-----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, OKHxMy57A3NtQuAQl2MdAg62ztQVdSxcuQOJD0MxuSuO+Yvn5X02dAEAt7RjEpHI 1HvdZuUxjLtk5lAxjl1kcg== 0000950134-99-002290.txt : 19990402 0000950134-99-002290.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950134-99-002290 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 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-K405 SEC ACT: SEC FILE NUMBER: 001-10841 FILM NUMBER: 99579935 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-K405 SEC ACT: SEC FILE NUMBER: 033-13588-01 FILM NUMBER: 99579936 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-K405 SEC ACT: SEC FILE NUMBER: 333-27267-01 FILM NUMBER: 99579937 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: GREYHOUND DE MEXICO SA DE CV CENTRAL INDEX KEY: 0001041396 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-27267-05 FILM NUMBER: 99579938 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-K405 SEC ACT: SEC FILE NUMBER: 333-27267-06 FILM NUMBER: 99579939 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-K405 SEC ACT: SEC FILE NUMBER: 333-27267-08 FILM NUMBER: 99579940 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-K405 SEC ACT: SEC FILE NUMBER: 333-27267-10 FILM NUMBER: 99579941 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-K405 SEC ACT: SEC FILE NUMBER: 333-27267-11 FILM NUMBER: 99579942 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-K405 SEC ACT: SEC FILE NUMBER: 333-27267-12 FILM NUMBER: 99579943 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-K405 SEC ACT: SEC FILE NUMBER: 333-27267-07 FILM NUMBER: 99579944 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-K405 1 FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 1998 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 (I.R.S. employer of 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) Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- 8 1/2% CONVERTIBLE SUBORDINATED DEBENTURES, DUE MARCH 31, 2007 AMERICAN STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE. 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value of Common Stock held by non-affiliates of the registrant on March 29, 1999, was $0. As of March 29, 1999, the Registrant had 58,743,069 shares of Common Stock, $0.01 par value, outstanding. (1) THIS FORM 10-K 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 I(1)(a) AND (b) OF FORM 10-K FOR FILING FORM 10-K IN A REDUCED DISCLOSURE FORMAT. ================================================================================ 2 CO-REGISTRANTS This Form 10-K 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 JURISDICTION COMMISSION IDENTIFICATION OF NAME FILE NO. NO. INCORP. - ---- ------------ --------------- ------------- Atlantic Greyhound Lines of Virginia, Inc. 333-27267-01 58-0869571 Virginia 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, Inc. 333-27267-08 75-2548617 Delaware 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 December 31, 1998, Atlantic Greyhound Lines of Virginia, Inc. had 150 shares of common stock outstanding (at a par value of $50.00 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. 3 GREYHOUND LINES, INC. AND SUBSIDIARIES INDEX TO FORM 10-K
PAGE NO. PART I -------- Item 1. Business................................................................... 4 Item 2. Properties................................................................. 10 Item 3. Legal Proceedings.......................................................... 11 Item 4. Submission of Matters to a Vote of Security Holders........................ 13 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.. 14 Item 6. Selected Consolidated Financial Information................................ 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. 16 Item 7A. Quantitative and Qualitative Disclosures About Market Risk................. 25 Item 8. Financial Statements and Supplementary Data................................ 27 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................................... 59 PART III Item 10. Directors and Executive Officers of the Registrant......................... 60 Item 11. Executive Compensation..................................................... 62 Item 12. Security Ownership of Certain Beneficial Owners and Management............. 66 Item 13. Certain Relationships and Related Transactions............................. 66 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............ 67
4 PART I ITEM 1. BUSINESS GENERAL Greyhound Lines, Inc. and subsidiaries (the "Company") is the only nationwide provider of scheduled intercity bus transportation services in the United States. The Company serves the value-oriented customer by connecting rural and urban markets throughout the United States, offering scheduled passenger service to more than 2,600 destinations with a fleet of 2,677 buses and approximately 1,800 sales locations. The Company also provides package express service, charter bus service and, in many terminals, food service. For the year ended December 31, 1998, the Company generated total operating revenues of $846.0 million and EBITDA (as defined herein) of $83.2 million. The Company serves a diverse customer base, consisting primarily of low to middle income passengers from a wide variety of ethnic backgrounds. Management believes that the demographic groups that make up the core of the Company's customer base are growing at rates faster than the U.S. population as a whole. The Company believes that it is uniquely positioned to serve this broad and growing market because (i) the Company's operating costs, which are lower on an available-seat-mile basis than other modes of intercity transportation, enable it to offer passengers everyday low prices, (ii) the Company offers the only means of regularly scheduled intercity transportation in many of its markets, and (iii) the Company provides additional capacity during peak travel periods to accommodate passengers who lack the flexibility to shift their travel to off-peak periods. LAIDLAW MERGER On October 16, 1998, the Company entered into an Agreement and Plan of Merger with Laidlaw Inc. ("Laidlaw") and its wholly owned subsidiary, Laidlaw Transit Acquisition Corp. ("Laidlaw Transit"), which Agreement was amended on November 5, 1998 (as amended, the "Merger Agreement"). At a special meeting of the Company's stockholders held on March 16, 1999, holders of the Company's Common Stock and Preferred Stock approved the Merger Agreement. On that date, Laidlaw Transit was merged with the Company (the "Merger"), with the Company, as the surviving corporation, becoming a subsidiary of Laidlaw. As a result of the Merger, Laidlaw became the sole beneficial owner of the Company's Common Stock, representing approximately 96% of the Company's outstanding voting securities. After the Merger, holders of Common Stock received $6.50 in cash for each share of Common Stock they held. The Company's 8 1/2% Convertible Exchangeable Preferred Stock ("Preferred Stock") remains outstanding. However, following the Merger, the Preferred Stock is no longer convertible into shares of Common Stock. The Company's Preferred Stock is presently convertible into the right to receive $33.33 per share in cash. The total purchase price Laidlaw paid for the shares of Greyhound's Common Stock not previously purchased by Laidlaw, including outstanding stock options, was approximately $402 million. The Greyhound Preferred Stock which remains outstanding is convertible into the right to receive $33.33 in cash per share or $80 million in the aggregate. Laidlaw had sufficient funds available under its existing revolving credit facilities to fund all of its requirements in connection with the Merger. Laidlaw's credit facilities are provided by a syndicate of financial institutions for which Canadian Imperial Bank of Commerce acts as administrative agent. Laidlaw may borrow up to an aggregate amount of $1.7 billion under the facility for general corporate purposes, including transactions contemplated by the Merger Agreement. The consideration payable to stockholders of Greyhound as a result of the Merger was determined through negotiations between Greyhound and Laidlaw. BUSINESS STRATEGY In late 1994 and early 1995, under the direction of a new management team, the Company developed a "back-to-basics" operating strategy. This strategy focused on providing a good, customer-oriented product with a capacity- 4 5 flexible, sound bus operation. The Company accomplished this by rebuilding its infrastructure, expanding the frequency and convenience of its schedule offerings, providing flexible scheduling of its equipment, drivers and other resources to meet peak travel demand, introducing everyday low prices and actively managing fares in individual markets. In response to these initiatives, the Company has experienced year-over-year revenue growth in each of its last fifteen consecutive quarters. Management believes the following represent significant growth opportunities for the Company: o CORE PASSENGER GROWTH. The Company believes that its revenues will continue to grow as its core demographic customer base expands, and that this customer base is growing at a rate that exceeds the U.S. population growth rate as a whole. The Company also believes that there are opportunities to obtain incremental revenues from its existing customer base through continued targeted advertising and promotional programs and refinements in pricing and schedule offerings designed to reinforce the Company's position as the low-cost alternative to other forms of intercity transportation. o CHARTER BUSINESS. As the Company expands its fleet size and driver corps to support the growth of the core passenger business, it will provide a significant, complementary growth opportunity in the charter business. o DOMESTIC ACQUISITIONS, INTERLINE RELATIONSHIPS AND INTERMODAL ALLIANCES. The bus transportation industry is highly fragmented. Accordingly, opportunities exist for the Company to acquire regional bus operators or to form strategic alliances with these carriers to increase its penetration of existing markets. o HISPANIC MARKETS. Management believes the Spanish speaking markets in the U.S. and Mexico represent a significant growth opportunity. The Company believes that the most effective way to service passengers in this market is through joint ventures or other business combinations with Mexico-based bus carriers and U.S.-based bus carriers that primarily serve these markets. The Company has established a separate operating subsidiary that has completed joint ventures that provide through-bus service at all major gateways between the United States and Mexico. o EXPRESS BUSINESS. The Company is implementing programs to rebuild its package express business and capitalize on the market niche opportunities, which leverages the Company's scheduled bus service. Additionally, the Company believes other revenue growth opportunities are available, such as providing increased bus service to casino and commuter markets and marketing selected products or services to its unique customer base. MARKETS Passengers. While the Company's major passenger markets are large metropolitan areas, its business is geographically fragmented with the 50 largest sales outlets accounting for approximately 48% of 1998 ticket sales, and the 1,200 largest origin/destination city pairs producing only 43% of 1998 ticket sales. Demographic studies have shown that the Company's potential riders are concentrated in the northeastern, southern and industrial mid-western United States, as well as Texas and California. The typical passenger travels to visit friends and relatives and generally has an annual income of below $35,000. In many cases, the Company's passengers report that they own automobiles considered sufficiently reliable for a trip of a similar distance, but travel by bus because they are traveling alone or because of the lower cost of bus travel. The majority of the Company's customers usually make the decision to take a trip only a short time before actually traveling and, for the most part, pay cash for their tickets on the day of departure. Package Express. The Company's package express service targets commercial shippers and delivery companies that require rapid delivery of small parcels, typically within 300 miles. Shipments include automotive repair parts, wholesale foods, computer parts and forms, fresh flowers, eyeglasses, medical and dental supplies, architectural and legal documents, and pharmaceutical products. With its extensive network and multiple schedules, the Company is 5 6 able to provide expedited service, especially to rural areas. Most shipments arrive at their destination on the same day they are shipped or by 8 a.m. the following morning. Food Service. The Company's food service division oversees many diverse food service concepts, consisting of more than 160 locations. The Company offers concepts ranging from cafeteria-style restaurants to quick grab `n go snack bars. MARKETING AND ADVERTISING The Company's marketing and advertising philosophy is geared toward stimulating extra travel through price awareness, improving the awareness and image of Greyhound among potential customers and inducing first-time and repeat travel. The Company uses various means to advertise its passenger travel business including radio, television and print media (primarily yellow pages). Additionally, the Company offers convenient around-the-clock fare and schedule quotations via a toll-free telephone number through its telephone information centers. The Company's telephone centers handled 30.6 million calls in 1998, an increase of 4.1% over 1997. The Company also markets its other passenger and in-terminal services through advertising in the terminal facilities and in print media. The Company has also established an internet web site that provides fare and schedule information. OPERATIONS The Company utilizes approximately 150 company-operated bus terminals and approximately 1,650 agency-operated terminals and/or sales agencies which are managed either by five subsidiaries or 11 districts which are lead by district managers of customer service. Maintenance garages are maintained at 14 strategic locations and are supplemented by company-operated service islands and fueling points. The Company currently has approximately 5,250 drivers based in 88 different locations across the country. The drivers report to driver supervisors who are organized into 11 districts reporting to district managers of driver operations. The scheduling and dispatch of the Company's buses and driver corps is a coordinated and centralized function performed by the Company's resource management group. This group's purpose is to serve as a liaison between management and the field in the planning and execution of daily operations through the Company's existing network. This is accomplished through the management of national dispatch operations for equipment and drivers, rental of additional buses to cover peak demand periods, planning and coordinating extra sections with the field and analyzing and implementing pooling arrangements with other carriers. This group also plans the fleet size and driver requirements by location during the year and assists in determining the resource needs based on the sales plan each year. Information technology is an integral component of the Company's operations. The Company's information systems support, among other things, its scheduling and pricing, dispatch, operations planning, bus maintenance, telephone information center, customer service, point of sale, payroll and finance functions. As of December 31, 1998, the Company's automated fare and schedule quotation and ticketing system, called TRIPS, was in use at 324 locations. COMPETITION Passengers. 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. During the past few years, airlines have increased their penetration in intermediate-haul markets (450 to 1,000 miles), which has resulted in the bus industry, in general, reducing prices in these markets in order to compete. Additionally, airline discount programs have attracted certain long-haul passengers away from the Company. However, these lower airline fares usually contain restrictions and require advance purchase. Typically, the Company's customers decide to travel only a short time before their trip and purchase their tickets on the day of travel. The Company's everyday low pricing strategy results in "walk-up" fares substantially below comparable airline fares. In instances where the Company's fares exceed an airline discount fare, the Company believes the airline fares typically are more restrictive and less readily available than travel provided by the Company. 6 7 However, the Company has also instituted numerous advance purchase programs, in order to attract the price sensitive customer. Price, destination choices and convenient schedules are the ways in which the Company meets this competitive challenge. The automobile is the most significant form of competition to the Company. The out-of-pocket costs of operating an automobile are generally less expensive than bus travel, particularly for multiple persons traveling in a single car. The Company meets this competitive threat through price and convenient scheduling. Additionally, the Company experiences competition from regional bus companies. Price, frequency of service and convenient scheduling are the current strategies of the Company to meet this competition. The Company's competitors possess operating authority for, but do not currently operate over, numerous routes potentially competitive to the Company. Based on market and competitive conditions, the regional bus companies could operate such routes in the future. Competition by U.S.-based bus and van operators for the market represented by Spanish speaking customers in the U.S. is growing. As of January 1, 1997, barriers to entry into the cross-border intercity bus market between the U.S. and Mexico were reduced under the North American Free Trade Agreement ("NAFTA"). Entry into either market is still regulated by the respective U.S. and Mexican regulatory authorities. The U.S. government currently has a moratorium on grants of cross-border authority to Mexican-owned or controlled carriers of freight and passengers. There is no current indication as to when the moratorium will be lifted; however, should the moratorium be lifted, the Company could experience significant new competition on routes to, from and across Mexican border points. Nevertheless, certain U.S.-based operators are providing cross-border service into Mexico at this time. NAFTA also permits U.S. carriers to make non-controlling, minority investments in Mexican-owned carriers and permits Mexican carriers to make non-controlling, minority investments in U.S.-owned carriers. In addition to bringing new competition, the Company believes that the changes under NAFTA will increase the volume of bus travel along both sides of the border and provide the Company with a growth opportunity. The Company believes that the most effective way to service passengers in this market is through joint ventures or other business combinations with Mexico-based bus carriers and U.S.-based bus operators that primarily serve these Spanish-speaking markets. The Company has established a separate operating subsidiary that has completed joint ventures that provide through-bus service at all major gateways between the United States and Mexico. Package Express. The Company faces intense competition in its package express service from local courier services, the U.S. Postal Service and overnight express and ground carriers. The Company continues to develop programs to meet this competition and rebuild its package express business. These programs focus on system upgrades to improve service, billing and tracking for its customers, localized marketing strategies, and local or regional alliances with, or acquisitions of, pick up and delivery carriers. Due to the incremental nature of the package express business, the Company is able to provide same-day package express service at distances of up to 300 miles at a substantially lower price than those charged by other delivery services. Management believes that if this capability is conveniently aligned with pick up and delivery services at both ends, the revenue potential of a value-priced, door-to-door, same-day delivery service will enable package express revenues to grow. Food Service. The captive nature of the food service operations in the Company's terminals limits competition; however, in some locations proximity to fast food outlets and convenience stores can pose a competitive factor. 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. 7 8 WORKFORCE At March 22, 1999, the Company employed approximately 13,400 workers, consisting of approximately 4,500 terminal employees, 5,250 drivers, 1,500 supervisory personnel, 800 mechanics, 850 telephone information agents and 500 clerical workers. Of the total workforce, approximately 11,000 are full-time employees and approximately 2,400 are part-time employees. At March 22, 1999, approximately 49% of the Company's employees were represented by collective bargaining agreements. The Amalgamated Transit Union (the "ATU") represents approximately 5,800 of the Company's employees, including drivers, telephone information agents in the Omaha location, terminal workers in eight locations (approximately 220 employees) and about half of the Company's mechanics. The largest ATU agreement, which covers the drivers and maintenance employees, expires on January 31, 2004. The International Association of Machinists and Aerospace Workers (the "IAM") represents approximately 370 of the Company's employees, including the remaining mechanics. The IAM agreements expire on October 1, 1999. The Company also has bargaining agreements with the International Brotherhood of Teamsters, which represent approximately 250 employees at six terminal locations and the United Transportation Union, which represents employees at one of the Company's subsidiaries. Additionally during 1998, the ATU and Teamsters attempted to unionize employees in six terminal locations. The unions succeeded in organizing employees at three terminals. TRADEMARKS The Company owns the Greyhound name and trademarks and the "image of the running dog" trademarks worldwide, except in Canada. The Company believes that this name and the trademarks have substantial consumer awareness. GOVERNMENT REGULATION The Department of Transportation. As a motor carrier engaged in interstate, as well as intrastate, transportation of passengers and express shipments, the Company is, and must remain, registered with the United States Department of Transportation (the "DOT"). Failure to maintain a satisfactory safety rating, designate agents for service of process or to meet minimum financial responsibility requirements, after notice and opportunity to remedy, may result in the DOT's ordering the suspension or revocation of the registration of the Company and its right to provide transportation. DOT regulations also govern the qualifications, duties and hours of service of drivers, the standards for vehicles, parts and accessories, the maintenance of records and the submission of reports pertaining to the Company's drivers, buses and operations. The Company is subject to periodic and random inspections and audits by the DOT or, pursuant to cooperative arrangements with the DOT, by state police or officials, to determine whether the Company's drivers, buses and records are in compliance with the DOT's regulations. The Company, from time to time, has been cited by the DOT for noncompliance with its regulations but, nevertheless, has retained a satisfactory safety rating. The DOT establishes minimum financial responsibility requirements for motor carriers; the Company has met these requirements and has been authorized to partially self-insure its bodily injury and property damage liability. See "Insurance Coverage." The DOT also administers regulations to assure compliance with vehicle noise and emission standards prescribed by the Environmental Protection Agency (the "EPA"). All of the buses in the Company's fleet contain engines that comply with, or are exempt from compliance with, EPA regulations, but, on occasion, the Company has been cited and fined for non-compliance with noise or emission standards. Additionally, there is currently litigation pending in California seeking to enforce the posting of public health warnings at locations where diesel fuel emissions are present. Surface Transportation Board. The Company is also regulated by the DOT's Surface Transportation Board (the "STB"). The STB must grant advance approval for the Company to pool operations or revenues with another passenger carrier. The STB, moreover, must authorize any merger by the Company with, or its acquisition or control of, another motor carrier of passengers. The Company must maintain reasonable through routes with other motor 8 9 carriers of passengers, and, if found not to have done so, the STB can prescribe them. The Company is party to certain agreements, which are subject to STB authorization and supervision, for the adoption of mileage guides, rules, divisions or general rate adjustments. State Regulations. As an interstate motor carrier of passengers, the Company may engage in intrastate operations over any of its authorized routes. By federal law, states are pre-empted from regulating the Company's fares or its schedules, including the withdrawal of service over any route. However, the Company's buses remain subject to state vehicle registration requirements, bus size and weight limitations, fuel sales and use taxes, speed and traffic regulations and other local standards not inconsistent with federal requirements. Other. 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. INSURANCE COVERAGE The predecessor agency to the STB granted the Company authority to self-insure its automobile liability exposure for interstate passenger service up to a maximum level of $5.0 million per occurrence which has been continued by the DOT. To maintain self-insurance authority, the Company is required to maintain a satisfactory safety rating by the DOT, a tangible net worth of $10.0 million (as of December 31, 1998, the Company's tangible net worth was $148.8 million) and a $15.0 million trust fund (currently fully funded) to provide security for payment of claims. In addition to the self-insurance grant by the federal government, the Company also exercises self-insurance of its intrastate automobile liability exposure in 38 states. The Company maintains comprehensive automobile liability and general liability insurance to insure its assets and operations subject to a $1.5 million self-insured retention or deductible per occurrence. The Company also maintains property insurance subject to a $0.1 million deductible per occurrence and maintains workers' compensation insurance subject to a $1.0 million deductible per occurrence. Additionally, the Company is required by some states and some of its insurance carriers to maintain collateral deposits (which is discussed in Liquidity and Capital Resources section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations"). 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, 43 locations have been identified as remaining sites requiring potential clean-up and/or remediation as of December 31, 1998. The Company has estimated the clean-up and/or remediation costs of these sites to be $3.5 million, of which approximately $0.4 million is indemnifiable by the predecessor owner of Greyhound's domestic bus operations, now known as Viad Corp ("Viad"). The Company has potential liability with respect to two locations which the EPA has designated Superfund sites. The Company, as well as other parties designated by the EPA as potentially responsible parties, face exposure for 9 10 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 14 Superfund sites for which Viad had initially assumed responsibility under the indemnity provisions of the 1987 acquisition agreement, as amended in 1991. In late 1997, Viad notified the Company that it believed that the Company should be responsible for any liabilities at such sites. The Company believed that Viad had responsibility for these liabilities; however, in the first quarter of 1999, the Company agreed to assume these liabilities estimated at $2.0 million from Viad as part of the consideration paid by the Company to purchase nine restaurants Viad had been operating in the Company's terminals. The Company has recorded a total environmental reserve of $3.0 million at December 31, 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%. As of the date of this report, 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. ITEM 2. PROPERTIES LAND AND BUILDINGS At December 31, 1998, the Company used 558 parcels of real property in its operations, of which it owns 162 properties and leases 396 properties. Of those properties, 406 are bus terminals, 38 are maintenance facilities, 35 are terminal/maintenance facilities, and the remaining properties consist of driver dormitories, parking/storage lots, office/storage/warehouse buildings and telephone information centers. These properties are located throughout the United States, with a few in Mexico and Canada. The Company believes the current makeup of its properties is adequate for its operations, and although there can be no assurance, based on its recent experience, the Company believes that it will be able to find suitable replacement properties on acceptable terms for any properties the Company chooses to replace, or which are condemned, or for which leases are not renewed or are otherwise terminated. FLEET COMPOSITION, FLEET AGE AND BUS ACQUISITIONS During 1998, the Company took delivery of 293 buses, retired 114 buses and through acquisition of subsidiaries added 125 buses, resulting in a fleet of 2,677 buses at year-end. Through March 22,1999, the Company has taken delivery of an additional 148 buses and retired 101 buses. At March 22, 1999, the Company owned 993 buses and leased an additional 1,731 buses for a total fleet of 2,724. Motor Coach Industries, Inc. ("MCI") or its affiliate, Dina Autobuses, S.A. de C.V. ("DASA"), hereafter referred to collectively as "MCI", produced all but 140 of these buses. The Company is party to a long-term supply agreement with MCI. The agreement extends through 2007, but may be canceled at the end of any year upon six months notice. If the Company decides to acquire new buses, the Company and its affiliates must purchase at least 80% of its new bus requirements from MCI pursuant to the agreement. The Company has ordered 154 new buses (including the 148 referred to above) to be delivered during the first half of 1999. The average age of the Company's bus fleet has been reduced from 6.3 years in January 1998 to approximately 5.9 years as of March 22, 1999. The Company also shows a decrease in the amount of buses in excess of 10 years old, with the percentage dropping to 21.5% in March 1999 versus 26.4% in January 1998. The Company believes that newer buses, as well as older buses with newer engines, are more fuel efficient than buses with older engines. In addition, new buses are generally less costly to maintain, in part because of warranty coverage, and generally enhance customer satisfaction. 10 11 ITEM 3. LEGAL PROCEEDINGS 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, 8 1/2% Convertible Subordinated 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 Securities Litigation, Civil Action 3-94-CV-1793-G (the "Federal Court Action"). In July 1995, the plaintiffs filed 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. 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. 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. As a result, the Federal Court Action has been dismissed. In November 1994, a shareholder derivative lawsuit was filed by Harvey R. Rice, a purported owner of the Company's Common Stock, against the then present directors and former officers and directors of the Company and the Company as a nominal defendant. The suit sought 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, was 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"). 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, 11 12 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. On February 28, 1997, the suit was transferred to a different judge in the 68th Judicial District Court in Dallas. 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 final approval of the plaintiff attorneys' fees. On March 29, 1999, the Court approved the plaintiff's attorneys' fee request and the Stipulation became final. 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 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. As a result of this settlement, on December 1, 1998, the Delaware Action was dismissed. The foregoing settlements, expected to cost approximately $2.0 million, will be funded entirely by the Company's directors' and officers' liability insurance carrier and, thus, will not have a material adverse effect on the Company's business, financial condition, results of operations and liquidity. In January 1995, the Company received notice that the Securities and Exchange Commission (the "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. 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 12 13 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 13 14 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION Prior to completing the Merger on March 16, 1999 (see Item 1.-Business-in this report), the Company's Common Stock, par value $.01 per share (the "Common Stock"), was listed on the American Stock Exchange under the symbol "BUS." The following table sets forth the high and low sale prices for the Company's Common Stock during the periods indicated as reported by the American Stock Exchange:
HIGH LOW First Quarter 1997............................................ $ 5 1/2 $ 3 11/16 Second Quarter 1997........................................... 5 3 7/16 Third Quarter 1997............................................ 4 7/8 3 3/4 Fourth Quarter 1997........................................... 4 7/16 3 3/8 First Quarter 1998............................................ $ 5 3/4 $ 3 9/16 Second Quarter 1998........................................... 6 7/8 4 3/8 Third Quarter 1998............................................ 6 3/16 3 5/8 Fourth Quarter 1998........................................... 6 1/16 3 3/8 January 1, 1999 - March 16, 1999.............................. $ 6 1/2 $ 5 3/4
HOLDERS The number of shares of Common Stock outstanding as of March 29, 1999, was 58,743,069. As a result of the Merger, Laidlaw is the sole recordholder of the Company's Common Stock. DIVIDENDS The Company has not paid any dividends on the Common Stock in the past. The indenture governing the Company's 11 1/2% Senior Notes restricts the Company's ability to pay dividends on the Common Stock. In the event the Company was contractually permitted to pay dividends, Laidlaw as the sole holder of Common Stock would be entitled to receive dividends only when, as and if declared by the Board of Directors of the Company, subject to the prior rights and preferences, if any, of holders of the Company's Preferred Stock. CONVERTIBLE DEBENTURES At December 31, 1998, the Company had outstanding $9.8 million aggregate principal amount of its 8 1/2% Convertible Subordinated Debentures due March 31, 2007 (the "Convertible Debentures"). At the option of the holders thereof, prior to the Merger, the Convertible Debentures were convertible into shares of Common Stock at any time prior to maturity (unless earlier redeemed or repurchased), at a conversion rate of approximately 80.81 shares of Common Stock per $1,000 principal amount of Convertible Debentures. Following the Merger, the Convertible Debentures may be converted into $525.27 in cash per $1,000 principal amount of Convertible Debentures. 14 15 ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION The statement of operations data and statement of financial position data set forth below have been derived from the audited Consolidated Financial Statements of the Company for each of the respective periods indicated. The following financial information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Business" and the Consolidated Financial Statements and notes thereto included elsewhere in this filing. Certain reclassifications have been made to the prior period statements to conform them to the December 31, 1998, classifications.
