRS or any other taxing authority, domestic or foreign, including, without limitation, consolidated, combined and unitary tax returns. (b) Other than as disclosed in Section 2.14(b) of the Company Disclosure Schedule: (i) The Company and each of its subsidiaries (for such periods as each subsidiary was owned, directly or indirectly, by the Company), have filed all federal income Tax Returns and all other material Tax Returns required to be filed by it (taking into account all applicable extensions), and all such Tax Returns are complete and correct in all material respects, or requests for extensions to file such Tax Returns have been timely filed, granted and have not expired, except to the extent that such failures to file, to be complete or correct or to have extensions granted that remain in effect, individually or in the aggregate, would not have a Material Adverse Effect on the Company. The Company and each of its subsidiaries has paid, or the Company has paid or caused to be paid on its subsidiaries' behalf, all Taxes shown as due on such Tax Returns and all material Taxes for which no Tax Return was required to be filed. The most recent financial statements contained in the Company SEC Reports reflect an adequate reserve in accordance with GAAP for all Taxes payable by the Company and its subsidiaries 16 22 for all taxable periods and portions thereof through the date of such financial statements. (ii) No material Tax Return of the Company or any of its subsidiaries is under audit or examination by any taxing authority or the subject of any pending court proceeding, and no written notice of such an audit or examination has been received by the Company or any of its subsidiaries. Each material deficiency resulting from any audit or examination relating to Taxes by any taxing authority has been paid, except for deficiencies being contested in good faith. No material issue relating to Taxes were raised in writing by the relevant taxing authority during any presently pending audit or examination. None of the federal income Tax Returns of the Company or any of its subsidiaries consolidated in such Tax Returns for any period have been examined by the IRS. (iii) There is no agreement or other document extending, or having the effect of extending, the period of assessment or collection of any material Taxes and no power of attorney with respect to any material Taxes has been executed or filed with any taxing authority. (iv) No material liens for Taxes exist with respect to any assets or properties of the Company or any of its subsidiaries, except for statutory liens for Taxes not yet due. (v) The accruals and reserves for Taxes (including deferred taxes) reflected in the 1998 Company Balance Sheet are in all material respects adequate (and until the Closing Date will continue to be adequate) to cover all Taxes required to be accrued through the date thereof (including interest and penalties, if any, thereon and Taxes being contested) in accordance with generally accepted accounting principles. (vi) The Company and its subsidiaries have complied in all material respects with all applicable laws, rules and regulations relating to the payment and withholding of Taxes and have timely withheld from employee wages and paid over to the proper governmental authorities all amounts required to be so withheld and paid over under all applicable laws. (vii) Neither the Company nor any of its subsidiaries has engaged in any inter-company transactions within the meaning of Treasury Regulation Section 1.1502-13 for which any income or gain will be recognized (as a result of the Merger or otherwise) during any taxable period ending on or before the Closing Date. 17 23 SECTION 2.15 Intellectual Property. Except as set forth in Section 2.15 of the Company Disclosure Schedule, neither the Company nor any of its subsidiaries owns any material patents, trademarks, trade names, service marks, copyrights, and any applications therefor ("Intellectual Property"). Except as set forth in Section 2.15 of the Company Disclosure Schedule, the Company and/or each of its subsidiaries owns, or is licensed or otherwise possesses legally enforceable rights to use all Intellectual Property used in the business of the Company and its subsidiaries as currently conducted, except as would not have a Material Adverse Effect. SECTION 2.16 Rights Agreement. Concurrently with the execution and delivery of this Agreement, the Company has taken all action necessary in order to (i) render the Amended and Restated Rights Agreement dated as of April 18, 1997 between the Company and Mellon Securities Trust Company, as Rights Agent (the "Rights Agreement") inapplicable to the Merger and the other transactions contemplated by this Agreement and (ii) ensure that (a) neither Parent or Acquisition is an Acquiring Person (as defined in the Rights Agreement) pursuant to the Rights Agreement and (b) a Distribution Date (as defined in the Rights Agreement) does not occur solely by reason of the execution of this Agreement, the consummation of the Merger or the consummation of the other transactions contemplated by this Agreement. SECTION 2.17 Opinion of Financial Advisor. The Board has received the opinion of the Company's financial advisor, Bear, Stearns & Co. Inc. ("Bear Stearns"), to the effect that, as of the date of this Agreement, the Merger Consideration to be received by the holders of Company Common Shares and Company Preferred Shares (other than Parent and its affiliates) pursuant to the Merger is fair, from a financial point of view, to such holders. SECTION 2.18 Brokers. No broker, finder or investment banker (other than Bear Stearns) is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. The Company has heretofore furnished to Parent a complete and correct copy of all agreements between the Company and Bear Stearns pursuant to which such firm would be entitled to any payment relating to the transactions contemplated hereunder. SECTION 2.19 Section 203 of the Delaware Law Not Applicable. The Board has taken all actions so that the provisions contained in Section 203 of the Delaware Law applicable to a "business combination" (as defined in Section 203) will not apply to the execution, delivery or performance of this Agreement or the consummation of the Merger or the other transactions contemplated by this Agreement. 18 24 ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION Except as disclosed in the Parent Filed SEC Reports or as set forth in the Parent Disclosure Schedule, Parent and Acquisition hereby, jointly and severally, represent and warrant to the Company that: SECTION 3.1 Organization and Qualification; Subsidiaries. Parent and each of its significant subsidiaries (as that term is defined in Rule 1-02 of Regulation S-X) is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has the corporate or similar power and authority necessary to own, lease and operate the properties it purports to own, operate or lease and to carry on its business as it is now being conducted, except where the failure to be so organized, existing and in good standing or to have such power and authority would not have a Material Adverse Effect. Parent and each of its significant subsidiaries is duly qualified or licensed to do business, and is in good standing (with respect to jurisdictions that recognize such concept), in each jurisdiction where the character of its properties owned, leased or operated by it or the nature of its activities makes such qualification or licensing necessary, except for such failures to be so duly qualified or licensed and in good standing that would not in the aggregate have a Material Adverse Effect. SECTION 3.2 Certificate and Articles of Amalgamation and By-Laws. Parent has heretofore furnished to the Company a complete and correct copy of its Certificate and Articles of Amalgamation and By-Laws, in each case as amended to the date of this Agreement. Such Certificate and Articles of Amalgamation and By-Laws are in full force and effect. Parent is not in violation of any of the provisions of such documents. SECTION 3.3 Capitalization. As of September 30, 1998, the authorized capital stock of Parent consisted of (i) an unlimited number of Parent Common Shares, of which 330,156,836 shares were issued and outstanding; (ii) an unlimited number of Preference Shares, of which 558,070 shares of 5% Cumulative Convertible First Preference Shares Series G (the "Parent Preferred Shares") were issued and outstanding. As of September 30, 1998, 8,722,800 Parent Common Shares were reserved for issuance upon the exercise of stock options, 575,999 Parent Common Shares were reserved for issuance upon the exercise of certain warrants, and no Parent Common Shares were held by Parent in its treasury. No material change in such capitalization has occurred between September 30, 1998 and the date hereof. All outstanding Parent Common Shares and Parent Preferred Shares are validly issued, fully paid, non- assessable and free of preemptive rights. Except as set forth above, there are no options, warrants or other rights, agreements, arrangements or commitments of any character relating to the issued or unissued capital stock of Parent or any of its subsidiaries or obligating Parent or any of its 19 25 subsidiaries to issue or sell any shares of capital stock of, or other equity interests in, Parent or any of its subsidiaries. Except for Parent's market support obligations to purchase up to 20,000 Parent Preferred Shares per year at a price of up to $20 per share, there are no obligations, contingent or otherwise, of Parent to repurchase, redeem or otherwise acquire any of the capital stock of Parent or the capital stock of any subsidiary or to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any such subsidiary other than guarantees of bank obligations of subsidiaries entered into in the ordinary course of business. All of the outstanding shares of capital stock of each of Parent's subsidiaries are duly authorized, validly issued, fully paid and nonassessable, and all such shares are owned by Parent or another subsidiary of Parent free and clear of all security interests, liens, claims, pledges, agreements, limitations on Parent's voting rights, charges or other encumbrances of any nature whatsoever. The Parent Common Shares issuable in connection with the Merger are duly authorized and reserved and, when issued in accordance with the terms of this Agreement, will be validly issued, fully paid, nonassessable and free of preemptive rights. SECTION 3.4 Authority Relative to this Agreement. Each of Parent and Acquisition has all necessary corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Parent and Acquisition and the consummation by Parent and Acquisition of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Parent and Acquisition, and no other corporate proceedings on the part of Parent or Acquisition are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. As of the date of this Agreement, the Board of Directors of Parent has determined that the Merger, upon the terms and subject to the conditions of this Agreement, is advisable and in the best interest of Parent's stockholders. This Agreement has been duly and validly executed and delivered by Parent and Acquisition and adopted by Parent as the sole stockholder of Acquisition and, assuming the due authorization, execution and delivery by the Company and adoption of the Agreement by the requisite vote of the stockholders of the Company, constitutes a valid and binding obligation of Parent and Acquisition enforceable against each of them in accordance with its terms. SECTION 3.5 No Conflict, Required Filings and Consents. (a) Except as set forth in Section 3.5(a) of Parent Disclosure Schedule, the execution and delivery of this Agreement by Parent and Acquisition do not, and the performance of this Agreement by Parent and Acquisition will not, (i) conflict with or violate the Certificate and Articles of Amalgamation, Certificate of Incorporation or By-Laws (or other constituent instruments) of Parent or Acquisition, (ii) conflict with or violate any law, rule, regulation, order, judgment or decree in effect as of the date of this Agreement applicable to Parent or any of its subsidiaries or by which its or any of their respective 20 26 properties is bound or affected, or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair Parent's or any of its subsidiaries' rights or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, any Material Parent Contract (as defined in Section 3.6), or result in the creation of a lien or encumbrance on any of the properties or assets of Parent or any of its subsidiaries pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Parent or any of its subsidiaries is a party or by which Parent or any of its subsidiaries or its or any of their respective properties are bound or affected, except in any such case for any such conflicts, violations, breaches, defaults or other occurrences that would not in the aggregate have a Material Adverse Effect. (b) Except as set forth in Section 3.5(b) of the Parent Disclosure Schedule, the execution and delivery of this Agreement by Parent and Acquisition does not, and the performance of this Agreement by Parent and Acquisition will not, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, domestic or foreign, except (i) for applicable requirements, if any, of the Securities Act, the Exchange Act, the Blue Sky Laws, the HSR Act, and the filing and recordation of appropriate merger or other documents as required by the Delaware Law, (ii) the applicable requirements of the STB, and (iii) where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not prevent or delay consummation of the Merger, or otherwise prevent or delay Parent or Acquisition from performing their respective obligations under this Agreement, and would not otherwise in the aggregate have a Material Adverse Effect. SECTION 3.6 Compliance. Except as disclosed in Section 3.6 of the Parent Disclosure Schedule, neither Parent nor any of its subsidiaries is in conflict with, or in default or violation of, (i) any law (including, without limitation, environmental laws), rule, regulation, order, judgment or decree applicable to Parent or any of its subsidiaries or by which its or any of their respective properties is bound or affected or (ii) any agreement (A) required to be filed as "material contracts" with the SEC pursuant to the requirements of the Exchange Act or (B) under which the consequences of a default, nonrenewal or termination would have a Material Adverse Effect on the Parent (collectively, the "Material Parent Contracts") to which Parent or any of its subsidiaries is a party or by which Parent or any of its subsidiaries or its or any of their respective properties is bound or affected, except for any such conflicts, defaults or violations which would not in the aggregate have a Material Adverse Effect. SECTION 3.7 SEC Filings; Financial Statements. (a) Except as set forth in Section 3.7 of the Parent Disclosure Schedule, Parent has filed all forms, reports and documents required to be filed with the SEC and has made 21 27 available to the Company (i) its Annual Reports on Form 10-K for the fiscal years ended August 31, 1996 and 1997, (ii) its Quarterly Reports on Form 10-Q for the periods ended November 30, 1997, February 28, 1998 and May 31, 1998, (iii) all other reports or registration statements filed by Parent with the SEC since September 1, 1997, and (iv) all amendments and supplements to all such reports and registration statements filed by Parent with the SEC since September 1, 1997 (collectively, the "Parent SEC Reports"). Except as disclosed in Section 3.7 of the Parent Disclosure Schedule, the Parent SEC Reports (i) were prepared in all material respects in accordance with the requirements of the Securities Act or the Exchange Act, as the case may be, as in effect on the date such Parent SEC Reports were filed (including the reconciliation of all financial statements to United States generally accepted accounting principles), and (ii) did not at the time they were filed (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Except as set forth in Section 3.7 of the Parent Disclosure Schedule, none of the Parent's subsidiaries is required to file any forms, reports or other documents with the SEC. (b) Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in the Parent SEC Reports was prepared in accordance with Canadian generally accepted accounting principles applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto), and each fairly presents in all material respects the consolidated financial position of Parent and its subsidiaries as at the respective dates thereof and the consolidated results of its operations and cash flows for the periods indicated, except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments which were not or are not expected to be material in amount. SECTION 3.8 Absence of Certain Changes or Events. Except as set forth in Section 3.8 of Parent Disclosure Schedule or the Parent SEC Reports filed and publicly available prior to the date of this Agreement (the "Parent Filed SEC Reports"), since September 1, 1997, Parent has conducted its business in the ordinary course and there has not occurred: (i) any Material Adverse Effect; (ii) any amendments or changes in the Certificate and Articles of Amalgamation or By-Laws of Parent; (iii) any damage to, destruction or loss of any asset of the Parent (whether or not covered by insurance) that would have a Material Adverse Effect; (iv) any material change by Parent in its accounting methods, principles or practices; (v) any material revaluation by Parent of any of its assets, including, without limitation, writing down the value of the inventory or writing off notes or accounts receivable other than in the ordinary course of business; or (vi) any sale of a material amount of property of Parent or any of its subsidiaries, except in the ordinary course of business. 22 28 SECTION 3.9 No Undisclosed Liabilities. Except as is disclosed in Section 3.9 of the Parent Disclosure Schedule, neither Parent nor any of its subsidiaries has any liabilities (absolute, accrued, contingent or otherwise, including, without limitation, environmental liabilities arising under environmental laws), except liabilities (i) in the aggregate adequately provided for in Parent's unaudited balance sheet (including any related notes thereto) as of May 31, 1998 (the "1998 Parent Balance Sheet"), (ii) incurred in the ordinary course of business and not required under Canadian generally accepted accounting principles to be reflected on the 1998 Parent Balance Sheet, (iii) incurred since May 31, 1998 in the ordinary course of business consistent with past practice, (iv) incurred in connection with this Agreement, (v) disclosed in the Parent Filed SEC Reports or (vi) which would not have a Material Adverse Effect. SECTION 3.10 Absence of Litigation. Except as set forth in Section 3.10 of the Parent Disclosure Schedule, there are no claims, actions, suits, proceedings or investigations pending or, to the knowledge of Parent, overtly threatened against Parent or any of its subsidiaries, or any properties or rights of Parent or any of its subsidiaries, before any court, arbitrator or administrative, governmental or regulatory authority or body, domestic or foreign, that would have a Material Adverse Effect. SECTION 3.11 Labor Matters. Except as set forth in Section 3.11 of the Parent Disclosure Schedule, neither Parent nor any of its subsidiaries has any knowledge of any strikes, slowdowns, work stoppages, lockouts or threats thereof, by or with respect to any employees of Parent or any of its subsidiaries which would in the aggregate have a Material Adverse Effect. SECTION 3.12 Restrictions on Business Activities. Except for this Agreement or as set forth in Section 3.12 of the Parent Disclosure Schedule, there is no agreement, judgment, injunction, order or decree binding upon and specifically applicable to Parent or any of its subsidiaries which has or could reasonably be expected to have the effect of prohibiting or impairing any material business practice of Parent or any of its subsidiaries, any acquisition of property by Parent or any of its subsidiaries or the conduct of business by Parent or any of its subsidiaries as currently conducted or as proposed to be conducted by Parent, except for any prohibitions or impairments as would not in the aggregate have a Material Adverse Effect. SECTION 3.13 No Prior Activities; Financing. (a) Acquisition was formed solely for the purpose of engaging in the transactions contemplated by this Agreement. As of the date hereof and the Effective Time, except for obligations or liabilities incurred in connection with its incorporation or organization and the transactions contemplated by this Agreement and except for this Agreement and any other agreements or arrangements contemplated by this Agreement, Acquisition has not and will not have incurred, directly or indirectly, through any subsidiary or affiliate, any obligations 23 29 or liabilities or engaged in any business activities of any type or kind whatsoever or entered into any agreements or arrangements with any person. (b) Acquisition has (and Parent will cause Acquisition to have) available to it funds necessary to satisfy its obligations hereunder including, without limitation, the obligation to pay the Cash Merger Consideration pursuant to the Merger and to pay all related fees and expenses in connection with the Merger. SECTION 3.14 Taxes. Other than as disclosed in Section 3.14 of the Parent Disclosure Schedule: (a) Parent and each of its subsidiaries (for such periods as each subsidiary was owned, directly or indirectly, by Parent), have filed all federal income Tax Returns and all other material Tax Returns required to be filed by it, (taking into account all applicable extensions) and all such Tax Returns are complete and correct in all material respects, or requests for extensions to file such Tax Returns have been timely filed, granted and have not expired, except to the extent that such failures to file, to be complete or correct or to have extensions granted that remain in effect, individually or in the aggregate, would not have a Material Adverse Effect on Parent. Parent and each of its subsidiaries has paid, or the Parent has paid or caused to be paid on its subsidiaries' behalf, all Taxes shown as due on such Tax Returns and all material Taxes for which no Tax Return was required to be filed. The most recent financial statements contained in the Parent Filed SEC Reports reflect an adequate reserve in accordance with Canadian generally accepted accounting principles for all Taxes payable by Parent and its subsidiaries for all taxable periods and portions thereof through the date of such financial statements. (b) No material Tax Return of Parent or any of its subsidiaries is under audit or examination by any taxing authority or the subject of any pending court proceeding, and no written notice of such an audit or examination has been received by Parent or any of its subsidiaries. Each material deficiency resulting from any audit or examination relating to Taxes by any taxing authority has been paid, except for deficiencies being contested in good faith. No material issue relating to Taxes were raised in writing by the relevant taxing authority during any presently pending audit or examination. None of the federal income Tax Returns of Parent or any of its subsidiaries consolidated in such Tax Returns for any period have been examined by the IRS. (c) There is no agreement or other document extending, or having the effect of extending, the period of assessment or collection of any Taxes and no power of attorney with respect to any Taxes has been executed or filed with any taxing authority. (d) No material liens for Taxes exist with respect to any assets or properties of Parent or any of its subsidiaries, except for statutory liens for Taxes not yet due. 24 30 (e) The accruals and reserves for Taxes (including deferred taxes) reflected in the 1998 Parent Balance Sheet are in all material respects adequate (and until the Closing Date will continue to be adequate) to cover all Taxes required to be accrued through the date thereof (including interest and penalties, if any, thereon and Taxes being contested) in accordance with Canadian generally accepted accounting principles. (f) Parent and its subsidiaries have complied in all material respects with all applicable laws, rules and regulations relating to the payment and withholding of Taxes and have timely withheld from employee wages and paid over to the proper governmental authorities all amounts required to be so withheld and paid over under all applicable laws. (g) Neither Parent nor any of its subsidiaries has engaged in any inter- company transactions within the meaning of Treasury Regulation Section 1.1502-13 for which any income or gain will be recognized (as a result of the Merger or otherwise) during any taxable period ending on or before the Closing Date. SECTION 3.15 Intellectual Property. Except as set forth in Section 3.15 of the Parent Disclosure Schedule, neither Parent nor any of its Subsidiaries owns any material Intellectual Property. Except as set forth in Section 3.15 of the Parent Disclosure Schedule, Parent and/or each of its subsidiaries owns, or is licensed or otherwise possesses legally enforceable rights to use all Intellectual Property used in the business of Parent and its subsidiaries as currently conducted, except as would not have a Material Adverse Effect. SECTION 3.16 Brokers. No broker, finder or investment banker (other than Merrill Lynch, Pierce, Fenner & Smith Incorporated) is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent. ARTICLE IV ADDITIONAL AGREEMENTS SECTION 4.1 Preparation of Form S-4; Proxy Statement/Prospectus. As soon as practicable following the date of this Agreement, the Company and Parent shall jointly prepare and the Company shall file with the SEC a preliminary proxy statement relating to the Special Meeting, and Parent shall prepare and file with the SEC a registration statement on Form S-4 (the "Form S-4"), in which such preliminary proxy statement will be included as a preliminary prospectus (such proxy statement, together with the prospectus relating to Parent Common Shares, in each case as amended or supplemented from time to time, is referred to herein as the "Proxy Statement/Prospectus"). Parent shall use its reasonable best efforts to have the Form S-4 declared effective under the Securities Act as promptly as practicable after such filing. The Company will use its reasonable best 25 31 efforts to cause the Proxy Statement/Prospectus to be mailed to the Company's stockholders as promptly as practicable after the Form S-4 is declared effective under the Securities Act. Parent shall also take any action (other than qualifying to do business in any jurisdiction in which it is not now so qualified) required to be taken under any applicable state securities laws in connection with the issuance of Parent Common Shares in the Merger, if applicable, and the Company shall furnish all information concerning the Company and the holders of the Company Common Shares and Company Preferred Shares as may be reasonably requested in connection with any such action. SECTION 4.2 Company Information. The Company agrees that none of the information supplied or to be supplied by the Company specifically for inclusion or incorporation by reference in (i) the Form S-4 will, at the time the Form S-4 is filed with the SEC, at any time it is amended or supplemented or at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (ii) the Proxy Statement/Prospectus will, at the date it is first mailed to the Company's stockholders or at the time of the Special Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. The Proxy Statement/Prospectus will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder, except with respect to statements made or incorporated by reference therein based on information supplied by Parent specifically for inclusion or incorporation by reference in the Proxy Statement/Prospectus. SECTION 4.3 Parent Information. Parent agrees that none of the information supplied or to be supplied by Parent specifically for inclusion or incorporation by reference in (i) the Form S-4 will, at the time the Form S-4 is filed with the SEC, at any time it is amended or supplemented or at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and (ii) the Proxy Statement/Prospectus will, at the date the Proxy Statement/Prospectus is first mailed to the Company's stockholders or at the time of the Special Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. The Form S-4 will comply as to form in all material respects with the requirements of the Securities Act and the rules and regulations promulgated thereunder, and the Proxy Statement/Prospectus will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated thereunder, except with respect to statements made or incorporated by reference in either the Form S-4 or the Proxy Statement/Prospectus based on information supplied by the Company specifically for inclusion or incorporation by reference therein. 26 32 SECTION 4.4 Meeting of the Company's Stockholders. The Company will take all action necessary in accordance with applicable law and its Certificate of Incorporation and By-laws to convene the Special Meeting to consider and vote upon the adoption of this Agreement. Subject to Section 1.12, the Company will, through the Board, recommend to its stockholders adoption of this Agreement. Without limiting the generality of the foregoing, the Company agrees that, subject to its right to terminate this Agreement pursuant to Section 7.1, its obligations pursuant to the first sentence of Section 4.4 shall not be affected by (i) the commencement, public proposal, public disclosure or communication to the Company of any Acquisition Proposal (as defined in Section 5.2(a)) or (ii) the withdrawal or modification by the Board of its approval or recommendation of this Agreement or the Merger. Subject to Section 1.12 hereof, the Company will use its reasonable best efforts to obtain the favorable vote of its stockholders as soon as practicable after the date hereof. SECTION 4.5 Reasonable Best Efforts. Upon the terms and subject to the conditions and other agreements set forth in this Agreement, each of the parties agrees to use its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, appropriate or advisable to consummate and make effective, in the most expeditious manner practicable, the Merger and the other transactions contemplated by this Agreement. Notwithstanding any other provision hereof, the Company's obligations under this Section 4.5 and any other provision hereof will in all events be subject to its right to terminate this Agreement in accordance with Section 7.1, whereupon the Company will have no further obligations hereunder or otherwise, including, without limitation, under Sections 1.11, 4.1, 4.4, 4.10, 4.11, 4.14, 4.15 and this Section 4.5. SECTION 4.6 Letter of the Company's Accountants. The Company shall use its reasonable best efforts to cause to be delivered to Parent a letter of Arthur Andersen LLP, the Company's independent public accountants, dated a date within two business days before the date on which the Form S-4 shall become effective and a letter of Arthur Andersen LLP dated a date within two business days before the date of the Special Meeting, addressed to Parent, in form and substance reasonably satisfactory to Parent and customary in scope and substance for letters delivered by independent public accountants in connection with registration statements similar to the Form S-4. SECTION 4.7 Letter of Parent's Accountants. Parent shall use its reasonable best efforts to cause to be delivered to the Company a letter of PricewaterhouseCoopers LLP, Parent's independent public accountants, dated a date within two business days before the date on which the Form S-4 shall become effective and a letter of PricewaterhouseCoopers LLP dated a date within two business days before the date of the Special Meeting, addressed to the Company, in form and substance reasonably satisfactory to the Company and customary in scope and substance for letters delivered 27 33 by independent public accountants in connection with registration statements similar to the Form S-4. SECTION 4.8 Stock Exchange Listings. Parent shall use its best efforts to cause the Parent Common Shares to be issued in the Merger to be approved for listing on the NYSE, subject to official notice of issuance, prior to the Closing Date. SECTION 4.9 Stock Options. On or prior to the Effective Time, the Company will use its reasonable best efforts to cause holders of options to purchase Company Common Shares (a "Stock Option") outstanding under the Company's 1995 Long Term Stock Incentive Plan, the Company's 1998 Non-Officer Long Term Stock Incentive Plan, the Company's 1991 Management Stock Option Plan, the Company's 1998 Directors' Stock Incentive Plan, the Company's 1993 Management Incentive Stock Option Plan, the Company's 1993 Non-Employee Director Stock Option Plan, the Company's 1995 Director Stock Incentive Plan, the Charles A. Lynch Stock Option Plan, the Robert B. Gill Stock Option Plan and the Thomas F. Meagher Stock Option Plan (the "Company Stock Option Plans") or pursuant to any other stock option plan or agreement entered into by the Company with any employee of or consultant to the Company or any subsidiary thereof listed on Section 2.11(c) of the Company Disclosure Schedule, whether or not then exercisable, to enter into an agreement to cancel such Stock Options in exchange for an amount in cash equal to the product of (i) the number of Company Common Shares previously subject to such Stock Option multiplied by (ii) the excess, if any, of $6.50 over the exercise price per share of Company Common Shares previously subject to such Stock Option less applicable withholding taxes. Notwithstanding anything contained in this Agreement to the contrary, (i) the options to purchase Company Common Shares granted under the Company's 1998 Stock Option Plan for ATU Represented Drivers and Mechanics (the "ATU Option Plan") will be treated in the Merger in the manner provided in the ATU Option Plan and (ii) the Company shall not be obligated to use its reasonable best efforts to seek to cause a holder of a Stock Option having an exercise price of more than $6.50 to enter into an agreement as contemplated by this Section 4.9. SECTION 4.10 Access to Information; Confidentiality. (a) So long as this Agreement remains in effect, upon reasonable notice and subject to restrictions contained in any applicable confidentiality agreements to which such party is subject, the Company shall (and shall cause each of its subsidiaries to) afford to the officers, employees, accountants, counsel and other representatives of Parent or Acquisition reasonable access, during normal business hours, to all its properties, books, contracts, commitments and records and, the Company shall (and shall cause each of its subsidiaries to) furnish as promptly as practicable to Parent or Acquisition all information concerning its business, properties and personnel as such other party may reasonably request, and each shall make available to the other the appropriate individuals (including attorneys, accountants and other professionals) for discussion of the other's business, 28 34 properties and personnel as either Parent or the Company may reasonably request. Parent and Acquisition shall keep such information confidential in accordance with the terms of the confidentiality letter dated June 30, 1998 (the "Confidentiality Letter"), between Parent and the Company. (b) So long as this Agreement remains in effect, upon reasonable notice and subject to restrictions contained in any applicable confidentiality agreements to which such party is subject, Parent shall (and shall cause each of its subsidiaries to) afford to the officers, employees, accountants, counsel and other representatives of the Company reasonable access, during normal business hours, to all its properties, books, contracts, commitments and records and, Parent shall (and shall cause each of its subsidiaries to) furnish as promptly as practicable to the Company all information concerning its business, properties and personnel as such other party may reasonably request, and each shall make available to the other the appropriate individuals (including attorneys, accountants and other professionals) for discussion of the other's business, properties and personnel as either Parent or the Company may reasonably request. The Company shall keep such information confidential in accordance with the terms of the Confidentiality Letter. SECTION 4.11 Consents; Approvals. The Company and Parent shall each use their reasonable best efforts to obtain all consents, waivers, approvals, authorizations or orders (including, without limitation, the STB approval and all other United States and foreign governmental and regulatory rulings and approvals), and the Company and Parent shall make all filings (including, without limitation, all filings with the STB and other United States and foreign governmental or regulatory agencies) required in connection with the authorization, execution and delivery of this Agreement by the Company and Parent and the consummation by them of the transactions contemplated hereby. If applicable, as promptly as practicable after the date of this Agreement, the Company and Parent shall file notifications under the HSR Act in connection with the Merger and the transactions contemplated hereby and shall respond as promptly as practicable to any inquiries received from the STB, the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice (the "Antitrust Division") for additional information or documentation and shall respond as promptly as practicable to all inquiries and requests received from any State Attorney General or other governmental authority in connection with antitrust matters. The Company and Parent shall furnish all information required to be included in any application or other filing to be made pursuant to the rules and regulations of any United States or foreign governmental body in connection with the transactions contemplated by this Agreement. SECTION 4.12 Indemnification and Insurance. (a) The Certificate of Incorporation and By-Laws of the Surviving Corporation shall contain the provisions with respect to indemnification, exculpation and advancement of expenses set forth in the Certificate of Incorporation and By-Laws of the Company, 29 35 which provisions shall not be amended, repealed or otherwise modified for a period of three years from the Effective Time in any manner that would adversely affect the rights thereunder of individuals who at the Effective Time were present or former directors, officers, employees or agents of the Company, unless such modification is required by law. (b) The Company shall, to the fullest extent permitted under applicable law or under the Company's Certificate of Incorporation or By-Laws and regardless of whether the Merger becomes effective, indemnify and hold harmless, and, after the Effective Time, the Parent and the Surviving Corporation shall, jointly and severally, to the fullest extent permitted under applicable law or under the Surviving Corporation's Certificate of Incorporation or By-Laws, indemnify and hold harmless, each present and former director, officer or employee of the Company or any of its subsidiaries (collectively, the "Indemnified Parties") against any costs or expenses (including attorneys' fees), judgments, fines, losses, claims, damages and liabilities incurred in connection with, and amounts paid in settlement of, any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative and wherever asserted, brought or filed, (x) arising out of or pertaining to the transactions contemplated by this Agreement or (y) otherwise with respect to any acts or omissions or alleged acts or omissions occurring at or prior to the Effective Time, to the same extent as provided in the respective Certificate of Incorporation or By-Laws of the Company or the subsidiaries or any applicable contract or agreement as in effect on the date of this Agreement, in each case for a period of five years after the date hereof. In the event of any such claim, action, suit, proceeding or investigation (whether arising before or after the Effective Time), (i) any counsel retained by the Indemnified Parties for any period after the Effective Time shall be reasonably satisfactory to the Surviving Corporation, (ii) after the Effective Time, the Surviving Corporation shall (and Parent shall cause the Surviving Corporation to) pay the reasonable fees and expenses of such counsel, promptly after statements therefor are received, and (iii) the Surviving Corporation will cooperate in the defense of any such matter; provided, however, that the Surviving Corporation shall not be liable for any settlement effected without its written consent (which consent shall not be unreasonably withheld or delayed); and provided, further, that, in the event that any claim or claims for indemnification are asserted or made within such five-year period, all rights to indemnification in respect of any such claim or claims shall continue until the disposition of any and all such claims. The Indemnified Parties as a group may retain only one law firm to represent them with respect to any single action unless there is, under applicable standards of professional conduct, a conflict on any significant issue between the positions of any two or more Indemnified Parties. The indemnity agreements of Parent and the Surviving Corporation in this Section 4.12(b) shall extend on the same terms to, and shall inure to the benefit of and shall be enforceable by, each person or entity who controls, or in the past controlled, any present or former director, officer or employee of the Company or any of its subsidiaries. (c) The Surviving Corporation shall (and Parent shall cause the Surviving Corporation to) honor and fulfill in all respects the obligations of the Company pursuant to 30 36 indemnification agreements with the Company's directors and officers existing at or before the Effective Time. (d) For a period of five years after the Effective Time, Parent shall cause the Surviving Corporation to maintain in effect, directors' and officers' liability insurance covering those persons who are currently covered by the Company's directors' and officers' liability insurance policy (a copy of which has been made available to Parent) on terms (including the amounts of coverage and the amounts of deductibles, if any) that are comparable to the terms now applicable to directors and officers of Parent, or, if more favorable to the Company's directors and officers, the terms now applicable to them under the Company's current policies; provided, however, that in no event shall Parent or the Surviving Corporation be required to expend in excess of 300% of the annual premium currently paid by the Company for such coverage; and provided further, that if the premium for such coverage exceeds such amount, Parent or the Surviving Corporation shall purchase a policy if available with the greatest coverage available for such 300% of the annual premium. (e) From and after the Effective Time, Parent shall guarantee the obligations of the Surviving Corporation under this Section 4.12. (f) This Section 4.12 shall survive the consummation of the Merger at the Effective Time, is intended to benefit the Company, the Surviving Corporation and the Indemnified Parties, shall be binding on all successors and assigns of the Surviving Corporation and shall be enforceable by the Indemnified Parties. In the event that Parent or the Surviving Corporation or any of their successors or assigns (i) consolidates or merges into any other person or entity and shall not be the continuing or surviving corporation or entity in such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any person or entity, then and in such case, proper provisions shall be made so that the successors and assigns of Parent or the Surviving Corporation (as the case may be) assume the obligations of Parent and the Surviving Corporation set forth in this Section 4.12. SECTION 4.13 Continuation of Company Employee Plans. (a) Except as may be otherwise required or permitted under any collective bargaining agreement to which the Company is a party, the Surviving Corporation will (and Parent shall cause the Surviving Corporation to), for a period of not less than 12 months following the Effective Time, continue without amendment or change, except changes which increase compensation or benefits paid or payable thereunder or as may be required by law, the Company Employee Plans and other policies, practices, programs and arrangements which provide compensation or benefits to employees of the Company or its subsidiaries. Notwithstanding the foregoing, (i) the Surviving Corporation may replace any of such individual plans, policies, practices, programs or arrangements with another 31 37 plan, policy, practice, program or arrangement providing, in the aggregate, not less than a substantially equivalent level of compensation or benefits, as the case may be, and (ii) the Surviving Corporation shall not be required to maintain any Company Employee Plan that provides for the issuance of Company Common Shares or any other stock-based award