YEARS ENDED DECEMBER 31, ----------------------------------------------------------------- 1998(a) 1997(b) 1996 1995 1994(c) --------- --------- --------- --------- --------- STATEMENT OF OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS) Total Operating Revenues ..................................... 845,996 771,122 700,858 657,849 615,311 Operating Income (Loss) ...................................... 46,831 37,106 20,804 9,363 (65,476) Net Income (Loss) Attributable to Common Shareholders ........ $ 30,048 $ (20,573) $ (6,604) $ (17,818) $ (77,421) ========= ========= ========= ========= ========= Diluted earnings per Share of Common Stock (d): Net Income (Loss) per Share of Common Stock ............... $ 0.47 $ (0.34) $ (0.11) $ (0.33) $ (5.07) ========= ========= ========= ========= ========= OTHER DATA: EBITDA (e) ................................................ $ 83,163 $ 68,365 $ 51,487 $ 40,373 $ (29,430) Cash Flows provided by (used for) Operating Activities .... $ 46,089 $ 49,843 $ 16,030 $ 29,474 $ (13,171) Cash Flows used for Investing Activities .................. $ (47,448) $ (80,817) $ (24,104) $ (34,076) $ (58,229) Cash Flows provided by (used for) Financing Activities .... $ 4,043 $ 32,128 $ 5,478 $ (1,358) $ 41,211 Ratio of earnings to fixed charges ........................ 1.42 1.19 0.76 0.35 (1.96) Dividends declared per Common Share ....................... -- -- -- -- -- STATEMENT OF FINANCIAL POSITION DATA: Total Assets .............................................. $ 643,378 $ 566,593 $ 500,282 $ 480,648 $ 511,499 Long-Term Debt, net (d) ................................... 225,688 207,953 192,581 172,671 197,125 Stockholders' Equity ...................................... 218,013 179,599 140,881 149,762 153,196
- ---------- (a) During the third quarter of 1998, the Company recognized a tax benefit related to previously reserved deferred tax assets. As a result, the Company had a $16.9 million tax benefit for the year. (b) For the year ended December 31, 1997, the Company recorded an extraordinary loss of $25.3 million relating to (i) the retirement of an interest rate swap ($2.5 million), (ii) the retirement of the 10% Senior Notes ($21.3 million) and (iii) the write-off of debt issuance costs related to the Revolving Credit Facility in place prior to the amended and restated Revolving Credit Facility that was completed in May 1997 ($1.5 million). (c) The 1994 results reflect $61.9 million in certain operating charges, including increases in insurance and legal reserves to recognize pre-bankruptcy claims previously thought to have been barred in the Company's Chapter 11 reorganization (which concluded in October 1991), adverse claims development in 1994 and certain litigation exposure; write-downs of real estate and other assets (including $7.0 million of depreciation); costs associated with an operational restructuring; and a $17.0 million increase in the income tax provision due to the reversal of a previously recognized deferred tax benefit. For the year ended December 31, 1994, the Company recorded (i) an extraordinary loss of $3.6 million, of which $3.2 million related to the write-off of debt issuance costs and $0.4 million related to professional fees in conjunction with the replacement of the Company's existing credit agreement with a new credit agreement and (ii) an extraordinary gain of $41.9 million related to the conversion of $89.0 million of Convertible Debentures into Common Stock. 15 16 (d) In January 1995, the Company issued an additional 16.3 million shares of Common Stock in connection with the consummation of its Common Stock rights offering, which provided net proceeds of approximately $28.9 million. The Company issued 4.0 million shares of Common Stock on October 3, 1995 in a public offering, which provided net proceeds of $15.4 million. The completion of the Company's 1994 financial restructuring resulted in the issuance of approximately 22.8 million shares of Common Stock in December 1994 upon the conversion of approximately $89.0 million of Convertible Debentures into Common Stock. (e) Represents income before interest, taxes, minority interest, depreciation and amortization, extraordinary items and preferred dividends. EBITDA is presented because management believes investors consider it useful in evaluating a company's ability to service and/or incur debt. EBITDA should not be considered in isolation from or as a substitute for net income, cash flows from operating activities and other consolidated income or cash flow data prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. EBITDA should be used based on the above calculation, as all companies and industries may not calculate EBITDA in the same manner. ITEM 7. 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 86.0%, 4.0% and 3.7%, respectively, of the Company's total operating revenues for 1998. The Company's operations include a nationwide network of terminal and maintenance facilities, a fleet of 2,677 buses and over 1,800 sales outlets. In late 1994 and early 1995, under the direction of the Company's new management team, the Company implemented a "back-to-basics" operating strategy. This strategy focused on the Company's national bus network and capitalizing on its low operating costs to attract and retain customers, which management identified as the first step in rebuilding the Company's financial performance. With this strategy fully implemented and providing a foundation of operating quality, the Company began to emphasize growth in each of its principal businesses through a "sales driven" strategy. This strategy involves the Company focusing even more on pricing the product for growth, utilizing more promotional pricing programs for the non-peak periods and targeting the advertising towards bus oriented market segments. The Company believes that incremental increases in passenger revenues will produce disproportionately larger increases in operating profits as many of the Company's operating expenses are fixed, such as depreciation, amortization, overhead and lease expenses related to buses and facilities. In addition, the operating costs necessary to produce the Company's base schedule of offerings, which consist of labor, fuel, maintenance, insurance and long-term bus leases, cannot be changed rapidly. Accordingly, these costs do not vary proportionately with short-term increases in demand for the Company's services. 16 17 RESULTS OF OPERATIONS The following table sets forth the Company's results of operations as a percentage of total operating revenue for 1998, 1997 and 1996:
YEARS ENDED DECEMBER 31, --------------------------------- 1998 1997 1996 -------- -------- -------- Operating Revenues Transportation Services Passenger services ...................... 86.0% 85.4% 85.3% Package express ......................... 4.0 4.6 4.8 Food services .............................. 3.7 3.8 3.9 Other operating revenues ................... 6.3 6.2 6.0 -------- -------- -------- Total Operating Revenues ............ 100.0 100.0 100.0 Operating Expenses Maintenance ................................ 9.9 10.0 10.5 Transportation ............................. 23.8 24.3 24.4 Agents' commissions and station costs ...... 18.4 18.3 18.8 Marketing, advertising and traffic ......... 3.2 3.5 3.7 Insurance and safety ....................... 5.9 5.9 5.9 General and administrative ................. 11.8 11.8 11.6 Depreciation and amortization .............. 4.3 4.1 4.4 Operating taxes and licenses ............... 6.7 6.7 7.1 Operating rents ............................ 7.8 7.7 7.7 Cost of goods sold - Food services ......... 2.4 2.5 2.7 Other operating expenses ................... 0.3 0.4 0.2 -------- -------- -------- Total Operating Expenses ............ 94.5 95.2 97.0 -------- -------- -------- Operating Income ............................. 5.5 4.8 3.0 Interest Expense ............................. 3.3 3.6 3.9 Income Tax Provision (Benefit) ............... (2.1) 0.1 0.0 Minority Interest ............................ 0.1 0.0 0.0 -------- -------- -------- Net Income (Loss) Before Extraordinary Items . 4.2% 1.1% (0.9)% ======== ======== ========
The following table sets forth certain operating data for the Company for 1998, 1997 and 1996. Certain statistics have been adjusted and restated from those previously published to provide consistent comparisons.
YEARS ENDED DECEMBER 31, -------------------------------------- 1998 1997 1996 ---------- ---------- ---------- Regular Service Miles (000's) ............................. 316,045 285,689 265,259 Total Bus Miles (000's) ................................... 323,393 291,537 270,187 Passenger Miles (000's) ................................... 7,820,225 7,049,637 6,243,262 Passengers Carried (000's) ................................ 22,552 19,893 18,348 Average Trip Length (passenger miles/passengers carried) .. 347 354 340 Load (avg. number of passengers per regular service mile) . 24.7 24.7 23.5 Load Factor (% of available seats filled) ................. 52.3% 52.6% 51.2% Yield (regular route revenue/passenger mile) .............. $ 0.0931 $ 0.0934 $ 0.0957 Total Revenue Per Total Bus Mile .......................... 2.62 2.65 2.59 Operating Income Per Total Bus Mile ....................... 0.14 0.13 0.08 Cost per Total Bus Mile: Maintenance ............................................. $ 0.258 $ 0.264 $ 0.272 Transportation .......................................... 0.622 0.642 0.633
17 18 YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997 The Company's results of operations include the operating results of Carolina Coach Company, and affiliates ("Carolina") and Valley Transit, Inc., and affiliates ("Valley"), both of which were acquired in 1997, and Golden State, Peoria-Rockford Bus Company, Autobuses Americanos and Autobuses Amigos, which were acquired in 1998. These companies are collectively referred to as the "acquisitions." The results for the acquisitions are included as of their respective purchase dates. Operating Revenues. Total operating revenues increased $74.9 million (or 9.7%) for the year ended December 31, 1998 compared to the same period in 1997. Passenger services revenues increased $69.4 million (or 10.5%) in 1998 compared to 1997 (including $27.2 million related to the acquisitions). The 10.5% increase in regular route revenues reflects a 13.4% increase in the number of passengers carried primarily offset by a 2.0% decrease in average trip length. Excluding the impact of the acquisitions, the Company's passenger service grew 6.4% due to a 4.6% increase in passengers carried, a 2.5% increase in trip length, partially offset by a 0.6% decrease in yield. Although the Company (without the acquisitions) saw growth in the short-haul market (passengers traveling less than 450 miles), the increase in trip length and decrease in yield reflect greater growth in long-haul traffic (passengers traveling more than 450 miles), especially in the first half of the year, as the Company promoted and priced this product for growth. On a consolidated basis, the decrease in trip length reflects the impact of the acquisitions, as the acquisitions have significantly shorter trip lengths than the Company as a whole. In 1998, the Company saw a $1.9 million (or 5.3%) decrease in package express revenues. Package express revenues in 1997 were positively impacted by the United Parcel Service labor strike that took place in August 1997. Without the estimated effect of this revenue in 1997, the Company experienced increased package express revenues of $1.2 million (or 3.7%) which related entirely to the acquisitions. Food services and related revenues increased $1.5 million (or 5.1%) for the year ended December 31, 1998, compared to the same period in 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 increased $5.9 million (or 12.3%) for the year ended December 31, 1998, compared to the same period in 1997 primarily due to a $4.3 million (or 38.8%) increase in charter service revenues (including $1.0 million related to the acquisitions) and an increase in revenues from other in-terminal services, such as calling cards and prepaid ticket orders. Operating Expenses. Total operating expenses increased $65.1 million (or 8.9%) for the year ended December 31, 1998, compared to the same period in 1997. The increase is due primarily to increased bus miles (10.9%), higher driver wages, increased terminal salaries, increased ticket and express commissions due to higher sales, and increased bus operating leases. Additionally, expenses attributable to the operations of the acquisitions ($25.6 million) are included as of their acquisition dates. Despite these increases, total operating expenses decreased as a percentage of total operating revenues. Maintenance costs increased $6.4 million (or 8.3%) for the year ended December 31, 1998, compared to the same period in 1997, primarily due to increased bus miles and the inclusion of the acquisitions. Despite these increases, maintenance costs decreased on a per-mile basis and as a percentage of total operating revenues. Transportation expenses, which consist primarily of fuel costs and driver salaries, increased $13.9 million (or 7.4%) for the year ended December 31, 1998, compared to the same period in 1997, due primarily to increased bus miles, contractual driver wage increases in April and October and the inclusion of the acquisitions. The additional miles resulted in higher overall fuel expense, despite the favorable prices, and an increase in driver wages and related driver expenses. Transportation expenses decreased on a per-mile basis and as a percentage of total operating revenues due in part to the impact of lower fuel prices in 1998 compared to the prior year. Agents' commissions and station costs increased $14.7 million (or 10.4%) for the year ended December 31, 1998, compared to the same period in 1997, primarily due to commissions from increased ticket sales, terminal salaries 18 19 associated with staffing for the increase in passengers, terminal salary raises and the inclusion of the acquisitions. As a result, agents' commissions and station costs increased slightly as a percentage of total operating revenues. Marketing, advertising and traffic expenses increased $0.5 million (or 1.8%) for the year ended December 31, 1998, compared to the same period in 1997, but decreased as a percentage of total operating revenues. Media advertising increased over 1997 but the increased costs were almost entirely offset by the exchange of bus wrap advertising for trade discounts. Insurance and safety costs increased $3.9 million (or 8.5%) for the year ended December 31, 1998, compared to the same period in 1997, due primarily to increased bus miles and the inclusion of the acquisitions. Insurance and safety costs continue to remain at 5.9% of total operating revenues, while the cost per mile decreased slightly from 1997 as a result of the acquisitions which have lower insurance costs. General and administrative expenses increased $8.5 million (or 9.3%) for the year ended December 31, 1998, compared to the same period in 1997, primarily due to additions to administrative personnel, expenses associated with remediation of the Company's computer systems related to the Year 2000 issue and the inclusion of the acquisitions. Despite these increases, general and administrative expenses remained at 11.8% of total operating revenues. Depreciation and amortization expense increased $5.1 million (or 16.2%) for the year ended December 31, 1998, compared to the same period in 1997, primarily due to the purchase of additional buses, other equipment and software and amortization attributable to the acquisitions. Depreciation and amortization expense increased as a percentage of total operating revenues. Operating taxes and license costs increased $5.2 million (or 10.1%) for the year ended December 31, 1998, compared to the same period in 1997, primarily due to increased payroll taxes resulting from increased salaries and headcounts related to higher business volume (including increased miles operated), increased fuel taxes due to increased miles and the inclusion of the acquisitions. Operating rents increased $6.7 million (or 11.3%) for the year ended December 31, 1998, compared to the same period in 1997, primarily due to an increase in the number of buses leased under operating leases and the inclusion of the acquisitions. Food services and related cost of goods sold increased $1.0 million (or 5.2%) for the year ended December 31, 1998, compared to the same period in 1997, primarily due to the 5.1% 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. Other operating expenses decreased $0.7 million (or 22.9%) for the year ended December 31, 1998, compared to the same period in 1997, primarily due to an increase in the gains associated with the sale of assets. As a result, other operating expenses decreased as a percentage of total operating revenues. Interest expense increased $0.2 million (or 0.9%) for the year ended December 31, 1998, compared to the same period in 1997, as a result of increased borrowings under the Revolving Credit Facility. The increased borrowings are attributable to the acquisitions, partially offset by a positive cash flow from earnings and a lower average interest rate under the Revolving Credit Facility. Interest expense decreased as a percentage of total operating revenues. YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 The Company's results of operations include the operating results of Carolina and Valley, collectively referred to as the "1997 acquisitions". The results for the acquisitions are included as of their respective purchase dates, both of which occurred during the third quarter of 1997. Operating Revenues. Total operating revenues increased $70.3 million (or 10.0%) for the year ended December 31, 1997 compared to the same period in 1996. Passenger services revenues increased $60.6 million (or 10.1%) in 19 20 1997 compared to 1996 (including $11.9 million related to the 1997 acquisitions). The 10.1% increase in passenger services revenues reflects a 13.0% increase in the number of passengers carried offset by a 1.4% decrease in yield. Excluding the impact of the 1997 acquisitions, the Company's passenger service grew 8.2% due to a 7.3% increase in passengers carried, a 2.6% increase in trip length and a 1.8% decrease in yield. The decrease in yield reflects significant growth in long-haul traffic (passengers traveling more than 450 miles), as the Company promoted and priced this product for growth. However, the reduction in yield was partially offset by growth in the short-haul market (passengers traveling less than 450 miles), which typically produces higher yields. On a consolidated basis, the decrease in trip length reflects the impact of the acquisitions, as both Carolina and Valley have significantly shorter trip lengths than the Company as a whole. In 1997 the Company saw a $2.1 million (or 6.4%) increase in package express revenues (including $0.7 million related to the 1997 acquisitions), after nine years of year-over-year declines. Package express revenues increased due to an increase in shipments handled as a result of the United Parcel Service labor strike in August 1997, the retention of a portion of those customers subsequent to the strike and a price increase. In addition, in select markets, the Company implemented a centralized telephone customer service department dedicated to package express service and coordinated pick-up and delivery services. Food services and related revenues increased $2.1 million (or 7.7%) for the year ended December 31, 1997, compared to the same period in 1996. 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 increased $5.4 million (or 12.8%) for the year ended December 31, 1997 compared to the same period in 1996 primarily due to a $2.6 million (or 30.1%) increase in charter service revenues (including $0.4 million related to the 1997 acquisitions) and an increase in revenues from other in-terminal services, such as money order sales and prepaid ticket orders. Operating Expenses. Total operating expenses increased $54.0 million (or 7.9%) for the year ended December 31, 1997, compared to the same period in 1996. The increase is due primarily to increased bus miles (7.9%), higher driver wages, increased terminal salaries, increased ticket and express commissions due to higher sales, and increased bus operating leases. Additionally, expenses attributable to the operations of the 1997 acquisitions ($9.9 million) are included as of their acquisition dates, which both occurred in the third quarter. Despite these increases, total operating expenses decreased as a percentage of total operating revenues. Maintenance costs increased $3.6 million (or 4.9%) for the year ended December 31, 1997, compared to the same period in 1996, primarily due to increased bus miles and the inclusion of the 1997 acquisitions. Despite these increases, maintenance costs decreased on a per-mile basis and as a percentage of total operating revenues due principally to the decrease in the average age of the fleet. Transportation expenses, which consist primarily of fuel costs and driver salaries, increased $16.3 million (or 9.6%) for the year ended December 31, 1997, compared to the same period in 1996, due primarily to increased bus miles, a contractual driver wage increase, and the inclusion of the 1997 acquisitions. The additional miles resulted in higher overall fuel expense and an increase in driver wages and related driver expenses. Transportation expenses decreased on a per-mile basis, but increased as a percentage of total operating revenues due primarily to the impact of the contractual wage increase which was partially offset by lower fuel prices. Agents' commissions and station costs increased $9.4 million (or 7.1%) for the year ended December 31, 1997, compared to the same period in 1996, primarily due to commissions from increased ticket and express sales and the inclusion of the 1997 acquisitions. Despite these increases, agents' commissions and station costs decreased as a percentage of total operating revenues. Marketing, advertising and traffic expenses increased $1.0 million (or 4.1%) for the year ended December 31, 1997, compared to the same period in 1996, but decreased as a percentage of total operating revenues. The increase is primarily due to higher advertising agency fees and production costs. Media advertising increased over 1996 but the 20 21 increased costs were entirely offset by the exchange of bus wrap advertising for trade discounts. Additionally, cost savings were recognized related to bringing in-house certain computing services. Insurance and safety costs increased $4.8 million (or 11.6%) for the year ended December 31, 1997, compared to the same period in 1996, due primarily to increased bus miles and the inclusion of the 1997 acquisitions. General and administrative expenses increased $10.3 million (or 12.7%) for the year ended December 31, 1997, compared to the same period in 1996, primarily due to additions to administrative personnel in late 1996, officer severance, an increase in the pay-out of the management incentive plan related to improved company performance, and the inclusion of the 1997 acquisitions. Depreciation and amortization expense increased $0.6 million (or 1.9%) for the year ended December 31, 1997, compared to the same period in 1996, primarily due to the purchase of additional buses in 1997 and late 1996 and the depreciation and amortization attributable to the 1997 acquisitions. Depreciation and amortization expense decreased as a percentage of total operating revenues. Operating taxes and license costs increased $1.7 million (or 3.4%) for the year ended December 31, 1997, compared to the same period in 1996, primarily due to increased payroll taxes resulting from increased salaries and headcounts related to higher business volume (including increased miles operated) and the inclusion of the 1997 acquisitions. Operating taxes and license costs decreased as a percentage of total operating revenues. Operating rents increased $5.1 million (or 9.5%) for the year ended December 31, 1997, compared to the same period in 1996, primarily due to an increase in the number of buses leased under operating leases in 1997 and the inclusion of the 1997 acquisitions. Operating rents were 7.7% of total operating revenues in each of 1997 and 1996. Food services and related cost of goods sold increased $0.9 million (or 4.7%) for the year ended December 31, 1997, compared to the same period in 1996, primarily due to the 7.7% 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 $0.3 million (or 1.1%) for the year ended December 31, 1997, compared to the same period in 1996, as a result of increased borrowing on the Revolving Credit Facility partially offset by lower effective interest rates on the Company's 11 1/2% Senior Notes due 2007 compared to the effective interest rate on the retired 10% Senior Notes and renegotiated Revolving Credit Facility. The increased borrowing is attributed to the purchase of the 1997 acquisitions, the five terminals purchased from Viad, and the buses purchased for sale/leaseback transactions partially offset by proceeds from the Preferred Stock offering in April 1997. Additionally, the Company added three new capital leases for 77 buses in December 1996. Interest expense decreased as a percentage of total operating revenues. LIQUIDITY AND CAPITAL RESOURCES The Company's principal liquidity requirements are to provide working capital, to finance capital expenditures, including bus acquisitions, to meet debt service requirements, including the payment of interest on the 11 1/2% Senior Notes and to pay Preferred Stock dividends. The Company's principal sources of liquidity are expected to be cash flow from operations and funds provided by Laidlaw. The Company believes that its cash flow from operations, together with funds provided by Laidlaw will be sufficient to meet its liquidity needs. Net cash provided by operating activities was $46.1 million, $49.8 million and $16.0 million for the years ended December 31, 1998, 1997 and 1996, respectively. Net cash used for investing activities was $47.4 million, $80.8 million and $24.1 million for 1998, 1997 and 1996, respectively, principally due to capital expenditures, consisting primarily of acquisitions of buses and real estate and facility improvements, totaling $33.7 million, $45.1 million and $38.4 million for 1998, 1997 and 1996, respectively, offset in part by proceeds of assets sold of $3.9 million, $6.5 million and $16.7 million, respectively. Additionally, cash used for investing activities includes payments relating to 21 22 the acquisitions of $10.9 million in 1998 and $40.1 million in 1997. Net cash provided by financing activities was $4.0 million, $32.1 million and $5.5 million for 1998, 1997 and 1996, respectively. As a result of the Merger, the Company will be required to make a one-time offer to repurchase all or any part of each holder's 11 1/2% Senior Notes at a price equal to 101% of the principal amount thereof plus interest. Also, as a result of the Merger, the Preferred Stock becomes mandatorily redeemable into $33.33 in cash for each share of Preferred Stock, which is in excess of the liquidation preference. Additionally, the Company will be required to make a one-time offer to repurchase all or any part of each holder's Convertible Debentures at a price equal to 100% of the principal amount thereof plus interest. 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 maintaining and upgrading its computer systems. The Company's experience indicates that as the age of its bus fleet increases, the dependability and quality of service declines, which may make the Company less competitive. In addition, 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 in 1996, 1997 and 1998. The Company has ordered 154 new buses to be delivered during the first half of 1999. The Company requires significant cash flows to meet its debt service and other continuing obligations. As of December 31, 1998, the Company had $233.7 million of long-term indebtedness outstanding (including current portions), including $37.8 million of borrowings under the Revolving Credit Facility and $150.0 million of 11 1/2% Senior Notes. As of December 31, 1998, the Company had total availability of $93.1 million under the Revolving Credit Facility. As a result of the Merger, on March 17, 1999, all amounts outstanding under the Revolving Credit Facility were paid and the Revolving Credit Facility was terminated. 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 23% of projected fuel needs through October 1999, at an average price per gallon of $0.51. At this time, due to the nature of the market for fuel, the Company is no longer entering into advance purchase contracts. However, should the market change, the Company may decide to enter into additional advance fuel purchase contracts as Management believes that this strategy is a conservative methodology of mitigating the impact of fuel price fluctuations. SELF INSURANCE Insurance coverage and risk management expense are key components of the Company's cost structure. The loss of self-insurance authority from the DOT or a decision by the Company's insurers to modify the Company's program substantially, by either increasing cost, reducing availability or increasing collateral, could have a material adverse effect on the Company's liquidity, financial condition, and results of operations. The Company maintains cash deposits that secure insurance claims, which as of February 28, 1999, aggregated approximately $41.5 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 DOT's approval of such program. Additionally, as of February 28, 1999, the Company had pledged $26.1 million in cash and $9.3 million in letters of credit to secure its other liability insurance obligations. As a result of the Merger, the Company is negotiating to eliminate or replace the majority of these deposits with letters of credit to be issued under Laidlaw's existing credit facility. OTHER DEPOSITS The Company maintains deposits that secure bus leases associated with sale leaseback transactions. These deposits are in the form of marketable securities. As of February 28, 1999, at market value, these deposits are for $23.4 million pledged as collateral in connection with the sale and leaseback of 319 buses and $8.5 million pledged as 22 23 collateral in connection with the sale and leaseback of 125 buses. The debt securities included in these security deposits are recorded at cost plus earned interest as it is the intent of the Company to hold these securities until maturity. As a result, the temporary gains and losses associated with the market value of these securities are excluded from operating results and stockholders' equity. PENSION PLAN FUNDING The Company maintains ten 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 in the future 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 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 early in the second quarter of 1999. 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 first developed plans to prepare individual applications and platforms for year 23 24 2000 readiness. These individual plans were then consolidated into an overall plan for remediation of the IT systems. Priority has been given to the mission critical functions. For those non-mission critical systems that might not be ready for the year 2000, the overall plan calls for the development of contingency plans to minimize disruption to the business. The overall plan for IT systems was completed during the fourth quarter of 1998. The planning phase for non-IT systems is targeted for completion early in the second 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, the majority of infrastructure components and several applications have been remediated. The Company expects to complete the Implementation phase for mission critical IT systems in the second quarter of 1999. Non-mission critical IT systems and non-IT systems are expected to be made year 2000 ready by the end of third 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 $12.5 million and $17.5 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 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 from funds provided by Laidlaw. 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 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 appropriately to 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. 24 25 INCOME TAXES During 1998 the Company recognized deferred tax assets primarily related to net operating losses from prior years expected to be realized in the current or future years. These tax assets had been previously reserved; however, the Company recognized these tax assets due to a continued trend of earnings improvement and current and future expected positive earnings, as well as the successful negotiation of the new union agreement. 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. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following discussion about the Company's market risk includes "forward-looking statements" that involve risk and uncertainties. Actual results could differ materially from these projections. The Company is currently exposed to market risk from changes in commodity prices for fuel, interest rates and investment prices. In addition, the Company has market risk related to its put/call agreement for certain buses owned by the Company. The Company does not use derivative instruments to mitigate market risk, nor does the Company use market risk sensitive instruments for speculative or trading purposes. COMMODITY PRICES. The Company currently has exposure to commodity risk from its advance purchase commitments for fuel and fuel inventory. As discussed above in Item 7, 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 23% of projected fuel needs through October 1999, at an average price per gallon of $0.51. A 10% increase in the cost of fuel would not have a material effect on these commitments, nor on the Company's financial position, annual results of operations or cash flows. Additionally, the Company has fuel inventory at December 31, 1998, at a carrying value of $0.3 million. As disclosed in Note 2 to the Consolidated Financial Statements, the Company utilizes the first-in, first-out method for accounting purposes. Consequently, the Company's fuel inventory is used in operations before a change in the market price of fuel could have a material effect on the Company's financial position. INTEREST RATES. The Company currently has exposure to interest rates from its long-term debt only as it related to the Company's Revolving Credit Facility, as all other debt instruments utilize fixed rates. The Revolving Credit Facility utilized a variable rate based on prime and LIBOR. As of December 31, 1998, the Revolving Credit Facility utilized prime plus 0.25% and LIBOR plus 1.75% (weighted average 7.7%) with an outstanding balance of $37.8 million. Based on this, a 10% increase in interest rates would not materially affect the Company's financial position, annual results of operations, nor its cash flow. Following the Merger, on March 17, 1999, all amounts outstanding under the Revolving Credit Facility were paid and the Revolving Credit Facility was terminated. INVESTMENT PRICES. The Company currently has exposure in the stock price of investments in its available for sale security. The Company currently has only one investment classified as available for sale and a 10% decrease in the market price of this stock would not have a material effect on the Company's financial position. 25 26 MARKET RISK. The Company negotiated a put/call agreement whereby the Company prearranged the sale of certain buses. This agreement allows the Company to put these buses to the contracting party for a certain price at a certain point in time, or allows the contracting party to call these buses for a certain price at a certain point in time. A 10% decrease in the market value of these buses would result in a market value that is lower than the call price and thus result in the Company putting these buses to the contracting party at a gain to the Company. 26 27 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE NO. -------- Management Report on Responsibility for Financial Reporting ....................................... 28 Report of Independent Public Accountants........................................................... 29 Consolidated Statements of Financial Position as of December 31, 1998 and 1997..................... 30 Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997, and 1996........ 31 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998, 1997, and 1996...................................................................................... 32 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997, and 1996........ 33 Notes to Consolidated Financial Statements......................................................... 34 Schedule II - Valuation and Qualifying Accounts - For the Years Ended December 31, 1996, 1997, and 1998...................................................................................... 58
27 28 MANAGEMENT REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING The management of Greyhound Lines, Inc. and its subsidiaries (the "Company") has the responsibility for preparing the accompanying consolidated financial statements and for their integrity and objectivity. The statements were prepared in accordance with generally accepted accounting principles applied on a consistent basis and are not misstated due to fraud or material error. The financial statements include amounts that are based on management's best estimates and judgments. Management also prepared the other information in the annual report on Form 10-K and is responsible for its accuracy and consistency with the financial statements. The Company's consolidated financial statements have been audited by Arthur Andersen LLP, independent public accountants approved by the Board of Directors. Management has made available to Arthur Andersen LLP all the Company's financial records and related data, as well as the minutes of the stockholders' and directors' meetings. Furthermore, management believes that all representations made to Arthur Andersen LLP during its audits were valid and appropriate. Management of the Company has established and maintains a system of internal control that provides reasonable assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition, and the prevention and detection of fraudulent financial reporting. The system of internal control provides for appropriate division of responsibility and is documented by written policies and procedures that are communicated to employees with significant roles in the financial reporting process and updated as necessary. Management continually monitors the internal control system for compliance. The Company maintains an internal auditing program that independently assesses the effectiveness of the internal controls and recommends possible improvements thereto. In addition, as part of its audits of the Company's consolidated financial statements, Arthur Andersen LLP considered the Company's system of internal control to the extent they deemed necessary to determine the nature, timing and extent of audit tests to be applied. Management has considered the internal auditors' and Arthur Andersen LLP's recommendations concerning the Company's system of internal control and has taken actions that the Company believes respond appropriately to these recommendations. Management believes that the Company's system of internal control is adequate to accomplish the objectives discussed herein. Management also recognizes its responsibility for fostering a strong ethical climate so that the Company's affairs are conducted according to the highest standards of personal and corporate conduct. This responsibility is characterized and reflected in the Company's code of corporate conduct, which is publicized throughout the Company. The code of conduct addresses, among other things, the necessity of ensuring open communication within the Company; potential conflicts of interests; compliance with all domestic and foreign laws, including those relating to financial disclosure; and the confidentiality of proprietary information. The Company maintains a systematic program to assess compliance with these policies. T. Scott Kirksey Vice President Financial Planning and Reporting (Principal Financial and Accounting Officer) Dallas, Texas March 31, 1999 28 29 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Greyhound Lines, Inc.: We have audited the accompanying consolidated statements of financial position of Greyhound Lines, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Greyhound Lines, Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index at Item 8 (Schedule II) is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Dallas, Texas February 15, 1999 (except with respect to the matter discussed in Note 20, as to which the date is March 16, 1999) 29 30 GREYHOUND LINES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, ---------------------- 1998 1997 --------- --------- Current Assets Cash and cash equivalents ........................................................ $ 4,736 $ 2,052 Accounts receivable, less allowance for doubtful accounts of $198 and $268 ....... 40,774 35,364 Inventories, less allowance for shrinkage of $205 and $175 ....................... 5,705 4,658 Prepaid expenses ................................................................. 5,170 4,949 Assets held for sale ............................................................. 3,029 3,889 Current portion of deferred tax assets ........................................... 24,053 -- Other current assets ............................................................. 9,907 9,694 --------- --------- Total Current Assets ....................................................... 93,374 60,606 Prepaid Pension Plans ............................................................... 27,917 25,378 Property, Plant and Equipment, net of accumulated depreciation of $ 151,468 and $124,374 .................................................................... 362,417 341,292 Investments in Unconsolidated Affiliates ............................................ 13,560 6,076 Deferred income taxes ............................................................... 8,988 -- Insurance and Security Deposits ..................................................... 67,908 72,693 Goodwill, net of accumulated amortization of $1,755 and $499 ........................ 39,510 30,215 Intangible Assets, net of accumulated amortization of $28,503 and $22,188 ........... 29,704 30,333 --------- --------- Total Assets ............................................................... $ 643,378 $ 566,593 ========= ========= Current Liabilities Accounts payable ................................................................. $ 27,724 $ 32,731 Accrued liabilities .............................................................. 64,819 62,237 Unredeemed tickets ............................................................... 12,143 10,325 Current portion of reserve for injuries and damages .............................. 22,967 21,374 Current maturities of long-term debt ............................................. 7,970 4,469 --------- --------- Total Current Liabilities .................................................. 135,623 131,136 Reserve for Injuries and Damages .................................................... 37,392 36,591 Long-Term Debt, net ................................................................. 225,688 207,953 Minority Interests .................................................................. 3,058 -- Other Liabilities ................................................................... 23,604 11,314 --------- --------- Total Liabilities .......................................................... 425,365 386,994 Commitments and Contingencies (Notes 15 and 18) 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 December 31, 1998 and 1997, respectively; aggregate liquidation preference $60,000) ......... 60,000 60,000 Series A Junior Preferred Stock (1,500,000 shares authorized as of December 31, 1998 and 1997, respectively; par value $.01; none issued) .... -- -- Common Stock (100,000,000 shares authorized; 60,255,117 and 59,437,514 shares issued as of December 31, 1998 and 1997, respectively; par value $.01) .................................................................. 603 594 Less: Treasury Stock, at cost (109,192 shares) ...................................... (1,038) (1,038) Capital in Excess of Par Value ...................................................... 237,441 229,365 Accumulated Other Comprehensive Income, net of tax benefit of $3,181 ................ (7,232) (7,513) Retained Deficit .................................................................... (71,761) (101,809) --------- --------- Total Stockholders' Equity ................................................. 218,013 179,599 --------- --------- Total Liabilities and Stockholders' Equity ................................. $ 643,378 $ 566,593 ========= =========
The accompanying notes are an integral part of these statements. 30 31 GREYHOUND LINES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31, ----------------------------------- 1998 1997 1996 --------- --------- --------- Operating Revenues Transportation services Passenger Services .................................... $ 727,786 $ 658,396 $ 597,779 Package express ....................................... 33,790 35,676 33,527 Food services ........................................... 31,127 29,611 27,487 Other operating revenues ................................ 53,293 47,439 42,065 --------- --------- --------- Total Operating Revenues .......................... 845,996 771,122 700,858 --------- --------- --------- Operating Expenses Maintenance ............................................. 83,444 77,022 73,441 Transportation .......................................... 201,190 187,311 170,979 Agents' commissions and station costs ................... 155,799 141,100 131,715 Marketing, advertising and traffic ...................... 27,349 26,860 25,811 Insurance and safety .................................... 49,748 45,860 41,088 General and administrative .............................. 99,836 91,307 81,012 Depreciation and amortization ........................... 36,332 31,259 30,682 Operating taxes and licenses ............................ 56,703 51,511 49,831 Operating rents ......................................... 65,756 59,105 53,993 Cost of goods sold - Food services ...................... 20,656 19,631 18,750 Other operating expenses ................................ 2,352 3,050 2,752 --------- --------- --------- Total Operating Expenses .......................... 799,165 734,016 680,054 --------- --------- --------- Operating Income ........................................... 46,831 37,106 20,804 Interest Expense ........................................... 27,899 27,657 27,346 --------- --------- --------- Net Income (Loss) Before Income Taxes ...................... 18,932 9,449 (6,542) Income Tax Provision (Benefit) ............................. (16,856) 1,051 62 Minority Interest .......................................... 556 -- -- --------- --------- --------- Net Income (Loss) Before Extraordinary Item ................ 35,232 8,398 (6,604) Extraordinary Item ......................................... -- 25,323 -- --------- --------- --------- Net Income (Loss) .......................................... 35,232 (16,925) (6,604) Preferred Dividends ........................................ 5,184 3,648 -- --------- --------- --------- Net Income (Loss) Attributable to Common Stockholders ...... $ 30,048 $ (20,573) $ (6,604) ========= ========= ========= Net Income (Loss) Attributable to Common Stockholders Before Extraordinary Item ............................. $ 30,048 $ 4,750 $ (6,604) ========= ========= ========= Net Income (Loss) Per Share of Common Stock: Basic Net Income (Loss) Attributable to Common Stockholders Before Extraordinary Item ........................ $ 0.50 $ 0.08 $ (0.11) Extraordinary Item .................................... -- (0.43) -- --------- --------- --------- Net Income (Loss) Attributable to Common Stockholders . $ 0.50 $ (0.35) $ (0.11) ========= ========= ========= Diluted Net Income (Loss) Attributable to Common Stockholders Before Extraordinary Item ........................ $ 0.47 $ 0.08 $ (0.11) Extraordinary Item .................................... -- (0.42) -- --------- --------- --------- Net Income (Loss) Attributable to Common Stockholders . $ 0.47 $ (0.34) $ (0.11) ========= ========= =========