plan or program ("Stock Plans"); provided that Parent replaces such Stock Plans with another plan, policy, practice, program or arrangement that the Board of Directors of the Surviving Corporation determines in good faith provides comparable incentive compensation opportunities. (b) Except as may be expressly provided in a valid written waiver voluntarily signed by an affected employee, the Company will honor and, on and after the Effective Time, Parent will cause the Surviving Corporation to honor in accordance with the terms thereof, without offset, deduction, counterclaim, interruption or deferment (other than withholdings under applicable law) all Company Benefit Plans, including all employment, change-in-control, severance, termination, consulting and unfunded retirement or benefit agreements to which the Company or any of its subsidiaries is a party. For the purpose of any such policy, practice, program or arrangement that contains a provision relating to a change in control of the Company, Parent acknowledges that the consummation of the Merger constitutes such a change in control. (c) The Company and Parent will or may, as the case may be, take the actions indicated in Section 4.13(c) of the Company Disclosure Schedule at or prior to the times specified therein. SECTION 4.14 Notification of Certain Matters. The Company shall give prompt notice to Parent, and Parent shall give prompt notice to the Company, of (i) the occurrence or nonoccurrence of any event the occurrence or nonoccurrence of which would reasonably be expected to cause any representation or warranty contained in this Agreement to be materially untrue or inaccurate, or (ii) any failure of the Company, Parent or Acquisition, as the case may be, materially to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 4.14 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. SECTION 4.15 Further Action. Upon the terms and subject to the provisions hereof, each of the parties hereto shall use all reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all other things necessary, appropriate or advisable to consummate and make effective as promptly as practicable the Merger and the other transactions contemplated by this Agreement, including (i) obtaining in a timely manner all necessary waivers, consents and approvals from all federal, state, and foreign courts and other governmental entities ("Governmental Entities") and to effect all necessary registrations and filings, and the taking of all reasonable steps as may be necessary, appropriate or advisable to obtain an approval or waiver from, or to avoid an 32 38 action or proceeding by, any Governmental Entity, (ii) the obtaining of all necessary consents, approvals or waivers from third parties, (iii) the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement or the consummation of the transactions contemplated by this Agreement, including seeking to have any stay or temporary restraining order entered by any Governmental Entity vacated or reversed, and (iv) the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement, and otherwise to satisfy or cause to be satisfied all conditions precedent to its obligations under this Agreement, including, on the part of Parent and Acquisition, entering into a voting trust or similar agreement on customary terms to permit the consummation of the Merger prior to the receipt of final approval from the STB of the transactions contemplated by this Agreement. The foregoing covenant shall not include any obligations by Parent or the Company to agree to divest, abandon, license or take similar action with respect to any assets of Parent or the Company except such actions that would be immaterial to Parent and its subsidiaries or the Company and its subsidiaries, in each case taken as a whole. SECTION 4.16 Public Announcements. Parent and the Company shall consult with each other before issuing any press release with respect to the Merger or this Agreement and shall not issue any such press release or make any similar public statement without the prior consent of the other party, which shall not be unreasonably withheld; provided, however, that a party may, without the prior consent of the other party, issue such press release or make such public statement as may upon the advice of counsel be required by law or the rules and regulations of the NYSE or the American Stock Exchange, if it has used all reasonable efforts to consult with the other party. SECTION 4.17 Conveyance Taxes. Parent and the Company shall cooperate in the preparation, execution and filing of all returns, questionnaires, applications, or other documents regarding any real property transfer or gains, sales, use, transfer, value added, stock transfer and stamp taxes, any transfer, recording, registration and other fees, and any similar taxes which become payable in connection with the transactions contemplated hereby that are required or permitted to be filed on or before the Effective Time. SECTION 4.18 Company Preferred Shares. Promptly after Effective Time, Parent shall take such action as may be necessary to register under the Securities Act the issuance, if any, of the Parent Common Shares issuable upon conversion of the Company Preferred Shares after the Effective Time. 33 39 ARTICLE V CONDUCT OF BUSINESS PENDING THE MERGER SECTION 5.1 Conduct of Business by the Company Pending the Merger. The Company covenants and agrees that, during the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Effective Time, unless Parent shall otherwise agree in writing, which agreement shall not be unreasonably withheld or delayed, the Company shall conduct its business and shall cause the businesses of its subsidiaries to be conducted only in, and the Company and its subsidiaries shall not take any action except in, the ordinary course of business and in the manner substantially consistent with past practice; and the Company shall use reasonable commercial efforts to preserve substantially intact the business organization of the Company and its subsidiaries, to keep available the services of the present officers of the Company and to preserve the present material relationships of the Company and its subsidiaries with customers, suppliers and other persons with which the Company or any of its subsidiaries has significant business relations. Except as set forth in Section 5.1 of the Company Disclosure Schedule or as otherwise contemplated by this Agreement, neither the Company nor any of its subsidiaries shall, during the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Effective Time, directly or indirectly do, any of the following without the prior written consent of Parent, which consent shall not be unreasonably withheld or delayed: (a) amend or otherwise change the Certificate of Incorporation or By-Laws of the Company; (b) issue, sell, pledge, dispose of or encumber, or authorize the issuance, sale, pledge, disposition or encumbrance of, any shares of capital stock of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of capital stock, or any other ownership interest (including, without limitation, any phantom interest) in the Company, any of its subsidiaries or affiliates (except for (i) the issuance of Company Common Shares issuable pursuant to Stock Options listed in Section 2.11(c) of the Company Disclosure Schedule, (ii) the grant of options under the Company Stock Option Plans consistent with past practice to purchase up to 100,000 Company Common Shares at the market value on the date of the grant to newly hired employees and the issuance of shares upon exercise thereof, (iii) the issuance of Company Common Shares upon conversion of the Company Preferred Shares, or (iv) the issuance of Company Common Shares upon conversion of the Company's 8 1/2% Convertible Subordinated Debentures; (c) sell, pledge, dispose of or encumber any assets of the Company or any of its subsidiaries (except for (i) sales of assets in the ordinary course of business and in a manner substantially consistent with past practice, including sale and leaseback 34 40 transactions and the disposal of surplus real property, (ii) disposition of obsolete or worthless assets, (iii) sales of immaterial assets not in excess of $1,000,000 and (iv) encumbrances on assets pursuant to the Company's existing bank credit facility or to secure purchase money financings of equipment and capital improvements and in connection with the financing of Permitted Acquisitions (as defined in Section 5.1(e))); (d) (i) declare, set aside, make or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of any of its capital stock (other than regular quarterly cash dividends with respect to the Company Preferred Shares), except that a wholly owned subsidiary of the Company may declare and pay a dividend or make advances to its parent or the Company, (ii) split, combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or (iii) amend the terms or change the period of exercisability of, purchase, repurchase, redeem or otherwise acquire, or permit any subsidiary to purchase, repurchase, redeem or otherwise acquire, any of its securities or any securities of its subsidiaries, including, without limitation, Company Common Shares or any option, warrant or right, directly or indirectly, to acquire Company Common Shares, or propose to do any of the foregoing; except for the acceleration of options pursuant to the terms of the Company Stock Option Plans and the exercise of such options; (e) (i) acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof other than those listed on Section 5.1(e) of the Company Disclosure Schedule or otherwise consented to by Parent in writing ("Permitted Acquisitions"), (ii) incur any indebtedness for borrowed money or debt securities or assume, guarantee or endorse or otherwise as an accommodation become responsible for, the obligations of any person or, except in the ordinary course of business consistent with past practice (including borrowings under the Company's existing revolving credit facility) or in connection with purchases of equipment or capital improvements or in Permitted Acquisitions, make any loans or advances (other than loans or advances to or from direct or indirect wholly owned subsidiaries), (iii) enter into or amend any material contract other than in the ordinary course of business or where such contract would not have a Material Adverse Effect; (iv) authorize any capital expenditures or purchases of fixed assets which are, in the aggregate, in excess of the amounts set forth in Section 5.1(e) of the Company Disclosure Schedule for the Company and its subsidiaries taken as a whole; or (v) enter into or amend any contract, agreement, commitment or arrangement to effect any of the matters prohibited by this Section 5.1(e); (f) except as set forth in Section 5.1(f) of the Company Disclosure Schedule, increase the compensation payable or to become payable to any of its officers or its general pay scale for other employees, except for increases in salary or wages of employees of the Company or its subsidiaries in accordance with past practice or, except in the ordinary course of business or pursuant to agreements, plans or policies in effect 35 41 prior to the date of this Agreement, grant any severance or termination pay to, or enter into any employment or severance agreement with, any director or officer of the Company, or establish, adopt, enter into or amend in any material respect any bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any current or former directors or officers of the Company, except, in each case, as may be required by law; (g) except to conform to GAAP, take any action to change accounting policies or procedures (including, without limitation, procedures with respect to revenue recognition, payments of accounts payable and collection of accounts receivable); (h) make any material tax election inconsistent with past practice or settle or compromise any material federal, state, local or foreign tax liability, except to the extent the amount of any such settlement has been reserved for in the financial statements contained in the Company Filed SEC Reports; (i) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of liabilities reflected or reserved against in the financial statements contained in the Company Filed SEC Reports or incurred in the ordinary course of business and consistent with past practice; or (j) take, or agree in writing or otherwise to take, any of the actions described in Sections 5.1(a) through (i) above, or any action which would make any of the representations or warranties of the Company contained in this Agreement untrue or incorrect in any material respects or prevent the Company from performing in all material respects or cause the Company not to perform its covenants hereunder. SECTION 5.2 No Solicitation. (a) The Company shall not, directly or indirectly through any officer, director, employee, representative or agent of the Company or any of its subsidiaries, (i) solicit or initiate any inquiries or proposals regarding any merger, sale of substantial assets, sale of shares of capital stock (including without limitation by way of a tender offer, but not in connection with Permitted Acquisitions) or similar transactions involving the Company or any subsidiaries of the Company other than the Merger (any of the foregoing inquiries or proposals being referred to herein as an "Acquisition Proposal"), (ii) engage in negotiations or discussions concerning, or provide any nonpublic information to any person relating to, any Acquisition Proposal or (iii) agree to approve or recommend any Acquisition Proposal. Nothing contained in this Section 5.2(a) shall prevent the Company or any representative thereof from furnishing or causing to be furnished, information and directing the Company, 36 42 its directors, officers, employees, representatives or agents to furnish information, in each case pursuant to confidentiality agreements similar to the one then in effect between the Company and Parent, and participating in discussions or negotiations with any person or entity concerning any Acquisition Proposal if the Board shall conclude after consultation with its financial advisor, that such person or entity has made or is reasonably likely to make a bona fide Acquisition Proposal for a transaction which it believes may be more favorable to the Company's stockholders from a financial point of view than the transactions contemplated hereby (any such Acquisition Proposal being referred to herein as a "Superior Proposal"). (b) The Company shall promptly notify Parent after receipt of any written Acquisition Proposal, or any modification of or amendment to any written Acquisition Proposal, or any request for nonpublic information relating to the Company or any of its subsidiaries in connection with an Acquisition Proposal or for access to the properties, books or records of the Company or any subsidiary by any person or entity that informs the Board that it is considering making, or has made, an Acquisition Proposal. Such notice to Parent shall be made orally and in writing, and shall indicate, if known, whether the Company is providing or intends to provide the person making the Acquisition Proposal with access to information concerning the Company as provided in Section 5.2(c). (c) The Company shall immediately cease and, subject to the terms hereof, cause to be terminated any existing discussions or negotiations with any person (other than Parent and Acquisition) conducted heretofore with respect to any Acquisition Proposal in effect as of the date of this Agreement. The Company agrees not to release any third party from the confidentiality provisions of any confidentiality agreement to which the Company is a party. (d) The Company shall take what it determines to be reasonable steps to provide reasonable assurance that the officers, directors and employees of the Company and its subsidiaries and any investment banker or other advisor or representative retained by the Company are aware of the restrictions described in this Section 5.2. ARTICLE VI CONDITIONS TO THE MERGER SECTION 6.1 Conditions to Obligation of Each Party to Effect the Merger. The respective obligations of each party to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following conditions: 37 43 (a) Company Stockholder Approval. This Agreement shall have been adopted by an affirmative vote of the holders of a majority of the outstanding Company Common Shares and outstanding Company Preferred Shares (voting together as one class); (b) HSR Act. The waiting period applicable to the consummation of the Merger under the HSR Act, if applicable, shall have expired or been terminated; (c) No Injunctions or Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger shall be in effect; and there shall not be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Merger which makes the consummation of the Merger illegal; (d) Form S-4. If Parent elects to issue Parent Common Shares as part of the Merger Consideration, the Form S-4 shall have become effective under the Securities Act and shall not be the subject of any stop order or proceedings seeking a stop order; and (e) Fairness Opinions. The opinion of Bear Stearns dated October 16, 1998, that as of that date the terms of the Merger are fair to the stockholders of the Company from a financial point of view, shall not have been modified in any materially adverse respect or withdrawn. SECTION 6.2 Conditions to Obligations of Parent and Acquisition. The obligations of Parent and Acquisition to effect the Merger are further subject to the following conditions: (a) Representations and Warranties. The representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects on the date hereof and (except to the extent specifically given as of an earlier date) on and as of the Closing Date as though made at the Closing Date, and the Company shall have delivered to Parent a certificate dated as of the Closing Date signed by an executive officer to the effect set forth in this Section 6.2(a). (b) Performance of Obligations of the Company. The Company shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and the Company shall have delivered to Parent a certificate dated as of the Closing Date signed by an executive officer to the effect set forth in this Section 6.2(b). SECTION 6.3 Conditions to Obligation of the Company. The obligation of the Company to effect the Merger is further subject to the following conditions: 38 44 (a) Representations and Warranties. The representations and warranties of Parent and Acquisition contained in this Agreement shall be true and correct in all material respects on the date hereof and (except to the extent specifically given as of an earlier date) on and as of the Closing Date as though made on the Closing Date, and Parent and Acquisition shall have delivered to the Company a certificate dated as of the Closing Date, signed by an executive officer of each of them and to the effect set forth in this Section 6.3(a). (b) Performance of Obligations of Parent and Acquisition. Each of Parent and Acquisition shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and Parent and Acquisition shall have delivered to the Company a certificate dated as of the Closing Date, signed by an executive officer of each of them and to the effect set forth in this Section 6.3(b). (c) Exchange Listing. If Parent elects to issue Parent Common Shares as part of the Merger Consideration, the Parent Common Shares issuable to the Company's stockholders pursuant to this Agreement shall have been approved for listing on the NYSE, subject to official notice of issuance. ARTICLE VII TERMINATION SECTION 7.1 Termination. This Agreement may be terminated at any time prior to the Effective Time, notwithstanding adoption by the stockholders of the Company or Parent: (a) by mutual written consent duly authorized by the Boards of Directors of Parent and the Company; or (b) by either Parent or the Company if a court of competent jurisdiction or governmental, regulatory or administrative agency or commission shall have issued a nonappealable final order, decree or ruling or taken any other action having the effect of permanently restraining, enjoining or otherwise prohibiting the Merger (provided that the right to terminate this Agreement under this Section 7.1(b) shall not be available to any party who has not complied with its obligations under Section 4.5 and such noncompliance materially contributed to the issuance of any such order, decree or ruling or the taking of such action); (c) by Parent, prior to the Effective Time, if the Board shall withdraw, modify or change its approval or recommendation of this Agreement or the Merger in a manner adverse to Parent; 39 45 (d) by Parent or the Company, prior to the Effective Time (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained in this Agreement), (i) if any representation or warranty of the Company or Parent, respectively, set forth in this Agreement shall be untrue when made, or (ii) upon a breach in any material respect of any covenant or agreement on the part of the Company or Parent, respectively, set forth in this Agreement, in each case where such untruth or breach would have a Material Adverse Effect on the Company or Parent, as the case may be (either (i) or (ii) above being a "Terminating Breach"), provided, that, if such Terminating Breach is curable by the Company or Parent, as the case may be, through the exercise of its reasonable best efforts, then for so long as the Company or Parent, as the case may be, continues to exercise such reasonable best efforts, or if the Terminating Breach is cured, neither Parent nor the Company, respectively, may terminate this Agreement under this Section 7.1(d); (e) by Parent or the Company, prior to the Effective Time, if the Company enters into a written agreement providing for the consummation of a transaction that constitutes a Superior Proposal; (f) by Parent or the Company, if the Special Meeting shall have been held and this Agreement shall not have been adopted by the affirmative vote of the holders of the requisite number of outstanding Company Common Shares and outstanding Company Preferred Shares; or (g) by Parent or the Company, if the Effective Time shall have not occurred on or before March 31, 1999; provided, however, that neither Parent nor the Company may terminate this Agreement pursuant to this Section 7.1(g) if such party's failure to fulfill any of its obligations under this Agreement shall be a reason that the Effective Time shall not have occurred on or before such date. SECTION 7.2 Effect of Termination. In the event of the termination of this Agreement pursuant to Section 7.1, this Agreement shall forthwith become void and there shall be no liability on the part of any party hereto or any of its affiliates, directors, officers or stockholders except (i) as set forth in Section 7.3 and Section 8.1 hereof, and (ii) except as otherwise provided in Section 7.3, nothing herein shall relieve any party from liability for any Terminating Breach hereof by such party. SECTION 7.3 Fees and Expenses. (a) Except as set forth in this Section 7.3, all fees and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses, whether or not the Merger is consummated. 40 46 (b) The Company shall pay Parent a fee of $20 million (the "Company Fee"), upon the first to occur of the following events: (i) the termination of this Agreement pursuant to Section 7.1(e); or (ii) the termination of this Agreement pursuant to Section 7.1(c) if prior to such termination a Superior Proposal has been made and is pending. (c) The Company Fee payable pursuant to Section 7.3(b) shall be paid within two (2) business days after the first to occur of any of the events described in Section 7.3(b)(i) or (ii); provided, that, in no event shall the Company be required to pay the Company Fee to Parent if, immediately prior to the termination of this Agreement, the Company would have been entitled to terminate this Agreement pursuant to Section 7.1(b), 7.1(g) or 7.1(d) on account of a Terminating Breach by Parent. The payment of the Company Fee shall be Parent's sole and exclusive remedy for the event giving rise to the payment of the Company Fee. ARTICLE VIII GENERAL PROVISIONS SECTION 8.1 Effectiveness of Representations, Warranties and Agreements; Knowledge, Etc. (a) Except as otherwise provided in this Section 8.1, the representations, warranties and agreements of each party hereto shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any other party hereto, any person controlling any such party or any of their officers or directors, whether prior to or after the execution of this Agreement. The representations, warranties and agreements in this Agreement shall terminate at the Effective Time or upon the termination of this Agreement pursuant to Section 7.1, as the case may be, except that (i) if the Merger is consummated the agreements set forth in Article I shall survive the Effective Time indefinitely, (ii) the agreements in Sections 4.9, 4.12 and 4.13 shall survive in accordance with their respective terms and (iii) the agreements set forth in Section 7.3 shall survive termination indefinitely. The Confidentiality Letter shall survive termination of this Agreement as provided therein. (b) Any representation and warranty made in this Agreement by the Company will be deemed for all purposes to be qualified by the disclosures made in any Company Disclosure Schedule specifically referred to in such representation or warranty and by the information disclosed in any other Company Disclosure Schedule if the relevance of such information to such representation and warranty is reasonably apparent on its face. 41 47 SECTION 8.2 Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made if and when delivered personally or by overnight courier to the parties at the following addresses or sent by electronic transmission, with confirmation received, to the telecopy numbers specified below (or at such other address or telecopy number for a party as shall be specified by like notice): (a) If to Parent or Acquisition: Laidlaw Inc. 3221 N. Service Road P.O.Box 5028 Burlington, Ontario Canada L7R 3Y8 Attention: Ivan R. Cairns, Senior Vice President and General Counsel Telecopier No.: (905) 332-6550 Telephone No.: (905) 336-1800 (b) If to the Company: Greyhound Lines, Inc. 15110 N. Dallas Parkway Dallas, Texas 75248 Attention: Craig R. Lentzsch, President and Chief Executive Officer Telecopier No.: (972) 387-1874 Telephone No.: (972) 789-7000 With a copy to: Jones, Day, Reavis & Pogue 599 Lexington Avenue New York, New York 10022 Attention: Robert A. Profusek, Esq. Telecopier No.: (212) 755-7306 Telephone No.: (212) 326-3939 42 48 SECTION 8.3 Certain Definitions. For purposes of this Agreement, the term: (a) "$" or "dollars" means the lawful currency of the United States of America. (b) "affiliates" means a person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the first mentioned person; (c) "business day" means any day other than a day on which banks in New York City are required or authorized to be closed; (d) "control" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of stock, as trustee or executor, by contract or credit arrangement or otherwise; (e) "person" means an individual, corporation, partnership, association, trust, unincorporated organization, other entity or group (as defined in Section 13(d)(3) of the Exchange Act); and (f) "subsidiary" or "subsidiaries" of the Company, the Surviving Corporation, Parent or any other person means any corporation, partnership, joint venture or other legal entity of which the Company, the Surviving Corporation, Parent or such other person, as the case may be (either alone or through or together with any other subsidiary), owns, directly or indirectly, more than 50% of the stock or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity. SECTION 8.4 Amendment. This Agreement may be amended by the parties hereto by action taken by or on behalf of their respective Boards of Directors at any time prior to the Effective Time; provided, however, that, after adoption of this Agreement by the stockholders of the Company, no amendment may be made which by law requires further approval by such stockholders without such further approval. This Agreement may not be amended except by an instrument in writing signed by the parties hereto. SECTION 8.5 Waiver. At any time prior to the Effective Time, any party hereto may with respect to any other party hereto (i) extend the time for the performance of any of the obligations or other acts; (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto; or (iii) waive compliance with any of the agreements or conditions contained herein. Any such extension or waiver shall be valid if set forth in an instrument in writing signed by the party or parties to be bound thereby. 43 49 SECTION 8.6 Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 8.7 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible. SECTION 8.8 Entire Agreement. This Agreement constitutes the entire agreement and supersedes all prior agreements and undertakings (other than the Confidentiality Letter), both written and oral, among the parties, or any of them, with respect to the subject matter hereof and, except as otherwise expressly provided herein. SECTION 8.9 Assignment; Guarantee of Acquisition Obligations. This Agreement shall not be assigned or delegated by operation of law or otherwise, except that Acquisition may assign all or any of its rights hereunder to any other direct or indirect wholly owned subsidiary of Parent that is a corporation organized under Delaware Law provided that no such assignment shall relieve the assigning party of its obligations hereunder. Parent guarantees the full and punctual performance by Acquisition or any such assignees of all the obligations hereunder of Acquisition or any such assignees. SECTION 8.10 Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement, including, without limitation, by way of subrogation, other than Section 4.9 (which is intended to be for the benefit of the holders of Stock Options and may be enforced by such holders), Section 4.12 (which is intended to be for the benefit of the Indemnified Parties and may be enforced by such Indemnified Parties), and 4.13 (which is intended to be for the benefit of the employees of the Company and its subsidiaries and may be enforced by any person who is an officer of the Company as of the Effective Time on behalf of such officer and the other employees of the Company). SECTION 8.11 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any 44 50 such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. SECTION 8.12 Governing Law. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of Delaware applicable to contracts executed and fully performed within the State of Delaware. SECTION 8.13 Consent to Jurisdiction and Service of Process. (a) Parent consents to the non-exclusive jurisdiction of any court of the State of Delaware or any United States federal court sitting in the State of Delaware, United States, and any appellate court from any thereof, and waives any immunity from the jurisdiction of such courts over any suit, action or proceeding that may be brought in connection with this Agreement. Parent irrevocably waives, to the fullest extent permitted by law, any objection to any suit, action or proceeding that may be brought in connection with this Agreement in such courts whether on the grounds of venue, residence or domicile or on the ground that any such suit, action or proceeding has been brought in an inconvenient forum. Parent agrees that final judgment in any such suit, action or proceeding brought in such court shall be conclusive and binding upon Parent and may be enforced in any court to the jurisdiction of which Parent is subject by suit upon such judgment; provided that service of process is effected upon Parent in the manner provided in this Agreement. (b) Parent agrees that service of all writs, process and summonses in any suit, action or proceeding brought in connection with this Agreement against Parent in any court sitting in the State of Delaware, United States may be made upon Schiff Hardin & Waite at 6600 Sears Tower, Chicago, Illinois 60606 (attention: Stephen J. Dragich), whom Parent irrevocably appoints as its authorized agent for service for process. Parent represents and warrants that Schiff Hardin & Waite has agreed to act as Parent's agent for service of process. Parent agrees that such appointment shall be irrevocable so long as this Agreement shall remain in effect or until the irrevocable appointment by Parent of a successor as its authorized agent for such purpose and the acceptance of such appointment by such successor. Parent further agrees to take any and all action, including the filing of any and all documents and instruments, that may be necessary to continue such appointment in full force and effect as aforesaid. If Schiff Hardin & Waite shall cease to be Parent's agent for service of process, Parent shall appoint without delay another such agent and provide prompt written notice to the Company, to the extent known to it, of such appointment. With respect to any such action in any court of the State of Delaware or any United States federal court in the State of Delaware, United States, service of process upon Schiff Hardin & Waite, as the authorized agent of Parent for service of process, and written notice of such service to Parent, shall be deemed, in every respect, effective service of process upon Parent. 45 51 (c) Nothing in this Section 8.13 shall affect the right of any party to serve legal process in any other manner permitted by law of affect the right of any party to bring any action or proceeding against any other party or its property in the courts of other jurisdictions. SECTION 8.14 Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. [This space intentionally left blank.] 46 52 IN WITNESS WHEREOF, Parent, Acquisition and the Company have caused this Agreement to be executed by their respective officers thereunto duly authorized. LAIDLAW INC. By: /s/ JAMES R. BULLOCK ------------------------------------------------- Name: James R. Bullock -------------------------------------- Title: President and Chief Executive Officer -------------------------------------- LAIDLAW TRANSIT ACQUISITION CORP. By: /s/ IVAN R. CAIRNS ------------------------------------------------- Name: Ivan R. Cairns -------------------------------------- Title: Vice President -------------------------------------- GREYHOUND LINES, INC. By: /s/ CRAIG R. LENTZSCH ------------------------------------------------- Name: Craig R. Lentzsch -------------------------------------- Title: President and Chief Executive Officer -------------------------------------- EX-10.1 3 1ST AMENDED EXECUTIVE EMPLOYMENT AGREEMENT 1 EXHIBIT 10.1 FIRST AMENDED EXECUTIVE EMPLOYMENT AGREEMENT This FIRST AMENDED EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of the ____ day of ___________, 1998, to be effective November 15, 1998 (the "Effective Date"), by and between GREYHOUND LINES, INC. (together with its successors, the "Company") and CRAIG R. LENTZSCH (the "Executive"). WHEREAS, the Executive has served as the Chief Executive Officer of the Company since November 15, 1994, and has considerable experience, expertise and training in management related to the types of services offered by the Company; and WHEREAS, the Executive and the Company entered into an Executive Employment Agreement (the "Original Agreement"), effective November 15, 1994; and WHEREAS, the Company desires and intends to continue the employment of the Executive as Chief Executive 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 and have been advised to do so 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 $469,500.00 (the "Base Salary"), payable in at least equal monthly installments in accordance with the Company's ordinary payroll policies and procedures for executive compensation. The Company and the Executive acknowledge that during the employment of the Executive pursuant to this Agreement, the Executive's Base Salary will be subject to an annual review and adjustment by the Board of Directors of the Company (the "Board of Directors") but, in no event, will the Executive's annual Base Salary be less than the amount set forth in this section. b. BUSINESS EXPENSES: The Company agrees that the Executive shall be entitled to reimbursement by the Company for all reasonable expenses (including first class air travel) that the Executive may incur in the performance of his duties and obligations under this Agreement, consistent with the Company's policies for documentation and payment. c. ANNUAL BONUS: The Company agrees that the Executive shall be entitled to additional bonus compensation (the "Incentive Compensation") on terms not less favorable than 2 EXHIBIT 10.1 those applicable to other officers of the Company. For the year ending December 31, 1998 and subsequent years, the Executive shall be eligible for annual incentive bonus consideration under the 1998 Management Incentive Plan (or its successor), starting with the 1998 plan year and continuing thereafter for the duration of this Agreement with an Annual Target Award of at least 55% of Base Salary for each respective year. d. EMPLOYEE BENEFITS: The parties acknowledge and agree that certain employee benefits will be provided to the Executive incident to his employment as Chief Executive Officer of the Company. Except as specifically modified by this section, these employee benefits shall be governed by the applicable documents, and the Executive shall be entitled to participate in all benefits provided to officers of the Company on terms not less favorable than to other officers of the Company. The Company agrees to the extent not prohibited by law, that it will provide the benefits listed below and that the following provisions shall 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"), the Executive's prior service with Buslease, Inc. and any predecessor of Greyhound Lines, Inc. shall be deemed to be service with the Company for purposes of determining eligibility and vesting under the 401k Plan. Subject to the terms of the 401k Plan, the Company will match fifty percent (50%) of the first six (6%) of Executive's contributions to such 401k Plan. If the Plan is amended with respect to such matching, Executive will receive matching contributions consistently with that of other participants in the Plan. (2) MEDICAL PLAN: For purposes of the Greyhound Lines, Inc. Medical, Dental and Vision 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. (b) The Medical Plan's provisions limiting coverage of pre-existing conditions shall not be applied to the Executive or his Dependents. (c) During the time period in which the Executive and his dependents are entitled to participate in the Medical Plan, the Company will reimburse the Executive for one hundred percent (100%) of all medical expenses (both for the Executive and his dependents) that are not otherwise reimbursable under the Medical Plan option selected by the Executive; provided, however, that the total payments made by the Company to or on behalf of any person under this Subsection shall not exceed the highest "Lifetime Maximum" benefit (per covered person) available under the Medical Plan on the Effective Date of this Agreement. (3) SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN: For purposes of the Greyhound Lines, Inc. Supplemental Executive Retirement Plan (the "SERP"), all of the Executive's service with Buslease, Inc. and any predecessor of Greyhound Lines, Inc. shall be treated for all purposes under the SERP as service with Greyhound Lines, Inc. (as defined in the 2 3 SERP), the Executive shall be a designated person eligible for coverage and benefits under the SERP as of the Effective Date, and the Executive shall be entitled to an annual contribution equal to 20% of Executive's annual Base Salary. Within ninety (90) days of the Effective Date of this Agreement, the Company shall establish and fully fund a trust for the benefit of the Executive to secure the payment of benefits provided to the Executive under this Subsection. (4) ESTATE, TAX AND FINANCIAL PLANNING: During the term of his employment with the Company, the Executive shall be entitled to $20,000.00 per year for reimbursement for estate, tax and financial planning. Such reimbursement payments shall be paid by the Company within a reasonable time after such expenses are incurred by the Executive. (5) AUTOMOBILE ALLOWANCE: During the term of his employment with the Company, the Executive shall be entitled to a $1,000.00 per month automobile allowance, commencing on the Effective Date of this Agreement. (6) COUNTRY CLUB ALLOWANCE: The Company agrees to pay all initiation fees and monthly membership dues on behalf of the Executive at a country club mutually selected by the Executive and the Company. (7) VACATION: The Company will provide vacation to the Executive on terms not less favorable than that provided to executive officers of the Company. For purposes of determining the amount of vacation, Executive's prior service with Buslease, Inc. and any predecessor of Greyhound Lines, Inc. shall be deemed to be service with the Company. (8) LIFE INSURANCE: At all times during the term of this Agreement, Executive will receive life insurance coverage as provided by the Company on terms not less favorable than that provided to other executives of the Company. In addition to any life insurance provided pursuant to the preceding sentence, 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 $2,000,000.00 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 Subsection must be the company or companies that underwrite life insurance benefits covering other officers of the Company. (9) LONG TERM DISABILITY: The Company will provide Executive long-term disability coverage and benefits on terms which are not less favorable than that provided to other executives of the Company but which will provide an annual disability benefit to the Executive of at least fifty percent (50%) of his expected annual Base Salary, payable for the year during which Executive was disabled. (10) OTHER BENEFITS: For purposes of any and all other benefits provided by the Company to its Chief Executive 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 Buslease, Inc. and any predecessor of Greyhound Lines, Inc. shall be deemed to be service with the Company. 3 4 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 three (3) years (the "Initial Term"), commencing on the Effective Date and expiring on November 14, 2001 (the "Expiration Date"), unless terminated prior to the Expiration Date in accordance with Subsection 2(c). b. RENEWAL: Notwithstanding Subsection 2(a), this Agreement shall automatically renew for 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"), at least ninety (90) days prior to the Expiration Date. At the expiration of each Renewal Term, this Agreement shall automatically renew for another two (2) year Renewal Term, unless and until either party gives Notice of Non-Renewal. If any Change of Control (as hereafter defined) occurs on or after November 15, 1999, this Agreement will be deemed to have renewed for a two (2) year period, and in such event, the Expiration Date(s) will occur every two years from the date of such Change of Control. c. TERMINATION AND NON-RENEWAL: This Agreement may be terminated as follows: (1) DEATH: This Agreement will terminate in the event of the Executive's death, provided, however, that the Executive's estate shall be paid (a) the Base Salary through the date of death and (b) a pro rata portion of the entire Annual Target Award of Incentive Compensation (based upon the Executive's annual Base Salary), payable when the Incentive Compensation payments are made to other executives of the Company. The pro rata share will be calculated by the month of the date of death (e.g., if the Executive's death should occur in July, the Executive's estate shall receive 7/12 of the Annual Target Award of Incentive Compensation based upon the Executive's annual Base Salary). 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. (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. The Executive will be paid his Base Salary through the expiration of such one hundred eighty day period and a pro rata portion of the entire Annual Target Award of Incentive Compensation (based upon the Executive's annual Base Salary) in accordance with the previous Subsection. (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 4 5 EXHIBIT 10.1 Good Cause, as defined herein ("Notice of Termination for Good Cause") at any time during his employment (including any time within ninety (90) days prior to the Expiration Date or the expiration of any renewal term). (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. (c) For purposes of this Agreement, "Good Cause" shall be defined as follows: i) Any act or omission constituting fraud under the law of the State of Texas; or ii) Conviction of, or a plea of nolo contendere to, a felony; or iii) Use of illegal drugs; or iv) Embezzlement of Company property or funds; or v) The material breach of any provision of this Agreement; or continued gross neglect of his duties under this Agreement; or unauthorized competition with the Company during his employment pursuant to this Agreement; or unauthorized use of Confidential Information (as defined in Section 9); which, in any event, is materially detrimental to the Company; (d) In the event the Company believes "Good Cause" exists for terminating this Agreement pursuant to this Subsection, the Company shall be required to give the Executive written Notice of the acts or omissions constituting "Good Cause" ("Cause Notice"), and, in regard to Section 2(c) (3) (c) (v), no Notice of Termination or Notice of Non-Renewal for Good Cause 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. (e) In the event the Company communicates 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 Board of Directors, on a date determined by the Board of Directors 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 Board shall provide the Executive with written notice of its 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 Board of Directors affirms the "Good Cause" for termination or non-renewal, the Executive shall have the right to the Dispute Resolution procedures set forth in Section 10. 