The accompanying notes are an integral part of these statements. 31 32 GREYHOUND LINES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
PREFERRED STOCK COMMON STOCK SHARES AMOUNT SHARES AMOUNT ------------- ------------- ------------- ------------- BALANCE, DECEMBER 31, 1995 ....................... -- $ -- 58,277 $ 583 Issuance of stock in connection with employee option and 401 (k) programs .......... -- -- 192 2 Comprehensive Income: Adjustment for unfunded accumulated pension obligation ......... -- -- -- -- Net Loss .................................... -- -- -- -- Total Comprehensive Income (Loss) ....... ------------- ------------- ------------- ------------- BALANCE, DECEMBER 31, 1996 ....................... -- -- 58,469 585 Issuance of stock in connection with employee option and 401 (k) programs .......... -- -- 801 7 Issuance of preferred stock ...................... 2,400 60,000 -- -- Dividends on preferred stock ..................... -- -- -- -- Acquisition of Carolina .......................... -- -- 168 2 Benefit of pre-bankruptcy deferred tax assets .... -- -- -- -- Comprehensive Income: Adjustment for unfunded accumulated pension obligation .......... -- -- -- -- Net Loss .................................... -- -- -- -- Total Comprehensive Income (Loss) .. ------------- ------------- ------------- ------------- BALANCE, DECEMBER 31, 1997 ....................... 2,400 60,000 59,438 594 Issuance of stock in connection with employee option and 401 (k) programs, including tax benefit of $844 ................. -- -- 817 9 Dividends on preferred stock ..................... -- -- -- -- Benefit of pre-bankruptcy deferred tax assets .... -- -- -- -- Comprehensive Income: Market value adjustment for securities held ... -- -- -- -- Adjustment for unfunded accumulated pension obligation, net of tax of $857 .... -- -- -- -- Deferred tax benefit on prior years unfunded accumulated pension obligation ... -- -- -- -- Net Income .................................... -- -- -- -- Total Comprehensive Income ................ ------------- ------------- ------------- ------------- BALANCE, DECEMBER 31, 1998 ....................... 2,400 $ 60,000 60,255 $ 603 ============= ============= ============= ============= CAPITAL IN TREASURY STOCK EXCESS OF RETAINED SHARES AMOUNT PAR VALUE DEFICIT ------------- ------------- ------------- ------------- BALANCE, DECEMBER 31, 1995 ....................... 109 $ (1,038) $ 228,421 $ (74,632) Issuance of stock in connection with employee option and 401 (k) programs .......... -- -- 682 -- Comprehensive Income: Adjustment for unfunded accumulated pension obligation ......... -- -- -- -- Net Loss .................................... -- -- -- (6,604) Total Comprehensive Income (Loss) ....... ------------- ------------- ------------- ------------- BALANCE, DECEMBER 31, 1996 ....................... 109 (1,038) 229,103 (81,236) Issuance of stock in connection with employee option and 401 (k) programs .......... -- -- 1,385 -- Issuance of preferred stock ...................... -- -- (2,440) -- Dividends on preferred stock ..................... -- -- -- (3,648) Acquisition of Carolina .......................... -- -- 748 -- Benefit of pre-bankruptcy deferred tax assets .... -- -- 569 -- Comprehensive Income: Adjustment for unfunded accumulated pension obligation .......... -- -- -- -- Net Loss .................................... -- -- -- (16,925) Total Comprehensive Income (Loss) .. ------------- ------------- ------------- ------------- BALANCE, DECEMBER 31, 1997 ....................... 109 (1,038) 229,365 (101,809) Issuance of stock in connection with employee option and 401 (k) programs, including tax benefit of $844 ................. -- -- 3,785 -- Dividends on preferred stock ..................... -- -- -- (5,184) Benefit of pre-bankruptcy deferred tax assets .... -- -- 4,291 -- Comprehensive Income: Market value adjustment for securities held ... -- -- -- -- Adjustment for unfunded accumulated pension obligation, net of tax of $857 .... -- -- -- -- Deferred tax benefit on prior years unfunded accumulated pension obligation ... -- -- -- -- Net Income .................................... -- -- -- 35,232 Total Comprehensive Income ................ ------------- ------------- ------------- ------------- BALANCE, DECEMBER 31, 1998 ....................... 109 $ (1,038) $ 237,441 $ (71,761) ============= ============= ============= ============= ACCUMULATED OTHER TOTAL COMPREHENSIVE COMPREHENSIVE INCOME INCOME ------------- ------------- BALANCE, DECEMBER 31, 1995 ....................... $ (3,572) $ -- Issuance of stock in connection with employee option and 401 (k) programs .......... -- -- Comprehensive Income: Adjustment for unfunded accumulated pension obligation ......... (2,961) (2,961) Net Loss .................................... -- (6,604) ------------- Total Comprehensive Income (Loss) ....... $ (9,565) ------------- ============= BALANCE, DECEMBER 31, 1996 ....................... (6,533) Issuance of stock in connection with employee option and 401 (k) programs .......... -- $ -- Issuance of preferred stock ...................... -- -- Dividends on preferred stock ..................... -- -- Acquisition of Carolina .......................... -- -- Benefit of pre-bankruptcy deferred tax assets .... -- -- Comprehensive Income: Adjustment for unfunded accumulated pension obligation .......... (980) (980) Net Loss .................................... -- (16,925) ------------- Total Comprehensive Income (Loss) .. $ (17,905) ------------- ============= BALANCE, DECEMBER 31, 1997 ....................... (7,513) Issuance of stock in connection with employee option and 401 (k) programs, including tax benefit of $844 ................. -- $ -- Dividends on preferred stock ..................... -- -- Benefit of pre-bankruptcy deferred tax assets .... -- -- Comprehensive Income: Market value adjustment for securities held ... (682) (682) Adjustment for unfunded accumulated pension obligation, net of tax of $857 .... (1,361) (1,361) Deferred tax benefit on prior years unfunded accumulated pension obligation ... 2,324 2,324 Net Income .................................... -- 35,232 ------------- Total Comprehensive Income ................ $ 35,513 ------------- ============= BALANCE, DECEMBER 31, 1998 ....................... $ (7,232) =============
The accompanying notes are an integral part of these statements. 32 33 GREYHOUND LINES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ----------------------------------- 1998 1997 1996 --------- --------- --------- Cash Flows From Operating Activities Net Income (Loss) ........................................................ $ 35,232 $ (16,925) $ (6,604) Extraordinary item ....................................................... -- 25,323 -- Non-cash expenses and gains included in net income (loss) Depreciation and amortization .......................................... 36,332 31,259 30,683 Other non-cash expenses and gains, net ................................. (19,134) 1,618 1,962 Net Change in Certain Operating Assets and Liabilities Accounts receivable .................................................... (4,121) (1,099) (2,932) Inventories ............................................................ (1,032) (278) (225) Prepaid expenses ....................................................... 273 5,359 (826) Other current assets ................................................... 1,608 (261) (1,791) Insurance and security deposits ........................................ 3,042 3,838 (247) Intangible assets ...................................................... (5,911) (11,610) (6,038) Accounts payable ....................................................... (5,469) 6,798 5,875 Accrued liabilities .................................................... (545) 7,335 237 Reserve for injuries and damages ....................................... 1,985 (1,999) (5,698) Unredeemed tickets ..................................................... 1,817 501 383 Other liabilities ...................................................... 2,012 (16) 1,251 --------- --------- --------- Net Cash Provided by Operating Activities ........................... 46,089 49,843 16,030 --------- --------- --------- Cash Flows From Investing Activities Capital expenditures (see Note 3) ..................................... (33,706) (45,114) (38,402) Proceeds from assets sold .............................................. 3,935 6,547 16,680 Payments for business acquisitions, net of cash acquired (see Note 3) . (10,924) (40,104) -- Buyout of MDFC lease ................................................... -- -- (1,624) Other investing activities ............................................. (6,753) (2,146) (758) --------- --------- --------- Net Cash Used for Investing Activities .............................. (47,448) (80,817) (24,104) --------- --------- --------- Cash Flows From Financing Activities Payments on debt and capital lease obligations ......................... (5,730) (20,297) (9,551) Proceeds from long-term borrowings ..................................... -- -- 4,106 Proceeds from 11 1/2% Senior Notes and 8 1/2% Convertible Exchangeable Preferred Stock Issuance ............................. -- 203,031 -- Redemption of 10% Senior Notes ......................................... -- (161,022) -- Payment of 8 1/2% Convertible Exchangeable Preferred Stock dividends ... (5,184) (2,784) -- Retirement of interest swap ............................................ -- (3,010) -- Proceeds from issuance of Common Stock ................................. 2,950 1,097 258 Net change in revolving credit facility ................................ 12,007 15,113 10,665 --------- --------- --------- Net Cash Provided by Financing Activities ........................... 4,043 32,128 5,478 --------- --------- --------- Net Increase (Decrease) in Cash and Cash Equivalents ........................ 2,684 1,154 (2,596) Cash and Cash Equivalents, Beginning of Period .............................. 2,052 898 3,494 --------- --------- --------- Cash and Cash Equivalents, End of Period .................................... $ 4,736 $ 2,052 $ 898 ========= ========= =========
The accompanying notes are an integral part of these statements. 33 34 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 1. BACKGROUND AND OPERATING ENVIRONMENT Greyhound Lines, Inc. and subsidiaries (the "Company") is the only nationwide provider of scheduled intercity bus service in the United States. The Company provides various services including scheduled passenger service, package express service and food services at certain terminals. The Company's operations include a nationwide network of terminal and maintenance facilities, a fleet of 2,677 buses and approximately 1,800 sales outlets. The Company's operating subsidiaries include Texas, New Mexico & Oklahoma Coaches, Inc. ("TNM&O"), Vermont Transit Co., Inc. ("Vermont Transit"), Carolina Coach Company ("Carolina"), Valley Transit Co., Inc. ("Valley"), Sistema Internacional de Transporte de Autobuses, Inc. ("SITA") and PRB Acquisition, LLC ("Peoria-Rockford"). The Company is subject to regulation by the Department of Transportation (the "DOT") and certain states. On March 16, 1999, the Company's shareholders approved the Agreement and Plan of Merger with Laidlaw Inc. ("Laidlaw") and Laidlaw Transit Acquisition Corp., a wholly owned subsidiary of Laidlaw ("Laidlaw Transit"), pursuant to which Laidlaw Transit was merged with and into the Company (the "Merger"), with the Company, as the surviving corporation, becoming a subsidiary of Laidlaw. (see Note 20) 2. SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company. Investments in companies that are 20% to 50% owned ("affiliates") are accounted for using the equity method. All significant intercompany transactions and balances have been eliminated. Certain Reclassifications Certain reclassifications have been made to the prior period statements to conform them to the December 31, 1998, classifications. Cash and Cash Equivalents Cash and cash equivalents include short-term investments that are part of the Company's cash management portfolio. These investments are highly liquid and have original maturities of three months or less. Inventories Inventories are stated at the lower of cost or market, with costs determined using the first-in, first-out method. Property, Plant and Equipment Property, plant and equipment, including capitalized leases, are recorded at cost, including interest during construction, if any. Depreciation is recorded over the estimated useful lives or lease terms, net of assumed residual values, ranging from three to twenty years for structures and improvements, four to twelve years for revenue equipment, and five to ten years for all other items. The Company principally uses the straight-line method of depreciation for financial reporting purposes and accelerated methods for tax reporting purposes. Maintenance costs are expensed as incurred, and renewals and betterments are capitalized. 34 35 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Investments and Security Deposits Equity securities held by the Company are classified as "available-for-sale" securities and reported at fair value. Any unrealized holding gains or losses, net of taxes, are excluded from operating results and are recognized as a separate component of stockholders' equity until realized. Fair value of the securities is determined based on market prices and gains and losses are determined using the securities' cost. As of December 31, 1998, the Company has only one investment classified as an "available-for-sale" security. This security has an unrealized loss of $0.7 million, for which no tax benefit is recognized as it is more likely than not that the Company will not have an offsetting capital gain within five years, as is required under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Debt securities included in security deposits are recorded at cost plus earned interest as it is the intent of the Company to hold these securities until maturity. As a result, the temporary gains and losses associated with the market value of these securities are excluded from operating results, stockholders' equity and comprehensive income. Goodwill Goodwill represents the excess of cost over fair value of assets acquired related to the acquisition of regional bus carriers as prescribed by the purchase method of accounting. The Company is amortizing goodwill on a straight-line basis over a 20 to 30 year period. Debt Issuance Costs and Discounts Costs incurred related to the issuance of debt are deferred, and such costs and any related discounts are amortized to interest expense using the straight-line method over the life of the related debt. Software Development Costs The direct costs of internally developed software are capitalized when technological feasibility has been established, and amortization of the software begins when the software is ready for use. The cost of the capitalized software is amortized over a period of five years. Income Taxes Deferred tax assets and liabilities are based upon the estimated future tax effects of the differences in the tax bases of existing assets and liabilities and the related financial statement carrying amounts, using currently enacted tax laws and rates. Reserve for Injuries and Damages The Company maintains comprehensive automobile liability, general liability, workers' compensation and property insurance to insure its assets and operations. Automobile and general liability insurance coverages are subject to a $1.5 million self-insured retention or deductible per occurrence. The Company also maintains property insurance subject to a $0.1 million deductible per occurrence, and maintains workers' compensation insurance, subject to a $1.0 million deductible per occurrence. Successful claims against the Company, which do not exceed the deductible or self-insured retention, are paid out of operating cash flows. A reserve for injuries and damages has been established for these claim payments. The reserve is based on an assessment of actual claims and claims incurred but not reported, based upon historical experience. This reserve also includes an estimate of environmental liabilities. 35 36 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Revenue Recognition Transportation revenue is recognized when the service is provided. A liability for tickets sold but not used is recorded as unredeemed tickets. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Long-Lived Assets The Company periodically evaluates whether the remaining useful life of long-lived assets may require revision or whether the remaining unamortized balance is recoverable. When factors indicate that an asset should be evaluated for possible impairment, the Company uses an estimate of the asset's cash flow in evaluating its fair value. Earnings 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 year ended December 31, 1998, the assumed conversion of the Convertible Debentures has an anti-dilutive effect. For the year ended December 31, 1997, the assumed conversion of the Preferred Stock and Convertible Debentures has an anti-dilutive effect. Additionally, for the year ended December 31, 1996, the assumed exercise of outstanding in-the-money stock options and conversion of Convertible Debentures has an anti-dilutive effect. As a result, these shares as detailed above by year, are excluded from the final determination of the weighted average shares outstanding at the respective dates. 36 37 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) The following tables detail the components utilized to calculate earnings per share for 1998, 1997 and 1996.
FOR THE YEAR ENDED DECEMBER 31, 1998 --------------------------------------- WEIGHTED AVERAGE PER-SHARE INCOME SHARES AMOUNT ----------- ----------- ----------- BASIC EARNINGS PER SHARE Net Income attributable to common shareholders .. $30,048,000 59,899,742 $ 0.50 =========== =========== =========== Effect of Dilutive Securities : Assumed Preferred Stock Conversion ............ 5,184,000 12,307,692 Options issued to Company employees and Members of the Board of Directors ... -- 2,679,881 ----------- ----------- DILUTED EARNINGS PER SHARE Net Income attributable to common shareholders plus assumed conversions ........ $35,232,000 74,887,315 $ 0.47 =========== =========== ===========
FOR THE YEAR ENDED DECEMBER 31, 1997 --------------------------------------- WEIGHTED AVERAGE PER-SHARE INCOME SHARES AMOUNT ----------- ----------- ----------- BASIC EARNINGS PER SHARE Net Income attributable to common shareholders before Extraordinary Item ....... $ 4,750,000 58,964,093 $ 0.08 =========== =========== =========== Effect of Dilutive Securities : Options issued to Company employees and Members of the Board of Directors ... -- 1,737,481 ----------- ----------- DILUTED EARNINGS PER SHARE Net Income attributable to common shareholders plus assumed conversions before Extraordinary Item ........ $ 4,750,000 60,701,574 $ 0.08 =========== =========== ===========
FOR THE YEAR ENDED DECEMBER 31, 1996 --------------------------------------- WEIGHTED AVERAGE PER-SHARE INCOME SHARES AMOUNT ----------- ----------- ----------- BASIC AND DILUTED EARNINGS PER SHARE Net Loss attributable to common shareholders .... $(6,604,000) 58,263,327 $ (0.11) =========== =========== ===========
Future Accounting Changes Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities," is effective for the Company's fiscal year beginning January 1, 2000. SFAS No. 133 established standards for the accounting and reporting of derivative instruments and hedging activities. As of 37 38 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) December 31, 1998, the Company has no derivative instruments or hedging activities that apply to SFAS No. 133. The Company has entered into two advance purchase commitments for fuel; however, as defined by SFAS No. 133, this is specifically excluded as a derivative instrument. 3. STATEMENTS OF CASH FLOWS SUPPLEMENTARY DISCLOSURES Cash paid for interest was $26.3 million, $29.4 million and $24.5 million for the years ended December 31, 1998, 1997 and 1996, respectively. There were no cash payments for federal income taxes for the years ended December 31, 1998, 1997 and 1996, other than payments related to an Internal Revenue Service audit of the Company's 1987 through 1989 tax returns which resulted in a $0.3 million payment in 1996. Significant non-cash investing and financing activities during 1998 included a garage that was acquired under a capital lease for $1.0 million. In 1997, non-cash activity included $0.9 million primarily related to stock issued in July 1997 for consideration in the purchase of Carolina. In 1996, non-cash activity included 77 buses which were acquired under a capital lease for $17.9 million and computer equipment which was acquired under a capital lease for $2.1 million. 4. INVENTORIES Inventories consisted of the following (in thousands):
DECEMBER 31, ---------------------- 1998 1997 --------- --------- Service parts ............................................... $ 3,811 $ 3,055 Fuel ........................................................ 631 576 Food service operations ..................................... 1,468 1,202 --------- --------- Total Inventories ........................................ 5,910 4,833 Less: Allowance for shrinkage ........................... (205) (175) --------- --------- Inventories, net ...................................... $ 5,705 $ 4,658 ========= =========
5. PREPAID EXPENSES Prepaid expenses consisted of the following (in thousands):
DECEMBER 31, 1998 1997 --------- --------- Insurance ................................................... $ 813 $ 1,520 Taxes and licenses .......................................... 1,645 1,064 Rents ....................................................... 1,493 1,424 Other ....................................................... 1,219 941 --------- --------- Prepaid expenses .......................................... $ 5,170 $ 4,949 ========= =========
38 39 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 6. OTHER CURRENT ASSETS Other current assets consisted of the following (in thousands):
DECEMBER 31, --------------------------- 1998 1997 ------- -------- Deposits on insurance................................................... $ 8,658 $ 6,838 Other deposits.......................................................... 465 738 Deferred acquisition costs.............................................. - 1,128 Other................................................................... 784 990 ------- -------- Other current assets.................................................. $ 9,907 $ 9,694 ======= ========
The deposits on insurance held as of December 31, 1998 and 1997, are the current portion of self-insurance deposits required by the Company's primary insurance carrier to cover interstate and certain intrastate claims for bodily injury and property damage liability. Deferred acquisition costs for 1997 represent costs associated with acquisitions made by SITA in 1998. These acquisition costs were considered as part of the total cost of the acquisitions under purchase accounting. 7. BENEFIT PLANS Pension Plans The Company has ten defined benefit pension plans. The first plan (the "ATU Plan") covers substantially all of the Company's ongoing hourly employees hired before November 1, 1983. The ATU Plan provides normal retirement benefits to the covered employees based upon a percentage of average final earnings, reduced pro rata for service of less than 15 years. Participants in this plan will continue to accrue benefits as long as no contributions are due from the Company. In the event a contribution is required, the plan benefits will be frozen until such time as the assets of the plan exceed 115% of the plan liabilities. The second plan covered salaried employees through May 7, 1990, when the plan was curtailed. The third plan is a multi-employer pension plan, instituted in 1992, to cover certain union mechanics represented by the International Association of Machinists and Aerospace Workers. The remaining seven plans are held by TNM&O, Vermont Transit, Carolina and Peoria-Rockford and cover substantially all of their salaried and hourly personnel. It is the Company's policy to fund the minimum required contribution under existing laws.