5 6 (4) WITHOUT GOOD CAUSE: (a) The Company shall be entitled to terminate the Executive's employment under this Agreement by providing ninety (90) days written notice (or ninety (90) days pay at the Base Salary Rate then in effect in lieu of notice) to the Executive that the Company is terminating the Agreement Without Good Cause, as defined herein ("Notice of Termination Without Good Cause"), at any time during his employment (including any time within ninety (90) days prior to the Expiration Date or the expiration of any renewal term); provided, however, that the Company shall be required to pay Severance Pay in accordance with the Severance provisions in Section 5. (b) The Company shall be entitled to terminate the Executive's employment under this Agreement 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; provided, however, that the Company shall be required to pay Severance Pay in accordance with the Severance provisions in Section 5. (c) Any termination of employment or non-renewal of this Agreement which is not for "Good Cause," as defined above in Subsection 2(c)(3), or which does not result from the death or retirement of the Executive, or the disability of the Executive, shall be deemed to be a termination or nonrenewal "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 Board of Directors [under Subsection 2(c)(3)(e)] or an arbitration or a final, non-appealable judicial proceeding [under Section 10] 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 his employment under this Agreement by providing the Company with a written Notice of Resignation at least ninety (90) days prior to his intended resignation date, subject to the following provisions: (a) RESIGNATION FOR GOOD REASON: The Executive shall have the right to resign for any "Good Reason," as defined herein, and such resignation shall be deemed to be a termination "Without Good Cause" as defined in Subsection 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 Board of Directors in the authority, duties, or responsibilities of the Executive under this Agreement, other than termination for Good Cause, without the written consent of the Executive; or 6 7 iii) The hiring or promotion by the Board of Directors of another executive employee to a position of equal or greater responsibility for the management of the Company without the written consent of the Executive; iv) 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 v) Any requirement by the Board of Directors that the Executive relocate from Dallas County, Texas, without his consent; or vi) In the event the Company fails to maintain adequate liability insurance coverage or an acceptable letter of credit to fund any self-insured liabilities, in accordance with Section 8 of this Agreement, without the written consent of the Executive. (b) OPPORTUNITY TO CURE: In the event the Executive believes "Good Reason" exists for his resignation, he shall be required to give the Board of Directors 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 (except during the thirteenth month following the Change of Control as provided in Section 4) and the Severance provisions in Section 5 shall be inapplicable. 3. RESPONSIBILITIES: a. The Executive and the Company acknowledge and agree that the Executive shall be employed as President and Chief Executive Officer of the Company. The Executive covenants and agrees that he will faithfully devote his best efforts and such portion of his time, attention and skill to the business of the Company as is necessary to perform his obligations under this Agreement; provided, however, that the Executive is permitted, consistent with the preceding sentence, to remain on the boards of directors of Enginetech, Inc. and Hastings Entertainment, Inc. (and to receive compensation for such services) during his employment pursuant to this Agreement. The Executive may undertake other business responsibilities or obligations during the term of this Agreement but shall advise, in writing, the Chairman of the Board before such responsibilities or obligations are undertaken. 7 8 b. The Executive and the Company acknowledge and agree that, as President and Chief Executive Officer of the Company, the Executive shall be responsible for actively supervising the overall management and development and execution of the business strategy of the Company and its subsidiaries, subject to and in accordance with the authority and direction of the Board of Directors of the Company. 4. CHANGE OF CONTROL: The parties acknowledge that the Executive has agreed to assume the position of Chief Executive Officer and to enter into this Agreement based upon his confidence in the current shareholders of the Company, the support of the Board of Directors, and the continued execution of the current business strategy of the Company. Accordingly, if the Company should undergo a "Change of Control," as defined in this section, the parties agree as follows: a. VESTING OF STOCK INCENTIVES AND AWARDS: In the event of a Change of Control, as defined in this section, all Stock Incentives and Awards provided in Section 6 of this Agreement shall immediately become vested and exercisable, all other equity incentive awards held by the Executive shall become fully vested and all other stock options held by the Executive shall become fully exercisable, effective on the date of the Change of Control or at such other time as is necessary to permit the Executive to be treated with respect to vesting and exercisability no less favorably than other shareholders. b. COMPENSATION: In the event that the employment of the Executive is terminated: (1) at any time within twenty four (24) months after the date of a Change of Control, as defined in this section, by: (i) the Company communicating a Notice of Termination Without Good Cause; (ii) the Company communicating a Notice of Non-Renewal Without Good Cause, or (iii) the Executive communicating a Notice of Resignation for Good Reason; or (2) by the resignation of the Executive, whether with or without Good Reason, within thirty (30) days of the first Anniversary Date (i.e., one year from the date) of a Change of Control, the Company agrees to pay to the Executive a lump sum cash payment equal to three (3) times the sum of: (x) an amount equal to the Executive's then current, annualized Base Salary, and (y) the greater of: (a) the applicable Annual Payout of Incentive Compensation paid for the Plan Year immediately prior to the termination, or (b) the full, non-pro rata Annual Target Award for Incentive Compensation based upon Executive's annual Base Salary for the Plan Year in which the termination occurs, which payment shall be paid within thirty (30) days after the effective date of termination, non-renewal or resignation. The Company further agrees to continue benefits to the Executive as provided in Subsection 5(c) for a period of thirty-six (36) months. c. DEFINITIONS: For purposes of this Agreement and notwithstanding anything in this Agreement to the contrary, a "Change of Control" shall be deemed to occur at the same moment that a Change of Control is determined to have occurred according to the definition of a Change of Control in the Greyhound Lines, Inc. 1995 Long Term Stock Incentive Plan (the "LTSI Plan") as that term is so defined as of the Effective Date of this Agreement and the additional 8 9 definitions contained in this Subsection. Any change in the definition of the Change of Control in the LTSI Plan shall not be effective with respect to Executive for purposes of this Agreement without the prior written approval of Executive. For purposes of this Agreement and notwithstanding anything in this Agreement to the contrary, a Change of Control will also be deemed to exist in the event that any of the following occurs: (1) the persons who were members of the Board of Directors immediately prior to a tender offer, exchange offer, contested election or any combination of the foregoing, cease at any time within twelve (12) months thereafter, to constitute a majority of the Board of Directors; or (2) a change in control is reported by the Company in response to either Item 6(a) of Schedule 14A of Regulations 14A promulgated under the Exchange Act or Item 1 of Form 8-K promulgated under the Exchange Act, which change in control has not been approved by a majority of the Board of Directors then in office who were directors at the beginning of two-year period ending on the date the reported change in control occurred. For purposes of this Subsection, a sale of all or substantially all of the assets of the Company shall be deemed to occur if any corporation, person or group acting in concert (a "Person") as described in Section 14(d)(2) of the Securities Exchange Act of 1934, as amended, acquires (or during the 12-month period on the date of the most recent acquisition by such Person, has acquired) gross assets of the Company that have an aggregate fair market value equal to 50% of the fair market value of all of the gross assets of the Company immediately prior to such acquisition(s). For purposes of this Subsection and notwithstanding anything in this Agreement to the contrary, 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 the LTSI Plan or this Subsection. If a definition of Change of Control is adopted by the Company which is more favorable to the Executive than the definition set forth in this Subsection, in any stock option plan or in employment agreements applying to any Company executives, at the option of the Executive through written notice to the Company at any time prior to the expiration of 180 days following the occurrence of a Change of Control, such language will immediately supersede and replace the language set forth in this Subsection. d. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (1) Anything in this Agreement to the contrary notwithstanding, but subject to Section 4(d)(8), in the event that it shall be determined (as hereafter provided) that any payment (other than the Gross-Up payments provided for in this Section 4(d)) or distribution by the 9 10 Company or any of their affiliates to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, performance share, performance unit, stock appreciation right or similar right, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or any successor provision thereto) by reason of being considered "contingent on a change in ownership or control" of the Company, within the meaning of Section 280G of the Code (or any successor provision thereto) or to any similar tax imposed by state or local law, or any interest or penalties with respect to such tax (such tax or taxes, together with any such interest and penalties, being hereafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment or payments (collectively, a "Gross-Up Payment"); provided, however, that no Gross-up Payment shall be made with respect to the Excise Tax, if any, attributable to (a) any incentive stock option, as defined by Section 422 of the Code ("ISO") granted prior to the initial execution of the Original Agreement, or (b) any stock appreciation or similar right, whether or not limited, granted in tandem with any ISO described in clause (a). The Gross-Up Payment shall be in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. (2) Subject to the provisions of Section 4(d)(6), all determinations required to be made under this Section 4(d), including whether an Excise Tax is payable by the Executive and the amount of such Excise Tax and whether a Gross-Up Payment is required to be paid by the Company to the Executive and the amount of such Gross-Up Payment, if any, shall be made by a nationally recognized accounting firm (the "Accounting Firm") selected by the Executive in his sole discretion. The Executive shall direct the Accounting Firm to submit its determination and detailed supporting calculations to both the Company and the Executive within 30 calendar days after the date of termination of the Executive's employment, if applicable, and any such other time or times as may be requested by the Company or the Executive. If the Accounting Firm determines that any Excise Tax is payable by the Executive, the Company shall pay the required Gross-Up Payment to the Executive within five business days after receipt of such determination and calculations with respect to any Payment to the Executive. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall, at the same time as it makes such determination, furnish the Company and the Executive an opinion that the Executive has substantial authority not to report any Excise Tax on his federal, state or local income or other tax return. As a result of the uncertainty in the application of Section 4999 of the Code (or any successor provision thereto) and the possibility of similar uncertainty regarding applicable state or local tax law at the time of any determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (an "Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts or fails to pursue its remedies pursuant to Section 4(d)(6) and the Executive thereafter is required to make a payment of any Excise Tax, the Executive shall direct the Accounting Firm to determine the amount of the Underpayment that has occurred and to submit its determination and detailed supporting calculations to both the 10 11 Company and the Executive as promptly as possible. Any such Underpayment shall be promptly paid by the Company to, or for the benefit of, the Executive within five business days after receipt of such determination and calculations. (3) The Company and the Executive shall each provide the Accounting Firm access to and copies of any books, records and documents in the possession of the Company or the Executive, as the case may be, reasonably requested by the Accounting Firm, and otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determinations and calculations contemplated by Section 4(d)(2). Any determination by the Accounting Firm as to the amount of the Gross-Up Payment shall be binding upon the Company and the Executive. (4) The federal, state and local income or other tax returns filed by the Executive shall be prepared and filed on a consistent basis with the determination of the Accounting Firm with respect to the Excise Tax payable by the Executive. The Executive shall make proper payment of the amount of any Excise Payment, and at the request of the Company, provide to the Company true and correct copies (with any amendments) of his federal income tax return as filed with the Internal Revenue Service and corresponding state and local tax returns, if relevant, as filed with the applicable taxing authority, and such other documents reasonably requested by the Company, evidencing such payment. If prior to the filing of the Executive's federal income tax return, or corresponding state or local tax return, if relevant, the Accounting Firm determines that the amount of the Gross-Up Payment should be reduced, the Executive shall within five business days pay to the Company the amount of such reduction. (5) The fees and expenses of the Accounting Firm for its services in connection with the determinations and calculations contemplated by Section 4(d)(2) shall be borne by the Company. If such fees and expenses are initially paid by the Executive, the Company shall reimburse the Executive the full amount of such fees and expenses within five business days after receipt from the Executive of a statement therefor and reasonable evidence of his payment thereof. (6) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as promptly as practicable but no later than 10 business days after the Executive actually receives notice of such claim and the Executive shall further apprise the Company of the nature of such claim and the date on which such claim is requested to be paid (in each case, to the extent known by the Executive). The Executive shall not pay such claim prior to the earlier of (a) the expiration of the 30-calendar-day period following the date on which he gives such notice to the Company and (b) the date that any payment of amount with respect to such claim is due. If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) provide the Company with any written records or documents in his possession relating to such claim reasonably requested by the Company; 11 12 EX 10.1 (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including without limitation accepting legal representation with respect to such claim by an attorney competent in respect of the subject matter and reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including interest and penalties) incurred in connection with such contest and shall indemnify and hold harmless the Executive, on an after-tax basis, for and against any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limiting the foregoing provisions of this Section 4(d)(6), the Company shall control all proceedings taken in connection with the contest of any claim contemplated by this Section 4(d)(6) and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim (provided, however, that the Executive may participate therein at his own cost and expense) and may, at its option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay the tax claimed and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income or other tax, including interest or penalties with respect thereto, imposed with respect to such advance; and provided further, however, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of any such contested claim shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (7) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 4(d)(6), the Executive receives any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 4(d)(6) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after any taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 4(d)(6), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial or refund prior to the expiration of 30 calendar days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of any such advance shall offset, 12 13 to the extent thereof, the amount of Gross-Up Payment required to be paid by the Company to the Executive pursuant to this Section 4(d). (8) Notwithstanding any provision of this Agreement to the contrary, if (a) but for this sentence, the Company would be obligated to make a Gross-Up Payment to the Executive, (b) the aggregate "present value" of the "parachute payments" to be paid or provided to the Executive under this Agreement or otherwise does not exceed 1.15 multiplied by three times the Executive's "base amount," and (c) but for this sentence, the net after-tax benefit to the Executive of the Gross-Up Payment would not exceed $50,000 (taking into account both income taxes and any Excise Tax), then the payments and benefits to be paid or provided under this Agreement will be reduced to the minimum extent necessary (but in no event to less than zero) so that no portion of any payment or benefit to the Executive, as so reduced, constitutes an "excess parachute payment." For purposes of this Section 4(d)(8), the terms "excess parachute payment," "present value," "parachute payment," and "base amount" will have the meanings assigned to them by Section 280G of the Code. The determination of whether any reduction in such payments or benefits to be provided under this Agreement is required pursuant to the preceding sentence will be made at the expense of the Company, if requested by the Executive or the Company, by the Accounting Firm. The fact that the Executive's right to payments or benefits may be reduced by reason of the limitations contained in this Section 4(d)(8) will not of itself limit or otherwise affect any other rights of the Executive other than pursuant to this Agreement. In the event that any payment or benefit intended to be provided under this Agreement or otherwise is required to be reduced pursuant to this Section 4(d)(8), the Executive will be entitled to designate the payments and/or benefits to be so reduced in order to give effect to this Section 4(d)(8). The Company will provide the Executive with all information reasonably requested by the Executive to permit the Executive to make such designation. In the event that the Executive fails to make such designation within 10 business days of the date of termination of the Executive's employment, the Company may effect such reduction in any manner it deems appropriate. 5. SEVERANCE: In the event that the Company communicates Notice of Termination Without Good Cause or Notice of Non-Renewal Without Good Cause, or the Executive communicates Notice of Resignation for Good Reason, the Company agrees to pay the Executive the following severance compensation (the "Severance Pay"): a. CALCULATION OF SEVERANCE PAY. The Company shall pay the Executive 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 Annual Payout of Incentive Compensation paid for the Plan Year immediately prior to the termination, or (y) the full, non-pro rata Annual Target Award for Incentive Compensation based upon Executive's annual Base Salary for the Plan Year in which the termination occurs. b. TERMS OF PAYMENT: Severance Pay required pursuant to this section shall be payable in cash in full within thirty (30) days after the Notice of Termination Without Good Cause, the Notice of Non-Renewal Without Good Cause, or the Notice of Resignation for Good Reason is communicated. 13 14 c. 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 provided in Subsections 1(d) (2), (4), (5), (6), (7), (8), and (9) received by the Executive during his employment with the Company, as modified pursuant to the terms of Subsection l(d), for twenty-four (24) months after the effective date of termination, non-renewal or resignation. If the Executive cannot continue coverage under the Medical Plan, the Company agrees to purchase medical, dental, and vision insurance for the Executive and his dependents that is substantially equivalent to the benefits provided to Executive in Subsection 1(d)(2). Additionally, Executive shall be permitted to continue participation in the benefits provided in Subsection 1(d)(1) to the extent permitted by law so as not to cause disqualification of the 401 k Plan and 1(d)(3) without further Company contributions, except earnings on contributions made prior to termination and except contributions the Company is required to make to ensure that such benefits are fully funded for service prior to termination. d. 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 Subsections 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 Subsection 2(c)(3), and such termination or non-renewal is affirmed by a proceeding under Section 10; 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 Subsection 2(c)(5). e. 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. f. MITIGATION: The payment of the severance compensation by the Company to the Executive in accordance with Sections 4 and 5 of this Agreement is hereby acknowledged by the Company to be reasonable, and the Executive will not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor will any profits, income, earnings or other benefits from any source whatsoever create any mitigation, offset, reduction or any other obligation on the part of the Executive hereunder or otherwise. 6. STOCK INCENTIVES AND AWARDS: In addition to the other compensation set 14 15 forth in this Agreement, the Company agrees to grant the Executive stock options, incentives and awards as provided in the LTSI Plan, as well as such other stock option plans, incentives and awards that may be adopted by the Board of Directors of the Company. Executive shall be entitled to participate in such stock options plans, incentives and awards on terms applicable to other officers and directors of the Company, except that the Company may provide for additional benefits, incentives, or awards to Executive and except that the following shall apply to any options granted to Executive after the Effective Date of this Agreement: a. DEATH AND DISABILITY. If Executive dies or becomes disabled during the term of this Agreement, (1) all unvested options as of the date of such death or disability shall vest immediately; and (2) Executive (or his legal representative or Estate) may exercise such options in accordance with the exercise period prescribed in the stock option plan or twelve (12) months from such death or disability, whichever is longer. b. RETIREMENT. If Executive retires (as defined in the 401 k plan, except that, for purposes of this Section, the service requirement will be modified to be no more than ten (10) years and the age requirement will be no more than age 55), (1) all unvested options as of the date of such retirement shall vest immediately; and (2) Executive (or his Estate) may exercise such options in accordance with the exercise period prescribed in the stock incentive and award plan or thirty-six (36) months, whichever is longer. Further, notwithstanding anything to the contrary herein, nothing in this First Amended Executive Employment Agreement will affect to the Executive's disadvantage any non-qualified stock options previously granted to Executive, whether under the Executive Employment Agreement between Executive and the Company or otherwise. 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 Subsection 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 and shall advance and pay any expenses incurred in defending such claims, to the fullest extent permissible under the laws of the State of Delaware. In addition, the Company agrees to purchase officer and director 15 16 liability insurance, with such reasonable exclusions that are acceptable to the Executive, 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. In the event that the Company elects to self-insure for any 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 the performance of his duties as an officer and director of the Company, the Company agrees to purchase and maintain an adequate, secured letter of credit from an institution acceptable to the Executive as security for the Company's performance under this section and to fully indemnify the Executive for any such liabilities, as provided herein. 9. NON-COMPETITION AND NON-DISCLOSURE: The Company and the Executive agree as follows: a. During the term of this Agreement, the Company agrees that it will disclose to Executive Confidential Information, as defined in this section, to the extent necessary for Executive to carry out his obligations to the Company. 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 or a member of the Board of Directors 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 law. b. In the event that Executive's employment under 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 the Original Agreement. c. For purposes of this Agreement, the term "Confidential Information" shall be defined as any information relating to the business of the Company or its subsidiaries which is not generally available to the public and which the Company takes affirmative steps to maintain as confidential. The term shall not include any information that the Executive was aware of prior to November 15, 1994, 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. 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 16 17 Cause, as defined in Subsection 2(c)(3); or (ii) the resignation of the Executive "Without Good Reason," as defined by Subsection 2(c)(5), the Executive covenants and agrees not to compete with the Company for twelve (12) calendar months subsequent to such termination 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 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 a "Resignation Without Good Reason." e. Unless the Board of Directors provides prior written approval, for one (1) year following the termination of the Executive's employment, 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. DISPUTE RESOLUTION: 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 submitted to non-binding arbitration in the city of Dallas, Texas in accordance with procedures or rules established by the American Arbitration Association. The Executive and the Company agree that either party must request such non-binding 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 non-binding arbitration ("Arbitration Notice"). If both parties fail to give such Arbitration Notice, either party may proceed to seek judicial relief in a court of competent jurisdiction located in Dallas County, Texas. b. In the event that any dispute arising under this Agreement concerns the amount of any payment required to be made under any provision of this Agreement, either party agrees to pay the undisputed portion of the payment to the other party and deposit the disputed portion of the payment in an interest bearing account with a financial institution acceptable to the other party within five (5) days after either party effectively communicates its Arbitration Notice or files an original petition or complaint in a court of competent jurisdiction. c. At the election of both the Executive and the Company, all claims or controversies subject to arbitration under this Agreement may be submitted to final and binding arbitration in accordance with the applicable Rules of the American Arbitration Association. d. In any dispute arising under the terms of this Agreement, without regard to 17 18 whether such dispute proceeds to arbitration or litigation, the Company will reimburse the Executive for reasonable and necessary attorney's fees up to a maximum amount of Forty Thousand Dollars ($40,000.00), unless a court of competent jurisdiction (or the Arbitrator, if the parties so elect according to Subsection 10(c)), finds that the Executive's position in such proceeding was frivolous. 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. 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, except as expressly provided herein, 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. 18 19 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: Craig R. Lentzsch Greyhound Lines Inc. 6606 Waggoner Drive 15110 North Dallas Parkway Dallas, Texas 75230 Dallas, Texas 75248 Attn: General Counsel With a copy to: With a copy to: Robert E. Sheeder, Esq. Chairman of the Board of Directors 1445 Ross Avenue, Suite 3200 Board of Directors Dallas, Texas 75202 Greyhound Lines Inc. 15110 North Dallas Parkway Dallas, Texas 75248 EXECUTED on this _____ day of ________________, 1998. CRAIG R. LENTZSCH -------------------------------- GREYHOUND LINES, INC. By: ----------------------------- Title: -------------------------- 19 EX-10.2 4 1ST AMENDED EXECUTIVE EMPLOYMENT AGREEMENT 1 EXHIBIT 10.2 FIRST AMENDED EXECUTIVE EMPLOYMENT AGREEMENT This FIRST AMENDED EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of the _____ day of __________________, 1998, to be effective November 15, 1998 (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 Executive and the Company entered into an Executive Employment Agreement (the "Original Agreement"), which was effective May 15, 1995; and WHEREAS, the Company desires and intends to continue 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. 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 $305,000.00 (the "Base Salary"), payable in at least equal monthly installments in accordance with the Company's ordinary payroll policies and procedures for executive compensation. The Company and the Executive acknowledge that during the employment of the Executive pursuant to this Agreement, the Executive's Base Salary will be subject to an annual review and adjustment by the Board of Directors of the Company (the "Board of Directors") but, in no event, will the Executive's annual Base Salary be less than the amount set forth in this section. b. BUSINESS EXPENSES: The Company agrees that the Executive shall be entitled to reimbursement by the Company for all reasonable expenses (including first class air travel) 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. INCENTIVE BONUS: The Company agrees that the Executive shall be entitled to additional bonus compensation (the "Incentive Compensation") on terms not less favorable than those applicable to other officers of the Company (other than the President and Chief Executive 2 Officer of the Company). For the year ending December 31, 1998 and subsequent years, the Executive shall be eligible for annual incentive bonus consideration under the 1998 Management Incentive Plan (or its successor), starting with the 1998 plan year and continuing thereafter for the duration of this Agreement with an annual Target Award of at least 45% of Base Salary for each respective year. d. 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, and the Executive shall be entitled to participate in all benefits provided to officers of the Company on terms not less favorable than to other officers of the Company (other than the President and Chief Executive Officer of the Company). The Company agrees, however, that to the extent not prohibited by law, the Company will provide Executive the benefits listed in this Subsection and that the following provisions shall apply to any employee benefits provided by the Company: (1) SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN: For purposes of the Greyhound Lines, Inc. Supplemental Executive Retirement Plan (the "SERP"), all of the Executive's prior service with Greyhound Lines, Inc. will be credited for all purposes under the SERP, the Executive shall be a designated person eligible for coverage and benefits under the SERP as of the Effective Date, and the Executive shall be entitled to an annual contribution of 20% of Executive's annual Base Salary. Within ninety (90) days of the Effective Date of this Agreement, the Company shall establish and fully fund a trust for the benefit of the Executive to secure the payment of benefits provided to the Executive under this Subsection. (2) 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. (3) LIFE INSURANCE: At all times during the term of this Agreement, Executive will receive life insurance coverage as provided by the Company on terms not less favorable than that provided to other executives of the Company. In addition to any life insurance provided pursuant to the preceding sentence, 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 Subsection must be the company or companies that underwrite life insurance benefits covering other officers of the Company. (4) 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. (5) COUNTY CLUB DUES: The Company agrees to pay all initiation fees and monthly membership dues on behalf of the Executive at a country club mutually selected by the Executive and the Company. 2 3 (6) ESTATE, TAX AND FINANCIAL PLANNING: During the term of his employment with the Company, the Executive shall be entitled to $15,000 per year for estate, tax and financial planning. Such reimbursement payments shall be paid by the Company within a reasonable time after such expenses are incurred by the Executive. (7) LONG TERM DISABILITY: The Company will provide Executive long-term disability coverage and benefits on terms which are not less favorable than that provided to other executives of the Company but which will provide an annual disability benefit to the Executive of at least fifty percent (50%) of his expected annual Base Salary, payable for the year during which Executive was disabled. (8) VACATION: The Company will provide vacation to the Executive on terms not less favorable than that provided to executive officers of the Company. For purposes of determining the amount of vacation, Executive's prior service with Greyhound Lines, Inc. (or any affiliate of Greyhound Lines, Inc.) shall be deemed to be service with the Company. (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. 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 three (3) years (the "Initial Term"), commencing on the Effective Date and expiring on November 14, 2001 (the "Expiration Date"), unless terminated prior to the Expiration Date in accordance with Subsection 2(c). b. RENEWAL: Notwithstanding Subsection 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. At the expiration of each Renewal Term, this Agreement shall automatically renew for another two (2) year Renewal Term, unless and until either gives Notice of Non-Renewal. If any Change of Control (as hereafter defined) occurs on or after November 15, 1999, this Agreement will be deemed to have renewed for a two (2) year period, and in such event, the Expiration Date(s) will occur every two years from the date of such Change of Control. c. TERMINATION AND NON-RENEWAL: This Agreement may be terminated as follows: (1) DEATH: The Agreement will terminate in the event of the Executive's death, provided, however, that the Executive's estate shall be paid (a) the Base Salary through the 3 4 date of death and (b) a pro rata portion of the entire Annual Target Award of Incentive Compensation (based upon the Executive's annual Base Salary), payable when the Incentive Compensation payments are made to other executives of the Company. The pro rata share will be calculated by the month of the date of death (e.g., if the Executive's death should occur in July, the Executive's estate shall receive 7/12 of the Annual Target Award of Incentive Compensation based upon the Executive's annual Base Salary). 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 Subsection l(d)(3) 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. The Executive will be paid his Base Salary through the expiration of such one hundred eighty day period and a pro rata portion of the entire Annual Target Award of Incentive Compensation (based upon the Executive's annual Base Salary) in accordance with the previous Subsection. (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 Tenn or Extension. (c) For purposes of this Agreement, "Good Cause" shall be defined as follows: i) Any act or omission constituting fraud under the law of the State of Texas; or ii) Conviction of, or a plea of nolo contendere to, a felony; or iii) Use of illegal drugs; or iv) Embezzlement of Company property or funds; or v) The material breach of any provision of this Agreement; or continued gross neglect of his duties under this Agreement; or unauthorized competition with the Company during his employment 4 5 pursuant to this Agreement; or unauthorized use of Confidential Information (as defined in Section 9); which, in any event, 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 the Dispute Resolution procedures set forth in Section 10. (4) WITHOUT GOOD CAUSE: (a) The Company shall be entitled to terminate the Executive's employment under 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 of employment or non-renewal of this Agreement which is not for "Good Cause," as defined above in Subsection 2(c)(3), or which does not result from the death or retirement 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 Subsection 2(c)(3)(f)] or an arbitration or a final, non-appealable judicial proceeding [under Section 10] 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 5 6 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 his employment under this Agreement by providing the Company with a written Notice of Resignation at least ninety (90) days prior to his intended resignation date, subject to the following provisions: (a) RESIGNATION FOR GOOD REASON: The Executive shall have the right to resign for any "Good Reason," as defined herein, and such resignation shall be deemed to be a termination "Without Good Cause" as defined in Subsection 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 authority, duties, or 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; or 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 6 7 Change of Control provisions in Section 4 (except during the thirteenth month following the Change of Control as provided in Section 4) and the Severance provisions in Section 5 shall be inapplicable. 3. RESPONSIBILITIES: The Executive and the Company acknowledge and agree that the Executive 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 report to the President and Chief Executive Officer of the Company. 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, the support of the Board of Directors, and the continued execution of the current business strategy of 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 INCENTIVES AND AWARDS: In the event of a Change of Control, as defined in this section, all Stock Incentives and Awards provided in Section 6 of this Agreement shall immediately become vested and exercisable, all other equity incentive awards held by the Executive shall become fully vested and all other stock options held by the Executive shall become fully exercisable, effective on the date of the Change of Control or at such other time as is necessary to permit the Executive to be treated with respect to vesting and exercisability no less favorably than other shareholders. b. COMPENSATION: In the event that the employment of the Executive is terminated: (1) at any time within twenty four (24) months after the date of a Change of Control, as defined in this section, by: (i) the Company communicating a Notice of Termination Without Good Cause; (ii) the Company communicating a Notice of Non-Renewal Without Good Cause, or (iii) the Executive communicating a Notice of Resignation for Good Reason; or (2) by the resignation of the Executive, whether with or without Good Reason, within thirty (30) days of the first Anniversary Date (i.e., one year from the date) of a Change of Control, the Company agrees to pay to the Executive a lump sum cash payment equal to three (3) times the sum of: (x) an amount equal to the Executive's then current, annualized Base Salary, and (y) the greater of: (a) the applicable Annual Payout of Incentive Compensation paid for the Plan Year immediately prior to the termination, or (b) the full, non-pro rata Annual Target Award for Incentive Compensation based upon Executive's annual Base Salary for the Plan Year in which the termination occurs, which payment shall be paid within thirty (30) days after the effective 7 8 date of termination, non-renewal or resignation. The Company further agrees to pay benefits to the Executive as provided in Subsection 5(d) for a period of thirty-six (36) months. c. DEFINITIONS: For purposes of this Agreement and notwithstanding anything in this Agreement to the contrary, a "Change of Control" shall be deemed to occur at the same moment that a Change of Control is determined to have occurred according to the definition of a Change of Control in the Greyhound Lines, Inc. 1995 Long Term Stock Incentive Plan (the "LTSI Plan") as that term is so defined as of the Effective Date of this Agreement and the additional definitions contained in this Section. Any change in the definition of the Change of Control in the LTSI Plan shall not be effective with respect to Executive for purposes of this Agreement without the prior written approval of Executive. For purposes of this Agreement and notwithstanding anything in this Agreement to the contrary, a Change of Control will also be deemed to exist in the event that any of the following occurs: (1) the persons who were members of the Board of Directors immediately prior to a tender offer, exchange offer, contested election or any combination of the foregoing, cease at any time within twelve (12) months thereafter, to constitute a majority of the Board of Directors; or (2) a change in control is reported by the Company in response to either Item 6(a) of Schedule 14A of Regulations 14A promulgated under the Exchange Act or Item 1 of Form 8-K promulgated under the Exchange Act, which change in control has not been approved by a majority of the Board of Directors then in office who were directors at the beginning of two-year period ending on the date the reported change in control occurred. For purposes of this Subsection, a sale of all or substantially all of the assets of the Company shall be deemed to occur if any corporation, person or group acting in concert (a "Person") as described in Subsection 14(d)(2) of the Securities Exchange Act of 1934, as amended, acquires (or during the 12-month period on the date of the most recent acquisition by such Person, has acquired) gross assets of the Company that have an aggregate fair market value equal to 50% of the fair market value of all of the gross assets of the Company immediately prior to such acquisition(s). For purposes of this Agreement and notwithstanding anything in this Agreement to the contrary, 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 the LTSI Plan or this Subsection. d. In the event a definition of Change of Control is adopted which is more favorable to the Executive than the definition set forth in Subsection 4(c), in any stock option plan or in employment agreements applying to any Company executives, other than the President and Chief Executive Officer, at the option of the Executive through written notice to the Company at any time prior to the expiration of 180 days following the occurrence of a Change of Control, such language will immediately supersede and replace the language set forth in Subsection 4(c). 8 9 e. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (1) Anything in this Agreement to the contrary notwithstanding, but subject to Section 4(d)(8), in the event that it shall be determined (as hereafter provided) that any payment (other than the Gross-Up payments provided for in this Section 4(e)) or distribution by the Company or any of their affiliates to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, performance share, performance unit, stock appreciation right or similar right, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or any successor provision thereto) by reason of being considered "contingent on a change in ownership or control" of the Company, within the meaning of Section 280G of the Code (or any successor provision thereto) or to any similar tax imposed by state or local law, or any interest or penalties with respect to such tax (such tax or taxes, together with any such interest and penalties, being hereafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment or payments (collectively, a "Gross-Up Payment"); provided, however, that no Gross-up Payment shall be made with respect to the Excise Tax, if any, attributable to (a) any incentive stock option, as defined by Section 422 of the Code ("ISO") granted prior to the initial execution of the Original Agreement, or (b) any stock appreciation or similar right, whether or not limited, granted in tandem with any ISO described in clause (a). The Gross-Up Payment shall be in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. (2) Subject to the provisions of Section 4(d)(6), all determinations required to be made under this Section 4(e), including whether an Excise Tax is payable by the Executive and the amount of such Excise Tax and whether a Gross-Up Payment is required to be paid by the Company to the Executive and the amount of such Gross-Up Payment, if any, shall be made by a nationally recognized accounting firm (the "Accounting Firm") selected by the Executive in his sole discretion. The Executive shall direct the Accounting Firm to submit its determination and detailed supporting calculations to both the Company and the Executive within 30 calendar days after the date of termination of the Executive's employment, if applicable, and any such other time or times as may be requested by the Company or the Executive. If the Accounting Firm determines that any Excise Tax is payable by the Executive, the Company shall pay the required Gross-Up Payment to the Executive within five business days after receipt of such determination and calculations with respect to any Payment to the Executive. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall, at the same time as it makes such determination, furnish the Company and the Executive an opinion that the Executive has substantial authority not to report any Excise Tax on his federal, state or local income or other tax return. As a result of the uncertainty in the application of Section 4999 of the Code (or any successor provision thereto) and the possibility of similar uncertainty regarding applicable state or local tax law at the time of any determination by the Accounting Firm hereunder, it is 9 10 possible that Gross-Up Payments which will not have been made by the Company should have been made (an "Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts or fails to pursue its remedies pursuant to Section 4(d)(6) and the Executive thereafter is required to make a payment of any Excise Tax, the Executive shall direct the Accounting Firm to determine the amount of the Underpayment that has occurred and to submit its determination and detailed supporting calculations to both the Company and the Executive as promptly as possible. Any such Underpayment shall be promptly paid by the Company to, or for the benefit of, the Executive within five business days after receipt of such determination and calculations. (3) The Company and the Executive shall each provide the Accounting Firm access to and copies of any books, records and documents in the possession of the Company or the Executive, as the case may be, reasonably requested by the Accounting Firm, and otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determinations and calculations contemplated by Section 4(d)(2). Any determination by the Accounting Firm as to the amount of the Gross-Up Payment shall be binding upon the Company and the Executive. (4) The federal, state and local income or other tax returns filed by the Executive shall be prepared and filed on a consistent basis with the determination of the Accounting Firm with respect to the Excise Tax payable by the Executive. The Executive shall make proper payment of the amount of any Excise Payment, and at the request of the Company, provide to the Company true and correct copies (with any amendments) of his federal income tax return as filed with the Internal Revenue Service and corresponding state and local tax returns, if relevant, as filed with the applicable taxing authority, and such other documents reasonably requested by the Company, evidencing such payment. If prior to the filing of the Executive's federal income tax return, or corresponding state or local tax return, if relevant, the Accounting Firm determines that the amount of the Gross-Up Payment should be reduced, the Executive shall within five business days pay to the Company the amount of such reduction. (5) The fees and expenses of the Accounting Firm for its services in connection with the determinations and calculations contemplated by Section 4(d)(2) shall be borne by the Company. If such fees and expenses are initially paid by the Executive, the Company shall reimburse the Executive the full amount of such fees and expenses within five business days after receipt from the Executive of a statement therefor and reasonable evidence of his payment thereof. (6) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as promptly as practicable but no later than 10 business days after the Executive actually receives notice of such claim and the Executive shall further apprise the Company of the nature of such claim and the date on which such claim is requested to be paid (in each case, to the extent known by the Executive). The Executive shall not pay such claim prior to the earlier of (a) the expiration of the 30-calendar-day period following the date on which he gives such notice to the Company and (b) the date that any payment of amount with respect to such claim is due. If the Company 10 11 notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) provide the Company with any written records or documents in his possession relating to such claim reasonably requested by the Company; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including without limitation accepting legal representation with respect to such claim by an attorney competent in respect of the subject matter and reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including interest and penalties) incurred in connection with such contest and shall indemnify and hold harmless the Executive, on an after-tax basis, for and against any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limiting the foregoing provisions of this Section 4(d)(6), the Company shall control all proceedings taken in connection with the contest of any claim contemplated by this Section 4(d)(6) and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim (provided, however, that the Executive may participate therein at his own cost and expense) and may, at its option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay the tax claimed and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income or other tax, including interest or penalties with respect thereto, imposed with respect to such advance; and provided further, however, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of any such contested claim shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (7) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 4(d)(6), the Executive receives any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 4(d)(6)) promptly pay to the Company the amount of such refund (together with any 11 12 interest paid or credited thereon after any taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 4(d)(6), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial or refund prior to the expiration of 30 calendar days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of any such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid by the Company to the Executive pursuant to this Section 4(e). (8) Notwithstanding any provision of this Agreement to the contrary, if (a) but for this sentence, the Company would be obligated to make a Gross-Up Payment to the Executive, (b) the aggregate "present value" of the "parachute payments" to be paid or provided to the Executive under this Agreement or otherwise does not exceed 1.15 multiplied by three times the Executive's "base amount," and (c) but for this sentence, the net after-tax benefit to the Executive of the Gross-Up Payment would not exceed $50,000 (taking into account both income taxes and any Excise Tax), then the payments and benefits to be paid or provided under this Agreement will be reduced to the minimum extent necessary (but in no event to less than zero) so that no portion of any payment or benefit to the Executive, as so reduced, constitutes an "excess parachute payment." For purposes of this Section 4(d)(8), the terms "excess parachute payment," "present value," "parachute payment," and "base amount" will have the meanings assigned to them by Section 280G of the Code. The determination of whether any reduction in such payments or benefits to be provided under this Agreement is required pursuant to the preceding sentence will be made at the expense of the Company, if requested by the Executive or the Company, by the Accounting Firm. The fact that the Executive's right to payments or benefits may be reduced by reason of the limitations contained in this Section 4(d)(8) will not of itself limit or otherwise affect any other rights of the Executive other than pursuant to this Agreement. In the event that any payment or benefit intended to be provided under this Agreement or otherwise is required to be reduced pursuant to this Section 4(d)(8), the Executive will be entitled to designate the payments and/or benefits to be so reduced in order to give effect to this Section 4(d)(8). The Company will provide the Executive with all information reasonably requested by the Executive to permit the Executive to make such designation. In the event that the Executive fails to make such designation within 10 business days of the date of termination of the Executive's employment, the Company may effect such reduction in any manner it deems appropriate. 5. SEVERANCE: Severance shall be paid as follows: a. NON-RENEWAL WITHOUT GOOD CAUSE: In the event that the Agreement is not renewed by the Company (except where the renewal is for Good Cause), the Company shall pay the severance required by Subsection 5(b) in accordance with Subsection 5(c) and continue the benefits as required by Subsection 5(d). b. RESIGNATION FOR GOOD REASON OR TERMINATION WITHOUT GOOD CAUSE: In the event the Company terminates this Agreement without "Good Cause," as defined in Subsection 2(c)(3), or the Executive resigns for "Good Reason," the Executive shall be entitled to receive a lump sum payment equal to two (2) times the sum of: (i) an amount equal to his then current, 12 13 annualized Base Salary, and (ii) the greater of: (x) the applicable Annual Payout of Incentive Compensation paid for the Plan Year immediately prior to the termination, or (y) the full non-pro rata Annual Target Award for Incentive Compensation based upon Executive's annual Base Salary for the Plan Year in which the termination occurs. 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. 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 benefits as provided in the Greyhound Lines, Inc. Medical Plan and Subsections 1(d)(2) through (8) of this Agreement, as modified pursuant to the terms of Subsection l(d), for twenty-four (24) months after the effective date of termination, non-renewal or resignation. Additionally, Executive shall be permitted to continue participation in the benefits provided in Subsection 1(d)(1) to the extent permitted by law so as not to cause disqualification of the 401 k Plan and 1(d)(3) without further Company contributions, except earnings on contributions made prior to termination and except contributions the Company is required to make to ensure that such benefits are fully funded for service prior to termination. 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 Subsections 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 Subsection 2(c)(3), and such termination or non-renewal is affirmed by both the President/Chief Executive Officer (if applicable), and by the Dispute Resolution procedures set forth in Section 10; 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 Subsection 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. g. MITIGATION: The payment of the severance compensation by the Company to the 13 14 Executive in accordance with Sections 4 and 5 of this Agreement is hereby acknowledged by the Company to be reasonable, and the Executive will not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor will any profits, income, earnings or other benefits from any source whatsoever create any mitigation, offset, reduction or any other obligation on the part of the Executive hereunder or otherwise. 6. STOCK INCENTIVES AND AWARDS: In addition to the other compensation set forth in this Agreement and in addition to stock incentives and awards that were granted under the terms of the Original Agreement, the Company agrees to grant the Executive stock incentive and awards as provided in the LTSI Plan, as well as such other stock incentive and award plans that may be adopted by the Board of Directors of the Company. Executive shall be entitled to participate in such stock incentives and awards plans on terms not less favorable than to other officers and directors of the Company (except for the President and Chief Executive Officer of the Company), except that the Company may provide for additional benefits, incentives, or awards to Executive and except that the following shall apply to any options granted to Executive after the Effective Date of this Agreement: a. DEATH AND DISABILITY: If Executive dies or becomes disabled during the term of this Agreement, (1) all unvested options as of the date of such death or disability shall vest immediately; and (2) Executive (or his legal representative or Estate) may exercise such options in accordance with the exercise period prescribed in the stock incentive and award plan or twelve (12) months from such death or disability, whichever is longer. b. RETIREMENT: If Executive retires (as defined in the 401 k plan, except that, for purposes of this Section, the service requirement will be modified to be no more than ten (10) years and the age requirement will be no more than age 55), (1) all unvested options as of the date of such retirement shall vest immediately; and (2) Executive (or his Estate) may exercise such options in accordance with the exercise period prescribed in the stock incentive and award plan or thirty-six (36) months, whichever is longer. Further, notwithstanding anything to the contrary herein, nothing in this First Amended Executive Employment Agreement will affect to the Executive's disadvantage any non-qualified stock incentive and awards previously granted to Executive, whether under the Original Agreement between Executive and the Company or otherwise. 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 Subsection 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 incentives and awards) due 14 15 to the Executive under this Agreement. 8. INDEMNIFICATION: During and after the employment of the Executive pursuant to this Agreement, the Company shall indemnify the Executive against all judgments, penalties, fines, assessments, losses, amounts paid in settlement and reasonable expenses (including, but not limited to, attorneys' fees) for which the Executive may become liable as a result of his performance of his duties and responsibilities pursuant to this Agreement and shall advance and pay any expenses incurred in defending such claims, 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 the term of this Agreement, the Company agrees that it will disclose to Executive Confidential Information, as defined in this section, to the extent necessary for Executive to carry out his obligations to the Company. 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 or a member of the Board of Directors 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 law. b. In the event that Executive's employment under 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 the Original Agreement. c. For purposes of this Agreement, the term "Confidential Information" shall be defined as any information relating to the business of the Company or its subsidiaries which is not generally available to the public and which the Company takes affirmative steps to maintain as confidential. The term shall not include any information that the Executive was aware of prior to May 15, 1995, 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. 15 16 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 Subsection 2(c)(3); or (ii) the resignation of the Executive "Without Good Reason," as defined by Subsection 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, nonrenewal 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. DISPUTE RESOLUTION: 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 submitted to non-binding arbitration in the city of Dallas, Texas in accordance with procedures or rules established by the American Arbitration Association. The Executive and the Company agree that either party must request such non-binding 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 non-binding arbitration ("Arbitration Notice"). If both parties fail to give such Arbitration Notice, either party may proceed to seek judicial relief in a court of competent jurisdiction located in Dallas County, Texas. b. 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 16 17 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 or files an original petition or complaint in a court of competent jurisdiction. c. At the election of both the Executive and the Company, all claims or controversies subject to arbitration under this Agreement may be submitted to final and binding arbitration in accordance with the applicable Rules of the American Arbitration Association. d. In any dispute arising under the terms of this Agreement, without regard to whether such dispute proceeds to arbitration or litigation, the Company will reimburse the Executive for reasonable and necessary attorney's fees up to a maximum amount of Forty Thousand Dollars ($40,000.00), unless a court of competent jurisdiction (or the Arbitrator, if the parties so elect according to Section 10), finds that the Executive's position in such proceeding was frivolous. 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, except as expressly provided herein, 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. 17 18 e. EXECUTION: The parties agree that this Agreement may be executed in multiple counterparts, each of which shall be deemed an original for all purposes. f. HEADINGS: The parties agree that the subject headings set forth at the beginning of each section in this Agreement are provided for ease of reference only, and shall not be utilized for any purpose in connection with the construction, interpretation or enforcement of this Agreement. 12. LEGAL CONSULTATION: The parties acknowledge and agree that both parties have been accorded a reasonable opportunity to review this Agreement with legal counsel prior to executing the agreement. 13. NOTICES: The parties acknowledge and agree that any and all Notices required to be delivered under the terms of this Agreement shall be forwarded by personal delivery or certified U.S. mail. Either party may change their respective address for the purpose of receiving notices only by providing written notification via certified mail, five (5) days in advance of such change. Notices shall be deemed to be communicated and effective on the day of receipt. Such Notices shall be addressed to each party as follows: John Werner Haugsland Greyhound Lines, Inc. 17824 Cedar Creek Canyon 15110 No. Dallas Parkway Dallas, Texas 75252 Dallas, Texas 75248 Attn: General Counsel With a copy to: Robert E. Sheeder, Esq. Craig R. Lentzsch 1445 Ross Avenue, Suite 3200 President and Chief Dallas, Texas 75202 Executive Officer Greyhound Lines, Inc. 15110 North Dallas Parkway Dallas, Texas 75248 18 19 EXECUTED on this ____ day of _________________, 1998. JOHN WERNER HAUGSLAND -------------------------------- GREYHOUND LINES, INC. By: ----------------------------- Title: -------------------------- 19 EX-10.3 5 SEVERANCE PAY PROGRAM 1 EXHIBIT 10.3 GREYHOUND LINES, INC. CHANGE IN CONTROL SEVERANCE PAY PROGRAM OCTOBER 16, 1998 2 GREYHOUND LINES, INC., a Delaware corporation (hereinafter the "Company") hereby adopts the GREYHOUND LINES, INC. CHANGE IN CONTROL SEVERANCE PAY PROGRAM (hereinafter the "Program"), effective October 16, 1998 for the benefit of eligible employees as described herein. The Program is an unfunded welfare benefit plan for purposes of the Employee Retirement Income Security Act of 1974, as amended (hereinafter "ERISA") and a severance pay plan within the meaning of the United States Department of Labor regulations section 2510.3-2(b). The Company considers it essential to the best interests of the Company and its shareholders that, in the event of a "Change in Control" (as defined in Section 2 hereof), its management be encouraged to remain with the Company and to continue to devote full attention to the Company's business. This Program sets forth the severance benefits which the Company agrees will be provided to eligible employees in the event their employment with the Company is terminated either by the employee for "Good Reason" or by the Company "Without Cause" (both as defined in Section 3 hereof) within a two year period immediately following any Change in Control of the Company. In the event that a Change in Control of the Company does not occur, severance benefits, if any, shall be determined, without regard to this Program. 1. ELIGIBILITY. This Program applies to all full-time employees of the Company, Job Grades 15, 16, 17 and 18, not represented by a union for purposes of collective bargaining. 2. CHANGE IN CONTROL. No benefits shall be payable hereunder unless: (i) a Change in Control of the Company occurs; and (ii) an eligible employee's employment with the Company is terminated within two years thereafter either by the employee for Good Reason or by the Company Without Cause. This Program is not intended to apply to termination of employment by reason of Death, Disability or Cause (as defined in Section 3 hereof). For purposes of this Program, a "Change in Control" of the Company shall mean: (a) The acquisition by any person (defined for the purposes of this definition to mean any person within the meaning of Section 13(d) of the Securities Exchange Act of 1934 and the regulations thereunder (the "Exchange Act")), other than the Company or an employee benefit plan created by the Board of Directors of the Company (the "Board") for the benefit of its employees, either directly or indirectly, of the beneficial ownership (determined under Rule 13d-3 of the regulations promulgated by the SEC under Section 13(d) of the Exchange Act) of securities issued by the Company having 30% or more of the voting power of all the voting securities issued by the Company in the election of directors at the next meeting of the holders of voting securities to be held for such purpose; or (b) The election of a majority of the directors to the Board elected at any meeting of the holders of voting securities of the Company who are persons who were not nominated for 3 such election by the Board or a duly constituted committee of the Board having authority in such matters; or (c) 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 (d) 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. The first date upon which a Change in Control as defined above takes place shall be known as the "Effective Date." Anything in this Program to the contrary notwithstanding, if a Change in Control occurs and if an eligible employee's employment with the Company is terminated prior to the date on which the Change in Control occurs, and if it is reasonably demonstrated by the employee that such termination (i) was at the request of a third party who had taken steps reasonably calculated to effect a Change in Control or (ii) was by the Company and arose with or in anticipation of a Change in Control, then for all purposes of this Program, employment shall be deemed to have been terminated by the Company Without Cause under Section 3(e) of this Program. 3. TERMINATION OF EMPLOYMENT. An eligible employee's employment with the Company shall or may be terminated, as the case may be, for any of the following reasons: (a) Death. Termination of employment with the Company due to death; (b) Disability. Termination of employment with the Company either by the eligible employee or the Company after the employee is physically or mentally incapacitated for a period of (i) 180 consecutive days, or (ii) 180 days in any 360 day period, such that the employee cannot substantially perform his or her duties of employment with the Company on a full-time basis, with reasonable accomodation; (c) Cause. Termination of the eligible employee's employment with the Company at any time for Cause. For purposes of this Program, "Cause" shall mean: (i) Any act or omission constituting fraud under the laws of the State of Texas or the State of the employee's primary employment; or (ii) Conviction of, or a plea of nolo contendere to, a felony; or 4 (iii) Use of illegal drugs; or (iv) Embezzlement of Company property or funds; or (v) Gross neglect of duties with the Company. (d) Good Reason. An eligible employee may terminate his or her employment with the Company for Good Reason. For purposes of this Program, "Good Reason" shall mean: (i) a substantial diminishment of an employee's duties and authority (except at the employee's request), other than an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after the receipt of notice thereof given by the employee; or (ii) any failure by the Company to continue to provide the eligible employee with an annual base salary, employee benefits and an opportunity to earn incentive and bonus compensation equal or greater to that which was provided to the employee by the Company immediately prior to the Effective Date other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after the receipt of notice thereof given by the employee; or (iii) The Company requiring a Dallas, Texas-based eligible employee without his or her written consent to be based at or generally work from any location more than 25 miles outside of Dallas County, Texas; or (iv) any failure by the Company to comply with and satisfy Section 9 of this Program. (e) Without Cause. The Company may terminate the employment of an eligible employee with the Company Without Cause. For purposes of this Program the term "Without Cause" shall mean termination of employment for reasons other than for Death, Disability or Cause. 4. SEVERANCE PAY. If a Change in Control of the Company occurs and within two years thereafter the employment with the Company of an eligible employee is terminated either by the employee for Good Reason or by the Company Without Cause, the Company shall 5 pay to the eligible employee as severance pay, in a lump sum on or before the thirtieth day following the date of termination, the following amounts: (a) the eligible employee's full base salary and benefits earned and payable through the date his or her employment is terminated, plus the dollar amount of the eligible employee's "target" payout under the Company's Management Incentive Plan ("MIP") in effect on the date the eligible employee's employment is terminated, prorated from the beginning of the then-current plan year through the date of termination of employment; and (b) one (1) times the sum of (i) the eligible employee's then-current annual base salary and (ii) the dollar amount of his or her "target" payout under the Company's Management Incentive Plan ("MIP") in effect on the Effective Date. 5. EMPLOYEE BENEFITS. If a Change in Control of the Company occurs and within two years thereafter an eligible employee's employment with the Company is terminated either by the employee for Good Reason or by the Company Without Cause, then in addition to all other benefits which the employee has earned prior to such termination or to which the employee is otherwise entitled, the provisions of this Section 5 shall apply. For a period of one year following an eligible employee's date of termination, the Company shall continue to make available to the employee and to his or her dependents the same medical, dental and vision coverage as was in effect immediately prior to the date of termination at the same cost that such coverage is provided for active employees of the Company who are at the Job Grade level the employee was at on his or her date of termination. This extended medical, dental and vision coverage shall run concurrently with any COBRA continuation medical, dental and vision coverage rights that the employee or his or her dependents have under Section 4980B of the Internal Revenue Code; therefore, the employee and his or her dependents will be required to elect such COBRA coverage on a timely basis in order to receive such continued medical, dental and vision coverage. Notwithstanding the foregoing, the availability of the extended medical, dental and vision coverage described in this Section 5 will terminate prior to the end of the one year period in the event that the rights to continuation coverage of the employee or his or her dependents terminate under COBRA. In the event that medical, dental and vision coverage is revised or terminated for active employees of the Company, such revisions or termination shall apply to medical, dental and vision coverage described in this Section 5. In addition to continued medical, dental and vision coverage, for the one year period immediately following the date of termination of an eligible employee at Job Grade level 18, the Company will reimburse such employee for the premium costs for any disability plan coverage provided to the employee by the Company immediately prior to the date of termination, but only to the extent that the employee has an individual right to convert such disability plan coverage to individual coverage following termination of employment and only in the event the employee exercises such conversion privilege. Finally, for the one year period following the date of termination of an eligible employee at Job Grade level 18, the Company shall reimburse such employee for the premium cost for any executive life insurance policy that is in place immediately prior the date of termination and pursuant to which the employee has a right to convert such policy to an individual policy and exercises such conversion privilege. 6 6. NO MITIGATION REQUIRED. An eligible employee shall not be required to mitigate the amount of any payment or benefit provided for in Sections 4 or 5 by seeking other employment or otherwise, nor will any profits, income, earnings or other benefits from any source whatsoever create any mitigation, offset, reduction or other obligation on an eligible employee's part hereunder or otherwise. 7. EXCESS PARACHUTE PAYMENT LIMIT. Anything in this Program to the contrary notwithstanding, if it is determined that any payment or distribution by the Company to or for the benefit of an individual (whether paid or payable or distributed or distributable pursuant to the terms of this Program or otherwise) (a "Payment") would be nondeductible by the Company for federal income tax purposes because of Section 280G of the Internal Revenue Code but for the application of this sentence, then the aggregate present value of amounts payable or distributable pursuant to this Program (such payments pursuant to this Program are hereinafter referred to as "Program Payments" for purposes of this Section 7) shall be reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Program Payments without causing any Payment to be nondeductible by the Company because of Section 280G of the Internal Revenue Code. For purposes of this Section 7, present value shall be determined in accordance with Section 280G(d)(4) of the Internal Revenue Code. All determinations required to be made under this Section 7 shall be made at the expense of the Company, if requested by an employee or the Company, by an accounting firm selected by the Company (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and to affected eligible employees within 30 days after the date on which the request has been made. Eligible employees shall cooperate with the Accounting Firm and provide necessary information so that the Accounting Firm may make all such determinations. All such determinations by the Accounting Firm shall be final and binding upon the Company and employees. The fact that an employee's right to Program Payments may be reduced by reason of the limitations contained in this Section 7 shall not of itself limit or otherwise affect any other of an employee's rights other than pursuant to this Program. In the event that any Program Payment intended to be provided under this Program or otherwise is required to be reduced pursuant to this Section 7, an employee shall be entitled to designate the Program Payments to be so reduced in order to give effect to this Section 7. The Company shall provide employees with all information reasonably requested to permit them to make such designation. In the event that an employee fails to make such designation within 10 business days of the date of termination of employment, the Company may effect such reduction in any manner it deems appropriate. As a result of the uncertainty in the application of Section 280G of the Internal Revenue Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Program Payments will be made by the Company which should not have been made ("Overpayment") or that additional Program Payments will not be made by the Company which could have been made ("Underpayment"), in each case, consistent with the calculations required to be made hereunder. In the event that the Accounting Firm or a court of competent jurisdiction (in a final judgment as to which the time for appeal has lapsed or no appeal is available) determines at any time that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to the employee which the employee shall repay to the Company together with interest at the applicable short-term federal rate provided for in Section 1274(d)(1) of the Internal Revenue Code, compounded 7 semi-annually; provided, however, that no amount shall be payable by the employee to the Company (or if paid by an employee to the Company, such payment shall be returned to the employee) if and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Internal Revenue Code. In the event that the Accounting Firm or a court of competent jurisdiction (in a final judgment as to which the time for appeal has lapsed or no appeal is available) determines at any time that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the eligible employee with interest at the applicable short-term federal rate provided for in Section 1274(d)(1) of the Internal Revenue Code, compounded semi-annually. 8. TAXES; WITHHOLDING OF TAXES. Without limiting the right of the Company to withhold taxes pursuant to this Section, an eligible employee shall be responsible for all income, excise, and other taxes (federal, state, city, or other) imposed on or incurred as a result of receiving the payments and benefits provided in this Program. The Company may withhold from any amounts payable under this Program all federal, state, city, or other taxes as the Company shall determine to be appropriate pursuant to any law or government regulation or ruling. 9. SUCCESSORS, BINDING OBLIGATION. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Program in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Program "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets or which otherwise becomes bound by all the terms and provisions of this Program by operation of law. If an eligible employee should die while any amounts would still be payable hereunder if he or she had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Program to the eligible employee's devises, legates, or other designee or, if there be no such designee, to his or her estate. 10. CLAIMS FOR PROGRAM BENEFITS. In the event that an eligible employee believes that benefits under this Program are not paid in an amount or at the time they are due, the eligible employee shall make a written claim for such benefits to the Program Administrator. Within fourteen (14) days after receiving a claim, the Program Administrator will: (a) Either accept or deny the claim completely or partially; and (b) Notify the claimant of acceptance or denial of the claim. If the claim is completely or partially denied, the Program Administrator will furnish a written notice to the claimant containing the following information: (a) Specific reasons for the denial. (b) Specific references to the Program provisions on which any denial is based; 8 (c) A description of any additional material or information that must be provided by the claimant in order to support the claim; and (d) An explanation of the Program's appeal procedures. A claimant may appeal the denial of his or her claim and have the Program Administrator reconsider the decision. The claimant or his or her authorized representative has the right to: (a) Request an appeal by written request to the Program Administrator not later than sixty (60) days after receipt of notice from the Program Administrator denying his or her claim; (b) Review pertinent Program documents; and (c) Submit issues and comments regarding the claim in writing to the Program Administrator. The Program Administrator will make a decision with respect to such an appeal, within ten (10) days after receiving the written request for such appeal. The claimant will be advised of the Program Administrator's decision on the appeal in writing. The notice will set forth the specific reasons for the decision and specific reference to Program provisions upon which the decision on the appeal is based. 11. ASSIGNMENT OF PROGRAM BENEFITS. Under no circumstances may benefits under the Program be subject to anticipation, alienation, pledge, sale, transfer, assignment. garnishment, attachment, execution, encumbrance, levy, lien or charge, and any attempt to cause any such benefit to be so subjected shall not be recognized, except to the extent required by law. 12. MISCELLANEOUS. Prior to a Change in Control of the Company, eligible employees do not have any vested right to benefits under this Program and the Company reserves the right in its sole discretion to amend or terminate this Program. Following a Change in Control of the Company, no provisions of this Program may be amended with regard to an eligible employee unless such amendment is agreed to in writing signed by an affected eligible employee. No waiver of, or compliance with, any condition or provision of this Program shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Any specific compensation program (other than a severance pay program) that provides for benefits upon a change in control relative to that program shall remain in effect, notwithstanding this Program. However, benefits payable under this Program shall be in complete substitution for any severance pay benefits an individual is entitled to receive under the Company's Severance Pay Program dated January 28, 1994, as amended. No employee nor any other person shall acquire by reason of the Program any right in or title to any assets, funds, or property of the Company. Program benefits which become payable under the Program are obligations of and shall be paid from the general assets of Greyhound Lines, Inc. Eligible 9 employees must furnish to the Program Administrator such documents, data, or other information as the Program Administrator considers necessary or desirable for the purpose of administering the Program. The provisions of the Program for each eligible employee are on the condition that such eligible employee shall furnish full, true, and complete documents, data, or other information, and will promptly sign any document reasonably related to the administration of the Program requested by the Program Administrator. Any mistake of fact or misstatement of fact shall be corrected when it becomes known and proper adjustment shall be made. The validity, interpretation, construction and performance of this Program shall be governed by federal law and to the extent not preempted, by the laws of the State of Delaware. 13. VALIDITY. The invalidity or unenforceability of any one or more provisions of this Program shall not affect the validity or enforceability of any other provision of this Program, which shall remain in full force and effect. 14. YOUR RIGHTS UNDER ERISA. As an eligible employee, you are entitled to certain rights and protections under ERISA. ERISA provides that Program participants shall be entitled to: (a) Examine without charge at the Program Administrator's office all Program documents and copies of all Program documents filed by the Program with the U.S. Department of Labor or with the Internal Revenue Service. (b) Obtain copies of all Program documents and other Program information upon written request to the Program Administrator. The Program Administrator may make a reasonable charge for the copies. (c) Receive a copy of the Program's financial report. The Program Administrator may be required by law to furnish each Program participant with a copy of the summary annual report. In addition to creating rights for Program participants, ERISA imposes duties upon the people who are responsible for the operation of the Program: (a) The people who operate the Program, called "fiduciaries" of the Program, have a duty to do so prudently and in the interest of you and other Program participants. (b) No one, including the Company, or any other person may fire you or otherwise discriminate against you in any way to prevent you from obtaining a benefit or exercising your rights under ERISA. (c) If your claim for a Program benefit is denied, in whole or in part, you must receive a written explanation of the reason for the denial. You have the right to have the Program Administrator review and reconsider your claim. Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request materials from the Program Administrator and you do not receive them within thirty 10 (30) days, you may file suit in a federal court. In such a case, the court may require the Program Administrator to provide the materials and to pay you up to $100 per day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Program Administrator. If you have a claim for benefits which is denied or ignored, in whole or in part, you may file suit in a state or federal court. If it should happen that Program fiduciaries misuse the Program's money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor or you may file suit in a federal court. The court will decide who should pay court costs and legal fees. If you are successful the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees, for instance, if it finds your claim to be frivolous. If you have any questions about the Program, you should contact the Program Administrator. If you have any questions about this statement or about your rights under ERISA, you should contact the nearest area office of the U.S. Labor-Management Services Administration, Department of Labor. 15. GENERAL INFORMATION. Name of Program: Greyhound Lines, Inc. Change in Control Severance Pay Program Program Number: 514 Company and Program Sponsor: Greyhound Lines, Inc. P. O. Box 660362 Dallas, TX 75266-0362 11 Company's Employer Identification Number: 86-0572343 Program Administrator: Director, Benefits P. O. Box 660362 Dallas, TX 75266-0362 214-789-7000 Agent for Service Of Legal Process: CT Corporation 350 N. St. Paul St. Dallas, TX 75201 Type of Program: Welfare Benefit Program Year: Calendar Year IN WITNESS WHEREOF, GREYHOUND LINES, INC. hereby adopts the foregoing Severance Pay Program effective as of October 16, 1998. GREYHOUND LINES, INC. By: ----------------------------- Title: -------------------------- EX-10.4 6 CHANGE IN CONTROL AGREEMENT 1 EXHIBIT 10.4 CHANGE IN CONTROL AGREEMENT _________[date] Dear ________________: Greyhound Lines, Inc. (the "Company") considers it essential to the best interests of the Company and its shareholders that, in the event of a "Change in Control" (as defined in Section 2 hereof), its management be encouraged to remain with the Company and to continue to devote full attention to the Company's business. This letter agreement ("Agreement") sets forth the severance benefits which the Company agrees will be provided to you in the event your employment with the Company is terminated either by you for "Good Reason" or by the Company "Without Cause" (both as defined in Section 3 hereof) within a two year period immediately following any Change in Control of the Company. In the event that a Change in Control of the Company does not occur, no benefits shall be payable under this Agreement. 