YEARS ENDED DECEMBER 31, ----------------------------- 1998 1997 ----------- ----------- CHANGE IN BENEFIT OBLIGATION: (IN THOUSANDS) Benefit Obligation at Beginning of Year................................. $ 729,421 $ 717,040 Service Cost............................................................ 4,614 4,589 Interest Cost........................................................... 51,011 51,711 Plan Participants' Contributions........................................ 137 - Plans Transferred from Acquisition...................................... 922 22,406 Actuarial Gain.......................................................... 43,649 14,596 Benefits Paid........................................................... (80,382) (80,921) ----------- ----------- Benefit Obligation at End of Year....................................... $ 749,372 $ 729,421 ----------- -----------
39 40 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
YEARS ENDED DECEMBER 31, ----------------------------- 1998 1997 ----------- ----------- CHANGE IN PLAN ASSETS: (IN THOUSANDS) Fair Value of Plan Assets at Beginning of Year.......................... $ 820,168 $ 758,481 Actual Return on Plan Assets............................................ 67,340 121,107 Employer Contribution................................................... 2,219 625 Plans Transferred from Acquisition...................................... 612 20,810 Plan Participants' Contributions........................................ 203 66 Benefits Paid........................................................... (80,382) (80,921) ----------- ----------- Fair Value of Plan Assets at End of Year................................ $ 810,160 $ 820,168 ----------- ----------- Funded Status........................................................... $ 60,788 $ 90,747 Unrecognized Net Gain................................................... (32,333) (65,979) ----------- ----------- Prepaid Benefit Cost (Net Amount Recognized)............................ $ 28,455 $ 24,768 ----------- -----------
YEARS ENDED DECEMBER 31, ----------------------------- 1998 1997 ----------- ----------- AMOUNTS RECOGNIZED IN THE STATEMENTS OF FINANCIAL POSITION: (IN THOUSANDS) Prepaid Benefit Cost.................................................... $ 26,257 $ 23,683 Accrued Benefit Liability............................................... (7,533) (6,428) Accumulated Other Comprehensive Income.................................. 9,731 7,513 ----------- ------------ Prepaid Benefit Cost (Net Amount Recognized)............................ $ 28,455 $ 24,768 ----------- -----------
Six of the Company's pension plans have accumulated benefit obligations in excess of plan assets, for which the projected benefit obligations, accumulated benefit obligations and fair value of plan assets are $66,710, $65,916 and $56,699, respectively, as of December 31, 1998. Three of the Company's pension plans have accumulated benefit obligations in excess of plan assets, for which the projected benefit obligations, accumulated benefit obligations and fair value of plan assets are $60,458, $59,529 and $52,296, respectively, as of December 31, 1997. Seven of the Company's pension plans have projected benefit obligations in excess of plan assets, for which the projected benefit obligations, accumulated benefit obligations and fair value of plan assets are $70,876, $68,842 and $60,595, respectively, as of December 31, 1998. Six of the Company's pension plans have projected benefit obligations in excess of plan assets, for which the projected benefit obligations, accumulated benefit obligations and fair value of plan assets are $66,216, $64,021 and $57,761, respectively, as of December 31, 1997. Plan assets consist primarily of government-backed securities, corporate equity securities, guaranteed insurance contracts, annuities and corporate debt obligations. In determining the benefit obligations and service costs for the Company's defined benefit pension plans, the following assumptions were used:
YEARS ENDED DECEMBER 31, ----------------------------- 1998 1997 ----------- ----------- WEIGHTED-AVERAGE ASSUMPTIONS FOR END OF YEAR DISCLOSURE: Weighted average discount rate.......................................... 6.75% 7.25% Rate of salary progression.............................................. 0.00-6.00% 0.00-6.00% Expected long-term rate of return on plan Assets........................ 7.25-9.00% 7.60-9.00%
40 41 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
YEARS ENDED DECEMBER 31, ----------------------------- 1998 1997 ----------- ----------- COMPONENTS OF NET PERIODIC PENSION COST: (IN THOUSANDS) Service Cost............................................................ $ 4,614 $ 4,589 Interest Cost........................................................... 51,011 51,711 Expected Return on Assets............................................... (57,507) (56,007) Amortization of Actuarial Loss 303 - ----------- ----------- Net Periodic Pension (Income) Cost...................................... $ (1,579) $ 293 ----------- -----------
Statement of Financial Accounting Standards No. 87, "Employers Accounting for Pensions," required the Company to record an increase in the additional minimum liability of $1.4 million, net of a $0.8 million tax benefit as of December 31, 1998 and $1.0 million as of December 31, 1997. This provision is reflected as a component of other comprehensive income. Included in the above is a multi-employer pension plan, instituted in 1992, to cover certain union mechanics, for which the Company made contributions of $0.5 million and $0.4 million for the years ended December 31, 1998 and 1997, respectively. Cash or Deferred Retirement Plans The Company sponsors 401(k) cash or deferred retirement plans that cover substantially all of its ongoing salaried, hourly and represented employees. Costs to the Company related to these plans were $1.9 million, $1.7 million, and $2.1 million for the years ended December 31, 1998, 1997 and 1996, respectively. On October 31, 1991, the Company contributed 500,000 shares of its Common Stock to an employee stock ownership plan for its employees. Effective December 31, 1994, this plan was amended to merge it into the Company's 401(k) profit sharing plan. An IRS determination letter relating to this merger was filed and received in 1996. Other Plans A contributory trusteed health and welfare plan has been established for all active hourly employees which are represented by collective bargaining agreements and a contributory health and welfare plan has been established for salaried employees and hourly employees who are not represented by collective bargaining agreements. For the years ended December 31, 1998, 1997 and 1996, the Company incurred costs of $18.1 million, $17.8 million, and $16.3 million, respectively, related to these plans. No post-retirement health and welfare plans exist. The Company also has a Supplemental Executive Retirement Plan (the "SERP"), which covers only key executives of the Company. During 1995, the SERP was converted from a defined benefit plan to a defined contribution plan. For the years ended December 31, 1998, 1997 and 1996, the Company incurred costs of $0.6 million, $0.2 million and $0.4 million, respectively. 41 42 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 8. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following (in thousands):
DECEMBER 31, ------------------------ 1998 1997 ---------- ---------- Land and improvements .............................. $ 90,258 $ 85,809 Structures and improvements Owned ............................................ 111,445 101,854 Capitalized leased assets ........................ 1,626 650 Lease interests .................................. 4,376 6,540 Leasehold improvements ........................... 35,417 28,757 Revenue equipment Owned ............................................ 170,506 149,627 Capitalized leased assets ........................ 36,046 36,101 Leasehold improvements ........................... 3,957 3,123 Furniture and fixtures ............................. 49,050 42,778 Vehicles, machinery and equipment Owned ............................................ 11,204 10,427 ---------- ---------- Property, plant and equipment ...................... 513,885 465,666 Accumulated depreciation ....................... (151,468) (124,374) ---------- ---------- Property, plant and equipment, net ......... $ 362,417 $ 341,292 ========== ==========
During 1998, the Company took delivery of 293 buses, all but three of which were manufactured by Motor Coach Industries, Inc. or its affiliate, Dina Autobuses, S.A. de C.V. The Company purchased 23 of these buses and the remaining were financed as long-term operating leases. The Company paid $10.3 million to Viad Corp. ("Viad") in the fourth quarter of 1997 to acquire terminal facilities in San Jose, CA, Nashville, TN and Reno, NV and Viad's joint venture interests in the terminals in Denver, CO, and Albuquerque, NM. Accumulated depreciation of capitalized leased revenue equipment amounted to $14.9 million and $12.1 million at December 31, 1998 and 1997, respectively. 9. INSURANCE AND SECURITY DEPOSITS Insurance and security deposits consisted of the following (in thousands):
DECEMBER 31, --------------------------- 1998 1997 --------- --------- Insurance deposits...................................................... $ 32,443 $ 37,205 Security deposits....................................................... 31,808 33,756 Other................................................................... 3,657 1,732 --------- --------- Insurance and security deposits................................. $ 67,908 $ 72,693 ========= =========
Insurance deposits are required by the Company's self-insurance authorizations and the Company's primary insurance carrier to cover self-insured interstate and certain intrastate auto liability as well as workers' compensation coverage in certain states. Security deposits include two separate deposits pledged as collateral in connection with the sale and leaseback of 319 buses and the sale and leaseback of 125 buses. 42 43 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 10. INTANGIBLE ASSETS Intangible assets consisted of the following (in thousands):
DECEMBER 31, --------------------------- 1998 1997 --------- --------- Trademarks.............................................................. $ 10,198 $ 10,198 Software................................................................ 34,398 30,561 Debt issuance costs..................................................... 10,741 10,082 Deferred lease costs.................................................... 2,841 1,652 Other................................................................... 29 28 --------- --------- Intangible assets....................................................... 58,207 52,521 Accumulated amortization.............................................. (28,503) (22,188) --------- --------- Intangible assets, net.............................................. $ 29,704 $ 30,333 ========= =========
Trademarks are amortized using the straight-line method over 15 years. 11. ACCRUED LIABILITIES Accrued liabilities consisted of the following (in thousands):
DECEMBER 31, --------------------------- 1998 1997 --------- --------- Compensation, benefits and payroll-related taxes........................ $ 20,036 $ 26,375 Bus operating leases and rentals........................................ 7,748 5,900 Interest................................................................ 4,288 4,145 Operating, property and income taxes.................................... 6,161 3,998 Dividends payable....................................................... 864 864 Other expenses.......................................................... 25,722 20,955 --------- --------- Accrued liabilities................................................. $ 64,819 $ 62,237 ========= =========
43 44 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 12. LONG-TERM DEBT AND INTEREST EXPENSE Long-term debt consisted of the following (in thousands):
DECEMBER 31, ---------------------- 1998 1997 --------- --------- Secured Indebtedness Revolving bank loans, prime plus 0.25% or LIBOR plus 1.75% (weighted average 7.7%) as of December 31, 1998 and prime plus 0.75% or LIBOR plus 2.25% (weighted average 8.6%) as of December 31, 1997, due 2002 ............................... $ 37,785 $ 25,778 Capital lease obligations (weighted average 10.8% at December 31, 1998 and 10.4% at December 31, 1997) due through 2033 ...................... 31,967 26,635 Real estate mortgages (9.5% at December 31, 1998 and 11.2% at December 31, 1997) due through 2006 .................................. 623 205 Unsecured Indebtedness 11 1/2% Senior notes, due 2007 .......................................... 150,000 150,000 8 1/2% Convertible debentures, due 2007 ................................. 9,804 9,804 Other long-term debt (weighted average 5.6% at December 31, 1998) due through 2008 ...................................................... 3,479 -- --------- --------- Long-term debt ............................................................ 233,658 212,422 Less current maturities ................................................. (7,970) (4,469) --------- --------- Long-term debt, net ................................................. $ 225,688 $ 207,953 ========= =========
Revolving Credit Facility The Company was 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 Revolving Credit Facility consisted 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 with a maximum combined borrowing base of $150.0 million. As of December 31, 1998, the Company had total availability of $93.1 million under the Revolving Credit Facility. The Revolving Credit Facility was secured by liens on substantially all of the assets of the Company. The Revolving Credit Facility was 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 were limited to $30.0 million annually with no spending limitations on bus purchases. As of December 31, 1998, the Company was in compliance with all such covenants. Following the Merger, all amounts outstanding under the Revolving Credit Facility were paid and the Revolving Credit Facility was terminated (see Note 20). 11 1/2% Senior Notes The Company's 11 1/2% Senior Notes due 2007 (the "11 1/2% Senior Notes") bear interest at the rate of 11 1/2% per annum, payable each April 15 and October 15. The 11 1/2% Senior Notes are redeemable at the option of the Company in whole or in part, at any time on or after April 15, 2002, at redemption prices of 105.750% in 2002, 103.834% in 2003, 101.917% in 2004 and 100% in 2005 and thereafter plus any accrued but unpaid interest. The 11 1/2% Senior Note indenture contains certain covenants that, among other things, limit the ability of the Company to incur additional indebtedness, pay dividends or make other distributions, repurchase equity interests or subordinated indebtedness, create certain liens, sell assets or enter into certain mergers or consolidations. As of December 31, 1998, the Company was in compliance with all such covenants. As a result of the Merger, the Company will be required to 44 45 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) make a one-time offer to repurchase all or any part of each holder's 11 1/2% Senior Notes at a price equal to 101% of the principal amount thereof plus interest (see Note 20). Convertible Debentures During 1992, the Company issued $98.9 million of 8 1/2% Convertible Subordinated Debentures ("Convertible Debentures") of which $9.8 million remains outstanding. Interest on the Convertible Debentures is payable semiannually (each March 31 and September 30). At the option of the holders thereof, prior to the Merger, the Convertible Debentures were convertible into shares of Common Stock at any time prior to maturity (unless earlier redeemed or repurchased), at a conversion rate of approximately 80.81 shares of Common Stock per $1,000 principal amount of Convertible Debentures. Following the Merger, the Convertible Debentures may be converted into $525.27 in cash per $1,000 principal amount of Convertible Debentures. The Company will be required to make a one-time offer to repurchase all or any part of each holder's Convertible Debentures at a price equal to 100% of the principal amount thereof plus interest (see Note 20). Other long-term debt Other long-term debt relates to debt associated with certain of the acquisitions. These debt instruments are unsecured. Other For the year ended December 31, 1997, the Company recorded an extraordinary loss of $25.3 million relating to (i) the retirement of an interest rate swap ($2.5 million), (ii) the retirement of the Company's 10% Senior Notes due 2001 ($21.3 million) and (iii) the write-off of debt issuance costs related to the Revolving Credit Facility in place prior to the amended and restated Revolving Credit Facility that was completed in May 1997 ($1.5 million). At December 31, 1998, maturities of long-term debt for the next five fiscal years ending December 31 and all years thereafter, are as follows (in thousands): 1999............................................. $ 7,970 2000............................................. 8,559 2001............................................. 5,069 2002............................................. 42,661 2003 ............................................ 7,159 Thereafter....................................... 162,240 ---------- $ 233,658 ==========
45 46 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 13. INCOME TAXES Income Tax Provision The income tax provision consisted of the following (in thousands):
YEARS ENDED DECEMBER 31, ------------------------------------- 1998 1997 1996 ---------- ------- -------- Current Federal........................................................... $ 6,843 $ -- $ -- State............................................................. 862 482 62 --------- -------- -------- Total Current............................................... 7,705 482 62 --------- -------- -------- Deferred Federal........................................................... (22,376) 478 -- State............................................................. (2,185) 91 -- --------- -------- -------- Total Deferred.............................................. (24,561) 569 -- --------- -------- -------- Income tax provision (benefit).............................. $ (16,856) $ 1,051 $ 62 ========= ======== ========
Effective Tax Rate The differences, expressed as a percentage of income before taxes and extraordinary items, between the statutory and effective federal income tax rates are as follows:
YEARS ENDED DECEMBER 31, ------------------------------------- 1998 1997 1996 --------- --------- --------- Statutory tax rate ................................................. 35.0% 34.0% (34.0)% State income taxes ................................................. 4.6 6.1 1.0 Unrecognized current year benefit .................................. -- -- 31.0 Recognition of previously unrecognized deferred tax assets ......... (132.6) (31.0) -- Other .............................................................. 4.0 2.0 3.0 --------- --------- --------- Effective tax rate .............................................. (89.0)% 11.1% 1.0% ========= ========= =========
46 47 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Deferred Tax Assets Significant components of deferred income taxes at December 31, 1998 and 1997, were as follows (in thousands):
DECEMBER 31, ------------------------ 1998 1997 ---------- ---------- Deferred Tax Assets Federal and state NOL carryforwards ........................ $ 37,571 $ 43,124 Reserve for injuries and damages ........................... 18,703 16,943 Other accrued expenses and reserves ........................ 7,828 6,303 Other deferred tax assets .................................. 716 245 ---------- ---------- Total deferred tax assets ................................ 64,818 66,615 ---------- ---------- Deferred Tax Liabilities Tax over book depreciation and amortization ................ 20,407 14,232 Pension cost for tax purposes in excess of books ........... 6,546 8,749 Other deferred tax liabilities ............................. 874 398 ---------- ---------- Total deferred tax liabilities ........................... 27,827 23,379 ---------- ---------- Net deferred tax assets ...................................... 36,991 43,236 Valuation allowance .......................................... (3,950) (43,236) ---------- ---------- Deferred tax assets, net of valuation allowance .......... $ 33,041 $ -- ========== ==========
During 1998 the Company recognized deferred tax assets primarily related to net operating losses from prior years expected to be realized in the current or future years. These tax assets had been previously reserved; however, the Company recognized these tax assets due to a continued trend of earnings improvement and current and future expected positive earnings, as well as the successful negotiation of the new union agreement. The changes in the valuation allowance are as follows (in thousands):
1998 1997 ---------- ---------- (Decrease) Increase resulting from identification of additional temporary differences ....................................... $ (3,953) $ 1,136 (Decrease) related to income recorded as deferred tax benefit ................ (5,898) -- (Decrease) in deferred income tax asset recorded to capital in excess of par . (960) (569) Increase related to loss not recognized ...................................... -- 5,741 Increase in deferred income tax asset for acquisitions ....................... -- 1,959 Deferred tax asset recognized due to a change in estimate of future realization recorded as a deferred tax benefit ............................ (25,144) -- Deferred tax asset recognized due to a change in estimate of future realization recorded as an increase in additional paid in capital ......... (3,331) -- ---------- ---------- Net change in valuation allowance ................ $ (39,286) $ 8,267 ========== ==========
Availability and Amount of NOL's As a result of an ownership change in 1994, Section 382 of the Internal Revenue Code (the "Code") requires that an annual limitation be placed on the amount of net operating loss ("NOL") carryforwards which the Company may utilize. Consequently, the Company's NOL carryforwards from 1994 are now subject to an annual limitation of $2.1 million. These NOL's are subject to a fifteen year carryforward period. Any unused portion of the current annual limitation may be carried forward to the following year. As a result, the Company will carry forward available NOL's 47 48 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) of $87.6 million, $23.1 million of which is subject to the annual $2.1 million limitation. The Merger resulted in an additional ownership change as defined by the Code. This new ownership change may impact the timing of the availability of the NOL carryforwards (see Note 20). The NOL carryforwards expire as follows (in thousands and before the effects of the Merger): 2008............................................... $ 5,400 2009............................................... 17,700 2010............................................... 25,200 2011............................................... 19,700 2012............................................... 19,600 --------- $ 87,600 =========
14. FAIR VALUES OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments" ("SFAS No. 107"), requires disclosure of the fair value of financial instruments. The following methods and assumptions were used by the Company in estimating the fair value disclosures for its financial instruments. For cash and cash equivalents, accounts receivable, and the revolving bank loans, the carrying amounts reported in the Consolidated Statements of Financial Position approximate fair value. Additionally, the Company has one equity security at December 31, 1998, which is publicly traded. This security is classified as "available-for-sale", and is reported on the Statements of Financial Position at fair value. The Company has no instruments that are held for trading purposes. The fair values of the short-term deposits and long-term insurance deposits are based upon quoted market prices at December 31, 1998 and 1997, where available. For the portion of short-term deposits and long-term insurance and security deposits where no quoted market price is available, the carrying amounts are believed to approximate fair value. For the other secured indebtedness, real estate mortgages and other long-term debt, the fair values are estimated using discounted cash flow analysis, based upon the Company's incremental borrowing rates for similar types of borrowing arrangements. The fair values of the Senior Notes and the Convertible Debentures were based upon quoted market prices at December 31, 1998 and 1997. The carrying amounts and fair values of the Company's financial instruments at December 31, 1998 and 1997, are as follows (in thousands):