1. CONTINUED EMPLOYMENT. Nothing in this Agreement shall be construed so as to give you any right to continued employment by the Company. Notwithstanding the foregoing, by entering into this Agreement you are confirming that in consideration of, among other things, the Company's entering into this Agreement with you, it is your present intention to remain in the employ of the Company. 2. CHANGE IN CONTROL. No benefits shall be payable hereunder unless: (i) a Change in Control of the Company occurs; and (ii) your employment with the Company is terminated within two years thereafter either by you for Good Reason or by the Company Without Cause. This Agreement is not intended to apply to termination of your employment by reason of Death, Disability or Cause (as defined in Section 3 hereof). For purposes of this Agreement, a "Change in Control"of the Company shall mean: (a) The acquisition by any person (defined for the purposes of this definition to mean any person within the meaning of Section 13(d) of the Securities Exchange Act of 1934 and the regulations thereunder (the "Exchange Act")), other than the Company or an employee benefit plan created by the Board of Directors of the Company (the "Board")for the benefit of its employees, either directly or indirectly, of the beneficial ownership (determined under Rule 13d-3 of the regulations promulgated by the SEC under Section 13(d) of the Exchange Act) of securities issued by the Company having 30% or more of the voting power of all the voting 2 securities issued by the Company in the election of directors at the next meeting of the holders of voting securities to be held for such purpose; or (b) The election of a majority of the directors to the Board elected at any meeting of the holders of voting securities of the Company who are persons who were not nominated for such election by the Board or a duly constituted committee of the Board having authority in such matters; or (c) 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 (d) 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. The first date upon which a Change in Control as defined above takes place shall be known as the "Effective Date." Anything in this Agreement to the contrary notwithstanding, if a Change in Control occurs and if your employment with the Company is terminated prior to the date on which the Change in Control occurs, and if it is reasonably demonstrated by you that such termination (i) was at the request of a third party who had taken steps reasonably calculated to effect a Change in Control or (ii) was by the Company and arose with or in anticipation of a Change in Control, then for all purposes of this Agreement your employment shall be deemed to have been terminated by the Company Without Cause under Section 3(e) of this Agreement. 3. TERMINATION OF EMPLOYMENT. Your employment with the Company shall or may be terminated, as the case may be, for any of the following reasons: (a) Death. Termination of your employment with the Company due to your death; (b) Disability. Termination of your employment with the Company either by you or the Company after you are physically or mentally incapacitated for a period of (i) 180 consecutive days, or (ii) 180 days in any 360 day period, such that you cannot substantially perform your duties of employment with the Company on a full-time basis with reasonable accomodation; (c) Cause. Termination of your employment with the Company at any time for Cause. For purposes of this Agreement, "Cause" shall mean: 3 (i) Any act or omission constituting fraud under the laws of the State of Texas [or the state of your employment]; or (ii) Conviction of, or a plea of nolo contendere to, a felony; or (iii) Use of illegal drugs; or (iv) Embezzlement of Company property or funds; or (v) Gross neglect of your duties with the Company. (d) Good Reason. You may terminate your employment with the Company for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) a substantial diminishment of your duties and authority (except at your request), other than an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after the receipt of notice thereof given by you; or (ii) any failure by the Company to continue to provide you with an annual base salary, employee benefits and an opportunity to earn incentive and bonus compensation equal or greater to that which was provided to you by the Company immediately prior to the Effective Date, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after the receipt of notice thereof given by you; or (iii) [Optional provision to be included in Agreements applicable to Dallas-based employees] the Company is requiring you without your written consent to be based at or generally work from any location more than 25 miles outside of Dallas County, Texas; or (iv) any failure by the Company to comply with and satisfy Section 10 of this Agreement. (e) Without Cause. The Company may terminate your employment with the Company Without Cause. For purposes of this Agreement the term "Without Cause" shall mean termination of your employment for reasons other than for Death, Disability or Cause. 4. SEVERANCE PAY. If a Change in Control of the Company occurs and within two years thereafter your employment with the Company is terminated either by you for Good Reason or by the Company Without Cause, the Company shall pay to you as severance pay, in a lump sum on or before the thirtieth day following the date of termination, the following amounts: 4 (a) your full base salary and benefits earned and payable through the date your employment is terminated, plus the dollar amount of your "target" payout under the Company's Management Incentive Plan ("MIP") in effect on the date your employment is terminated, prorated from the beginning of the then-current plan year through the date your employment is terminated; and (b) two (2) times the sum of (i) your then-current annual base salary and (ii) the dollar amount of your "target" payout under the Company's Management Incentive Plan ("MIP") in effect on the Effective Date. 5. EMPLOYEE BENEFITS. If a Change in Control of the Company occurs and within two years thereafter your employment with the Company is terminated either by you for Good Reason or by the Company Without Cause, then in addition to all other benefits which you have earned prior to such termination or to which you are otherwise entitled, the provisions of this Section 5 shall apply. For a period of two years following the date of termination of your employment, the Company shall continue to make available to you and to your dependents the same medical, dental and vision plan coverage as was in effect immediately prior to your termination at the same cost that such coverage is provided for active employees of the Company. This extended medical, dental and vision plan coverage shall run concurrently with any COBRA continuation medical, dental and vision plan coverage rights that you or your dependents have under Section 4980B of the Internal Revenue Code; therefore, you and your dependents will be required to elect such COBRA coverage on a timely basis in order to receive such continued medical, dental and vision plan coverage. Notwithstanding the foregoing, the availability of the extended medical, dental and vision plan coverage described in this Section 5 will terminate prior to the end of the two year period in the event that the rights to continuation coverage of you or your dependents terminate under COBRA. In the event that medical, dental and vision plan coverage is revised or terminated for active employees of the Company, such revisions or termination shall apply to medical, dental and vision plan coverage described in this Section 5. In addition to continued medical, dental and vision plan coverage, for the two year period immediately following the termination of your employment, the Company will reimburse you for the premium costs for any disability plan coverage provided to you by the Company immediately prior to the termination of your employment, but only to the extent that you have an individual right to convert such disability plan coverage to individual coverage following your termination of employment and only in the event you exercise such conversion privilege. Finally, for the two year period following the termination of your employment, the Company shall reimburse you for the premium cost for any executive life insurance policy that is in place for you immediately prior to your termination and pursuant to which you have a right to convert such policy to an individual policy and you exercise such conversion privilege. 6. NO MITIGATION REQUIRED. You shall not be required to mitigate the amount of any payment or benefit provided for in Sections 4 or 5 by seeking other employment or otherwise, nor will any profits, income, earnings or other benefits from any source whatsoever create any mitigation, offset, reduction or other obligation on your part hereunder or otherwise. 5 7. CONFIDENTIAL INFORMATION. You hereby agree that you shall not at any time (whether employed by the Company or not), either directly or indirectly, disclose or make known to any person or entity any confidential information, trade secret, or proprietary information that you acquired during the course of your employment with the Company which shall not have become public knowledge (other than by your actions in violation of this Agreement). You further agree that upon the termination of your employment with the Company or at any time upon the request of the Company you shall deliver to the Company any and all literature, documents, correspondence, and other materials and records furnished to or acquired by you from the Company during the course of your employment with the Company. 8. EXCESS PARACHUTE PAYMENT LIMIT. Anything in this Agreement to the contrary notwithstanding, if it is determined that any payment or distribution by the Company to or for your benefit (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") would be nondeductible by the Company for federal income tax purposes because of Section 280G of the Internal Revenue Code but for the application of this sentence, then the aggregate present value of amounts payable or distributable to or for your benefit pursuant to this Agreement (such payments pursuant to this Agreement are hereinafter referred to as "Agreement Payments" for purposes of this Section 8) shall be reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be nondeductible by the Company because of Section 280G of the Internal Revenue Code. For purposes of this Section 8, present value shall be determined in accordance with Section 280G(d)(4) of the Internal Revenue Code. All determinations required to be made under this Section 8 shall be made at the expense of the Company, if requested by you or the Company, by an accounting firm mutually agreeable to you and the Company (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and to you within 30 days after the date on which the request has been made. The Company and you shall cooperate with each other and the Accounting Firm and will provide necessary information so that the Accounting Firm may make all such determinations. All such determinations by the Accounting Firm shall be final and binding upon the Company and you. The fact that your right to Agreement Payments may be reduced by reason of the limitations contained in this Section 8 shall not of itself limit or otherwise affect any other of your rights other than pursuant to this Agreement. In the event that any Agreement Payment intended to be provided under this Agreement or otherwise is required to be reduced pursuant to this Section 8, you shall be entitled to designate the Agreement Payments to be so reduced in order to give effect to this Section 8. The Company shall provide you with all information reasonably requested by you to permit you to make such designation. In the event that you fail to make such designation within 10 business days of the date of termination of your employment, the Company may effect such reduction in any manner it deems appropriate. As a result of the uncertainty in the application of Section 280G of the Internal Revenue Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Agreement Payments will be made by the Company which should not have been made ("Overpayment") or that additional Agreement Payments will not be made by the Company which could have been made ("Underpayment"), in each case, consistent with the calculations required to be made hereunder. In the event that the Accounting Firm or a court of competent jurisdiction (in a final judgment as 6 to which the time for appeal has lapsed or no appeal is available) determines at any time that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to you which you shall repay to the Company together with interest at the applicable short-term federal rate provided for in Section 1274(d)(1) of the Internal Revenue Code, compounded semi-annually; provided, however, that no amount shall be payable by you to the Company (or if paid by you to the Company, such payment shall be returned to you) if and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Internal Revenue Code. In the event that the Accounting Firm or a court of competent jurisdiction (in a final judgment as to which the time for appeal has lapsed or no appeal is available) determines at any time that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of you together with interest at the applicable short-term federal rate provided for in Section 1274(d)(1) of the Internal Revenue Code, compounded semi-annually. 9. TAXES; WITHHOLDING OF TAXES. Without limiting the right of the Company to withhold taxes pursuant to this Section, you shall be responsible for all income, excise, and other taxes (federal, state, city, or other) imposed on or incurred by you as a result of receiving the payments and benefits provided in this Agreement. The Company may withhold from any amounts payable under this Agreement all federal, state, city, or other taxes as the Company shall determine to be appropriate pursuant to any law or government regulation or ruling. 10. SUCCESSORS, BINDING AGREEMENT. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled hereunder if the Company had terminated your employment after a Change in Control of the Company occurring at the time of succession. As used in this Agreement "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators. successors, heirs, distributees, devisees and legatees. If you should die while any amounts would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devises, legates, or other designee or, if there be no such designee, to your estate. 11. NOTICE. Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duty given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the last page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Secretary of the Company, or to such other 7 address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 12. MISCELLANEOUS. No provisions of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Any specific compensation program (other than a severance pay program) that provides for benefits upon a change in control relative to that program, including without limitation, the Company's stock option plans and Supplemental Executive Retirement Plan, shall remain in effect, notwithstanding this Agreement. However, benefits payable to you under this Agreement shall be in complete substitution for any severance pay benefits you might be entitled to receive under the Company's Severance Pay Program dated January 28, 1994, as amended and under the Company's Change in Control Severance Pay Program dated _______________________, 1998, as amended. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware. 13. VALIDITY. The invalidity or unenforceability of any one or more provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 14. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 15. JURISDICTION. In the event of any dispute or controversy arising under or in connection with this Agreement you and the Company hereby irrevocably consent to the jurisdiction of the State Courts located in Dallas County, Texas or the United States District Court for the Northern District of Texas. 16. LEGAL FEES AND EXPENSES. If it should appear to you that the Company has failed to comply with any of its obligations under this Agreement or in the event the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any arbitration or litigation designed to deny, or to recover from, you the benefits intended to be provided to you hereunder, the Company irrevocably authorizes you from time to time to retain counsel of your choice, to represent you in connection with the initiation or defense of any arbitration, litigation, other legal action or negotiation to resolve any disputes whether by or against the Company or any director, officer, shareholder or other person affiliated with the Company. The Company shall pay or cause to be paid and shall be solely responsible for any and all attorneys' and related fees and expenses incurred by you as a result of the Company's failure to perform this Agreement or any provision hereof (including this Section 16) or as a result of the Company or any person contesting the validly or enforceability of this Agreement or any provision hereof, up to a maximum amount of twenty-five thousand dollars ($25,000). Any 8 such fees and expenses incurred by you in excess of such twenty-five thousand dollar ($25,000) maximum amount shall not be payable by the Company and you hereby agree to indemnify and hold the Company harmless for any amounts exceeding such maximum, including any amounts awarded to you or to your counsel or other advisers by any court of competent jurisdiction. If this letter correctly sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of the letter which will then constitute our agreement on this subject. Sincerely, By: ----------------------------- Title: -------------------------- GREYHOUND LINES, INC. 15110 North Dallas Parkway Dallas, Texas 75248 ACCEPTED AND AGREED TO AS OF ____________________, 1998 - -------------------------------------------- type name and address of employee - ----------------------------------------- EX-10.5 7 MEMORANDUM OF AGREEMENT 1 EXHIBIT 10.5 MEMORANDUM OF AGREEMENT This Agreement, effective October 1, 1998, and expiring January 31, 2004, represents the joint commitment of Greyhound Lines, Inc. hereinafter referred to as the "Company," and Amalgamated Transit Union National Local 1700, hereinafter referred to as the "Union," to the continued growth of their relationship with the goals of superior customer service, stable employment, and the success of the business. The parties recognize that the Company continues to face enormous challenges to its long-term success. A major factor in that success will be providing passengers with cost effective, timely and efficient service. The business of the Company is customer service and the Company and the Union agree to direct their efforts so quality customer service becomes and remains the paramount consideration. The parties believe that the way to achieve success will be to continue to work together in a pro-active relationship based upon mutual gains, cooperation, open communications, flexibility, and informal resolution of issues. As part of their efforts to establish and maintain a constructive relationship in which the Company, the Union, and the represented employees work together to achieve joint and shared success, the parties will meet regularly, no less than biannually, separate from the meetings called for otherwise in this Agreement, to review and resolve any concerns, to plan for future developments, and to develop mutual solutions. These special meetings will be reserved for enhancement of the parties' working relationship, not for grievances. o No contract language, award, adjustment, interpretation letter, practice, memorandum of understanding, or right agreed to before the effective date of this Agreement remains in effect unless expressly agreed to herein or subsequently agreed to and incorporated. o Written communications by and between the Company and the Union will be answered promptly in writing. o If the Company is sold, there will be included in the documents related to such sale a requirement that the purchaser recognize and bargain with the Union. The Company will not be a guarantor or be held liable for any breach by the purchaser. Whenever "he" or "his" or their related pronouns appear in this Agreement, they are used for literary purposes and include both females and males. 1 2 GENERAL ARTICLE G-1. SENIORITY -- Full-time and part-time employees other than operators will have seniority measured from the hour and date of first work performed in the department to which they are assigned in the service of the Company, or in the service of Greyhound/Dial before March 19, 1987 or Trailways before July 14, 1987. Should two or more employees commence service on the same date and hour, the date and hour of the application for employment will determine the order of their seniority. Seniority and service of operators who were in the service of Greyhound/Dial before March 19, 1987 or Trailways before July 14, 1987 will remain unchanged from previous collective bargaining agreements. All other operators will have seniority measured from the date of placement on the extraboard, or if an operator becomes a regular operator and is not placed on the extraboard, the date of pulling his first regular run. In the case of identical dates, operators' seniority will be based on their month and day of birth and, if identical, they will be ranked in alphabetical order. Seniority of operators hired on or after October 1, 1998 will be determined by the date operators graduate from training. Operators graduating on the same date will have their seniority determined by a lottery mechanism mutually agreed to by the Union and Company. Any merger of either operator or mechanic seniority rosters must be approved by referendum vote and approved by a majority vote of those voting from the respective operator and mechanic ranks. Referendum votes will be conducted by the Union. Only full-time employees accrue seniority. Separate seniority rosters will be maintained for part-time and seasonal employees only for the purpose of establishing seniority among those employees. Part-time operators who become seasonal operators, and seasonal operators who become part-time operators will carry their seniority with them. Part-time and seasonal operators may not exercise their seniority to bid on runs, other than those designated for part-time and seasonal operators or as hold-downs for the extra board. All employees will be permitted to submit letters of intent to transfer to any department when new employees are required. Employees who have submitted a letter of intent will be given preference over outside applicants provided they are qualified either to perform the work or enter the training program offered to outside applicants. Employees electing to transfer will be given seniority in their new department ahead of outside applicants who start on the same date, and they will use their original service date for all benefits tied to years of service. Maintenance employees voluntarily transferring from one location to another will have their bidding seniority start on the first day of work at the new location. The bidding seniority will be used for bidding shifts and vacation slots at that location. They will retain but not accumulate seniority at their departing location. ARTICLE G-2. SENIORITY RIGHTS OF UNION REPRESENTATIVES -- Employees of the Company, used in the service of ATU Local 1700, national or state AFL-CIO, the Amalgamated Transit Union, or trust administration will, while in such service, retain and accumulate all seniority rights enjoyed by other employees. ARTICLE G-3. FURLOUGH AND RECALL -- Furlough and recall will be by location. Furloughed operators may elect to exercise seniority at any other location where there is a working junior operator or open position. Involuntarily furloughed maintenance employees may elect to exercise their seniority at any other ATU-represented location where there are vacancies. If no vacancies exists, furloughed maintenance employees may submit a letter of intent to their preferred location. Maintenance employees who fail to accept the first available vacancy at the preferred location will be removed from future consideration for transfer to that location. Maintenance employees who transfer to another location and later reject a recall to their home location will forfeit all future recall rights to their home location. When forces are reduced, the Company will provide affected employees and the Union seven days written notice. This notice is not required for employees displaced as a result of another employee returning from voluntary furlough. Employees will be furloughed in reverse order of their seniority and retain all seniority rights and privileges. The Company will solicit voluntary furloughs prior to any involuntary reduction-in-force. The Company will notify employees by postings at locations where opportunities exist for employees to take voluntary furlough. Employees requesting voluntary furlough must submit their request within seven days of the posting according to the instructions on the posting. 2 3 Voluntary furloughs will be awarded by seniority within each location. Employees awarded voluntary furlough have the following options: o At the time of the furlough, specify a return date which is 30 days or more after the beginning of the furlough. The employee will be expected to return to work on this date unless the employee requests an extension or there are no junior employees at that location to displace. o Leave the return date open in which case normal recall procedures will apply. Employees on voluntary furlough may return on or after 30 days after the beginning of the furlough. Prior to their return, operators must first submit a written request to return to work to the Driver Planning Department in Dallas 15 days prior to the date an operator wishes to return to work. Maintenance employees must submit a written request to return to work to their garage manager 15 days prior to the date they wish to return to work. Furloughed employees retain their seniority except mechanics hired on or after January 1, 1984, will be removed from the seniority roster after one year of furlough. Furloughed employees must maintain their current mailing address on record with the Company. The Company will recall employees in seniority order by certified or registered United States mail, return receipt requested or by telegram. A copy of such recall notice will be furnished to the Local Union. Employees receiving a notice of recall will immediately acknowledge receipt of the same by certified or registered United States mail, return receipt requested or by telegram, and will report for work on the seventh day of the recall notice, unless a different date is agreed to by the Company and employee. Employees having other employment, who are recalled for a period of work less than 45 days, may reject the offer without loss of seniority if sufficient employees are available to meet the Company recall needs. Furloughed employees failing to comply with these provisions will forfeit seniority rights and will no longer be considered employees of the Company. ARTICLE G-4. LEAVES OF ABSENCE (a) Employees on Extended Sick Leave. Employees must provide medical documentation concerning their condition every 90 days. Failure to comply may result in termination of employment. (b) Family Leave. The Company agrees to adhere to the Family and Medical Leave Act of 1993 (FMLA) and its regulations for all eligible employees. Eligible employees include employees at locations with less than 50 employees. (c) Unpaid Leave of Absence. Employees may be granted an unpaid leave of absence of up to 90 days without loss of seniority. Longer leaves may be granted if they are mutually agreed to by the Company and the Union. Employees requesting leaves under this provision must submit a written request to their supervisor and will specify that the request for leave is under this provision. (d) Union Officers and Committee Members. Employees who are full-time officers of Local Union 1700, national or state AFL-CIO, the Amalgamated Transit Union or the plan administrator of a Greyhound/Local 1700 trust will be granted the necessary leave of absence to permit the performance of their duties and will continue to accumulate seniority during such leave. Employees who are full-time officers of Local Union 1700 or the plan administrator of a Greyhound/Local 1700 trust will continue to be covered by the Greyhound-ATU Health and Welfare Trust plan on the same terms as active employees. Co-payments for such health benefits will be received by the Greyhound-ATU Health and Welfare Trust by the 10th day of each month of such coverage. Employees who are on official Union business will be granted the necessary leaves of absence to permit the performance of their duties, provided reasonable notice, in writing, is given and the number of granted leaves does not interfere with the business of the Company. Such employees will suffer no loss of rights or benefits enjoyed by other employees by reason of their absence from duty. The Union agrees its members will not abuse the rights granted under this provision. (e) Work Related Disability. Employees on work-related disability may be required to be examined by a physician, at the request of and paid for by the Company, to substantiate such disability. Failure of employees to make 3 4 themselves available for such examination, or failure to report for duty immediately after an examination which determines that an employee is fit for duty, may result in discipline up to and including termination. Employees on workers' compensation who are not fit for regular duty but are fit for light duty must report for such duty in any position or department in which the Company offers it in the same commuting area, or, for operators, at the domicile closest to their home address, without loss of seniority. If work is not available for operators at the domicile closest to their home address, operators may choose to work at another location where light duty work is available, if agreed by the Company and the Union. Failure to report for light duty will result in termination. If more than one light duty job is available, seniority will prevail. There will be no light duty for maintenance employees. Employees returning to duty status after leave of 30 days or longer may be required to pass a physical examination and drug test at Company expense. ARTICLE G-5. PROBATIONARY PERIOD -- Employees other than operators will be given a probationary period of 90 days from the date of employment. For operators, the 90-day probationary period will commence with the date of placement on the extraboard or the day of assignment to a regular run, whichever comes first. Unless probationary employees are notified to the contrary within the 90-day period, it will be understood that the application for employment is approved, unless it later develops that false information materially affecting the acceptance of the application for employment was given, in which event such employee will be subject to dismissal. The grievance procedure is not applicable to the dismissal of employees during the 90-day probationary period or the dismissal of employees for providing false information on the application for employment except that the grievance procedure will be applicable to contest whether the information on the application was false or whether the reason given for the discharge was pretextual. The probationary period for any employee may be extended by mutual agreement between the Company and the Union. ARTICLE G-6. MANAGEMENT OF OPERATIONS -- It is not the intent of this Agreement to include matters of management herein, and the Company reserves to itself the management, conduct and control of the operations of its business, including: o The determination of the type, kind, make and size of equipment and when, how and where such equipment will be used; o The number and qualifications of employees employed by it and their standards of conduct; o The route and run structure, including additions, eliminations and changes to existing routes and runs; o The assignment of work to the extent not specified herein; o Except as otherwise limited under this Agreement, the use of leased operations, joint ventures, independent contractors and franchised operations; o The prescribing of reasonable rules, instructions and regulations for the safe, proper and effective conduct of its business in a competitive environment not inconsistent with the terms of this Agreement. The term "reasonable" will have its commonly understood meaning as any rule that is reasonably related to a legitimate objective of management and not the meaning ascribed to it in any arbitration prior to this Agreement. ARTICLE G-7. DISCIPLINE -- Employees will neither be disciplined nor will entries be made against their records without sufficient cause. Sufficient cause includes violation of Company rules, regulations and instructions not inconsistent with this Agreement. When discipline is issued, employees will be given written notice specifying the charges and penalty. Notification will be furnished to the union president, the appropriate assistant business agent, and the designated shop steward of the Union. When disciplining employees, complaints, discipline or records which have been brought to the attention of the Company 24 months prior to the incident will not be used to determine guilt or penalty. This provision will not apply to safety-related activities, including speeding violations, preventable accidents, damage to property, personal injury, use of alcohol or illegal substances. Customer complaints are a serious matter and operators are expected to treat customers with courtesy so as to avoid complaints. Complaints will be discussed with operators as soon as practicable so corrective action can be taken. A complaint made in writing or in person identifying the customer, operator, date of the incident, and 4 5 details of the conduct complained of may be the basis for discipline up to and including discharge. The complaining customer may appear at the third step hearing either telephonically or in person. If the complainant fails to testify at a third step hearing, the complainant is prohibited from appearing at an arbitration. If the complainant appears at the third step hearing, the Union agrees to allow the complainant to testify at the arbitration hearing by telephone, live, or in the form of a pre-arbitration deposition. Except in the case of DOT log violations, discipline must be taken within 20 days after the Company's knowledge of the incident or in cases of dishonesty or substance abuse, within 20 days after completion of the investigation. The Company must issue discipline in the case of DOT log violations within 30 days of the Company's knowledge of the violation. ARTICLE G-8. GRIEVANCE PROCEDURE (a) Grievance. All differences, disputes, suspensions, and discipline cases hereinafter collectively referred to as "grievances" between the parties arising out of this Agreement will be handled in the manner set forth below. All days referred to within this provision will mean calendar days. Step 1. Employees covered by this Agreement who have a complaint under this Agreement will discuss the complaint with their supervisor within 15 days from the date of the occurrence in an effort to resolve the complaint without resort to the formal grievance procedure. This Step 1 procedure will not extend the Step 2 time limits to file a written grievance. Final disposition at this step is non-precedent setting and may not be relied upon by the Union or the Company in any arbitration hearing for any purpose. Step 2. Failing resolution at Step 1, an employee or Union grievance may be presented in writing by the employee and/or union shop steward or ABA to the employee's supervisor which must be within 30 days from the date of the occurrence of the incident upon which the grievance is based or within 30 days from the date a pay claim denial is received. Discharge grievances must be initially filed at Step 2. Within 15 days after receipt of the written grievance, the employee's supervisor must respond with a written decision on the grievance. Final disposition at this step is non-precedent setting and may not be relied upon by the Union or the Company in any arbitration hearing for any purpose. Step 3. Failing satisfactory disposition of such grievance at Step 2, within 15 days of the receipt of the supervisor's written response, the grievance may be appealed in writing by the union president or his designee to the appropriately designated Company representative. Within 15 days after the receipt of this appeal, a Step 3 conference will be held at the home location of the employee, unless otherwise agreed between the parties. Within 15 days of the conference, the Company representative must respond with a written decision. Final disposition at this step is non-precedent setting and may not be relied upon by the Union or the Company in any arbitration hearing for any purpose. (b) Arbitration 1. In the event a grievance is not resolved at Step 3, the grievance may be referred in writing to arbitration by the union president or his designee within 45 days after the Union's next regularly scheduled executive board meeting not to exceed 135 days from the date the Step 3 decision is rendered. The issue to be arbitrated must be clearly stated. 2. Arbitrations will be administered by the American Arbitration Association and conducted under its labor arbitration rules. All arbitrators will be selected from those admitted to the National Academy of Arbitrators. By mutual agreement, arbitrations may be conducted under the American Arbitration Association's expedited labor arbitration procedures. 3. The arbitrator's award is final and binding. The compensation of the arbitrator and any administrative costs will be shared equally. Each party will pay its expenses related to representation and witnesses. (c) Grievance Pay Claims. A disputed pay claim, paid by grievance settlement, will be paid in the employee's next available regular paycheck. The Company will notify the Union monthly of all paid grievance claims. ARTICLE G-9. CHECK-OFF -- The Company agrees to check-off and remit to the financial secretary or president of the Union at least every two weeks all dues, initiation fees, regular assessments and authorized voluntary 5 6 contributions from the pay of each employee who is a member, fee payer or financial core member who has authorized the Company to make such deductions. Request for the check off of assessments must be signed by either the financial secretary or president of the Union. ARTICLE G-10. BULLETIN BOARD -- The Union will be allocated bulletin boards on Company property where notices pertaining to meetings and other union business, social events, and other proper matters are permitted. Such notices must be on Union letterhead, dated, and signed by an accredited Union representative. Notices not complying may be removed. Copies of all bulletins relating to employees covered by this Agreement will be promptly furnished to a properly accredited officer of the Union. ARTICLE G-11. DISABLED AND FURLOUGHED -- When new employees are required by the Company, disabled employees and employees who have been furloughed due to lack of work and who are applicants for employment will be given preference in employment over new outside applicants if qualified to perform the available work. The Company has no obligation to notify such employees of any such vacancies. ARTICLE G-12. BAIL BONDS -- Employees incarcerated because of their actions while engaged in the performance of their assigned duties with the Company, and acting within the scope of such duties, will promptly be furnished bond by the Company, when such is required. Employees will have the legal assistance of the Company in any legal proceedings brought against them and the Company, provided the employees acted within the scope and course of their employment. Additionally, the Company will provide legal assistance to employees who are sued as a result of acting within the scope and course of employment. ARTICLE G-13. CONTRAVENTION OF LAWS -- It is understood and agreed that the provisions of this Agreement are subordinate to any present or subsequent federal, state, or municipal law or regulation, including family leave and military leave, to the extent that any portion hereof is in conflict therewith, and nothing herein will require the Company to do anything inconsistent with the orders or regulations of any competent government authority having jurisdiction to issue the same. Because of the parties joint commitment to safety, nothing in this Agreement or in the parties practices will preclude the Company from complying with findings and recommendations of any governmental safety agency with 14 days prior notice to the Union. Upon request, the parties will meet and confer on such findings and recommendations. Except in the case of emergency, the Company will make no changes pursuant to such findings and recommendations before 14 days, but in no event is the Company precluded from making any such changes after having given the Union 14 days notice if the Company was available to meet and confer during that period. ARTICLE G-14. NO STRIKE/LOCKOUT -- The parties having provided for the final disposition of all disputes, differences and grievances which may arise between them under this Agreement, the Union agrees that it will not, nor will the employees, members of the Union, participate in any strike, slow down, work stoppage, or interruption of service for any purpose or reason whatsoever, nor will there be any interference with the free right of employees or passengers to enter or leave the Company's property unmolested. The Company agrees that it will not lock out its employees under any circumstances during the life of this Agreement. This no strike/no lockout commitment remains in full force and effect for the entire term of this Agreement and the parties waive their rights to engage in such actions to support any mid-term bargaining position. If another union recognized by the Company establishes a legal picket line at a Company terminal, garage, or other facility, the employees covered by this Agreement are permitted to honor such a legal picket line only at the facility where work of the other union local is or was being performed during a regular shift. If a union representing employees at a terminal operated by another company or by a commission agent establishes a legal picket line at a terminal, employees covered by this Agreement will be permitted to honor such a legal picket line, but only at the terminal where work of the other union local is or was being performed during a regular shift. In all such instances, operators involved may be required to drive their bus up to the picket line. The exceptions to the no strike clause set forth above will be strictly construed. 