DECEMBER 31, 1998 DECEMBER 31, 1997 -------------------------- -------------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ----------- ----------- ----------- ----------- Other Current Assets Deposits on Insurance ....................... $ 8,658 $ 8,658 $ 6,838 $ 6,838 Other Deposits .............................. 465 465 738 738 Insurance and Security Deposits Insurance Deposits .......................... 32,443 32,443 37,205 37,205 Security Deposits ........................... 31,808 33,166 33,756 34,265 Long-Term Debt Real Estate Mortgages ....................... (623) (467) (205) (141) 11 1/2% Senior Notes ........................ (150,000) (170,250) (150,000) (165,750) 8 1/2% Convertible Subordinated Debentures .. (9,804) (9,951) (9,804) (9,804) Other Long-term Debt ........................ (3,479) (3,434) -- --
48 49 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 15. LEASE COMMITMENTS The Company leases buses and terminals from various parties pursuant to capital and operating leases expiring at various dates through 2065. At December 31, 1998, scheduled future minimum payments for the next five fiscal years ending December 31, under the capital leases and non-cancelable operating leases are as follows (in thousands):
CAPITAL OPERATING LEASES LEASES ---------- ---------- 1999 ................................................. $ 9,659 $ 53,862 2000 ................................................. 9,814 49,038 2001 ................................................. 5,776 48,216 2002 ................................................. 5,937 38,986 2003 ................................................. 7,089 45,498 Thereafter ........................................... 2,987 78,023 ---------- ---------- Total minimum lease payments ................. 41,262 $ 313,623 ========== Amounts representing interest .................... 9,295 ---------- Present value of minimum lease payments ...... $ 31,967 ==========
For the years ended December 31, 1998, 1997 and 1996, rental expenses for operating leases (net of sublease rental income of approximately $2.2 million, $2.1 million and $2.2 million, respectively) amounted to $60.0 million, $57.6 million and $52.4 million, respectively. Rental expenses for bus operating leases, excluding casual rents and other short term leases during peak periods, amounted to $34.4 million, $32.1 million and $27.5 million in 1998, 1997 and 1996, respectively. 16. STOCK INCENTIVE PLANS As of December 31, 1998, the Company's seven stock incentive plans have authorized the grant of options and restricted stock to employees and outside directors for up to 9,439,446 shares of the Company's Common Stock. All options granted had five to ten year terms and vested over a three to four year period of continued employment or service on the Company's Board of Directors. In connection with the Merger, all unvested options and restricted stock vested on March 16, 1999. Additionally, all outstanding options were either canceled in exchange for cash equal to $6.50 less the exercise price or were replaced by grants to purchase Laidlaw common shares (see Note 20). The Company has elected to continue to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its employee stock options. However, pro forma information regarding net income and earnings per share is required by FASB Statement No. 123 "Accounting for Stock-Based Compensation" (SFAS 123), and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions. The assumptions for 1998 were risk-free interest rates of 6.0%; dividend yield of zero; volatility factor of the expected market price of the Company's Common Stock of 0.55; and a weighted-average expected life of the options of 7.2 years. The assumptions for 1997 were risk-free interest rates of 6.0%; dividend yield of zero; volatility factor of the expected market price of the Company's Common Stock of 0.40; and a weighted-average expected life of the options of 7.1 years. The assumptions for 1996 were risk-free interest rates of 6.0% and 7.0%; dividend yield of zero; volatility factor of the expected market price of the Company's Common Stock of 0.35; and a weighted-average expected life of the options of 5.7 years. 49 50 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. Had compensation cost for these plans been determined consistent with SFAS 123, the Company's net income (loss) and diluted earnings per share would have been reduced to the following:
1998 1997 1996 ----------- --------- -------- Pro forma net income (loss) (in 000's)............................... $ 33,739 $ (21,899) $ (8,647) Pro forma diluted net income (loss) per share......................... $ 0.45 $ (0.36) $ (0.15)
A summary of the Company's stock option and restricted stock activity and related information for the years ended December 31 follows:
OPTIONS AND RESTRICTED STOCK OUTSTANDING SHARES ------------------------------- AVAILABLE WEIGHTED AVERAGE FOR GRANT SHARES EXERCISE PRICE ------------ ------------ ---------------- Balance, December 31, 1995 ................. 2,705,034 5,111,387 $ 3.35 Options granted ......................... (1,352,000) 1,352,000 3.56 Options exercised ....................... -- (100,450) 2.43 Terminated or canceled .................. 418,000 (418,000) 4.21 ------------ ------------ ------------ Balance, December 31, 1996 ................. 1,771,034 5,944,937 3.35 Options and Restricted Stock granted..... (1,324,000) 1,324,000 2.70 Options and Restricted Stock exercised... -- (258,694) 2.59 Terminated or canceled .................. 510,369 (510,369) 3.48 ------------ ------------ ------------ Balance, December 31, 1997 ................. 957,403 6,499,874 3.24 New shares authorized ................... 1,500,000 -- -- Options and Restricted Stock granted..... (1,700,869) 1,700,869 4.17 Options and Restricted Stock exercised... -- (785,114) 2.59 Terminated or canceled .................. 391,725 (391,725) 3.82 ------------ ------------ ------------ Balance, December 31, 1998 ................. 1,148,259 7,023,904 $ 3.49 ============ ============ ============
The table below details the Company's options and restricted stock outstanding by related option exercise price. OPTIONS AND OPTIONS AND RESTRICTED WEIGHTED WEIGHTED RESTRICTED WEIGHTED RANGE OF STOCK AVERAGE AVERAGE STOCK AVERAGE EXERCISE PRICE OUTSTANDING REMAINING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE -------------- ----------- -------------- -------------- ----------- -------------- $ 0 - 3.00 2,328,333 3.6 $ 1.83 1,973,400 $ 2.16 3.09 - 6.22 4,517,821 5.1 3.83 1,882,771 3.70 9.81 - 20.625 177,750 4.4 16.79 177,750 16.79 ---------- ---- ---------- ----------- -------- 7,023,904 4.5 $ 3.49 4,033,921 $ 3.52 ========== ==== ========== =========== ========
Additionally, the Company had 3,726,306 and 2,150,515 options exercisable and restricted stock at December 31, 1997 and 1996, respectively. Included in the above options and restricted stock granted for 1998 and 1997 were options and restricted stock granted at a value less than market value on that date. For 1998, of the 1,700,869 options and restricted stock granted, 1,700,369 were granted at market value with a weighted average 50 51 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) exercise price of $4.17, while 500 options and restricted stock were granted below market value with no weighted average exercise price and no fair value. For 1997, of the 1,324,000 options and restricted stock granted, 703,300 were granted at market value with a weighted average exercise price of $4.27, while 620,700 options and restricted stock were granted below market value with a weighted average exercise price of $0.92 and a fair value of $3.32. The Company recognized $0.3 million, $0.4 million and $0 in compensation expense for 1998, 1997 and 1996, respectively. 17. STOCKHOLDERS' EQUITY The Company is authorized to issue 100,000,000 shares of $0.01 par value common stock. Prior to the Merger, the Company was authorized to issue 10,000,000 shares of preferred stock, $0.01 par value. The Board of Directors was entitled to designate and issue one or more series of preferred stock from the authorized and unissued shares of preferred stock. As of December 31, 1998, the Company had designated 1,500,000 shares of preferred stock as "Series A" junior preferred stock in connection with the stockholders rights plan discussed below. No "Series A" junior preferred stock had been issued as of December 31, 1998. Subsequent to the Merger, the Company is authorized to issue 2,400,000 shares of preferred stock, $0.01 par value (see Note 20). During 1997, the Company issued 2,400,000 shares of 8 1/2% convertible exchangeable preferred stock ("the Preferred Stock"). The Preferred Stock carries a liquidation preference of $25.00 per share plus accumulated and unpaid dividends. The holders of the Preferred Stock are currently entitled to vote with the holders of the Common Stock on all matters submitted to a vote of stockholders of the Company, each share of Preferred Stock entitling the holder thereof to one vote. Dividends accrue at a rate per annum equal to 8 1/2% of the liquidation preference per share of Preferred Stock and are payable quarterly in arrears on February 1, May 1, August 1 and November 1. Prior to the Merger, the Preferred Stock was convertible, at the option of the holder thereof, into approximately 5.128 shares of Greyhound Common Stock. The Preferred Stock will be redeemable at the option of the Company, in whole or in part, at any time on or after May 3, 2000, at redemption prices of 104.86% in 2000, 103.64% in 2001, 102.43% in 2002, 101.21% in 2003 and 100% in 2004 and thereafter plus accumulated and unpaid dividends. Following the Merger, each share of Preferred Stock is convertible into $33.33 in cash which is in excess of the liquidation preference (see Note 20). On March 22, 1994, the Company's Board of Directors adopted a stockholder rights plan (the "Rights Plan"). The Rights Plan, which was amended in 1997, provided for a dividend distribution of a Preferred Stock Purchase Right (the "Rights") for each share of Common Stock held by stockholders of record at the close of business on April 4, 1994. The Rights would have become exercisable only in the event that, with certain exceptions, an acquiring party accumulated 20% or more of the Company's voting stock or a person or group commenced or announced intentions to commence a tender or exchange offer, the consummation of which, would have resulted in the ownership of 30% or more of the Company's outstanding voting stock (even if no shares are actually purchased pursuant to such offer). On October 16, 1998, the Company amended the Rights Plan. The amendment provided that neither the Merger nor the Agreement and Plan of Merger with Laidlaw and Laidlaw Transit would cause the rights issued under the Rights Plan to become exercisable. Effective with the Merger, the Rights Plan expired (see Note 20). 18. 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, 8 1/2% Convertible Subordinated 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 51 52 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 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 Securities Litigation, Civil Action 3-94-CV-1793-G (the "Federal Court Action"). In July 1995, the plaintiffs filed 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. 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. 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. As a result, the Federal Court Action has been dismissed. In November 1994, a shareholder derivative lawsuit was filed by Harvey R. Rice, a purported owner of the Company's Common Stock, against the then present directors and former officers and directors of the Company and the Company as a nominal defendant. The suit sought 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, was 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"). 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. On February 28, 1997, the suit was transferred to a different judge in the 68th Judicial District Court in Dallas. 52 53 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 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 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 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. As a result of this settlement, on December 1, 1998, the Delaware Action was dismissed. The foregoing settlements, expected to cost approximately $2.0 million, will be funded entirely by the Company's directors' and officers' liability insurance carrier and, thus, will not have a material adverse effect on the Company's business, financial condition, results of operations and liquidity. In January 1995, the Company received notice that the Securities and Exchange Commission (the "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. INSURANCE COVERAGE The predecessor agency to the STB granted the Company authority to self-insure its automobile liability exposure for interstate passenger service up to a maximum level of $5.0 million per occurrence which has been continued by the DOT. To maintain self-insurance authority, the Company is required to maintain a satisfactory safety rating by the DOT, a tangible net worth of $10.0 million (as of December 31, 1998, the Company's tangible net worth was $148.8 million) and a $15.0 million trust fund (currently fully funded) to provide security for payment of claims. In addition 53 54 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) to the self-insurance grant by the federal government, the Company also exercises self-insurance of its intrastate automobile liability exposure in 38 states. The Company maintains comprehensive automobile liability and general liability insurance to insure its assets and operations subject to a $1.5 million self-insured retention or deductible per occurrence. The Company also maintains property insurance subject to a $0.1 million deductible per occurrence and maintains workers' compensation insurance subject to a $1.0 million deductible per occurrence. Additionally, the Company is required by some states and some of its insurance carriers to maintain collateral deposits. 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, 43 locations have been identified as remaining sites requiring potential clean-up and/or remediation as of December 31, 1998. The Company has estimated the clean-up and/or remediation costs of these sites to be $3.5 million, of which approximately $0.4 million is indemnifiable by the predecessor owner of Greyhound's domestic bus operations, now known as Viad Corp ("Viad"). The Company has potential liability with respect to two locations which the 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 14 Superfund sites for which Viad had initially assumed responsibility under the indemnity provisions of the 1987 acquisition agreement, as amended in 1991. In late 1997, Viad notified the Company that it believed that the Company should be responsible for any liabilities at such sites. The Company believed that Viad had responsibility for these liabilities; however, in the first quarter of 1999, the Company agreed to assume these liabilities estimated at $2.0 million from Viad as part of the consideration paid by the Company to purchase nine restaurants Viad had been operating in the Company's terminals. The Company has recorded a total environmental reserve of $3.0 million at December 31, 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%. As of the date of this report, 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. 54 55 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) At December 31, 1998, clean-up and/or remediation costs under the plan are as follows (in thousands): 1999..................................................... $ 1,158 2000..................................................... 835 2001..................................................... 616 2002..................................................... 335 2003..................................................... 214 Thereafter............................................... 180 --------- Total environmental expenditures................ 3,338 Amounts representing interest............................ 378 --------- Reserve for environmental expenditures................... $ 2,960 =========
POTENTIAL PENSION PLAN FUNDING REQUIREMENTS The Company maintains ten 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. 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. 55 56 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 19. QUARTERLY FINANCIAL DATA (UNAUDITED) Selected unaudited quarterly financial data for the years ended December 31, 1998 and 1997 are as follows (in thousands, except per share amounts):
FIRST SECOND THIRD FOURTH YEAR ENDED DECEMBER 31, 1998 QUARTER QUARTER QUARTER QUARTER --------- --------- --------- --------- Operating revenues ............................... $ 180,720 $ 211,247 $ 244,134 $ 209,895 Operating expenses ............................... 187,623 201,890 211,350 198,302 --------- --------- --------- --------- Operating income (loss) .......................... (6,903) 9,357 32,784 11,593 Interest expense ................................. 6,654 7,305 7,263 6,677 Income tax provision (benefit) ................... (1,096) 179 (16,250) 311 Minority Interest ................................ (8) (83) 134 513 --------- --------- --------- --------- Net income (loss) before preferred dividends ..... (12,453) 1,956 41,637 4,092 Preferred dividends .............................. 1,296 1,296 1,296 1,296 --------- --------- --------- --------- Net income (loss) ................................ $ (13,749) $ 660 $ 40,341 $ 2,796 ========= ========= ========= ========= Net income (loss) per share of Common Stock: Basic ....................................... $ (0.23) $ 0.01 $ 0.67 $ 0.05 ========= ========= ========= --------- Diluted ..................................... $ (0.23) $ 0.01 $ 0.55 $ 0.04 ========= ========= ========= =========
FIRST SECOND THIRD FOURTH YEAR ENDED DECEMBER 31, 1997 QUARTER QUARTER QUARTER QUARTER --------- --------- --------- --------- Operating revenues ............................... $ 161,148 $ 181,530 $ 228,524 $ 199,920 Operating expenses ............................... 170,651 178,766 197,035 187,564 --------- --------- --------- --------- Operating income (loss) .......................... (9,503) 2,764 31,489 12,356 Interest expense ................................. 7,586 6,526 6,618 6,927 Income tax provision ............................. 79 86 83 803 --------- --------- --------- --------- Net income (loss) before extraordinary item and preferred dividends .......................... (17,168) (3,848) 24,788 4,626 Extraordinary item ............................... -- 25,323 -- -- --------- --------- --------- --------- Net income (loss) ................................ (17,168) (29,171) 24,788 4,626 Preferred dividends .............................. -- 1,063 1,275 1,310 --------- --------- --------- --------- Net income (loss) ................................ $ (17,168) $ (30,234) $ 23,513 $ 3,316 ========= ========= ========= ========= Net income (loss) per share of Common Stock: Basic Net income (loss) attributable to common stockholders before extraordinary item ... $ (0.29) $ (0.08) $ 0.40 $ 0.06 Extraordinary item .......................... -- (0.43) -- -- --------- --------- --------- --------- Net income (loss) attributable to common stockholders ............................. $ (0.29) $ (0.51) $ 0.40 $ 0.06 ========= ========= ========= ========= Diluted Net income (loss) attributable to common stockholders before extraordinary item ... $ (0.29) $ (0.08) $ 0.34 $ 0.05 Extraordinary item .......................... -- (0.43) -- -- --------- --------- --------- --------- Net income (loss) attributable to common stockholders ............................. $ (0.29) $ (0.51) $ 0.34 $ 0.05 ========= ========= ========= =========
56 57 GREYHOUND LINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 20. SUBSEQUENT EVENTS On March 16, 1999, the Company's shareholders approved the Agreement and Plan of Merger with Laidlaw and Laidlaw Transit. On that date, Laidlaw Transit was merged with and into the Company, with the Company, as the surviving corporation, becoming a subsidiary of Laidlaw. As a result of the Merger, Laidlaw became the sole holder of the Company's Common Stock. The total purchase price Laidlaw paid for the shares of Greyhound's Common Stock not previously purchased by Laidlaw, including outstanding stock options, was approximately $402 million. The Greyhound Preferred Stock, which remains outstanding, is convertible into the right to receive $33.33 in cash per share or $80 million in the aggregate. Following the Merger, all amounts outstanding under the Revolving Credit Facility were paid and the Revolving Credit Facility was terminated. As a result of the Merger, the Preferred Stock will be classified as Redeemable Preferred Stock for all periods after March 16, 1999. If the Merger had been consummated on or prior to December 31, 1998, the Stockholders' Equity would have been reported as follows:
AS REPORTED AFTER SUBSEQUENT DECEMBER 31, 1998 MODIFICATION ----------------- ---------------- Redeemable Preferred Stock ......... $ -- $ 60,000 Stockholders Equity: Preferred Stock ................. 60,000 -- Other Stockholders' Equity ...... 158,013 158,013 --------------- --------------- Total Stockholders' Equity .. $ 218,013 $ 158,013 =============== ===============
See Notes 1, 12, 13, 16 and 17 for additional disclosures related to the Merger. 57 58 SCHEDULE II GREYHOUND LINES, INC. AND SUBSIDIARIES(a) VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 (IN THOUSANDS)
ADDITIONS ADDITIONS BALANCE AT CHARGED TO CHARGED TO BALANCE BEGINNING COSTS AND OTHER AT END CLASSIFICATION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD ------------ ------------ ------------ ------------ ------------ December 31, 1996: Allowance for Doubtful Accounts .... $ 217 $ 585 $ (155) $ (406)(b) $ 241 Inventory Reserves ................. 109 (14) -- -- 95 Accumulated Amortization of Intangible Asset ................ 14,901 5,613 -- (1,409)(c) 19,105 Reserves for Injuries and Damages .. 65,661 23,443 -- (29,141)(d) 59,963 ------------ ------------ ------------ ------------ ------------ Total Reserves and Allowances . $ 80,888 $ 29,627 $ (155) $ (30,956) $ 79,404 ============ ============ ============ ============ ============ December 31, 1997: Allowance for Doubtful Accounts .... $ 241 $ 302 $ (61) $ (214)(b) $ 268 Inventory Reserves ................. 95 80 -- -- 175 Accumulated Amortization of Intangible Assets ............... 19,105 5,434 -- (2,351)(c) 22,188 Reserves for Injuries and Damages .. 59,963 32,687 (194) (34,491)(d) 57,965 ------------ ------------ ------------ ------------ ------------ Total Reserves and Allowances . $ 79,404 $ 38,503 $ (255) $ (37,056) $ 80,596 ============ ============ ============ ============ ============ December 31, 1998: Allowance for Doubtful Accounts .... $ 268 $ 342 $ (40) $ (372)(b) $ 198 Inventory Reserves ................. 175 30 -- -- 205 Accumulated Amortization of Intangible Assets ............... 22,188 6,908 -- (594)(c) 28,503 Reserves for Injuries and Damages .. 57,965 35,237 (1,021) (31,822)(d) 60,359 ------------ ------------ ------------ ------------ ------------ Total Reserves and Allowances . $ 80,596 $ 42,517 $ (1,061) $ (32,788) $ 89,265 ============ ============ ============ ============ ============
- ---------- (a) This schedule should be read in conjunction with the Company's audited consolidated financial statements and related notes thereto. (b) Write-off of uncollectible receivables, net of recovery of bad debt. (c) Write-off or amortization of other assets and deferred costs. (d) Payments of settled claims. 58 59 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 59 60 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT James R. Bullock (age 54) became the sole director of the Company upon consummation of the Merger on March 16, 1999. Mr. Bullock has been a director of Laidlaw Inc. since 1991 and President and Chief Executive Officer of that company since October 1993. Mr. Bullock is also a director of Imasco Inc. and Ontario Hydro. Craig R. Lentzsch (age 50) became President and Chief Executive Officer of the Company in November 1994. Mr. Lentzsch also served as Chief Financial Officer of the Company from November 22, 1994 to April 10, 1995. Mr. Lentzsch served as director of the Company from August 1994 to March 1999. Mr. Lentzsch previously served as Executive Vice President and Chief Financial Officer of Motor Coach Industries International, Inc., where he had been employed from 1992 to 1994; as President and Chief Executive Officer of Continental Asset Services, Inc. from 1991 to 1992; as a private consultant to, and investor in, Storehouse, Inc. from 1983 to 1991 and Communication Partners, Ltd. from 1989 to 1991; as Vice Chairman, Executive Vice President and a director of the Company from March 1987 to December 1989; and as Co-Founder and President of BusLease, Inc. from 1980 to 1989. Mr. Lentzsch also serves as a director of Hastings Entertainment, Inc., Enginetech, Inc., the Intermodal Transportation Institute and the Great American Station Foundation and is a director and a member of the Executive Committee of the American Bus Association. Jack W. Haugsland (age 59) joined the Company in May 1995, as Executive Vice President and Chief Operating Officer. From 1992 to 1995 Mr. Haugsland was President and Chief Executive Officer of Gray Line Worldwide. From 1990 to 1992 Mr. Haugsland held the position of Senior Vice President of Operations for the Company; and from 1986 to 1990 Mr. Haugsland served as President of Greyhound Travel Services, Inc., a former subsidiary of the Company. Mr. Haugsland began employment with the Company's predecessor in 1964. Mr. Haugsland is also a board member of the American Bus Association and of the Travel Industry Association of America. J. Floyd Holland (age 63) has served as Senior Vice President -- Operations since September 1994 and is responsible for equipment maintenance, engineering, environmental compliance and purchasing. Certain of the Company's bus operating subsidiaries also report to Mr. Holland. From October 1992 to September 1994, he served as Vice President -- Maintenance of the Company. From July 1987 to September 1992, he was Vice President -- Fleet Operations and was responsible for fleet planning and allocation. From October 1979 to July 1987, Mr. Holland served as Vice President of Operations and Transportation of Trailways. Mr. Holland held various management positions with predecessor companies since he began employment in 1958 with Trailways Lines, Inc. Mr. Holland has been a member of the Board of Directors and Executive Committee of the National Bus Traffic Association since 1991. Frederick F. Richards, III (age 39) was named Senior Vice President and Chief Information Officer in December 1997. Mr. Richards oversees information technology development and services, accounting operations, and the telephone information centers. From 1987 to December 1997, Mr. Richards worked as an independent management consultant and provided consulting services to Greyhound from 1987 to 1990 and again from 1994 to December 1997. Recently, Mr. Richards integrated and managed the centralized driver and equipment dispatch and planning operations for the Company. Mr. Richards also managed the integration of automated ticketing with revenue reporting and fare and schedule quotation systems in the late 1980's. Mr. Richards is the son-in-law of A. A. Meitz, who served as a director of the Company from November 1995 to March 1999. Ralph J. Borland (age 51) serves as Vice President -- Marketing and Sales and is responsible for selling the Company's regularly scheduled service, charter bus and related products and is responsible for the passenger marketing, advertising, promotion and pricing activities of the Company. He previously served as Vice President -- Sales and Service, where he was responsible for charter sales, Hispanic initiatives and the casino and special services markets; and previously, as Vice President -- Customer Satisfaction. Mr. Borland also served as Vice President -- Marketing from March 1987 to April 1993. Mr. Borland joined the Company's predecessor in 1972. 60 61 T. Scott Kirksey (age 41) joined the Company in June 1995 as Vice President - -- Financial Planning and Reporting and is responsible for the business and strategic planning for the Company as well as corporate accounting and financial reporting. Prior to joining the Company, Mr. Kirksey was Corporate Controller for Hat Brands, Inc. from 1993 and served as Director of Financial Planning, Budgeting and Treasury and Vice President/Controller of Telemedia Services for Neodata Corporation from 1990 to 1993. Jeffrey W. Sanders (age 37) joined the Company in June 1997 as Vice President -- Corporate Development and is responsible for corporate acquisitions and new business development, treasury, corporate finance, tax and investor relations. Prior to joining the Company, Mr. Sanders was Vice President -- Controller of Motor Coach Industries International, Inc. from January 1995 to January 1997 and Director -- Financial Reporting and Consolidations from October 1993 to December 1994. From January 1985 to October 1993, Mr. Sanders held various positions, including senior manager in the audit department, with Deloitte & Touche LLP. Mark E. Southerst (age 41) was elected as Vice President and General Counsel and Secretary in January 1995. Mr. Southerst was previously employed by the Company as Associate General Counsel, since July 1988. Prior to joining the Company, Mr. Southerst served as in-house legal counsel for Burlington Northern Railroad Company from 1983 to July 1988. Mr. Southerst also serves as a director of the National Bus Traffic Association and a legal advisor to the ATA Litigation Center, a trade association specializing in legal issues affecting motor carriers. SECTION 16(a) DELINQUENT FILER DISCLOSURE Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than 10% of the Company's Common Stock, to file with the Securities and Exchange Commission (the "SEC") initial reports of beneficial ownership and reports of changes in beneficial ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than 10% beneficial owners of the Company are required by SEC regulation to furnish the Company with copies of all Section 16(a) reports they file. To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10% beneficial owners were complied with for the year ended December 31, 1998. 61 62 ITEM 11. EXECUTIVE COMPENSATION The following table sets forth all compensation, including bonuses, restricted stock and stock option awards and other payments, paid or accrued by the Company during each of the fiscal years ended December 31, 1998, 1997 and 1996, to or for the Chief Executive Officer of the Company, and the four other most highly compensated executive officers of the Company (the Chief Executive Officer and such other officers collectively being the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION ----------------------------------------- -------------------------- AWARDS OTHER -------------------------- ANNUAL RESTRICTED SECURITIES ALL OTHER COMPEN- STOCK UNDERLYING COMPEN- NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($)(2) SATION($)(3) AWARDS($)(4) OPTIONS/SARS(#) SATION($)(5) ---- ----------- ----------- ------------- ------------ --------------- ------------ Craig R. Lentzsch 1998 441,242 322,594 -- 0 142,300 110,835 President and Chief 1997 391,250 290,503 -- 187,182 0 100,133 Executive Officer 1996 350,013 112,228 86,603 55,163 100,000 86,169 Jack W. Haugsland 1998 285,986 171,073 -- 0 89,700 83,248 Executive Vice President 1997 255,000 154,913 -- 119,990 0 74,288 and Chief Operating Officer 1996 225,008 79,029 -- 36,775 60,000 55,393 Frederick F. Richards, III (6) 1998 200,000 106,400 -- 0 32,600 47,986 Senior Vice President and Chief 1997 12,603 0 -- 300,000 0 0 Information Officer 1996 0 0 0 0 0 0 J. Floyd Holland 1998 172,436 91,723 -- 0 53,200 51,137 Senior Vice President - Operations 1997 164,987 89,093 -- 58,704 0 49,562 1996 155,956 36,735 -- 0 30,000 50,310 Mark E. Southerst 1998 164,035 76,345 -- 0 42,600 41,143 Vice President and General Counsel 1997 154,305 72,909 -- 46,580 0 38,176 and Secretary 1996 128,050 28,486 -- 0 45,000 33,646
- --------- (1) Represents annual salary, including compensation deferred by the Named Executive Officer pursuant to the Company's 401(k) and non-qualified savings plans. (2) Represents annual bonus earned by the Named Executive Officer for the relevant fiscal year. (3) In 1996, for Mr. Lentzsch, $50,000 is for reimbursement of the loss on the sale of Mr. Lentzsch's personal residence in connection with his relocation to Dallas, Texas, after joining the Company in 1994. (4) As of December 31, 1998, Mr. Lentzsch held 45,600 shares of restricted stock, with an aggregate value of $270,294. Of these shares granted to Mr. Lentzsch, 10,000 shares vested on January 22, 1999. As of December 31, 1998, Mr. Haugsland held 29,333 shares of restricted stock, with an aggregate value of $173,871. Of these shares granted to Mr. Haugsland, 6,500 shares vested on January 22, 1999. As of December 31, 1998, Mr. Holland held 12,700 shares of restricted stock, with an aggregate value of $75,279. Of these shares granted to Mr. Holland, 3,250 shares vested on January 22, 1999. As of December 31, 1998, Mr. Southerst held 10,100 shares of restricted stock, with an aggregate value of $59,868. Of these shares granted to Mr. Southerst, 2,500 shares vested on January 22, 1999. Upon the completion of the Merger, all shares of restricted stock that were unvested became vested in accordance with the terms of the plan under which the restricted stock grants were made. Pursuant to the Merger Agreement, each of the Named Executive Officers received $6.50 in cash for each share of restricted stock held. 62 63 (5) For 1998, includes $101,545, $64,394, $47,126, $41,440 and $37,458 in accrued benefits under the Company's Supplemental Executive Retirement Plan ("SERP"); $5,000, $12,399, $0, $2,586 and $1,640 in Company contributions to the 401(k) and non-qualified savings plans; and $4,290, $6,455, $860, $7,111 and $2,045 in term life insurance premiums paid by the Company for Messrs. Lentzsch, Haugsland, Richards, Holland and Southerst, respectively. (6) Mr. Richards became Senior Vice President and Chief Information Officer on December 9, 1997. EMPLOYMENT CONTRACTS Craig R. Lentzsch. Mr. Lentzsch's terms of employment are governed by an employment contract that continues until March 16, 2002, subject to automatic successive two-year renewals unless and until terminated. The contract provides for an annual base salary to Mr. Lentzsch, currently $500,000, subject to annual review and adjustment. Mr. Lentzsch is entitled to receive an annual incentive bonus in accordance with the Company's management incentive plan ("MIP") as in effect from time to time. If the Company terminates or does not renew Mr. Lentzsch's employment contract without good cause (as defined) or if Mr. Lentzsch resigns for good reason (as defined), the Company must pay Mr. Lentzsch a lump-sum payment equal to three times the sum of: (i) an amount equal to his then-current, annualized base salary; and (ii) the greater of: (A) the applicable annual payout of incentive compensation under the MIP for the plan year immediately prior to the termination; or (B) the full annual target award under the MIP for the plan year in which the termination occurs. Additionally, Mr. Lentzsch's employment contract provides that if there is a change of control (other than the Merger) (as defined) and within two years thereafter, Mr. Lentzsch's employment contract is terminated, or not renewed, for any reason other than cause, death, disability or retirement, or if he resigns for good reason, Mr. Lentzsch would be entitled to the same severance payments as described above, subject to a "gross up" should any portion of his severance benefits be construed to be an "excess parachute payment" under the federal tax code. Mr. Lentzsch also participates in the Company's Supplemental Executive Retirement Plan, and has received past service credit, for vesting purposes only, related to his former employment with the Company, its affiliates and predecessors. Additionally, Mr. Lentzsch is entitled to participate in the Company's 401(k) plan, medical plan (with waiver of pre-existing conditions), and other applicable benefit plans and is entitled to estate, tax and financial planning assistance, a car allowance and country club dues reimbursement. Jack W. Haugsland. Mr. Haugsland's terms of employment are governed by an employment contract that continues until March 16, 2002, subject to automatic successive two-year renewals unless and until terminated. Mr. Haugsland is entitled to receive an annual base salary, currently $305,000, subject to annual review and adjustment. Mr. Haugsland is also entitled to receive an annual incentive bonus in accordance with the Company's MIP as in effect from time to time. If the Company terminates or does not renew Mr. Haugsland's employment contract without good cause (as defined) or if Mr. Haugsland's resigns for good reason (as defined), the Company must pay Mr. Haugsland's a lump-sum payment equal to three times the sum of: (i) an amount equal to his then-current, annualized base salary; and (ii) the greater of: (A) the applicable annual payout of incentive compensation under the MIP for the plan year immediately prior to the termination; or (B) the full annual target award under the MIP for the plan year in which the termination occurs. Additionally, Mr. Haugsland's employment contract provides that if there is a change of control (other than the Merger) (as defined) and within two years thereafter, Mr. Haugsland's employment contract is terminated, or not renewed, for any reason other than cause, death, disability or retirement, or if he resigns for good reason, Mr. Haugsland would be entitled to the same severance payments as described above, subject to a "gross up" should any portion of his severance benefits be construed to be an "excess parachute payment" under the federal tax code. Mr. Haugsland also participates in the Company's Supplemental Executive Retirement Plan, and has received past service credit, for vesting purposes only, related to his former employment with the Company, its affiliates and predecessors. Additionally, Mr. Haugsland is entitled to participate in the Company's 401(k) plan, medical plan (with waiver of pre-existing conditions), and other applicable benefit plans and is entitled to estate, tax and financial planning assistance, a car allowance and country club dues reimbursement. 63 64 SEVERANCE ARRANGEMENTS The Company has entered into Change in Control Agreements ("CIC Agreements") with the Named Executive Officers (other than Messrs. Lentzsch and Haugsland). Under the CIC Agreements, if the employment of the employee is terminated prior to March 16, 2001, either for "Good Reason" by the employee or "Without Cause" (as such terms are defined in the CIC Agreements) by the Company (or any successor or assignee), the employee would receive severance benefits, including base salary and benefits earned and payable through the termination date, the dollar amount of the target payout under the MIP prorated through the termination date for the year in which employment is terminated, and a lump-sum cash payment of two times the sum of (x) the employee's current annual base salary and (y) the dollar amount of the annual target payout under the MIP in effect on March 16, 1999. In addition, certain employee benefits (including medical, dental and vision plan coverage) will continue for a period of two years after the date of termination. Under the CIC Agreements, if any amount to be paid or provided is determined to be nondeductible by reason of Section 280G of the Internal Revenue Service Code, the severance benefits will be reduced to the minimum extent necessary so that Section 280G does not cause any amount to be nondeductible. Benefits under the CIC Agreements replace benefits, if any, under any other Company severance plans. DIRECTORS' COMPENSATION Directors of the Company are entitled to reimbursement of their expenses, if any, of attendance at each meeting of the Board of Directors or committees thereof. STOCK OPTION PLANS The following table reflects all options granted to the Named Executive Officers of the Company during the fiscal year ended December 31, 1998, under the Company's stock option and incentive plans. Additionally, the present value of the options at the grant date is provided. The present value is calculated utilizing the Black-Scholes model, which is a mathematical formula widely used to value stock options. This formula considers a number of factors, including the stocks volatility, dividend rate, term and vesting of the option and interest rates to estimate the option's present value. OPTION GRANTS IN LAST FISCAL YEAR
% OF TOTAL SECURITIES OPTIONS UNDERLYING GRANTED TO OPTIONS GRANT EMPLOYEES IN EXERCISE EXPIRATION GRANT DATE NAME GRANTED(#)(1) DATE FISCAL YEAR PRICE DATE PRESENT VALUE (2) ------------- ------- ------------ -------- ---------- ----------------- Craig R. Lentzsch.......... 142,300 1/20/98 8.37% 4.0000 1/20/2005 $ 357,173 Jack W. Haugsland.......... 89,700 1/20/98 5.28 4.0000 1/20/2005 225,147 Frederick F. Richards, III. 32,600 1/20/98 1.92 4.0000 1/20/2005 81,826 J. Floyd Holland........... 53,200 1/20/98 3.13 4.0000 1/20/2005 133,532 Mark E. Southerst.......... 42,600 1/20/98 2.51 4.0000 1/20/2005 106,926
- ---------- (1) Twenty-five percent of the options granted were exercisable on and after January 20, 1999, 25% were to become exercisable on and after January 20, 2000, 25% were to become exercisable on and after January 20, 2001 and 25% were to become exercisable on and after January 20, 2002. Upon completion of the Merger, all of these options became vested in accordance with the terms of the plan under which the grants were made. Pursuant to the Merger Agreement, each of the Named Executive Officers received, in cash, the difference between $6.50 per share and the exercise price of the options. 64 65 (2) Assumptions used in calculating grant date present value under the Black-Scholes model include stock price volatility at the grant date of 55%, risk-free rate of return at the grand date of 6%, annual dividend yield of $0, an option term of 7 years from the grant date and a stock price at the grant date of $4.00. The following table reflects information with respect to option exercises by the Named Executive Officers during the fiscal year ended December 31, 1998, and information with respect to the unexercised options to purchase the Company's Common Stock granted under the Company's stock option and incentive plans to the Named Executive Officers and held by them at December 31, 1998. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT ACQUIRED ON VALUE OPTIONS AT FY-END(#) FY-END($)(1) NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE(2) EXERCISABLE UNEXERCISABLE(2) ---- ----------- ----------- ----------- ---------------- ----------- ---------------- Craig R. Lentzsch............... -- -- 890,000 192,300 3,519,957 385,331 Jack W. Haugsland............... -- -- 405,000 144,700 1,357,517 309,747 Frederick F. Richards, III...... -- -- 240,000 92,600 693,512 187,773 J. Floyd Holland................ -- -- 253,250 99,450 530,008 223,525 Mark E. Southerst 17,000 71,125 101,250 77,600 313,673 161,444
- ---------- (1) Computed based upon the difference between $5.9375 per share, the fair market value at December 31, 1998, and the exercise price per share for the options. (2) Upon completion of the Merger, all of these options became vested in accordance with the terms of the plan under which the grants were made. Pursuant to the Merger Agreement, each of the Named Executive Officers received, in cash, the difference between $6.50 per share and the exercise price of the options. LONG-TERM INCENTIVE PLANS The Company does not maintain any long-term incentive plan under which awards were granted or paid during 1998. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Prior to the Merger, the Compensation Committee of the Board of Directors consisted of Richard J. Caley, A.A. Meitz and Stephen M. Peck who were non-employee directors of the Company. Additionally, prior to the Merger, Messrs. Caley and Peck served as members of the Option Committee which oversaw, administered and approved grants under the Company's stock option and incentive plans. Mr. Meitz is the father-in-law of Frederick F. Richards, III, the Senior Vice President and Chief Information Officer of the Company. Mr. Richards was elected an officer of the Company in December 1997. Prior to becoming an employee of the Company and since November 1994, Mr. Richards was engaged by the Company as an independent management consultant on an at-will basis, supplying consulting services to the Company on a variety of operational and technology issues. Under Compensation Committee procedures, Mr. Meitz was not present during discussions of Mr. Richards' compensation terms, performance or other related matters, abstained from voting on matters involving or affecting Mr. Richards and did not serve on the committee of the Board of Directors that administers and makes stock incentive awards and grants. 65 66 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the beneficial ownership of the outstanding shares of Greyhound Common Stock and Greyhound Preferred Stock, as of March 16, 1999 (except as noted below), held by persons believed by Greyhound to beneficially own more than 5% of the outstanding shares of the Greyhound Common Stock or Greyhound Preferred Stock and the percentage of the outstanding shares of Greyhound Common Stock and Greyhound Preferred Stock represented thereby. With the exception of Mr. Lentzsch, no director or executive officer of Greyhound beneficial owns any share of Greyhound Common Stock or Greyhound Preferred Stock. Except as otherwise noted below, these stockholders have sole voting and investment power with respect to all shares beneficially owned by them.
AMOUNT OF AMOUNT OF PERCENT OF NAME AND ADDRESS COMMON STOCK PERCENT PREFERRED STOCK PERCENT VOTING OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS BENEFICIALLY OWNED OF CLASS SECURITIES (a) - ------------------- ------------------ -------- ------------------ -------- --------------- Laidlaw Inc. (b) 58,743,069 100.0% 0 0 96.1 Snyder Capital Management, L.P. (c) 0 - 639,800 26.7% 1.0 Craig R. Lentzsch 0 - 1,000 * *
* - less than 1% - -------- (a) Calculated based on the holders of Greyhound Common Stock and Greyhound Preferred Stock voting together as a single class with each holder of Greyhound Common Stock having one vote per share and each holder of Greyhound Preferred Stock having on vote per share. (b) The principal business address of Laidlaw Inc. is 3221 North Service Road, Burlington, Ontario, Canada L7R 3Y8. (c) The information is based on a Schedule 13G filed with the SEC on February 5, 1999, on behalf of Snyder Capital Management, L.P., Snyder Capital Management, Inc. (collectively "Snyder") and subsequent discussions with Snyder representatives. As of that date, Snyder reported that it held 639,800 shares of Greyhound Preferred Stock (presently convertible into $33.33 per share in cash) and that it had sole voting power with respect to 30,100 shares, shared voting power with respect to 571,900 shares, sole dispositive power with respect to 30,100 shares and shared dispositive power with respect to 609,700 shares. The principal business address of Snyder Capital Management, L.P. is 350 California Street, Suite 1460, San Francisco, California, 94104. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 66 67 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) CERTAIN DOCUMENTS FILED AS PART OF THE FORM 10-K 1. AND 2. FINANCIAL STATEMENTS AND FINANCIAL STATEMENTS SCHEDULES The following financial statements and financial statements schedules are set forth in Item 8 of this report. Financial Statement Schedules not included in this report have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. Fifty percent or less owned companies accounted for by the equity method have been omitted because, considered in the aggregate, they have not been considered to constitute a significant subsidiary.