6 7 ARTICLE G-15. RECOGNITION OF THE UNION -- The Company recognizes the Union as the duly designated, sole and exclusive collective bargaining representative for its operators and for maintenance employees not otherwise represented by the International Association of Machinists and Aerospace Workers. Supervisory employees with the power to hire or fire or with the power effectively to recommend hiring or firing, managerial employees and confidential secretaries are excluded from this provision. It is expressly agreed that this Agreement does not cover terminals which may be operated by the Company or the service islands that may be associated with some terminals. ARTICLE G-16. COURT INQUEST AND INVESTIGATION -- Employees who witness but are not involved in an accident while on duty and, as a result, are required to make a report of the accident to the Company and who are later required to attend court or an inquest by subpoena, or employees who at the direction of the Company are required to attend court, an inquest or an investigation called by the Company attorney, or employees who are subpoenaed and are required to attend court or an inquest as a result of an action arising out of carrying out the specific orders of the Company, will be paid eight hours per day at their regular rate. Regular operators will receive the greater of eight hours or their missed regular run pay. The hours compensated will not be less than the amount of actual time lost plus reimbursement for any expenses incurred while making such appearance. Employees will not be required to report for duty for any portion of the day when the appearance occurs during their shift. Employees not able to obtain reasonable rest before the start of their shift will not be required to report for work on such shift. Operators returning from making an appearance on a date when their regular run is out of town may position themselves to pick up their run at the layover point, if possible. Operators who elect not to position themselves will not receive guaranteed earnings for that day. When such service is required of employees on their regular assigned days off, or on vacation, employees will be paid at one and one half times their regular rate for hours so used with a minimum of eight hours. The hourly rate for operators for this provision is their driving rate. ARTICLE G-17. CREDIT UNION -- The Company agrees to permit biweekly credit union deductions from payroll for one certified credit union for each employee. Signed authorizations for deductions are to be in the same amount each payroll period, and requested changes in such amount for the certified credit union will be made only at the beginning of a calendar month. The Company has no obligation to establish a credit union. ARTICLE G-18. SAFETY (a) Employees Injured on Duty. Employees injured on the job will be paid in full for the day of the accident provided the attending physician advises an employee not to return to work for the balance of the day. If able to work, employees must return to their duties. Employees failing to do so will not be paid for the hours not worked. Employees requiring further medical treatment as a direct result of said accident will not lose time while receiving treatment, provided the treatment requires only a nominal amount of time. Maintenance employees requiring further treatment during working hours will be reimbursed for the cost of Company approved transportation to and from the garage plus time lost for treatments. (b) Medical Examination. Physical examinations required as a condition of continued employment must be performed by a physician selected by the Company and paid for in full by the Company, except as provided for in the appropriate leave of absence clauses. Initial examinations will be paid by the applicant for employment and reimbursed after the employee commences to accrue seniority. When the Company requires employees to take examinations not required by the rules or regulations of the Department of Transportation or other regulatory body, employees affected will be paid for their time. The provisions of this paragraph do not apply to employees who have physical disqualifications determined in accordance with the first paragraph of this section, conditions requiring physician-required medical re-checks, absences covered by workers' compensation, long-term illnesses, or disabilites. Employees who refuse to submit to a medical examination when instructed to do so by the Company are subject to termination. Employees who fail medical examinations by a competent medical authority approved by the Company may be disqualified for service. The disqualified employee or the Union may within 45 days after 7 8 such examination, provide the Company with the written opinion of a physician selected and paid for by the employee. In the event the physician selected by the employee disagrees with the opinion rendered by the Company-approved physician, the Company and Union may meet within 45 days and select a third physician acceptable to both parties. This same procedure will be applied to employees returning from sick leave who fail to pass their return-to-work or DOT physical. The third physician will examine the employee and render an opinion binding on the parties. If the third physician determines the employee suffers a condition correctable by treatment which is not otherwise disqualifying under the DOT regulations, the employee may continue working. If able to work, the employee will be permitted to return to work upon certification of fitness by the third physician. Expenses of the third physician will be borne equally by the Company and the employee. Employees separated from service because of physical disability will be returned to their proper places if and when the cause of disability is removed. Employees required by the Company to travel to take a medical exam will be reimbursed for their travel expenses. (c) Safe Maintenance of Equipment and Machinery. The Company agrees to maintain all equipment and machinery in a safe and sanitary condition at all times. Supervisors will not require operators to operate a motor coach that fails to comply with FMCSR 392.7 (Equipment, Inspection, and Use) and FMCSR 392.8 (Emergency Equipment, Inspection, and Use). The Company is responsible for any fines, tickets or court costs in relation to faulty equipment that the Company has directed to be utilized. Employees who intentionally and negligently damage or cause damage or disablement to any safety device may be terminated. The Company may provide awards for safety and service. ARTICLE G-19. WORK PROHIBITION, SUPERVISORY EMPLOYEES -- Supervisory employees are not permitted to do any work performed by employees covered by this Agreement, with the exception that supervisory employees may perform such work, up to a maximum of 16 hours per month, for the purpose of understanding the dynamics of the work or where there are no employees available and customer needs require that the work be performed. In the latter case only, if employees were available and fit to perform the work, they will be paid as if they had performed the work. ARTICLE G-20. SUPERVISORY SENIORITY -- Represented employees who accept supervisory positions with the Company retain but do not accumulate seniority during the first 24 months in such positions, and suffer no loss of seniority if they return to the bargaining unit within that time. Employees in supervisory positions who desire to return to contract positions must do so under the provisions applicable to those employees on indefinite leave with a 15-day notice to the Company and the Union. Employees may only exercise their right to retain their bargaining unit seniority when accepting a supervisory position on one occasion. Employees who choose to return to supervision a second time immediately forfeit their bargaining unit seniority. Supervisors who are currently accruing seniority with this bargaining unit will suffer no loss of seniority if they return to the bargaining unit prior to January 1, 1999. ARTICLE G-21. EMBLEMS -- Union members are permitted to wear the emblem of the Union. Emblems will be of a size and shape so as not to detract from the uniform. An appropriate decal jointly agreed upon by the Company and the Union which integrates the separate emblems of the Company and the Union may be placed on all Company-owned coaches operated by members of the Union, and on all coaches operated by members of the Union that are leased by the Company on a lease of 120 days or more. The decal will be placed where designated by the Company and in full view of the traveling public. The Company and the Union will jointly share the cost of developing such decals. ARTICLE G-22. NON-DISCRIMINATION -- There will be no discrimination in hiring, promotion, or other aspects of employment because of race, creed, color, religion, national origin, age, sex, or disability. No employee will be discriminated against because of affiliation with or activity in the Union. 8 9 ARTICLE G-23. PART-TIME/SEASONAL DEFINED -- Part-time and seasonal employees, as defined below, will not receive the benefits covered in this Agreement, except as specifically provided below. Part-time employees are defined as employees who work less than 1,500 paid hours per calendar year. Seasonal operators are operators hired to work only during the summer season (May 15 - September 15) and/or for the following specific peak periods: Memorial Day, Thanksgiving, Christmas and Easter. Part-time employees who work more than 1,200 paid hours in a calendar year will receive holiday and vacation benefits for that year as though they were full-time employees in that year. Part-time and seasonal operators may not exceed 10 percent of the full-time operator workforce. ARTICLE G-24. REIMBURSEMENT -- All moneys spent by employees which are chargeable to the Company will be reimbursed without delay. ARTICLE G-25. NOTICE OF REPRESENTATIVES -- The Union agrees to notify the Company in writing of the names and addresses of its respective, duly accredited representatives and committees immediately upon their election or appointment to such office. ARTICLE G-26. NOTIFICATION OF PERSONNEL ACTIONS -- The Company agrees to promptly furnish the properly accredited officer of the Union with a copy of forms prepared covering the employment, classification, resignation, transfer and leaves of absence of each employee who is covered by the terms of this Agreement. ARTICLE G-27. PROMOTIONS -- Equal consideration will be given to employees when making promotions. ARTICLE G-28. UNION SECURITY -- To the extent permitted by law, all full-time, part-time and seasonal employees covered by any portion of this Agreement must become and remain members of the Union not later than the 31st day following completion of their probationary period or the date of this Agreement as a condition of their continued employment with the Company. Initiation fees for part-time and seasonal employees will not be more than $50 and monthly dues will be one and one-half times their hourly rate of pay. Seasonal employees will be offered withdrawal cards during off seasons, which will entitle them to discontinue paying monthly dues for up to 12 consecutive months so long as they do not work for the Company during off-season time and to commence working for the Company thereafter without paying back dues for that period or a new initiation fee. ARTICLE G-29. SUBCONTRACTING -- The Company reserves the right to subcontract no more than five percent of its mileage in any one year and the right to subcontract for service on routes abandoned for more than one year as of the date of this Agreement. The Company agrees that no more than 10 percent of its mileage, measured from the annual mileage driven in 1997, will be subcontracted during the term of this Agreement. Notwithstanding any other language in this Agreement, upon notice to the Union, the Company has the right to subcontract service work, parts room work, and truck driving work. - ------------------------------------------------------------------------------- BENEFITS(1) ARTICLE B-1. BEREAVEMENT LEAVE -- In the event of a death in the immediate family the employee will be entitled to one three-day paid bereavement leave in each calendar year to attend the funeral. Employees will receive their leave rate (as defined in Leave Rate) for each day of leave except regular operators will receive missed earnings. Employee's immediate family is defined as their spouse, son, daughter, sibling, parent, current father-in-law, and current mother-in-law. Employees who fail to attend the funeral will be ineligible for benefits. ARTICLE B-2. EMPLOYEE ASSISTANCE PROGRAM -- The Company will provide an employee assistance program to employees covered by this Agreement on the same basis as other employees of the Company. - ----------------------- (1) Unless otherwise noted, all changes in the Benefits section are effective January 1, 1999. 9 10 ARTICLE B-3. 401(K) PLAN -- With the plan year beginning January 1, 1999, the Company will make a contribution of 50 cents, in cash or stock, for each dollar contributed of the first five percent of an eligible employee's pay. Prior to the Company selecting cash or stock, it agrees to meet and confer with the Union. Additional matching contributions of Company stock may be made at the discretion of the Company's Board of Directors. Company matching contributions will be made no later than June 30th of the year following the year for which contributions are being matched; the stock contributed will be valued as of the date the matching contribution is made. Employees who work 1,000 hours or more in a calendar year are eligible for Company matching contributions in the 401(k) Plan. Company matching contributions vest after an employee has completed five years of actual service with the Company. The Company will bear the administrative costs associated with the 401(k) Plan, retain the right to choose the plan administrator and exercise all shareholder rights with respect to such stock. The Company retains the right to distribute the portion of a participant's account held in the Company stock fund in the form of stock. ARTICLE B-4. HEALTH AND WELFARE -- For full-time employees who have completed their probationary period and become eligible for benefits, the Company will contribute into the Greyhound Lines, Inc./Amalgamated Transit Union Health and Welfare Trust: o a minimum of $165.00 per month from January 31, 1998 through February 1999; o a minimum of $175.00 per month from March 1999 through February 2000; o and a minimum of $181.50 per month for the remainder of the Agreement. The Company will increase its contributions on an annual basis, as of March 1st of each year of the contract, by the amount necessary to maintain a 70/30 co-payment ratio but, under no circumstances, will the Company be obligated to increase its contribution by more than five percent of the agreed upon contribution in any year of this Agreement. ARTICLE B-5. HOLIDAY PAY -- There will be eight recognized holidays: New Year's Day, Martin Luther King's Day, Friday before Easter, Memorial Day, Fourth of July, Labor Day, Thanksgiving and Christmas. Employees' holiday pay will be at their leave rate. In order to receive holiday pay, employees must work a full shift on the last scheduled work day prior to the holiday; the holiday if they are scheduled to work the holiday; and the first scheduled work day immediately after the holiday, unless an active employee has been properly excused for leave without pay on such day(s). Approval of such leave must be requested in writing and, if granted, granted in writing. Holiday pay is intended to ensure that all employees, whether they work on the holiday or not, receive an additional day's pay for each holiday, provided all such employees who are not available as required by this Agreement will not receive holiday pay. Employees must have a minimum of 90 days service to qualify for holiday pay. ARTICLE B-6. INCENTIVE PERSONAL DAYS OFF (IPDO) -- Beginning in calendar year 1999, operators working 2,080 hours in a calendar year will earn four IPDO days. Operators working 2,500 hours in a calendar year will earn an additional four IPDO days for a total of eight. In calculating hours under this provision, vacation time and IPDO will be credited. IPDO days must be taken in the calendar year following the calendar year in which they were earned. IPDO days cannot be banked or sold. IPDO days cannot be taken during black out periods and are subject to manpower availability at all other times as determined by the Company. ARTICLE B-7. JURY DUTY -- The Company will pay operators on jury duty the difference between missed earnings for regular operators or the leave rate (as defined in Leave Rate) for extraboard operators and the daily amount paid for such jury duty. Operators returning from jury duty on a date when their regular run is out of town may position themselves to pick up their run at the layover point if possible. However, if they elect not to position themselves, earnings guarantee will not apply for that day. Maintenance employees on jury duty will be allowed the difference between their leave rate and the daily amount paid for such jury duty. 10 11 ARTICLE B-8. LEAVE RATE -- Unless otherwise specified, the leave rate for operators will be calculated as 1/6 of 1/52 of their earnings during the previous 12 calendar months. Any operator off for 30 consecutive days or more without pay because of illness, workers' compensation injury, furlough, or any new operator with less than one year of service will have their leave rate calculated on a prorated basis, based only on actual weeks worked in the previous 12 calendar months. Missed earnings will mean the amount of earnings that an employee would have normally earned on a regularly scheduled work day. Employees are not entitled to missed earnings for any scheduled day off. The leave rate for maintenance employees is calculated as eight hours' pay at the applicable hourly rate. ARTICLE B-9. PASSES -- Employees passing their probationary period will be granted an annual pass to be used in accordance with Company policy. ARTICLE B-10. RETIREMENT PLAN -- The Company and the Union agree to continue the existing Greyhound Lines, Inc./Amalgamated Transit Union National Local 1700 Retirement and Disability Plan hereinafter referred to as "Plan" subject to the following modifications: (1) In the event the Plan actuary notifies the Plan Trustees on or before November 1st of any plan year that a contribution to the Plan is likely to be required for the succeeding plan year (e.g., by reason of an expected change in actuarial assumptions or methods or otherwise) hereinafter referred to as the "Notice," the parties will meet to negotiate a method of avoiding such required contribution, but upon the failure of the parties on or before the December 8 following receipt of the Notice to agree upon a method to avoid such contribution, all future benefit accruals under the Plan will be frozen effective December 31st of the year of the Notice; (2) if, after the Plan has been frozen, any subsequent annual actuarial valuation by the Plan's actuary reports that the market value of the assets of the Plan exceed 115 percent of the actuarial present value of accumulated plan benefits, the parties agree to negotiate retroactive benefit increase(s), in accordance with the pre-freeze benefit formulas, for those participants whose future benefit accruals were frozen as a result of (1) above, but in no event will such benefit increase(s) cause the market value of the assets of the Plan to be less than 115 percent of the actuarial present value of accumulated Plan benefits, determined after the benefit increase(s) described above. ARTICLE B-11. RETIREMENT (EARLY) LEAVE OF ABSENCE (RLOA) -- Operators in the Greyhound Lines, Inc./Amalgamated Transit Union National Local 1700 Retirement and Disability Plan (other than highly compensated employees as defined by law) will be allowed to take a RLOA prior to age 55 and retire without penalty at age 55. Years of service and average earnings will be frozen at the time the RLOA is granted. Operators will not be subject to recall, but will be allowed to return to work one time only before age 55 providing they meet all applicable requirements at the time. At age 55 operators must return to work or retire. Operators returning to work will not be credited with years of service during the RLOA but will resume the accumulation of years of service upon the date of return. Operators taking RLOA are not eligible for health and welfare benefits except under COBRA and other applicable laws. Forty operators per year, selected on a seniority basis, will be offered an opportunity to elect RLOA. No more than five percent of the operators at any location are eligible for RLOA and locations with fewer than 25 operators are limited to one driver taking RLOA. ARTICLE B-12. STOCK OPTION PLAN -- A pool of two million shares of Greyhound stock will be made available for stock options with a seven-year term. The stock options will be granted under a new stock option plan established for active operators and mechanics who have three years or more of seniority and have worked at least 1,720 hours during each of the previous three calendar years as of January 1st of the year during which options are granted. Hours worked exclude sick leave, medical leave and periods for which workers compensation is received. The first one million shares of stock options will be distributed as of October 1, 1998 at a grant price of $6.00 per share and will be 100 percent vested on October 1, 2000. The second grant of one million shares will be granted on October 1, 2001 at a grant price of $7.00 per share and will be 100 percent vested October 1, 2004. The Company will provide for a "cash-less exercise" program. 11 12 ARTICLE B-13. SICK LEAVE -- After one year of service, employees are eligible for paid sick leave for days missed in cases of non-work-related injury and illness, not to exceed six days per year, subject to the following exclusions: 1. Sick leave claims are limited to those days excluded from coverage and not eligible for retroactive coverage by state workers' compensation law. 2. No employee will receive sick leave payments for the first three consecutive days, whether or not work days, except if an employee is hospitalized during the three-day waiting period, sick leave benefits commence as of the first day of hospitalization. 3. Employees are not entitled to sick leave benefits for any time lost by reason of sickness while on vacation. Sick leave for extraboard operators will be paid at the leave rate as follows: 1. The first three days will not be paid and will be considered a waiting period. 2. The next six days will be paid. 3. The seventh day is a day off and will not be paid. 4. Thereafter six days will be paid followed by one unpaid day. Regular operators will be paid missed earnings less the three day waiting period. Sick leave for maintenance employees will be missed earnings for regular hours after the three-day waiting period. Employees may accumulate unused sick leave from year to year. Accumulated sick leave may be used only for a period of sickness exceeding 10 consecutive days, but will be paid in accordance with the above, retroactive to the fourth day of such sickness. In order to receive sick leave benefits, employees must submit medical evidence of their illness from a licensed medical doctor or other satisfactory evidence on forms provided by the Company. The expense of this medical evidence will not be borne by the Company. At its option, the Company may require a special examination of an employee by a designated doctor paid for by the Company. Employees will notify their supervisor of absences on account of sickness as soon as possible. An application for sick leave benefits will be made within five days after return to work. ARTICLE B-14. VACATIONS -- Vacations are earned and granted in the following manner: o Employees who complete one year but less than 11 years of continuous employment will be granted two weeks' paid vacation. o Employees who complete 11 years but less than 21 years of continuous employment will be granted three weeks' paid vacation. o Employees who complete 21 or more years of continuous employment will be granted four weeks paid vacation. Employees will be paid their leave rate for each day of paid vacation except regular operators will be paid missed earnings (as defined in Leave Rate). Each week of vacation for extraboard operators includes six days of paid leave and one day of unpaid leave. Employees with less than 21 years of service are allowed to bank one week of vacation each year up to a maximum of 30 days. Employees with 21 or more years of service may bank two weeks of vacation each year up to a maximum of 60 days. Mechanics will bank five paid days per week and drivers six paid days per week of vacation. All remaining vacation must be bid and taken in the year earned. Banked vacation can then be sold, taken as extra week(s) of bid vacation, or taken as personal time off one day at a time (VPTO) subject to Company approval, provided 48 hours advance notice is given. When selling vacation days or taking VPTO, employees will be paid the leave rate as defined in the Leave Rate provision except regular operators will be paid 1/6th of the amount paid for their last week of vacation for each day sold or taken as VPTO. Employees wishing to take VPTO because of illness must comply with the provisions governing sick leave, e.g., three-day waiting period, medical evidence, and so forth. The annual posting date of vacations will be during November and December, with vacations to be taken the following calendar year. The Company will designate periods when vacation must be taken and will post at each location a list showing same and the number of employees who can take vacations during the same period. 12 13 Employees will bid on vacation periods in accordance with their seniority. Employees may, in bidding on vacation dates, divide vacation in units of weeks. Employees will bid their vacation at vacation bidding time regardless of their anniversary date. Employees who are inactive at the time their bid is due must contact a supervisor to submit their bid which will be placed on the vacation bid sheet by the supervisor. Employees must elect to bank vacation by October 15th of each year for the next calendar year. In the event of death of an employee, his beneficiary will receive any vacation benefits due him at the time of his death. Employees leaving the service of the Company will be paid for all earned and unused vacation or days. Earned and unused vacation will be paid for at the leave rate as defined in the Leave Rate provision. To the extent allowed by law, employees leaving the service of the Company will be charged, and appropriate amounts will be taken out of any moneys due the employee, for the number of days vacation not earned for which they have been paid. Operators who move from one location to another will carry their scheduled vacation time with them to their new location. Non-operators who change their locations will retain any previously scheduled vacation times only to the extent practicable, as determined by the Company. Vacations for non-operators commences the day after their scheduled day off. Operators will start their vacations on Monday unless they are on a run where they are away from their home location on Monday; in which event, they will start their vacation on either the commencement or after completion of their run. Employees who have a leave rate of $50 or less may request to sell all of their vacation and continue working through their scheduled vacation period. Maintenance vacation weeks becoming open or available during the months of June, July, August and the last two weeks of December (prime weeks) will be rebid. For maintenance employees, such prime weeks of vacation vacated by the successful bidder will be rebid. - ------------------------------------------------------------------------------- OPERATORS ARTICLE O-1. BIDDING (a) Displaced Operators. Providing at least 30 calendar days remain before the effective date of the next general bid, operators displaced by senior operators, or who for any reason are deprived of their assignment through no fault of their own, must displace a junior operator in assigned service at their home location or place themselves on their home extraboard. Displaced operators must displace a junior operator in assigned service within 24 hours of the time of displacement unless prevented by sickness or any other approved cause, or return to their home extraboard. Displacements occurring within 30 days of the next general bid will continue if the initial displacement occurred at least 30 days prior to the next bid. Operators exercising their right to displace another operator are required to give at least 12 hours notice to the Company prior to the departure from their home terminal. Notification will be attempted first by telephone. If the operators cannot be contacted by telephone, a VRU message will be left. Displaced operators upon completion of their last assignment, with proper notice, may displace any junior operator at their home location. The displacement is effective on the first outbound trip after proper notice is given as described above. (b) Extraboard Positions. The Company will determine the number of extraboard positions at each location. Should extraboard positions be posted between general bids, all active extraboard operators will be eligible to bid on such positions. Assignments will be by seniority from among those who bid except inactive operators will be awarded positions at the location they last worked ahead of active operators from another location. Operators will be responsible to be aware of such postings and the Company is not obligated to notify operators of any such postings. Operators must sign such bid in person and be available on the effective date. Successful bidders for the posting of extraboard positions under this provision waive the seven-day recall language. 13 14 (c) Hardship Transfer. Operators may request a transfer to a new location if their continued work at their home location creates a hardship. Hardship transfers are subject to Company and Union approval. Operators granted a hardship transfer forfeit all hold-down bidding and displacement rights for the duration of the current bid at their new location. (d) Hold-Downs and Vacancies. New runs and vacancies between general bids will be posted as hold-downs at the extraboard location covering the work. Hold-downs will be subject to bid by all operators on the extraboard at the location and will be awarded to the senior extraboard operator bidding. Hold-downs consist of new runs, permanent vacancies or temporary vacancies due to vacations or other leaves. The successful bidder of a hold-down posted because of a new run or because the regular operator vacated the run permanently, either voluntarily or due to resignation, retirement, or death will be considered the regular operator for the duration of the bid and will be subject to all rules of a regular operator, including displacement. Temporary vacancies will be posted only when there are five or more known working days included in the hold-down posting. Operators may elect to utilize any scheduled days off immediately at the end of the hold-down as if they were their regular days off. Hold-downs will be posted each week on Wednesday, Thursday, or Friday and awarded the following Thursday at 3:00 p.m. local time (six to nine days later). If a hold-down is posted and not bid, it will be assigned to the junior operator on that board, or may at the Company's discretion, be worked off the extraboard. Successful bidders of a hold-down will be removed from the board nine hours before the time required to report for the assignment. Successful bidders out on an assignment at the time they should have been removed from the board must complete their assignment and pick up the hold-down at their home location, after they have secured their rest. Earnings guarantee will not apply. Operators called for an extraboard assignment and instructed to report 12 hours or less before the time required to report for the hold-down assignment may, at the time of the call, decline the report for an assignment if sufficient operators are available. Operators who decline such assignments will be removed from the board and placed on the hold-down at that time. If sufficient operators are not available, the assignment must be accepted. If unable to pull the first trip of the hold-down, operators will be paid the greater of the first day of the hold-down or the work performed. Operators on hold-downs, vacation or leave of absence bidding a new hold-down must be available to perform the hold-down's first trip. Hold-downs will be awarded only to active operators. To be considered active, operators must be on the extraboard available for call, on assignment, or on their time off at the time the hold-down is awarded. All hold-downs bids must be signed in ink. Once the hold-down is signed, it may not be altered in any manner. Operators bidding a hold-down will not have a claim to any guarantee for wages lost as a result of their bid. (e) Material Change. The following are considered material changes: 1. Change of location of assignments. 2. Change of run destination (excluding garage and/or terminal changes within the same city). 3. Change of more than an aggregate of one-hour sign-on or sign-off time in the assignment at the operator's home location in a three-month period. 4. Change of more than one-hour sign-on or sign-off time in the assignment at the operator's home location. 5. Change of days off. 6. Change of assignment resulting in a decrease of $100.00 or more per month in earnings. When the working conditions of regular runs are materially changed, operators have the following options: 1. Remain on their run. 2. Displace their home extraboard. 3. Displace any junior regular operator at their home location. Runs vacated under this provision will be handled under the Hold-downs and Vacancies provision. 14 15 (f) Regular Runs and Extraboard Selection. The Company will conduct a minimum of four nationwide general bids for all regular runs and extraboard positions to be effective in January, March or April, June, and August or September. All operators who have worked during the current bid period and prior to the new bid closing are eligible to bid. Eligible operators who fail to bid forfeit rights to displace except to the extraboard at the operator's home location; such operators may fill any open positions or displace a junior operator on that extraboard. Runs will be awarded on a seniority basis. Operators bidding regular runs and hold-downs must qualify themselves to work the bid job. Qualified includes, but is not limited to, proper licenses and knowledge of the route bid. In recognition of a business need for all operators to be available during the busy summer season, the following applies to the June and August/September general bids: o Operators changing locations with the June general bid must assume their new assignment effective on the first day of the bid. Operators with legitimate reasons for an extension on their arrival date must secure an authorized leave of absence from a Company supervisor at the new location. Operators who do not change locations must pull the first cycle of their new run unless it would cause a loss of earnings between the pay for the old and new assignment. o Operators changing locations with the August/September general bid must work through the final work day prior to the effective date of the August/September bid. Operators who do not change locations must work the last complete cycle of the June run bid unless it would cause a loss of earnings between the pay for the old and new assignment. Operators who change cycles due to a run bid change are not entitled to lost wages or overtime. Operators returning to work from authorized leave or reinstated will be assigned in the following manner: o Operators with a prior assignment within the current run bid must return to their prior job. o Operators who have not held a job in the current or upcoming bid may displace any junior operator or open position at their home location. o Operators eligible to bid who failed to do so may only bump the extraboard or any open position at their home location. Extraboard positions are bid by seniority. Operators who do not receive their bid choice on a general bid will be assigned to a vacancy nearest their present location. If no vacancies exist, they will be furloughed immediately. ARTICLE O-2. EXTRABOARDS --The Company reserves the right to establish, maintain, alter, alleviate, or change extraboards at locations where the necessity of the service requires. Seniority choice will determine the operators who are assigned to the extraboards. The extraboard to which a new operator is assigned will be designated by the operator's seniority bid. Seasonal operators will rotate on the extraboard and will be eligible to bid on designated runs and hold-downs only. Part-time operators will rotate on a separate extraboard and will not rotate on the full-time extraboard. The order of assignment for extraboard work is full-time/seasonal extraboard operators, full-time/seasonal extraboard operators on their day off, full-time regular operators who have signed for work on the superboard (with hours to perform the work and who would not miss their regular run), part-time operators, pre-assigned regular operators, and rentals. Full-time extraboard operators who are available for service 12 days in a payroll period will receive a biweekly guarantee of $375.00. Available for service means that an operator must be promptly accessible by telephone or be present at the garage or terminal if directed by the Company. Holiday pay is in addition to the biweekly guarantee. When an extra operator transfers from one board to another after learning two routes of the board to which the operator transfers, the operator will be placed on the extraboard for work. Extra operators must qualify for all runs serviced by their extraboard within 30 days from the date assigned. An extra operator who fails to become qualified within such period will be removed from the board and must learn all routes. Extraboard operators entitled to an assignment over a route they have not learned may be removed from the board and required to ride the trip and learn the route. This provision will not apply to an operator at any away-from-home location. If business plans indicate a potential operator or equipment shortage, the Company may assign a regular operator, part-time operator, or rental bus ahead of available extraboard operators. This will permit the Company to assign regular operators to assignments that will allow them to work and return home to be available to pull their next scheduled run. It will also permit the Company to assign rentals or part-timers to 15 16 assignments that will allow them to work and return home before their available period ends. The first-up extraboard operator missing an assignment under this provision is entitled to a claim under the runaround provision. (a) Extraboard Run Assignments. Extraboard operators assigned to a regular run will be paid for protection up to the sign-on time of the run. Extraboard operators assigned to an extra section, a charter, a deadhead, or to DHOC will be paid for protection from report time according to instructions up to the actual time of departure. Protection will be paid at the protection rate. Runs will be assigned at the specified assignment time in the Run Guide or 30 minutes prior to departure time. Doubles, deadheads, and DHOC will be assigned at least 15 minutes prior to scheduled departure time, if known, or when they develop. When simultaneous assignments occur, the first-up operator will make his choice on available work, the second-up operator will make his choice of the remaining available work, and so on. If, after making a choice, the run or work the operator selected is canceled, he will remain first-up for the next known assignment after the other simultaneous assignments occur, without a bump. Extraboard operators assigned to straight-away runs (a run that requires operators to secure their rest before returning to their home terminal) will be assigned the entire run. However, upon arrival at the layover location, operators may elect to vacate the run and be placed on the extra board by notifying central dispatch at the time they sign in at the layover location. Operators will then fall under all provisions of the First-In, First-Out language except that the Layover and Meal Allowance provisions will not apply. This does not apply to extraboard operators assigned to a turn-around run (a run in which the operator is not required to secure his rest before returning home). Open regular runs will be assigned to the first-up extraboard operator from the location where the run originates. If no extraboard operators from the location where the run originates are available, the run will then be assigned board-to-board under normal first in, first-out rules. (b) First-In, First-Out. Extraboard assignments will be made on the basis of first-in, first-out. Operators returning to their home location, who have secured their rest at an away location, and who still have available driving time within their 10 hours, may be first-up for assignment. The Company, at its option, may release such operators and place them on the bottom of the board or on protection within two hours after arrival. Four hours after being placed on protection, operators who have not received an assignment will be placed on the bottom of the extraboard. If an assignment is received, the assignment must be round trip or operators will be returned home immediately upon completion of a one-way assignment, either DHOC or other available work. No runarounds will apply when returning operators to their home location under this provision. Operators returning to their home extraboard within eight hours of the original report at their home extraboard who still have available driving time may be first-up for an assignment if they have sufficient hours to complete the assignment. At the Company's option, operators may be placed on the bottom of the board or placed on protection within two hours after arrival. If placed on protection, an operator who has not received an assignment within eight hours of his original report will be released and placed on the bottom of the extraboard. Extraboard operators at an away-from-home location without an assignment, and not on temporary transfer, will be worked first-in, first-out to or towards their home terminal, except when the extra board is depleted. When the extraboard is depleted, operators may be used on any assignment in any direction. When two or more operators arrive at their home board at the same time, they will be placed on the bottom of the extraboard or remain first-up in the following order: 1. The order of the previous report for assignment. 2. The operator who had the first report time on that day. 3. If the report times were the same, the operator returning from the most distant location. 4. If the report times were the same and traveling the same distance, the order they left their home location. Extra operators who, through no fault of their own, are runaround will receive runaround compensation for this occurrence. In no instance will runarounds apply to regular operators including regular operators working on the extraboard. Extra operators will ascertain that they are on the extraboard and in the correct position and immediately notify their supervisor when they have been placed in the wrong position on the board or left off the board. Regardless of circumstances, an operator will not be considered as having been runaround more than once in any 24 hour period. 16 17 Runarounds will be paid at the fixed rate of $50.00 per occurrence per approved runaround. If an operator is runaround and does not work within the next 12 hours, the operator will be entitled to a full runaround payment for the assignment missed, and will not receive the $50.00 penalty. Only the first-up operator at the time of occurrence will be entitled to a runaround payment. (c) Overtime for Extraboard Operators. Overtime will be paid at the rate of time and one half for all paid hours worked (does not include benefit compensation) over 50 hours in a seven-day period and at double time rate for all paid hours worked over 70 hours in a seven-day period. The overtime periods begin 12:01 a.m. Monday and end 11:59 p.m. Sunday. Hours worked on charters of 36 hours or more or hold-downs of seven days or more will be excluded when calculating overtime under this article. (d) Reporting Time. Extraboard operators will protect all runs and schedules. Extraboard operators are responsible for keeping themselves advised of their status on the extraboard and all operators must provide themselves with telephone service. To be considered available for service, extra operators must have sufficient rest and must be able to reach the garage or terminal within two hours at their home location and one hour at an away location, unless otherwise extended. The Company will cooperate and upon request furnish information as to extraboard standing and the probable call times. Operators are responsible for all messages transmitted through or to other parties. First-up extraboard operators who are unavailable and cannot be notified by the Company to receive instructions to report to work will be removed from the extraboard for 12 hours. Extraboard removal is not considered discipline. Operators with an assigned report time who report late may be assigned work; may be placed at the bottom of the extraboard, if an extra operator; or returned home until the next assignment, if a regular operator. Extra operators booking off sick or fatigued will be removed from the extraboard for a minimum of 24 hours and placed on the bottom of the board when they are physically able to call in and perform work. If the extraboard is depleted, operators may be placed on the extraboard before the end of the 24 hours. Operators will not be permitted to drop to the bottom of the board. All book-offs must be in 12 hour increments. (e) Temporary Transfer Assignment. Method A voluntary temporary transfer list will be established at each extraboard point for the purpose of assigning temporary transfers. Extraboard operators may sign this list at any time after becoming a member of the extraboard at such location. Assignments from the voluntary list will be made according to the operator's position on the regular extraboard on a first-in, first-out basis. Extraboard operators who have signed the temporary transfer list and refuse an assignment will be removed from the voluntary transfer list and will not be eligible to sign up on the list again for a period of 30 calendar days. In the event no operators sign the list, or if the list is depleted, transfers will be assigned to the junior operator currently on the board at the time of the assignment. All assignments will be made nine hours before the operators are scheduled to leave their home terminal. Temporary transfer operators moving from one extraboard to another are responsible for learning the new routes at the new extraboard location. The Company may require the temporary transfer operators to pad on schedules to learn the route. Temporary transfer operators will be paid $12.00 per day while learning routes. (f) Temporary Transfers - Extraboard Operators. The Company has the right on an emergency basis to order extraboard operators onto the extraboard at another location. If the temporary transfer is mandatory, the temporary transfer will not exceed seven days. Voluntary temporary transfers may extend up to 30 days. Temporary transfers must be for a predetermined period of time. Any extension in time must be mutually agreed upon between the Company and the employee. Any extension exceeding 30 days is considered a permanent transfer except that an operator on assignment on the 30th day may complete the assignment and return to his home terminal and will not be considered a permanent transferee. During the transfer period, the temporary transfer operator's home terminal will not change unless the transfer becomes permanent. If a transfer becomes permanent, the operator will be placed on the extraboard at the new location and will work first-in, first-out from the new location for the entire period without bidding or bumping rights at the new location. 17 18 Temporary transfer operators will be placed on the other location's extraboard in the same order as they vacated their home boards. The Company has the right to work operators to the temporary transfer location on deadheads or DHOC only. Deadhead buses must go to the temporary transfer location. Other types of assignments may be made only if the board is depleted. Temporary transfer operators must be sent home immediately at the end of the pre-determined time period or, if on assignment, immediately upon the completion of the assignment. The Company may return the operators to their home location prior to the expiration of the predetermined time. The Company may work the temporary transfer operator home after arrival at the temporary transfer location, if the driver plugs the foreign extraboard at the temporary location behind drivers from his home location, and works under the First-In, First-Out provisions of the contract. The operator may be cushioned home immediately ahead of other operators on the extraboard. The Company will provide temporary transfer operators a room and will pay operators a meal allowance as outlined under the Meal Allowance provision for the first 30 days. The meal allowance period commences when temporary transfer operators leave their home terminal and continues until they return to their home terminal or the transfer becomes permanent. (g) Layover. Upon being released from an assignment at an away-from-home location, an extraboard operator becomes eligible for meal allowance 16 hours after securing eight hours rest. Meal allowances will be calculated under the Meal Allowance provision. An extraboard operator held away from home without work will receive a layover penalty of $5.00 per hour or fraction thereof for each hour after the 16th hour for the next eight consecutive hours. After the first 24 hours, the operator will be paid $5.00 per hour in eight-hour cycles--eight hours off, eight hours paid, eight hours off, and so forth until he reports for an assignment/protection. This does not apply to temporary transfer operators. Operators held away from home without work for more than 24 hours may request an assignment to or towards their home terminal. If this request is denied, and the operator has not worked after another 12 hours, he may again request to be assigned on the first schedule to or towards his home terminal after the 36th hour. The second request must be granted immediately. The layover penalty and meal allowance will not apply to extraboard operators on regular run assignments or hold-downs. (h) Time Off for Extraboard Operators. Time off requested by operators will be granted, manpower permitting, in 12 hour increments; i.e., 12 hours off, 24 hours off, 36 hours off, and so forth. ARTICLE O-3. CHARTERS (a) Charter List (Multiple-Day). There will be a multiple-day charter list for all charters of 36 hours or more. To be eligible, operators must have a minimum of one year of service and have satisfactorily completed a special charter training program. Operators who refuse an assignment from the multiple-day charter list will be removed from the list for 30 days. All charters of less than 36 hours will work on a first-in, first-out basis without consideration to the charter list. (b) Notice of Assignment. Special party or charters of less than 36 hours will be assigned, when possible, 30 minutes in advance. Charters of 36 hours or more will be assigned to the first-up multiple-day charter list operator. This is the first operator on the regular extraboard who is on the multiple-day charter list. If no multiple-day charter list operators are available, the charter will be assigned to the first-up extraboard operator with sufficient hours to operate the charter. When possible, charters of 36 hours or more will be assigned nine hours in advance. If a nine-hour call is not possible, the assigned operator must elect at assignment time to either accept the entire charter or be relieved at the next extraboard location where there is available manpower. All charters will be operated by operators from the nearest extraboard unless a specific operator is requested. (c) Charter Pay. Operators will be paid the charter driving rate for all time spent driving and the protection rate for all non-driving time, including hours logged off duty, except when securing required DOT rest. Pay begins at the time an operator reports for an assignment. Pay continues until the bus is dropped at the conclusion of the 18 19 assignment or at the start of the period when the operator is released to obtain rest at a room provided by the Company or charter party. Pay will commence again when the operator is required to report back on duty. If a charter of less than 36 hours requires an operator to secure rest (nine hours or more), away from his home location, the operator will be paid a minimum of eight hours of pay at the charter driving rate. On charters of 36 hours or more, operators will receive a guarantee of eight hours at the driving rate in each complete 24-hour period. The 24-hour period commences at the time of assignment of the charter. If such charter is canceled through no fault of the operator, after the operator reaches the pick-up point, the operator will be paid a minimum of eight hours at the charter driving rate and placed on the bottom of the board. Meal allowance will only be paid on charters of 36 hours or more as provided in the Meal Allowance section. If regular operators are assigned a charter they will be guaranteed an amount equal to their regular earnings for the duration of the charter, unless requested; in which case, there is no guarantee. Operators accepting request charters from a city other than their home location must position themselves at no cost to the Company. (d) Charter Sales Incentive The Company will pay a five per cent commission to operators who sell charters without the assistance of a travel agency, provided they are accepted by the Company. Effective March 1, 2000, a six percent commission will apply. The commission will be paid after the charter is paid for and operates. The Company reserves the right to operate or reject any charter and charters operated will be limited during peak periods. It is also understood only one commission will be paid for a charter and no commission will be paid on discounted charters. ARTICLE O-4. GARAGE PAY -- At all points where the garage is separate and apart from the terminal, a garage allowance will be paid to the operator driving to or from the garage at the deadhead rate unless the operator is on protection. Operators on protection will be paid the protection rate with no duplication of pay. ARTICLE O-5. REST -- Extraboard and regular operators working extra who are required to secure their rest must have nine hours off between sign-off time and the time of a call to report. However, operators may be assigned to the second half of a regular straight-away run if they completed the first portion of the same run, subject to DOT limitations. Unless extended, the standard call to report for duty will be two hours at a home terminal dispatch point and one hour at away-from-home terminal dispatch points. Call times will be consistent within each location, based on commute times, traffic patterns, etc., and may be changed from time to time by mutual agreement between the Company and the Union. Extra operators who do not have sufficient DOT hours of service remaining will revert toward the bottom of the board, one plug at a time, until they have secured sufficient hours to resume service. ARTICLE O-6. LATE ARRIVAL AND CANCELLATION. (a) Cancellation When the Company cancels service for any reason, regular operators who have reported will be paid that day's work or be placed on the extraboard, and if used, guaranteed the same amount as if they had worked their regular run on that day. The operators placed on the extraboard may be passed over for assignments that would make them miss their next run. If released, these operators will not be recalled to work that day. If service is canceled, the Company will attempt to notify regular operators of the cancellation as soon as possible. Notice must be given to the operators at their home location at least two hours prior to sign-on time or at least one hour at an away-from-home location. Notification will be attempted first by telephone. If the operators can not be contacted by telephone, a VRU message will be left. Operators so notified will not be entitled to any pay for canceled service. When regular operators arrive at a point other than their normal away-from-home location and are held, they will fall under Late Arrival provisions unless they receive their rest at that location. The operators will be guaranteed their run pay for that day. Regular operators held at this location receiving their rest will be paid eight hours out of each 24-hour period at the protection rate. The first eight hour period commences one hour after completing eight hours rest. Reasonable room expenses and meal allowances as defined in the Meal Allowance 19 20 section will be paid. The Company may use the operators to or towards their home terminal or on any portion of their regular run. In the event no extraboard, superboard, or part-time operators are available at that location, the regular operators may be used for any open assignment. Regular operators held at their normal away-from-home location on Company orders due to cancellation of service will be guaranteed eight hours pay at the protection hourly rate in the first 24-hour period commencing at their normal schedule departure time. During the next 24 hours, regular operators will be guaranteed 12 hours at the protection hourly rate. The third and any subsequent 24-hour period regular operators will be guaranteed 15 hours at the protection hourly rate. Reasonable room expenses and meal allowances as defined in the Meal Allowance section will be paid. The Company may use these operators to or towards their home terminal or on any portion of their regular run. In the event no extra operators are available at that location, these regular operators may be used for any open assignment. These provisions do not apply to charters. (b) Late Arrival. Operators delayed on any schedule, through no fault of their own, who arrive at a terminal too late to operate the next portion of their run, are guaranteed compensation no less than they would have earned. The Company reserves the right to position operators without additional compensation so they can perform as much of their regular work as possible. Operators delayed on any schedule, through no fault of their own, will be paid the driving rate for any time in excess of 45 minutes of the scheduled arrival time. However, late arrival pay will not be due on any subsequent schedules when created by any previous late arrival on an operator's run. Late arrival pay is not due if operators are notified of a revised report time two hours prior to scheduled report time at their home terminal or one hour prior to report time at layover. A layover point means a location at which operators are required to secure their rest. Extraboard drivers paid protection until departure will not receive late arrival pay unless more than 45 minutes is lost en route. ARTICLE O-7. MANNING OF OPERATOR WORK -- All motor coaches operated by the Company under its certificates and permits, except wrecking equipment, maintenance service, and delivering equipment to and from garages, will be driven by operators holding seniority at the point of origin for the operation if such operators are available. This article does not apply to equipment or operators leased or chartered during peak periods or during emergencies, or to runs using equipment of 35 feet or less. It is understood that wrecking equipment does not include any equipment except that used in repairing and towing. It is understood that maintenance service as used in this article means those cases where the garage dispatches a bus driven by a maintenance employee for the purpose of replacing another bus which is broken down and those cases where a maintenance employee takes a bus out for testing purposes. Nothing in this Agreement limits the right of the Company, subject to DOT limitations, to determine the daily time and distance to be driven by an operator without regard to any formal or informal geographic division of the Company or the Union. The Company will notify the Union of major changes and the parties will meet promptly to confer, upon request, but in no event is the Company precluded from making such changes after giving the Union 14 days notice if the Company was available to meet and confer during that period. ARTICLE O-8. MEAL ALLOWANCE -- Meal allowance will be paid in each 24-hour period when specified in this Agreement as follows: 6 - 7 hours $4.00 8 - 15 hours $12.00 16 - 24 hours $20.00 There are no exceptions to the above regardless of location. ARTICLE O-9. BOOKING OFF -- A regular operator calling in sick will be required to pick up his run at his home location after notifying the Company four or more hours in advance of the next sign on time. 20 21 ARTICLE O-10. OPERATOR'S COMPARTMENT -- The Company will meet and confer with the Union prior to designing new driver's compartments or making changes in the design of existing driver compartments, including the driver's seat. ARTICLE O-11. OPERATORS EQUIPMENT -- Certain equipment necessary in the conduct of an operator's work, including badge, punch, rule book, and working flashlight will be furnished by the Company. Operators must sign a receipt for all equipment furnished by the Company. Operators must safeguard such equipment, and if any is lost or damaged beyond use, operators must make immediate application for replacement, at their expense. Operators must turn in all equipment to the Company upon termination of service or demand. ARTICLE O-12. REPORTING TO COMPANY -- Operators will not be instructed to report by the Company on their days off, after leaving their assignment or more than 20 minutes prior to the normal report time except in cases of a serious nature or to complete an accident report. Operators may be required to report for training on their days off and they will be compensated at one and one-half times the protection rate for actual training hours. ARTICLE O-13. SPEEDOMETERS -- In cases of speeding charges, if requested, the bus speedometer will be checked when the bus is next at a garage with speedometer test equipment. Operators must make their request during the day of the alleged speed charge to the Maintenance Response Desk and in writing to their own supervisor when they return to their home location. Copies of the speedometer check will be furnished to an operator within 15 days of an operator request to the Company or the operator's record will not be charged. If the degree of error in the speedometer equals or exceeds the clocked miles per hour in excess of the speed limit, the operator's record will not be charged. ARTICLE O-14. UNIFORM ALLOWANCE -- Newly hired full-time operators are required to purchase their initial set of Company specified uniforms. The Company will award full-time operators who work 1,200 hours in a calendar year a uniform allowance of $100 on January 1st of the following calendar year. Unused amounts of credit may be carried over from year to year. Any allowance amount that remains unused upon termination of employment is forfeited. Lost, stained, soiled or damaged uniforms are to be replaced at the operator's expense. The Company will reimburse operators for cleaning and repair of their uniforms when soiled or damaged as a result of unusual circumstances during the performance of their duties. Operators must submit a cleaning bill indicating it is for the cleaning of Greyhound uniforms. ARTICLE O-15. READY LINE -- Buses will be placed on a ready line so operators are able to pick a bus up without danger to the operator's safety record. ARTICLE O-16. REGULAR LAYOVER ROOM -- The Company will provide and arrange for suitable rooms for out-of-town operators at regular layover points. The cost of such rooms will be paid by the Company. ARTICLE O-17. REGULAR OPERATORS WORKING EXTRA -- All protection will be performed by extra operators and regular operators placed on the extraboard under other provisions of this Agreement except when there are no extra operators available, qualified regular operators may be used. Regular operators so used may not be bumped from such an assignment. Regular operators used under this provision who are assigned an open straight-away run may be given priority over the extra operators at the foreign board for an assignment back to their home location or cushioned home. Regular operators working on their relief days will be paid time and one half their applicable rate of pay. Regular operators at a terminal other than their home location will be assigned on a first-in, first-out basis among other regular operators working on their relief days. The Company will establish a superboard for regular operators who wish to work on their days off. Superboard operators may be used only when the regular extra board is exhausted. Superboard operators will be used prior to requiring junior regular operators to do the work. Regular operators who do not have proper rest or DOT hours to pull their regular run as a result of working extra or on their day(s) off are guaranteed regular earnings for one day and it is their responsibility to position themselves to pick up their regular run for subsequent days. Operators must notify the Company of their desire to 21 22 pick up their run at an away-from-home location far enough in advance to allow for proper assignments to extraboard operators. ARTICLE O-18. SCHEDULE CHANGES -- The Company will notify the Union whenever schedule changes are made. Upon request, the Company will then meet and confer with the Union regarding changed running times. - ------------------------------------------------------------------------------- MECHANICS ARTICLE M-1. CHANGE OF SCHEDULE NOTICE -- The scheduled hours of employees will not be changed without at least 24 hours prior notice. This will not be used to circumvent the use of overtime. The Company will keep posted in a conspicuous place the various work schedules of each garage. Such schedules will show the hour work begins, the period of relief for lunch, the quitting time and the days of work per week. Said lunch period will not commence before the beginning of the fourth hour and will be completed by the beginning of the sixth hour, from the beginning of the shift. If an employee's shift schedule is changed more than one hour, except for training purposes, the employee may exercise his bumping rights to displace a junior employee or remain on the shift. ARTICLE M-2. COMMERCIAL DRIVER=S LICENSE -- All mechanics are required to have a commercial driver's license as a condition of employment with the following exceptions: o At locations with 15 or more employees, mechanics who are not able to obtain a commercial driver's license or lose their commercial driver's license for any reason, will be allowed to continue to work; however, the Company may assign them to a specific shift where a commercial driver's license is not necessary. o At locations with less than 15 employees, mechanics who lose their commercial driver's license for any reason will be given an unpaid leave of absence not to exceed one year. ARTICLE M-3. COVERALLS -- The Company will provide four sets of coveralls or four sets of pants and shirts for maintenance employees each year. Where coveralls are rented, the Company will pay 70 percent of the rental cost. ARTICLE M-4. COMPANY TOOLS AND EQUIPMENT -- Company owned tools and equipment will be issued from the stockroom or tool room on a custody receipt and must returned to the stockroom or tool room. In the event the Company owned tools or equipment are lost, the employees to whom the equipment was last issued will be responsible and will be charged for the loss of the lost article. Each maintenance employee will provide, at the employee's own expense, the hand tools necessary to enable the employee to properly perform the mechanical duties of the employee's classification. A working flashlight and rubber gloves will be furnished to those employees whose work requires such equipment. Employees will be required to turn in new or worn out flashlights, and rubber gloves to the stockroom and/or tool room before securing replacements. When leaving the employ of the Company, equipment will be returned or paid for, reasonable wear and tear expected. The Company will cooperate with the Union in investigating and attempting to correct and improve security measures for safeguarding maintenance employees' tools at locations brought to the attention of the Company. Surveillance cameras will be installed in the employees' tool storage area at major garages. ARTICLE M-5. FOUL WEATHER GEAR -- The Company will furnish all maintenance employees, when exposed to foul weather, proper foul weather gear, which will consist of rain suits and individual boots where the shoeless type is used. ARTICLE M-6. GENERAL BIDS -- Each year every garage will have least two general bids within each work classification. Job bid sheets on general bids will be posted at least seven days prior to the start of bidding. In the event of a reduction in force or closure at a garage, laid-off maintenance employees will have preferential transfer rights, to existing vacancies without a bump, into any ATU Local 1700-represented garage. 22 23 Transferred maintenance employees will carry their seniority with them as provided in the seniority section of this Agreement. This preferential transfer right will terminate 60 days after notice of layoff. A maintenance employee exercising transfer rights under this provision will have recall rights to his original garage. ARTICLE M-7. HEAVY WORK -- The Company agrees it will not create an unnecessary burden upon any employee that would be injurious to the employee's health by requiring the employee to do heavy work alone, such as heavy work on springs, transmissions, reline, repacks, batteries, etc. Heavy work will be distributed as equally as possible. Employees will be required to use safety equipment while working under coaches, such equipment to be made available by the Company. ARTICLE M-8. LACK OF WORK -- In the event there is a lack of work which necessitates either the reduction of hours or the furloughing of employees, or both, the Company agrees to confer with the Union before determining which method will be used. ARTICLE M-9. MANNING OF WORK -- It will be the Company's policy to have maintenance work historically performed in its garages on Company operated vehicles continued to be performed in its garages. Nothing in this Agreement will be construed or interpreted to prevent the Company from taking its buses to non-Company facilities for washing, cleaning, dumping, and fueling where the Company elects not to have facilities in operation for those services or in peak periods or emergencies, and nothing in this Agreement will be construed or interpreted to prevent the Company from having maintenance work on road failures and running repairs performed at non-Company facilities if those facilities are closer to the location of the vehicle needing repair than the nearest Company maintenance facility. ARTICLE M-10. MOVING EXPENSE -- In the event that employees are moved by the Company from one garage to another garage on account of work being moved to that particular garage, financial assistance will be allowed to married employees in the amount of $300 and to unmarried employees in the amount of $150, such amount to be payable at the time the employee reports for work at the new location. In addition, the employee so moved will be allowed up to five working days (40 hours) with no loss of earnings in effecting their relocation. Such employee will report to work at the new location upon completion of the five days referred to above. ARTICLE M-11. OVERTIME DISTRIBUTION -- Overtime will be distributed among employees qualified to do the work of each department without discrimination. An overtime record in each department at each location will be maintained and posted on a monthly basis. When an employee declines overtime, it will be recorded with the amount of overtime declined on the overtime record. ARTICLE M-12. OVERTIME PASS UP -- Any employee will have the right, if the employee so desires, to pass up the overtime when called upon by the Company to work overtime, provided another qualified employee in that department is available and willing at the time to take the employee's place. ARTICLE M-13. POSTING OF VACANCIES AND NEW POSITIONS -- When vacancies are to be filled or new positions are created, or when desirable to train an employee for a position, the employees will be notified by bulletin posted for three continuous days so that any employee may apply for the position. Employee applicants will be given the same consideration as other applicants and if qualified to perform the work without training, the senior qualified employee applicant will be preferred over the outside applicant. Employee applicants, if selected, will be subject to the probationary provisions of this Agreement. When positions are discontinued, the Union will be given notice in writing. The exercising of displacement privileges must be done within 16 work hours of the date when the position was awarded or vacated. An employee who is entitled to a displacement will indicate his choice within 48 hours of notice if displacement is made within the garage affected or within 72 hours if outside of the garage location. Notices to the displaced employee and subsequent notice of his displacement will be in writing. New employees in a classification may be assigned to any shift on a temporary basis for up to 60 days. 23 24 ARTICLE M-14. REST PERIODS -- Each employee will be allowed two rest periods of 10 minutes during the employee's tour of duty and the second will be during the second half of the tour of duty. There will be no abuse of this privilege by the employee. ARTICLE M-15. ROAD FAILURE -- Road failure work will be performed by a Company mechanic if available and qualified. However, the paramount consideration will be speed and efficiency of repair, and outside mechanics may be used if doing so would better accomplish those objectives. Off-duty mechanics will not be called in to do road work if there are qualified mechanics on duty at the garage. If necessary to call in an off-duty mechanic, the mechanic on duty will have the preference of taking such road call if qualified. Employees returning from road call work will be allowed 10 hours off duty between clock-out time from the road call to clock-in time on their next regular shift at no loss in straight time earnings. Mechanical road failure work on buses when the Company uses the Company mechanics will be handled as follows: 1. It will be the policy of the Company not to deprive a mechanic on the road call board of such work: a. For the express purpose of avoiding the payment of overtime where such eligible mechanic has not been working six hours of his shift. At locations where arrangements provide for an eligible mechanic to be used who has worked for a period greater than six hours of his work shift, such arrangement will be continued. b. For the express purpose of favoring some particular mechanic to the detriment of the eligible mechanic. 2. Reasonable expenses for meals and lodging will be paid by the Company. Necessary expense money will be advanced by the Company upon request of the employee before leaving for road failure work. 3. Employees used in road call work will not be relieved from such work in order to prevent the accumulation of overtime when continuous duty would complete the same However, they may be relieved for proper rest. Employees will not be paid for time relieved for rest. 4. All reports made regarding the cause of road failure will be substantiated by facts and, on request, such reports will be made available to the Union. Maintenance supervisors may include their opinion in such reports. 5. Road call boards will be established in each garage. Qualified employees who desire to perform road call work should advise their Supervisor who will place their names on such boards and they will be called when it becomes necessary to call employees not on duty. 6. The Company may have towing performed by outside towing companies. 7. The Company will provide mechanics on road calls with cell phones. ARTICLE M-16. SANITARY CONDITIONS -- Suitable sanitary conditions will be provided in all garages of the Company for the use of employees. An assembly room will be provided by the Company at all garages and sufficient lockers will be available for the accommodation of the employees. Wash basins with soap and paper towels will also be provided. ARTICLE M-17. SHIFT TRADING -- Mechanics will be allowed to trade shifts under the following terms and conditions: o There will be no overtime involved. o The request will be made at least 48 hours in advance. o The request will be in writing and signed by both parties involved in the requested trade. o The trade will be approved by a supervisor. o The trade will involve no more than two consecutive days. This accommodation will not be abused by the employees. The Company will attempt to approve such requests. ARTICLE M-18. SPRAY PAINTING -- No employees other than painters and painters' helpers will be required to work in close proximity to equipment on which spray painting is being done. The Company agrees that diesel motors will not run excessively in the garage. Garages will be equipped with sufficient ventilating equipment so that exhaust fumes will be speedily exhausted. Mechanics required to spray paint will be provided necessary protective equipment and professional spray guns. If any problems arise with this process, the Union and Company 24 25 will meet to resolve. ARTICLE M-19. TEMPORARY ASSIGNMENTS -- Employees temporarily assigned to classifications paying a higher rate than their own, upon performing such new duties, will immediately receive the rate in such classification that is higher than the rate being paid such employee in the classification the employee is leaving. ARTICLE M-20. TEMPORARY TRANSFER -- Employees may be transferred from one Company garage to another for a temporary period not to exceed 30 days during which time an employee so transferred would retain and accumulate seniority in the garage from which the employee was transferred. The Company agrees that, in the event it requires employees to transfer temporarily, it will pay reasonable living expenses during the term of transfer. If the location transferred to has a higher rate, the employee will receive that rate. This does not apply for the purposes of training. ARTICLE M-21. WORKING FOREMAN -- Working foreman will be considered a supervisory position and appointed by the Company. However, the Company agrees it will give every consideration to the senior qualified employees at the location where the vacancy exists, but will not be required to post the working foreman's position for general bid provided for by this Agreement. Working foremen will remain members of the Union. The employee appointed a working foreman must spend a substantial portion of his time working with the tools to be classified as such. Working foremen will not be permitted to bid a unit job or shift. Working foremen will be paid at a rate of 105 percent of the mechanic's wage in their location. ARTICLE M-22. WORK WEEK AND OVERTIME -- The regular work week will be 40 hours, consisting of either five consecutive eight-hour days or four consecutive 10-hour days. The Company will have the right to determine the percentage between the work schedules at each location after consultation with the Union. Work performed in excess of 40 hours per week or 10 hours in one day will be paid at the rate of time and one-half. A mechanic called in on his off day will be paid a guarantee of four hours' pay at the overtime rate. A building maintenance employee will receive two hours minimum pay at the overtime rate for each call in. - ------------------------------------------------------------------------------- WAGES ARTICLE W-1. MARKET WAGES -- The Company reserves the right to offer additional compensation at any location in order to maintain an adequate work force. ARTICLE W-2. INCENTIVE PAY -- The Company may offer incentive pay or non-cash incentives at its discretion. Upon request, the parties will promptly meet and confer over such incentive pay. ARTICLE W-3. PAY PERIODS -- All employees will be paid every two weeks except where prohibited by state law. 25 26 ARTICLE W-4. OPERATORS -- The following rates of pay will apply to all operators working under this Agreement:
---------------------------------------------------------------------------------------------- OPERATOR WAGES ---------------------------------------------------------------------------------------------- Schedule Protection Deadhead Charter* ---------------------------------------------------------------------------------------------- October 1, 1998 - November 30, 1999 17.13 8.67 12.39 12.85 ---------------------------------------------------------------------------------------------- December 1, 1999 - January 31, 2001 17.73 8.97 12.82 13.30 ---------------------------------------------------------------------------------------------- February 1, 2001 - March 31, 2002 18.44 9.33 13.33 13.83 ---------------------------------------------------------------------------------------------- April 1, 2002 - May 31, 2003 19.08 9.66 13.80 14.31 ---------------------------------------------------------------------------------------------- June 1, 2003 - January 31, 2004 19.85 10.05 14.35 14.88 ---------------------------------------------------------------------------------------------- Charter pay is 75% of the schedule rate ----------------------------------------------------------------------------------------------
Schedule pay will be the total trip time as reflected in the Company's System Timetable in effect when the trip is made, minus scheduled rest stops of 30 minutes or more. Operators must report for duty at their sign-on time to pre-trip and check their assigned buses, load passengers, and complete other assigned duties. Operators must be ready to depart on schedule and complete post-trip duties. Schedule pay covers pre-trip and post-trip duties, without additional pay. Minimum day pay may be established for specifically identified runs. Full-time operators hired after October 1, 1998 will be paid according to the following schedule:
------------------------------------------------ --------------------------------- LENGTH OF SERVICE PERCENTAGE OF SCHEDULE RATES ------------------------------------------------ --------------------------------- Less than one year 85% ------------------------------------------------ --------------------------------- More than one year but less than two years 90% ------------------------------------------------ --------------------------------- More than two years but less than three years 92% ------------------------------------------------ --------------------------------- More than three years but less than four years 94% ------------------------------------------------ --------------------------------- More than four years but less than five years 96% ------------------------------------------------ --------------------------------- More than five years 100% ------------------------------------------------ ---------------------------------
The Company reserves the right to modify this wage progression schedule and rates. Notwithstanding this provision, operators hired before October 1, 1998 will continue on the wage progression in effect at the time they were hired. Length of service for pay purposes will be determined by full-time continuous years of actual service as an operator with the Company. Part-time and seasonal operators will be paid market rates as determined by the Company. The market rate of pay may not exceed the full-time hourly rate for operators. 26 27 ARTICLE W-5. MAINTENANCE EMPLOYEES -- Wage rates for mechanics under this Agreement are contingent on a mechanic successfully completing the prescribed courses; not to exceed two courses in a contract year to be eligible for the next scheduled annual increase. Any employee failing a course after two attempts will forfeit the wage increase for the next contract year. The Company will continue to provide training to all employees. Maintenance employees working under this Agreement will receive area wages as set forth in the following table:
- ---------------------------------------------------------------------------------------------------------- MECHANIC WAGES - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- LOCATION 10/1/98- 1/1/99- 12/1/99- 2/1/01- 4/1/02- 6/1/03- 12/31/98 11/30/99 1/31/01 3/31/02 5/31/03 1/31/04 - ---------------------------------------------------------------------------------------------------------- Albany $15.20 $15.45 $16.00 $16.63 $17.47 $18.17 - ---------------------------------------------------------------------------------------------------------- Atlanta 15.36 15.61 16.16 16.80 17.64 18.35 - ---------------------------------------------------------------------------------------------------------- Atlantic City 18.02 18.27 18.91 19.67 20.60 21.43 - ---------------------------------------------------------------------------------------------------------- Billings 13.21 13.46 13.93 14.48 15.24 15.85 - ---------------------------------------------------------------------------------------------------------- Boston 18.26 18.51 19.16 19.92 20.87 21.70 - ---------------------------------------------------------------------------------------------------------- Chicago 18.49 18.74 19.39 20.17 21.12 21.97 - ---------------------------------------------------------------------------------------------------------- Cleveland 16.17 16.42 16.99 17.67 18.54 19.28 - ---------------------------------------------------------------------------------------------------------- Columbus 16.17 16.42 16.99 17.67 18.54 19.28 - ---------------------------------------------------------------------------------------------------------- Denver 16.80 17.05 17.64 18.35 19.24 20.01 - ---------------------------------------------------------------------------------------------------------- Jackson 14.90 15.15 15.68 16.31 17.13 17.82 - ---------------------------------------------------------------------------------------------------------- Jacksonville 13.70 13.95 14.44 15.02 15.80 16.43 - ---------------------------------------------------------------------------------------------------------- Las Vegas 15.63 15.88 16.43 17.09 17.94 18.66 - ---------------------------------------------------------------------------------------------------------- Louisville 18.04 18.29 18.93 19.69 20.63 21.45 - ---------------------------------------------------------------------------------------------------------- Memphis 13.64 13.89 14.38 14.95 15.73 16.35 - ---------------------------------------------------------------------------------------------------------- Milwaukee 15.15 15.40 15.94 16.58 17.41 18.11 - ---------------------------------------------------------------------------------------------------------- Minneapolis 15.37 15.62 16.17 16.81 17.65 18.36 - ---------------------------------------------------------------------------------------------------------- Nashville 15.42 15.67 16.22 16.87 17.71 18.42 - ---------------------------------------------------------------------------------------------------------- New Orleans 13.99 14.24 14.74 15.33 16.12 16.76 - ---------------------------------------------------------------------------------------------------------- New York 16.62 16.87 17.46 18.16 19.05 19.81 - ---------------------------------------------------------------------------------------------------------- Philadelphia 18.02 18.27 18.91 19.67 20.60 21.43 - ---------------------------------------------------------------------------------------------------------- Pittsburgh 15.51 15.76 16.32 16.97 17.81 18.53 - ---------------------------------------------------------------------------------------------------------- Richmond 14.53 14.78 15.30 15.91 16.72 17.39 - ---------------------------------------------------------------------------------------------------------- Salt Lake 15.83 16.08 16.64 17.30 18.16 18.89 - ---------------------------------------------------------------------------------------------------------- Seattle 18.63 18.88 19.54 20.32 21.28 22.14 - ---------------------------------------------------------------------------------------------------------- Syracuse 12.84 13.09 13.55 14.09 14.84 15.43 - ---------------------------------------------------------------------------------------------------------- Washington 16.57 16.82 17.41 18.11 18.99 19.75 - ----------------------------------------------------------------------------------------------------------
27 28 DURATION OF AGREEMENT This Agreement will be in effect from October 1, 1998, until and including January 31, 2004, and remains in effect from year to year thereafter unless changed or terminated as herein provided. Either party desiring to make any changes or modifications in this Agreement to become effective at the end of its initial term or any annual extension, or desiring to terminate the Agreement at its expiration, will notify the other party in writing of its desire to negotiate modifications or to terminate the Agreement at least 60 days prior to the expiration of the initial term or any extension. In the event that any change or modification so requested by either party is not mutually agreed upon prior to the expiration date of the Agreement (or any extension), the Agreement will terminate at such expiration date unless the parties agree to extend it by mutual agreement. In Witness Whereof, the parties have set their hands by their respective duly authorized representatives, this 30th day of September, 1998. Greyhound Lines, Inc. ------------------------------------------------------- Craig Lentzsch President and CEO Amalgamated Transit Union National Local 1700 ------------------------------------------------------- James Cushing-murray President 28 EX-10.6 8 1998 STOCK OPTION PLAN 1 EXHIBIT 10.6 GREYHOUND LINES, INC. 1998 STOCK OPTION PLAN FOR ATU REPRESENTED DRIVERS AND MECHANICS July 22, 1998 PREAMBLE: 1. Greyhound Lines, Inc. a Delaware corporation ("Greyhound" or the "Company"), by means of this 1998 Stock Option Plan for ATU Represented Drivers and Mechanics (the "Plan") desires to afford certain of its drivers and mechanics represented by National Local Union 1700, Amalgamated Transit Union (the "ATU") an opportunity to acquire a proprietary interest in the Company. 2. The Company and the ATU have determined through collective bargaining that the foregoing objectives will be promoted by granting Options (as hereinafter defined) under this Plan to certain drivers and mechanics represented by the ATU for bargaining purposes. TERMS: ARTICLE 1. DEFINITIONS. Section 1.1. General. Certain words and phrases used in this Plan shall have the meanings given to them below this Section. "Board of Directors" means the board of directors of Greyhound. "Code" means the Internal Revenue Code of 1986 and the regulations thereunder, as now in effect or hereafter intended. "Committee" means the committee that administers the Plan under Section 2.1 below. "Common Stock" means the common stock, par value $.01 per share, of the Company. "Date of Grant" means the date an Option is first granted. "Disability" shall mean a permanent and total disability, as defined in Code Section 22(e)(3). "Effective Date" means the date this Plan was first adopted by the Board of Directors. 2 "Eligible Employee" means an Employee who is a driver or a mechanic represented by the ATU for collective bargaining purposes and whose employment with Greyhound is subject to the terms of the collective bargaining agreement between Greyhound and the ATU that is effective October 1, 1998. "Employee" means any active employee of Greyhound. "Exercise Price" means, with respect to an Option, the amount of consideration that must be delivered to the Company in order to purchase a single Share thereunder. "Grantee" means any person to whom an Option has been granted and any heir or legal representative to whom an Option has been transferred by will or the laws of descent and distribution. Incentive Stock Option" or "ISO" means an Option intended to comply with the terms and conditions set forth in Section 422 of the Code. "Nonqualified Option" means a Stock Option other than an Incentive Stock Option. "Officer" means an officer of the Company as defined in 17 C.F.R.ss.240.16a-1(f) as now in effect or hereafter amended. "Option" or "Stock Option" means a right granted under the Plan to a Participant to purchase a stated number of Shares. "Participant" means a person who is eligible to receive and has received an Option under the Plan. "Plan" means this Plan as it may be amended or restated from time to time. "Shares" means shares of Common Stock. Section 1.2. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. Section 1.3. Effect of Definitions. The definitions set forth in Section 1.1 above shall apply equally to the singular, plural, adjectival, adverbial and other forms of any of the words and phrases defined regardless of whether they are capitalized. ARTICLE 2. ADMINISTRATION. Section 2.1. Committee. The Plan shall be administered by a committee to be appointed by the Company. The Committee may be referred to as the Stock Option Committee. Section 2.2. Authority. Subject to the express provisions of the Plan and in addition to the powers granted by other sections of the Plan, the Committee has the authority, in its discretion, to: (a) define, prescribe, amend and rescind rules, regulations, procedures, terms and conditions relating to the Plan; (b) make all other determinations necessary or advisable for 3 administering the Plan, including, but not limited to, interpreting the Plan, correcting defects, reconciling inconsistencies and resolving ambiguities; and (c) review and resolve all claims of Grantees and Participants. The actions and determinations of the Committee on matters related to the Plan shall be conclusive and binding upon the Company and all Grantees and Participants. ARTICLE 3. SHARES. Section 3.1. Number. The aggregate number of Shares in respect of which Options may be granted under the Plan shall be 2,400,000 (which number of Shares is hereby reserved for issuance under the Plan out of the authorized but unissued Shares). Section 3.2. Anti-Dilution. (a) If the Shares are split or if a dividend of Shares is paid on the Shares, the number of Shares on which each then outstanding Option is based and the number of Shares as to which Options may be granted under this Plan shall be automatically increased by the ratio between the number of Shares outstanding immediately after such event and the number of Shares outstanding immediately before such event and the Exercise Price thereof shall be automatically decreased by the same ratio, and if the Shares are combined into a lesser number of Shares, the number of Shares for which each then outstanding Option is based and the number of Shares as to which Options may be granted under the Plan shall be automatically decreased by such ratio and the Exercise Price thereof shall be automatically increased by such ratio. (b) In the event of any other change in the Shares, through recapitalization, merger, consolidation or exchange of shares or otherwise (other than a transaction to which Section 6.3 applies), there shall automatically be substituted for each Share subject to an unexercised Option and each Share available for additional grants of Options, the number and kind of shares or other securities into which each outstanding Share was changed, and the Exercise Price shall be increased or decreased proportionally so that the aggregate Exercise Price for the securities subject to each Option shall remain the same as immediately before such event. Section 3.3. Source. Except as otherwise determined by the Board of Directors, the Shares issued under the Plan shall be authorized but unissued Shares. However, Shares which are to be delivered under the Plan may also be obtained by the Company from its treasury, by purchases on the open market or from private sources. The proceeds of the exercise of any Option shall be general corporate funds of the Company. No Shares may be sold under any Option for less than the par value thereof. No fractional Shares shall be issued or sold under the Plan nor will any cash payment be made in lieu of fractional Shares. Section 3.4. Rights of a Stockholder. No Grantee or other person claiming under or through any Grantee shall have any right, title or interest in or to any Shares allocated or reserved under the Plan or subject to any Option except as to such Shares, if any, for which certificates representing such Shares have been issued to such Grantee. Section 3.5. Securities Laws. No Option shall be exercised nor shall any Shares or other securities be issued or transferred pursuant to an Option unless and until all applicable requirements imposed by federal and state securities laws and by any stock exchanges upon which the Shares may be listed, have been fully complied with. 4 ARTICLE 4. ELIGIBILITY. Only Eligible Employees shall be eligible to receive Options under this Plan. ARTICLE 5. EMPLOYEE STOCK OPTIONS. Section 5.1. Formula Grant of Options. (a) As of July 22, 1998, Options shall automatically be granted to each Eligible Employee who is actively employed by Greyhound on July 22, 1998 and who, as of January 1, 1998 (i) had three or more years of seniority, and (ii) worked at least 1,720 hours in each of calendar years 1995, 1996 and 1997. For purposes of this Section 5.1(a), hours worked shall exclude sick leave, medical leave and periods for which workers' compensation is received (other than periods during which an individual is absent pursuant to leave taken under the Family and Medical Leave Act). The total number of Shares for which Options shall be granted as of July 22, 1998 shall be 1,000,000 Shares, with the number of Shares for which an Option is to be granted to each Eligible Employee pursuant to this Section 5.1(a) to be determined by establishing a fraction, the numerator of which is the number one and the denominator of which is the total number of active Eligible Employees as of July 22, 1998 who meet the service requirements set forth in (i) and (ii) of this Section 5.1(a). The resulting fraction shall then be multiplied by 1,000,000 Shares to determine each Eligible Employee's number of Option Shares; provided, however, that the number of Option Shares granted to each Eligible Employee shall be rounded down to the nearest whole Share. An Eligible Employee who is granted an Option pursuant to this Section 5.1(a) shall not be eligible to be granted an Option under Section 5.1(b). (b) As of October 1, 1998, Options shall automatically be granted to each Eligible Employee who is actively employed by Greyhound on October 1, 1998 who did not qualify to receive an Option under Section 5.1(a) above because of his or her failure to satisfy the seniority and service requirements that are set forth in clauses (i) and (ii) of Section 5.1(a) and who, as of January 1, 1998 (i) had one or more years of seniority, and (ii) worked at least 1,720 hours in calendar year 1997. For purposes of this Section 5.1(b), hours worked shall exclude sick leave, medical leave and periods for which workers' compensation is received (other than periods during which an individual is absent pursuant to leave taken under the Family and Medical Leave Act). The total number of Shares for which Options shall be granted as of October 1, 1998 shall be 200,000 Shares, with the number of Shares for which an Option is to be granted to each Eligible Employee pursuant to this Section 5.1(b) to be determined by establishing a fraction, the numerator of which is the number one and the denominator of which is the total number of active Eligible Employees as of October 1, 1998 who meet the service requirements set forth in (i) and (ii) of this Section 5.1(b) and who are eligible to be granted Options pursuant to this Section 5.1(b). The resulting fraction shall then be multiplied by 200,000 Shares to determine each Eligible Employee's number of Option Shares; provided, however, that the number of Option Shares granted to each Eligible Employee shall be rounded down to the nearest whole Share. An Eligible Employee who is granted an Option pursuant to this Section 5.1(b) shall not be eligible to be granted an Option under Section 5.1(a). (c) As of October 1, 2001, Options shall automatically be granted to each Eligible Employee who is actively employed by Greyhound on October 1, 2001 and who, as of January 1, 2001 (i) had three or more years of seniority, and (ii) worked at least 1,720 hours in 5 calendar years 1998, 1999 and 2000. For purposes of this Section 5.1(c), hours worked shall exclude sick leave, medical leave and periods for which workers' compensation is received (other than periods during which an individual is absent pursuant to leave taken under the Family and Medical Leave Act). The total number of Shares for which Options shall be granted as of October 1, 2001 pursuant to this Section 5.1(c) shall be 1,000,000 Shares, with the number of Shares for which an Option is to be granted to each Eligible Employee pursuant to this Section 5.1(c) to be determined by establishing a fraction, the numerator of which is the number one and the denominator of which is the total number of active Eligible Employees as of October 1, 2001 who meet the service requirements set forth in (i) and (ii) of this Section 5.1(c). The resulting fraction shall then be multiplied by 1,000,000 Shares to determine each Eligible Employee's number of Option Shares; provided, however, that the total shall be rounded down to the nearest whole Share. An Eligible Employee who is granted an Option pursuant to this Section 5.1(c) shall not be eligible to be granted an Option under Section 5.1(d). (d) As of October 1, 2001, Options shall automatically be granted to each Eligible Employee who is actively employed by Greyhound on October 1, 2001 who did not qualify to receive an Option under Section 5.1(c) above because of his or her failure to satisfy the seniority and service requirements that are set forth in clauses (i) and (ii) of Section 5.1(c) and who, as of January 1, 2001 (i) had one or more years of seniority, and (ii) worked at least 1,720 hours in calendar year 2000. For purposes of this Section 5.1(d), hours worked shall exclude sick leave, medical leave and periods for which workers' compensation is received (other than periods during which an individual is absent pursuant to leave taken under the Family and Medical Leave Act). The total number of Shares for which Options shall be granted as of October 1, 2001 pursuant to this Section 5.1(d) shall be 200,000 Shares, with the number of Shares for which an Option is to be granted to each Eligible Employee pursuant to this Section 5.1(d) to be determined by establishing a fraction, the numerator of which is the number one and the denominator of which is the total number of active Eligible Employees as of October 1, 2001 who meet the service requirements set forth in (i) and (ii) of this Section 5.1(d) and who are eligible to be granted Options pursuant to this Section 5.1(d). The resulting fraction shall then be multiplied by 200,000 Shares to determine each Eligible Employee's number of Option Shares; provided, however, that the total shall be rounded down to the nearest whole Share. An Eligible Employee who is granted an Option pursuant to this Section 5.1(d) shall not be eligible to be granted an Option under Section 5.1(c). Section 5.2. Exercise Price. The Exercise Price of an Option granted as of July 22, 1998 or October 1, 1998 shall be $6.00 per Share, which was the closing price on July 22, 1998 of Shares on the American Stock Exchange. The Exercise Price of an Option granted as of October 1, 2001 shall be $7.00 per Share. Except as authorized under Section 3.2 of the Plan, the Exercise Price of an Option shall not be changed following the date the Plan is adopted. 6 Section 5.3. Term. (a) Each Option granted under this Plan as of July 22, 1998 or October 1, 1998, shall vest and first be exercisable on October 1, 2000 if the Participant is then an Employee. Each Option granted under this Plan as of October 1, 2001 shall vest and first be exercisable on October 1, 2004 if the Participant is then an Employee; (b) each Option granted under this Plan as of July 22, 1998 or October 1, 1998, shall lapse and cease to be exercisable upon the earliest of: (i) the close of business on September 30, 2005, (ii) 6 months after the Participant ceases to be an Employee because of death or Disability, or (iii) 30 days after the termination of the Participant's employment with the Company for any reason other than death or Disability; and (c) each Option granted under this Plan as of October 1, 2001, shall lapse and cease to be exercisable upon the earliest of: (i) the close of business on September 30, 2008, (ii) 6 months after the Participant ceases to be an Employee because of death or Disability, or (iii) 30 days after the termination of the Participant's employment with the Company for any reason other than death or Disability. Section 5.4. Not Incentive Stock Options. An Option under this Article 5 shall not be treated as an Incentive Stock Option. Section 5.5. Exercise. An Option shall be exercised by the delivery of such notice and/or forms as is mandated from time-to-time by the Committee, together with the aggregate Exercise Price for the number of Shares as to which the Option is being exercised, after the Option has become exercisable and before it has ceased to be exercisable. An Option may be exercised as to less than all the Shares purchasable thereunder but not for a fractional Share. No Option may be exercised as to less than 100 Shares unless it is exercised as to all of the Shares then available thereunder. The Exercise Price may be paid in good funds or through a cashless exercise program to be established by the Committee. 7 ARTICLE 6. GENERAL PROVISIONS. Section 6.1. No Rights. Nothing in the Plan or any Option or any instrument executed pursuant to the Plan will confer upon any Participant any right to continued employment with the Company or affect the right of the Company to terminate the employment of any Participant. Section 6.2. Limited Liability. The liability of the Company under this Plan or in connection with any exercise of any Option is limited to the obligations expressly set forth in the Plan and in the grant of any Option, and no term or provision of this Plan nor of any Option shall be construed to impose any duty, obligation or liability on the Company not expressly set forth in the Plan or any grant of any Option. Section 6.3. Assumption of Options. Upon the dissolution or liquidation of the Company, or upon a reorganization, merger or consolidation of the Company with one or more other entities as a result of which the Company is not the surviving entity, or upon a sale of all or substantially all the assets or stock of the Company to another entity, any Options outstanding theretofore granted or sold hereunder must be assumed by the surviving or purchasing entity, with appropriate adjustments as to the number and kind of shares and price. Section 6.4. No Transfer. No Option or other benefit under the Plan may be sold, pledged or otherwise transferred other than by will or the laws of descent and distribution; and no Option may be exercised during the life of the Participant to whom it was granted except by such Participant. Section 6.5. Expenses. All costs and expenses incurred in connection with the administration of the Plan including any excise tax imposed upon the transfer of Shares pursuant to the exercise of an Option shall be borne by the Company. Section 6.6. Notices. Notices and other communications required or permitted to be made under the Plan shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by first class mail addressed (a) if to a Grantee, at his or her residence address set forth in the records of the Company or (b) if to the Company, to the Committee or its designee. Section 6.7. Third Parties. Nothing herein expressed or implied is intended or shall be construed to give any person other than the Grantees rights or remedies under this Plan. Section 6.8. Saturdays, Sundays and Holidays. Where this Plan authorized or requires a payment or performance on a Saturday, Sunday or public holiday, such payment or performance shall be deemed to be timely if made on the next succeeding business day; provided, however, that this Section 6.8 shall not be construed to extend the 7 year period referred to in Section 5.3, above. Section 6.9. Rules of Construction. The captions and section numbers appearing in this Plan are inserted only as a matter of convenience. They do not define, limit or describe the scope or intent of the provisions of this Plan. In this Plan words in the singular number include the plural, and in the plural include the singular, and words of the masculine gender include the feminine and the neuter, and when the sense so indicates words of the neuter gender may refer to any gender. 8 Section 6.10. Governing Laws. The validity, terms, performance and enforcement of this Plan shall be governed by laws of the State of Delaware that are applicable to agreements negotiated, executed, delivered and performed solely in the State of Delaware. Section 6.11. Amendment and Termination. No Option shall be granted under the Plan after October 1, 2001 and no Options shall be granted under this Plan other than Options expressly provided in Section 5.1 of the Plan; provided, however that in the event the Committee determines that it failed to grant an Option to an Eligible Employee who was entitled to the grant of an Option under Section 5.1, the Committee may remedy the error by granting to such Eligible Employee an Option for the correct number of Shares utilizing Shares from Options that lapse pursuant to Section 5.3 of the Plan. The Board of Directors may at any time terminate the Plan, or make such amendment of the Plan as it may deem advisable; provided, however, that no amendment or termination of the Plan shall be effective to materially alter or impair the rights of a Grantee under any Option made before the adoption of such amendment or termination by the Board of Directors, without the written consent of such Grantee. No termination or amendment of this Plan or any Option nor waiver of any right or requirement under this Plan or any Option shall be binding on the Company unless it is in a writing duly entered into its records and executed by a duly authorized Officer. EX-10.7 9 LONG TERM STOCKHOLDERS PLAN 1 EXHIBIT 10.7 GREYHOUND LINES, INC. 1998 NON-OFFICER LONG TERM STOCK INCENTIVE PLAN ------------------------ JANUARY 21, 1998 ------------------------ P R E A M B L E: 1. Greyhound Lines, Inc., a Delaware corporation ("Greyhound" or the "Company":), by means of this 1998 Non-Officer Long Term Stock Incentive Plan (the "Plan") desires to afford certain of its and its Parent's and Subsidiaries' employees, an opportunity to acquire a proprietary interest in the Company and thus to create in such persons an increased interest in and a greater concern for the welfare of the Company. 2. The Company has determined that the foregoing objectives will be promoted by granting Awards (as hereinafter defined) under this Plan to certain non-Officer employees of the Company and of its Parent and Subsidiaries, if any, pursuant to this Plan. T E R M S: ARTICLE 1. DEFINITIONS. Section 1.1 General. Certain words and phrases used in this Plan shall have the meanings given to them below in this section: "Award" means a grant of Options or Unrestricted Stock. "Board of Directors" means the board of directors of Greyhound. "Change in Control" means (a) the acquisition by any person (defined for the purposes of this definition to mean any person within the meaning of Section 13(d) of the Exchange Act), other than Greyhound or an employee benefit plan created by the Board of Directors for the benefit of its Employees, either directly or indirectly, of the beneficial ownership (determined under Rule 13d-3 of the Regulations promulgated by the SEC under Section 13(d) of the Exchange Act) of securities issued by Greyhound having 30% or more of the voting power of all the voting securities issued by Greyhound in the election of Directors at the next meeting of the holders of voting 1 2 securities to be held for such purpose; (b) the election of a majority of the Directors elected at any meeting of the holders of voting securities of Greyhound who are persons who were not nominated for such election by the Board of Directors or a duly constituted committee of the Board of Directors having authority in such matters; (c) the approval by the stockholders of Greyhound of a merger or consolidation with another person, other than a merger or consolidation in which the holders of Greyhound's voting securities issued and outstanding immediately before such merger or consolidation continue to hold voting securities in the surviving or resulting corporation (in the same relative proportions to each other as existed before such event) comprising 80% or more of the voting power for all purposes of the surviving or resulting corporation; or (d) the approval by the stockholders of Greyhound of a transfer of substantially all of the assets of Greyhound to another person other than a transfer to a transferee, 80% or more of the voting power of which is owned or controlled by Greyhound or by the holders of Greyhound's voting securities issued and outstanding immediately before such transfer in the same relative proportions to each other as existed before such event. "Code" means the Internal Revenue Code of 1986 and the regulations thereunder, as now in effect or hereafter amended. "Committee" means the Committee of the Board of Directors that administers the Plan under Section 2.1 below. "Common Stock" means the common stock, par value $.01 per share, of the Company. "Date of Grant" means the date an Award is first granted. "Director" means a member of the Board of Directors. "Effective Date" means the date this Plan is first adopted by the Board of Directors. "Employee" means any common-law employee of Greyhound or any Parent or Subsidiary of Greyhound pursuant to the Bylaws or comparable governing document of such company. "Exchange Act" means the Securities Exchange Act of 1934 and the regulations thereunder, as now in effect or hereafter amended. "Exercise Price" means, with respect to an Option, the amount of consideration that must be delivered to the Company in order to purchase a single Share thereunder. "Fair Market Value of a Share" means the arithmetic mean between the high and low per Share prices on the principal national securities exchange or the NASDAQ - National Market System on which the Shares are listed or admitted to trading, on the date of determination or, if such price cannot be determined for the date of determination, the most recent date for which such prices can reasonably be ascertained. 2 3 "Grantee" means any person to whom an Award has been granted and any heir or legal representative to whom an Award has been transferred by will or the laws of descent and distribution. "Nonqualified Option" means a Stock Option other than an Incentive Stock Option. An "Incentive Stock Option" or "ISO" means an Option intended to comply with the terms and conditions set forth in Section 422 of the Code. "Officer" means an officer of the Company as defined in 17 C.F.R.ss. 240.16a-1(f) as now in effect or hereafter amended. "Option" or "Stock Option" means a right granted under Article 5 of the Plan to a Participant to purchase a stated number of Shares. "Option Agreement" means an agreement evidencing an Option Grant. "Parent" means a parent of a given corporation as such term is defined in Section 424(e) of the Code. "Participant" means a person who is eligible to receive and has received an Award under the Plan. "Plan" means this Plan as it may be amended or restated from time to time. "SEC" means the Securities and Exchange Commission. "Shares" means shares of Common Stock. "Subsidiary" means a subsidiary of a given corporation as such term is defined in Section 424(f) of the Code. "Termination without cause" means a termination by the Company or any Parent or Subsidiary of the Company of the employment of a Grantee with the Company or any such Parent or Subsidiary that is not for cause and is not occasioned by the resignation, death or disability of the Grantee. "Unrestricted Stock" means Shares granted to a Participant under Article 6 of the Plan. Section 1.2 Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. Section 1.3. Effect of Definitions. The definitions set forth in Section 1.1 above shall apply equally to the singular, plural, adjectival, adverbial and other forms of any of the words and phrases defined regardless of whether they are capitalized. 3 4 ARTICLE 2. ADMINISTRATION. Section 2.1 Committee. The Plan shall be administered by a committee of the Board of Directors consisting or two or more Directors, each of whom is a "Non-Employee Director" as defined in Rule 16b-3. Unless the Board of Directors designates another of its committees to administer the Plan, the Plan shall be administered by a committee consisting of those members of the Compensation and Organization Committee of the Board of Directors who are Non-Employee Directors but, if the Compensation and Organization Committee is abolished or its membership does not contain two persons who comply with the requirements of the first sentence of this Section 2.1, the Board of Directors shall either reconstitute the Compensation and Organization Committee in compliance with or create another Committee that complies with the requirements of the first sentence of this Section 2.1 to administer the Plan. The Committee may be referred to as the Stock Option Committee. Section 2.2 Authority. Subject to the express provisions of the Plan and in addition to the powers granted by other sections of the Plan, the Committee has the authority, in its discretion, to: (a) determine the Participants, grant Awards and determine their timing, pricing and amount; (b) define, prescribe, amend and rescind rules, regulations, procedures, terms and conditions relating to the Plan; (c) make all other determinations necessary or advisable for administering the Plan, including, but not limited to, interpreting the Plan, correcting defects, reconciling inconsistencies and resolving ambiguities; and (d) review and resolve all claims of Employees, Grantees and Participants. The actions and determinations of the committee on matters related to the Plan shall be conclusive and binding upon the Company and all Employees, Grantees and Participants. ARTICLE 3. SHARES. Section 3.1. Number. The aggregate number of Shares in respect of which Awards may be granted under the Plan shall be determined by the Board of Directors on an annual basis. Section 3.2. Cancellations. Except as otherwise provided in the next sentence, if any Awards granted under the Plan are canceled, terminate or expire for any reason without having been exercised or matured in full, the shares related to the unexercised portion of an Award shall be available again for the purposes of the Plan. If any Shares acquired under the Plan are forfeited for any reason, the Shares shall be available again for the purposes of the Plan. 4 5 Section 3.3 Anti-Dilution. (a) If the shares are split or if a dividend of Shares is paid on the Shares, the number of Shares on which each then-outstanding Award is based and the number of Shares as to which Awards may be granted under this Plan shall be automatically increased by the ratio between the number of Shares outstanding immediately after such event and the number of Shares outstanding immediately before such event and the Exercise Price thereof shall be automatically decreased by the same ratio, and if the shares are combined into a lessor number of Shares, the number of Shares for which each then-outstanding Award is based and the number of Shares as to which Awards may be granted under the Plan shall be automatically decreased by such Ratio and the Exercise Price thereof shall be automatically increased by such ratio. (b) In the event of any other change in the Shares, through recapitalization, merger, consolidation or exchange of shares or otherwise, there shall automatically be substituted for each Share subject to an unexercised Award and each Share available for additional grants of Awards, the number and kind of shares or other securities into which each outstanding Share was changed, and the Exercise Price shall be increased or decreased proportionately so that the aggregate Exercise Price for the securities subject to each Award shall remain the same as immediately before such event; and the Committee may make such further equitable adjustments in the Plan and the then outstanding Awards as deemed necessary and appropriate by the Committee including, but not limited to, changing the number of Shares reserved under the Plan or covered by outstanding Awards, the Exercise Price of outstanding Awards and the vesting conditions of outstanding Awards. Section 3.4. Source. Except as otherwise determined by the Board of Directors, the Shares issued under the Plan shall be authorized but unissued Shares. However, Shares which are to be delivered under the Plan may be obtained by the Company from its treasury, by purchases on the open market or from private sources, or by issuing authorized but unissued Shares. The proceeds of the exercise of any Award shall be general corporate funds of the Company. No Shares may be sold under any Option Agreement for less than the par value thereof. No fractional Shares shall be issued or sold under the Plan nor will any cash payment be made in lieu of fractional Shares. Section 3.5. Rights of a Stockholder. No Grantee or other person claiming under or through any Grantee shall have any right, title or interest in or to any Shares allocated or reserved under the Plan or subject to any Award except as to such Shares, if any, for which certificates representing such Shares have been issued to such Grantee. 5 6 Section 3.6. Securities Laws. No Award shall be exercised nor shall any Shares or other securities be issued or transferred pursuant to an Award unless and until all applicable requirements imposed by federal and state securities laws and by any stock exchanges upon which the Shares may be listed, have been fully complied with. As a condition precedent to the exercise of an Award or the issuance of Shares pursuant to the grant or exercise of an Award, the company may require the Grantee to take any reasonable action to meet such requirements including providing undertakings as to the investment intent of the Grantee, accepting transfer restrictions on the Shares issuable thereunder and providing opinions of counsel, in form and substance acceptable to the Company, as to the availability of exemptions from such requirements. ARTICLE 4. ELIGIBILITY. Section 4.1. Article 5. Only Employees who are not members of the Committee and who are not Officers shall be eligible to receive Options under Article 5 below. Section 4.2. Article 6. Only Employees who are not members of the Committee and who are not Officers shall be eligible to receive Unrestricted Stock under Article 6 below. ARTICLE 5. EMPLOYEES' STOCK OPTIONS. Section 5.1. Determinations. The Committee shall determine which eligible Employees shall be granted Options, the number of Shares for which the Options may be exercised, the times when they shall receive them and the terms and conditions of individual Option grants (which need not be identical). All Options shall be Nonqualified Options. Section 5.2. Exercise Price. The Committee shall determine the Exercise Price of each Option at the time that it is granted, but in no event shall the Exercise Price of an Option be less than the Fair Market Value of a Share on the Date of Grant. If no express determination of the Exercise Price of an Option is made by the Committee, the Exercise Price thereof is equal to the Fair Market Value of a Share on the Date of Grant. Section 5.3. Term. Subject to the rule set forth in the next sentence, the Committee shall determine the times when an Option vests and the term during which an Option is exercisable at the time that it is granted. No Option shall be exercisable after the expiration of ten years from the Date of Grant. If no express determination of the times when Options are exercisable is made by the Committee: 6 7 (a) each Option shall vest and first become exercisable as to 25% of the Shares subject to such Option on each of the first four anniversaries of the Date of Grant provided the Participant has been an Employee continuously during the time beginning on the Date of Grant and ending on the date when such portion vests and first becomes exercisable; and (b) each Option shall lapse and cease to be exercisable upon the earliest of: (i) the expiration of ten years from the Date of Grant; (ii) six months after the Participant ceases to be an Employee because of death or disability; (iii) 30 days after the termination without cause of Participant's employment with the Company or any Parent or Subsidiary of the Company by the Company or any such Parent or Subsidiary of the Company; or (iv) immediately, upon termination of the Participant's employment with the Company or any Parent or Subsidiary by the Company or any such Parent or Subsidiary of the Company for cause or by the Participant's resignation. Section 5.4. Exercise. Notwithstanding the terms of any Option and Section 5.3, all Options that have not previously been exercised nor lapsed and ceased to be exercisable, shall vest fully and become exercisable upon the occurrence of any change in control. An Option shall be exercised by the delivery of the Option Agreement therefor (if requested by the Company) with the notice of exercise attached thereto properly completed and duly executed by the Grantee named therein to the Treasurer of the Company or his or her designee, together with the aggregate Exercise Price for the number of Shares as to which the Option is being exercised, after the Option has become exercisable and before it has ceased to be exercisable. An Option may be exercised as to less than all of the Shares purchasable thereunder, but not for a fractional share. No Option may be exercised as to less than 50 Shares unless it is exercised as to all of the Shares then available thereunder. The Committee may, in its sole discretion, and upon such terms and conditions as it shall determine at or after the Date of Grant, permit the Exercise Price to be paid in cash, by the tender to the Company of Shares owned by the Grantee or by a combination thereof. If the Committee does not make such determination, the Exercise Price shall be paid in cash. If any portion of the Exercise Price of an Option is payable in cash, it may be paid by (a) delivery of a certified or cashier's check payable to the order of the Company in such amount; or (b) wire transfer of immediately-available funds to a bank account designated by the Company. If any portion of the Exercise Price of an Option is payable in Shares it may be paid by delivery of certificates representing a number of Shares having a total fair market value on the date of exercise equal to or greater than the required amount, duly endorsed for transfer with all signatures guaranteed by a medallion signature guarantee. If more Shares than are necessary to pay such Exercise Price based on their fair market value on 7 8 on the date of exercise are delivered to the Company, it shall return to the Grantee a certificate for the balance of the whole number of Shares and a check payable to the order of the Grantee for any fraction of a Share. Shares may not be delivered to the Company as payment for the exercise of an Option if such Shares have been owned by the Grantee (together with his or her decedent or testator) for less than six months. Promptly after an Option is properly exercised, the Company shall issue to the Grantee a certificate representing the Shares purchased thereunder. Section 5.5. Option Agreement.Promptly after the Date of Grant, Greyhound shall duly execute and deliver to the Grantee an Option Agreement setting forth the terms of the Option. Option Agreements are not negotiable instruments or securities (as such term is defined in Article 8 of the Uniform Commercial Code). Lost and destroyed Option Agreements may be replaced without bond. Section 5.6. New Hires. A person to whom the Company is offering employment may be granted a Nonqualified Option under this Article 5, but any such grant shall lapse if the person does not subsequently become an Employee pursuant to such offer. ARTICLE 6. UNRESTRICTED STOCK The Committee shall determine which eligible Employees will receive Unrestricted Stock, the number of shares of Unrestricted Stock each eligible Employee will receive, the times when each eligible Employee shall receive Unrestricted Stock, and the terms and conditions of individual Unrestricted Stock Awards (which need not be identical). Promptly after the grant of an Award of Unrestricted Stock, the Company shall issue to the Grantee a certificate representing the Shares received thereunder. The Committee shall grant Awards of Unrestricted Stock in consideration for services rendered by the Participant which are deemed by the Committee to have a value to the Company in excess of the par value of the Shares so awarded. ARTICLE 7. PROVISIONS APPLICABLE TO AWARDS. Section 7.1. Corporate Mergers and Acquisitions.The Committee may grant Awards having terms and conditions which vary from those specified in the Plan if such Awards are granted in substitution for, or in connection with the assumption of, existing options granted by another business entity and assumed or otherwise agreed to be provided for by Greyhound pursuant to or by reason of a transaction involving a merger or consolidation of or acquisition of substantially all of the assets or stock of another business entity that is not a Subsidiary of Greyhound prior to such acquisition, with or by Greyhound or its Subsidiaries. 8 9 Section 7.2. Withholding. The Company shall have the right to withhold from any payments due under any Award or due to any Grantee from the Company as compensation or otherwise the amounts of any federal, state or local withholding taxes not paid by the Grantee at the time of the exercise or vesting of any Award. If cash payments sufficient to allow for withholding of taxes are not made at the time of exercise or vesting of an Award, the Grantee exercising such Award shall pay to Greyhound an amount equal to the withholding required to be made less the withholding otherwise made in cash or, if allowed by the Committee in its discretion and pursuant to rules adopted by the Committee consistent with Section 5.4 above, Shares previously owned by the Grantee. The Company may make such other provisions as it deems appropriate to withhold any taxes the Company determines are required to be withheld in connection with the exercise of any Award, including, but not limited to, the withholding of Shares from an Award upon such terms and conditions as the Committee may provide. The Company may require the Participant to satisfy any relevant withholding requirements before issuing Shares or delivering any Award to the Participant. Section 7.3. Disability. If a Grantee who is an Employee with the Company is absent from work with the Company because of a physical or mental disability, for purposes of the Plan, such Grantee will not be considered to have ended his or her employment with the Company while such Grantee has that disability, unless he or she resigns or the Committee decides otherwise. ARTICLE 8. GENERAL PROVISIONS. Section 8.1. No Right to Employment. Nothing in the Plan or any Award or any instrument executed pursuant to the Plan will confer upon any participant any right to continue to be employed by or provide services to the Company or affect the right of the Company to terminate the employment of any Participant or its other relationship with any Participant. Section 8.2. Limited Liability. The liability of the Company under this Plan or in connection with any exercise of any Award is limited to the obligations expressly set forth in the Plan and in the grant of any Award, and no term or provision of this Plan nor of any Award shall be construed to impose any duty, obligation or liability on the Company not expressly set forth in the Plan or any grant of any Award. Section 8.3. Assumption of Awards. Upon the dissolution or liquidation of the Company, or upon a reorganization, merger or consolidation of the Company with one or more other entities as a result of which the Company is not the surviving entity, or upon a sale of substantially all the assets of the Company to another entity, any Awards outstanding theretofore granted or sold hereunder must be assumed by the surviving or purchasing entity, with appropriate adjustments as to the number and kind of shares and price. Nothing in this Section 8.3 shall be deemed to alter or supersede any provision of the Plan relating to the vesting or maturity of Awards upon a Change in Control. 9 10 Section 8.4. No Transfer. No Award or other benefit under the plan may be sold, pledged or otherwise transferred other than by will or the laws of descent and distribution; and no Award may be exercised during the life of the Participant to whom it was granted except by such Participant. Section 8.5. Expenses. All costs and expenses incurred in connection with the administration of the Plan including any excise tax imposed upon the transfer of Shares pursuant to the exercise of an Award shall be borne by the Company. Section 8.6. Notices. Notices and other communications required or permitted to be made under the Plan shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by first class mail addressed (a) if to a Grantee, at his or her residence address set forth in the records of the Company or (b) if to the Company, to its President at its principal executive office. Section 8.7. Third Parties. Nothing herein expressed or implied is intended or shall be construed to give any person other than the Grantees any rights or remedies under this Plan. Section 8.8. Saturdays, Sundays and Holidays. Where this Plan authorizes or requires a payment or performance on a Saturday, Sunday or public holiday, such payment or performance shall be deemed to be timely if made on the next succeeding business day; provided, however, that this Section 8.8 shall not be construed to extend the ten year period referred to in Section 5.3 above. Section 8.9. Rules of Construction. The captions and section numbers appearing in this Plan are inserted only as a matter of convenience. They do not define, limit or describe the scope or intent of the provisions of this Plan. In this Plan, words in the singular number include the plural, and in the plural include the singular; and words of the masculine gender include the feminine and the neuter, and when the sense so indicates words of the neuter gender may refer to any gender. Section 8.10. GOVERNING LAW. THE VALIDITY, TERMS, PERFORMANCE AND ENFORCEMENT OF THIS PLAN SHALL BE GOVERNED BY LAWS OF THE STATE OF DELAWARE THAT ARE APPLICABLE TO AGREEMENTS NEGOTIATED, EXECUTED, DELIVERED AND PERFORMED SOLELY IN THE STATE OF DELAWARE. 10 11 Section 8.11. Effective Date of the Plan. The Plan shall become effective as of January 21, 1998, the date upon which the Plan was approved by the affirmative vote of the Board of Directors of Greyhound Lines, Inc. Section 8.12. Amendment and Termination.No Award shall be granted under the Plan more than ten years after the Effective Date. The Board of Directors may at any time terminate the Plan, or make such amendment of the Plan as it may deem advisable; provided, however, that no amendment or termination of the Plan shall be effective to materially alter or impair the rights of a Grantee under any Award made before the adoption of such amendment or termination by the Board of Directors, without the written consent of such Grantee. No termination or amendment of this Plan or any Award nor waiver of any right or requirement under this Plan or any Award shall be binding on the Company unless it is in a writing duly entered into its records and executed by a duly authorized Officer. 11 EX-27 10 FINANCIAL DATA SCHEDULE
5 0000813040 GREYHOUND LINES INC 1,000 9-MOS DEC-31-1997 JAN-01-1998 SEP-30-1998 2,927 0 47,861 223 5,238 134,582 482,967 144,426 659,021 123,975 257,157 0 60,000 603 152,839 659,021 0 636,101 0 384,518 0 0 21,222 13,973 (17,167) 31,140 0 0 0 27,252 0.46 0.42
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