PAGE NO. -------- Management Report on Responsibility for Financial Reporting................................. 28 Report of Independent Public Accountants.................................................... 29 Consolidated Statements of Financial Position at December 31, 1998 and 1997................. 30 Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996.................................................................................. 31 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998, 1997 and 1996............................................................................. 32 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996.................................................................................. 33 Notes to Consolidated Financial Statements.................................................. 34 Schedule II - Valuation and Qualifying Accounts............................................. 58
3. 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. (14) 3.1 -- Restated Certificate of Incorporation of Greyhound Lines, Inc. (15) 3.2 -- Bylaws of Greyhound Lines, Inc. (15) 4.1 -- Indenture governing the 8 1/2% Convertible Subordinated Debentures due March 31, 2007, including the form of 8 1/2% Convertible Subordinated Debentures due March 31, 2007. (3) 4.2 -- First Supplemental Indenture to the 8 1/2% Convertible Subordinated Debentures Indenture between the Registrant and Shawmut Bank Connecticut, N.A., as Trustee. (6) 4.3 -- Second Supplemental Indenture to the 8 1/2% Convertible Subordinated Debentures Indenture between the Registrant and State Street Bank and Trust Company, as trustee. (15) 4.4 -- Indenture, dated April 16, 1997, by and among the Company, the Guarantors and PNC Bank, N.A., as Trustee. (9) 4.5 -- First Supplemental Indenture dated as of July 9, 1997 between the Registrant and PNC Bank, N.A. as Trustee. (12) 4.6 -- Second Supplemental Indenture dated as of August 25, 1997 between the Registrant and PNC Bank, N.A. as Trustee. (13) 4.7 -- Form of 11 1/2% Series A Senior Notes due 2007. (9) 4.8 -- Form of 11 1/2% Series B Senior Notes due 2007. (11) 4.9 -- Form of Guarantee of 11 1/2% Series A and B Senior Notes. (11) 4.10 -- Indenture dated April 16, 1997 by and between the Company and U.S. Trust of Texas, N.A., as Trustee. (10) 67 68 10.1 -- Acquisition Agreement dated December 22, 1986, among The Greyhound Corporation, Greyhound Lines, Inc., the Registrant, GLI Holding Company, GLI Bus Operations Holding Company and GLI Merger Company. (1) 10.2 -- First Amendment to Acquisition Agreement dated January 31, 1987. (1) 10.3 -- Second Amendment to Acquisition Agreement dated March 18, 1987. (1) 10.4 -- Third Amendment to Acquisition Agreement dated March 18, 1987. (1) 10.5 -- Fourth Amendment to Acquisition Agreement dated September 18, 1987. (1) 10.6 -- Contested Claim Pool Trust Agreement to be entered into as of October 31, 1991, by and between the Registrant and Smith Barney Trust Company, as trustee. (2) 10.7 -- Claims Treatment Agreement dated August 23, 1991, by and among Eagle Bus Manufacturing, Inc., the Registrant, Trailways Commuter Transit, Inc., GLI Bus Operations Holding Company, GLI Food Services, Inc., Southern Greyhound Lines Co., GLI Holding Company, Central Greyhound Lines Co., Greyhound Travel Services, Inc., Eastern Greyhound Lines, Co., and Western Greyhound Lines Co., on the one hand, and The Dial Corp, on the other. (2) 10.8 -- Memorandum of Agreement, dated as of October 1, 1996, between Greyhound Lines, Inc. and District No. 9, International Association of Machinists, AFL-CIO. (8) 10.9 -- Memorandum of Agreement, dated as of October 1, 1996, between Greyhound Lines, Inc. and the International Association of Machinists and Aerospace Workers covering garage employees at Miami, Florida; St. Petersburg, Florida; Columbia, South Carolina; Orlando, Florida; Charleston, West Virginia and Tallahassee, Florida. (8) 10.10 -- Memorandum of Agreement, dated as of October 1, 1996, between Greyhound Lines, Inc. and the International Association of Machinists and Aerospace Workers covering garage employees at Dallas, Texas, Houston, Texas, Kansas City, Missouri, San Antonio, Texas, Brownsville, Texas and Grand Junction, Colorado. (8) 10.11 -- Memorandum of Agreement, dated September 30, 1998, between the Registrant and the Amalgamated Transit Union National Local 1700. (14) 10.12 -- Lease Agreement No. 1, dated as of December 29, 1993, between Wilmington Trust Company and the Registrant. (4) 10.13 -- Lease Agreement No. 2, dated as of December 29, 1993, between Wilmington Trust Company and the Registrant. (4) 10.14 -- Lease Agreement No. 3, dated as of December 29, 1993, between Wilmington Trust Company and the Registrant. (4) 10.15 -- Lease Supplement No. 1-1, dated as of December 30, 1993, between Wilmington Trust Company and the Registrant. (4) 10.16 -- Lease Supplement No. 2-1, dated as of December 30, 1993, between Wilmington Trust Company and the Registrant. (4) 10.17 -- Lease Supplement No. 3-1, dated as of December 30, 1993, between Wilmington Trust Company and the Registrant. (4) 10.18 -- Tax Indemnification Agreement, dated as of December 29, 1993, between NationsBank Lease Investments, Inc. and the Registrant. (4) 10.19 -- Pledge Agreement, dated as of December 29, 1993, among the Registrant, Wilmington Trust Company and NationsBank Lease Investments, Inc. (4) 10.20 -- Participation Agreement, dated as of December 29, 1993, among NationsBank Lease Investments, Inc. and the Registrant. (4) 10.21 -- Lease Agreement, dated as of March 28, 1994, between Wilmington Trust Company and the Registrant. (5) 10.22 -- Lease Supplement No. 1, dated as of March 28, 1994, between Wilmington Trust Company and the Registrant. (5) 10.23 -- Pledge Agreement, dated as of March 28, 1994, among the Registrant, Wilmington Trust Company and Cargill Leasing Corporation. (5) 10.24 -- Participation Agreement, dated as of March 28, 1994, among Cargill Leasing Corporation and the Registrant. (5) 68 69 10.25 -- Bill of Sale, dated as of March 28, 1994, between the Registrant and Wilmington Trust Company.(5) 10.26 -- Tax Indemnification Agreement, dated as of March 28, 1994, between Cargill Leasing Corporation and the Registrant. (5) 10.27 -- Lease Agreement, dated as of March 29, 1994, between Wilmington Trust Company and the Registrant. (5) 10.28 -- Lease Supplement No. 1, dated as of March 29, 1994, between Wilmington Trust Company and the Registrant. (5) 10.29 -- Pledge Agreement, dated as of March 29, 1994, among the Registrant, Wilmington Trust Company and Cargill Leasing Corporation. (5) 10.30 -- Participation Agreement, dated as of March 29, 1994, among Cargill Leasing Corporation and the Registrant. (5) 10.31 -- Bill of Sale, dated as of March 29, 1994, between the Registrant and Wilmington Trust Company.(5) 10.32 -- Tax Indemnification Agreement, dated as of March 29, 1994, between Cargill Leasing Corporation and the Registrant. (5) 10.33 -- Termination Agreement dated as of March 17, 1999, by and between Greyhound Lines, Inc. and Foothill Capital Corporation and BankBoston N.A. (15) 10.34 -- Greyhound Lines, Inc. Supplemental Executive Retirement Plan. (7) 10.35 -- First Amendment to Supplemental Executive Retirement Plan. (8) 10.36 -- Second Amendment to Supplemental Executive Retirement Plan. (15) 10.37 -- Supplemental Executive Retirement Plan Trust Agreement (15) 10.38 -- Second Amended Employment Agreement dated March 16, 1999, between Registrant and Craig R. Lentzsch. (15) 10.39 -- Second Amended Employment Agreement dated March 16, 1999, between Registrant and John Werner Haugsland. (15) 10.40 -- 1998 Stock Option Plan for ATU Represented Drivers and Mechanics, dated July 22, 1998. (14) 10.41 -- Greyhound Lines, Inc. Change in Control Severance Pay Program. (14) 10.42 -- Form of Change in Control Agreement between the Company and certain officers of the Company. (14) 21 -- Subsidiaries of the Registrant. (15) 27 -- Financial Data Schedule as of and for the year ended December 31, 1998. (16) - ----- (1) Incorporated by reference from the Annual Report Form 10-K/A for the year ended December 31, 1994. (2) Incorporated by reference from the Registration Statement on Form S-1 (File Nos. 33-45060-01 and 33-45060-02) regarding the Registrant's 8 1/2% Convertible Subordinated Debentures Due 2007. (3) Incorporated by reference from the Company's Registration Statement on Form S-1 (File No. 33-47908) regarding the Registrant's Common Stock and 10% Senior Notes Due 2001 held by the Contested Claims Pool Trust. (4) Incorporated by reference from the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993. (5) Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994. (6) Incorporated herein by reference from the Registrant's Issuer Tender Offer Statement on Schedule 13E-4 (File No. 5-41800). 69 70 (7) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995. (8) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996. (9) Incorporated by reference from the Company's Registration Statement on Form S-4 regarding the Company's 11 1/2% Series B Senior Notes due 2007. (10) Incorporated by reference from the Company's Registration Statement on Form S-3 regarding the Company's 8 1/2% Convertible Exchangeable preferred Stock, Common Stock and 8 1/2% Convertible Subordinated Debentures due 2009. (11) Incorporated by reference from Amendment 1 to Form S-4 filed on June 27, 1997. (12) Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. (13) Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997. (14) Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998. (15) Filed herewith. (16) Filed only in EDGAR format with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998. (b) REPORTS ON FORM 8-K The Company filed a Form 8-K with the Securities and Exchange Commission on October 30, 1998. The purpose of this filing was to announce that 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. The Company was not required to file any additional Form 8-Ks during the quarter ended December 31, 1998. 70 71 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 in the City of Dallas and the State of Texas, on March 31, 1999. GREYHOUND LINES, INC. By: /s/ CRAIG R. LENTZSCH ------------------------------------- Craig R. Lentzsch President and Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ JAMES R. BULLOCK Director March 31, 1999 - ----------------------------------------- James R. Bullock /s/ CRAIG R. LENTZSCH President and Chief March 31, 1999 - ----------------------------------------- Executive Officer Craig R. Lentzsch (Principal Executive Officer) /s/ T. SCOTT KIRKSEY Vice President of Financial March 31, 1999 - ----------------------------------------- Planning and Reporting T. Scott Kirksey (Principal Financial and Accounting Officer)
71 72 CO-REGISTRANTS ATLANTIC GREYHOUND LINES OF VIRGINIA, INC. By: /s/ CRAIG R. LENTZSCH Chairman of the Board, President, March 31, 1999 - ------------------------------------------ and Chief Executive Officer Craig R. Lentzsch /s/ J. FLOYD HOLLAND Director March 31, 1999 - ------------------------------------------ J. Floyd Holland /s/ T. SCOTT KIRKSEY Vice President of Financial March 31, 1999 - ------------------------------------------ Planning and Reporting T. Scott Kirksey (Principal Financial and Accounting Officer) GLI HOLDING COMPANY By: /s/ CRAIG R. LENTZSCH Director, President and March 31, 1999 - ------------------------------------------ Chief Executive Officer Craig R. Lentzsch /s/ JACK W. HAUGSLAND Director March 31, 1999 - ------------------------------------------ Jack W. Haugsland /s/ T. SCOTT KIRKSEY Vice President of Financial March 31, 1999 - ------------------------------------------ Planning and Reporting T. Scott Kirksey (Principal Financial and Accounting Officer) GREYHOUND de MEXICO S.A. de C.V. By: /s/ CRAIG R. LENTZSCH Director and President March 31, 1999 - ------------------------------------------ Craig R. Lentzsch /s/ JACK W. HAUGSLAND Director March 31, 1999 - ------------------------------------------ Jack W. Haugsland /s/ JEFFREY W. SANDERS Director March 31, 1999 - ------------------------------------------ Jeffrey W. Sanders /s/ T. SCOTT KIRKSEY Examiner March 31, 1999 - ------------------------------------------ T. Scott Kirksey (Principal Financial and Accounting Officer)
72 73 GRUPO CENTRO, INC. By: /s/ CRAIG R. LENTZSCH Director and President March 31, 1999 - ------------------------------------------ Craig R. Lentzsch /s/ JACK W. HAUGSLAND Director March 31, 1999 - ------------------------------------------ Jack W. Haugsland /s/ T. SCOTT KIRKSEY Vice President of Financial March 31, 1999 - ------------------------------------------ Planning and Reporting T. Scott Kirksey (Principal Financial and Accounting Officer) LOS BUENOS LEASING CO., INC. By: /s/ ALFONSO PENEDO Director, President, Chief March 31, 1999 - ------------------------------------------ Executive Officer and General Alfonso Penedo Manager /s/ T. SCOTT KIRKSEY Chief Financial Officer March 31, 1999 - ------------------------------------------ and Treasurer T. Scott Kirksey (Principal Financial and Accounting Officer) SISTEMA INTERNACIONAL de TRANSPORTE de AUTOBUSES, INC. By: /s/ CRAIG R. LENTZSCH Director and President March 31, 1999 - ------------------------------------------ Craig R. Lentzsch /s/ JACK W. HAUGSLAND Director March 31, 1999 - ------------------------------------------ Jack W. Haugsland /s/ T. SCOTT KIRKSEY Vice President of Financial March 31, 1999 - ------------------------------------------ Planning and Reporting T. Scott Kirksey (Principal Financial and Accounting Officer)
73 74 TEXAS, NEW MEXICO & OKLAHOMA COACHES, INC. By: /s/ CRAIG R. LENTZSCH Director and Chief March 31, 1999 - ------------------------------------------ Executive Officer Craig R. Lentzsch /s/ JACK W. HAUGSLAND Director March 31, 1999 - ------------------------------------------ Jack W. Haugsland /s/ J. FLOYD HOLLAND Director March 31, 1999 - ------------------------------------------ J. Floyd Holland /s/ ROBERT D. GREENHILL Director March 31, 1999 - ------------------------------------------ Robert D. Greenhill /s/ T. SCOTT KIRKSEY Vice President of Financial March 31, 1999 - ------------------------------------------ Planning and Reporting T. Scott Kirksey (Principal Financial and Accounting Officer) T.N.M. & O. TOURS, INC. By: /s/ CRAIG R. LENTZSCH Director and Chief March 31, 1999 - ------------------------------------------ Executive Officer Craig R. Lentzsch /s/ JACK W. HAUGSLAND Director March 31, 1999 - ------------------------------------------ Jack W. Haugsland /s/ J. FLOYD HOLLAND Director March 31, 1999 - ------------------------------------------ J. Floyd Holland /s/ ROBERT D. GREENHILL Director March 31, 1999 - ------------------------------------------ Robert D. Greenhill /s/ RICHARD M. PORTWOOD Director March 31, 1999 - ------------------------------------------ Richard M. Portwood /s/ T. SCOTT KIRKSEY Vice President of Financial March 31, 1999 - ------------------------------------------ Planning and Reporting T. Scott Kirksey (Principal Financial and Accounting Officer)
74 75 VERMONT TRANSIT CO., INC. By: /s/ CRAIG R. LENTZSCH Director, President and March 31, 1999 - ------------------------------------------ Chief Executive Officer Craig R. Lentzsch /s/ JACK W. HAUGSLAND Director March 31, 1999 - ------------------------------------------ Jack W. Haugsland /s/ J. FLOYD HOLLAND Director March 31, 1999 - ------------------------------------------ J. Floyd Holland /s/ T. SCOTT KIRKSEY Vice President of Financial March 31, 1999 - ------------------------------------------ Planning and Reporting T. Scott Kirksey (Principal Financial and Accounting Officer)
75 76 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION ------- ----------- 3.1 Restated Certificate of Incorporation of Greyhound Lines, Inc. 3.2 Bylaws of Greyhound Lines, Inc. 4.3 Second Supplemental Indenture to the 8 1/2% Convertible Subordinated Debentures Indenture between the Registrant and State Street Bank and Trust Company, as trustee. 10.33 Termination Agreement dated as of March 17, 1999, by and between Greyhound Lines, Inc. and Foothill Capital Corporation and BankBoston N.A. 10.36 Second Amendment to Supplemental Executive Retirement Plan. 10.37 Supplemental Executive Retirement Plan Trust Agreement 10.38 Second Amended Employment Agreement dated March 16, 1999, between Registrant and Craig R. Lentzsch. 10.39 Second Amended Employment Agreement dated March 16, 1999, between Registrant and John Werner Haugsland. 21 Subsidiaries of the Registrant. 27 Financial Data Schedule as of and for the year ended December 31, 1998.
EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 CERTIFICATE OF MERGER OF LAIDLAW TRANSIT ACQUISITION CORP. WITH AND INTO GREYHOUND LINES, INC. Greyhound Lines, Inc., a Delaware corporation, does hereby certify: 1. The name and state of incorporation of each of the constituent corporations participating in the merger are: (a) Greyhound Lines, Inc. ("Greyhound"), which is incorporated under the laws of the State of Delaware; and (b) Laidlaw Transit Acquisition Corp. ("LTAC"), which is incorporated under the laws of the State of Delaware. 2. The Amended and Restated Agreement and Plan of Merger, dated as of November 5, 1998 (the "Merger Agreement"), by and among Greyhound, Laidlaw Inc. and LTAC has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with Section 251 of the General Corporation Law of the State of Delaware. 3. The name of the surviving corporation in the merger is Greyhound Lines, Inc. (the "Company"). 4. The Restated Certificate of Incorporation of Greyhound Lines, Inc., as amended, shall be the Restated Certificate of Incorporation of the Company as set forth in the attached Exhibit A. 5. The executed Merger Agreement is on file at the principal place of business of the Company, the address of which is: 15110 N. Dallas Parkway, Suite 600, Dallas, Texas 75248. 6. A copy of the Merger Agreement will be furnished by the Company, on request and without cost, to any stockholder of either constituent corporation. 2 IN WITNESS WHEREOF, the Company has caused this Certificate of Merger to be signed by its President and Chief Executive Officer and attested by its Secretary as of this 16th day of March, 1999. GREYHOUND LINES, INC. By: /s/ Craig R. Lentzsch --------------------------------------- Craig R. Lentzsch, President and Chief Executive Officer ATTESTED BY: /s/ Mark E. Southerst - ---------------------------------- Mark E. Southerst, Secretary 3 Exhibit A RESTATED CERTIFICATE OF INCORPORATION OF GREYHOUND LINES, INC. FIRST. The name of the corporation is Greyhound Lines, Inc. SECOND. The address of the Company's registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company. THIRD. The purpose of the Company is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware, as amended. FOURTH. The total number of shares of stock which the Company shall have authority to issue is 102,400,000 shares of capital stock classified as (i) 2,400,000 shares of 8 1/2% Convertible Exchangeable Preferred Stock, par value $.01 per share ("Preferred Stock") and (ii) 100,000,000 shares of common stock, par value $.01 per share ("Common Stock"). The designations and the powers, preferences, rights, qualifications, limitations, and restrictions of the Preferred Stock and Common Stock are as follows: I. Provisions Relating to the Preferred Stock. (a) Designation. The following is a statement of the powers, preferences, rights, qualifications, limitations and restrictions of the Preferred Stock. The liquidation preference of the Preferred Stock (the "Liquidation Preference") shall be $25.00 per share. (b) Rank. the Preferred Stock shall, with respect to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company, rank (i) senior to all classes of common stock of the Company and to each other class of capital stock or series of preferred stock established after April 11, 1997 by the Board of Directors, the terms of which do not expressly provide that it ranks senior to or on a parity with the Preferred Stock as to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company (collectively referred to with the common stock of the Company as "Junior Securities"); (ii) on a parity with any class of capital stock or series of preferred stock established after the Preferred Stock Issue Date by the Board of Directors, the terms of which expressly provide that such class or series will rank on a parity with the Preferred Stock as to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company (collectively referred to as "Parity Securities"); and (iii) junior to each class of capital stock or series of 4 preferred stock established after the Preferred Stock Issue Date by the Board of Directors, the terms of which expressly provide that such class or series will rank senior to the Preferred Stock as to dividend distributions and distributions upon liquidation, winding-up and dissolution of the Company (collectively referred to as "Senior Securities"). The Preferred Stock shall be subject to the issuance of series of Junior Securities, Parity Securities and Senior Securities, provided that the Company may not issue any new class of Senior Securities without the approval of the Holders of at least 66 2/3% of the shares of Preferred Stock then outstanding, voting or consenting, as the case may be, together as one class. The Preferred Stock shall rank junior in right of payment to all indebtedness and other obligations of the Company. (c) Dividends. (i) Beginning on the Preferred Stock Issue Date, the Holders of the outstanding shares of Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available therefor, distributions in the form of cash dividends on each share of Preferred Stock, at a rate per annum equal to 8 1/2% of the Liquidation Preference per share of the Preferred Stock, payable quarterly. All dividends shall be cumulative, whether or not earned or declared, on a daily basis from the Preferred Stock Issue Date and shall be payable quarterly in arrears on each Dividend Payment Date, commencing on August 1, 1997. Each distribution in the form of a dividend shall be payable to the Holders of record as they appear on the stock register of the Company on the record date for such purpose fixed by the Board of Directors, which shall not be less than 10 nor more than 60 days preceding the related Dividend Payment Date. Dividends shall cease to accumulate in respect of shares of the Preferred Stock on the Exchange Date or on the date of their earlier redemption unless the Company shall have failed to issue the appropriate aggregate principal amount of Exchange Debentures in respect of the Preferred Stock on the Exchange Date or shall have failed to pay the relevant redemption price on the date fixed for redemption. (ii) All dividends paid with respect to shares of the Preferred Stock pursuant to paragraph I(c)(i) of this Article Fourth shall be paid pro rata to the Holders entitled thereto. (iii) Nothing herein contained shall in any way or under any circumstances be construed or deemed to require the Board of Directors to declare, or the Company to pay or set apart for payment, any cash dividends on shares of the Preferred Stock at any time. -2- 5 (iv) Dividends on account of arrears for any past Dividend Period and dividends in connection with any optional redemption pursuant to paragraph I(f)(i) of this Article Fourth may be declared and paid at any time, without reference to any regular Dividend Payment Date, to Holders of record on such date, not more than 45 days prior to the payment thereof, as may be fixed by the Board of Directors. (v) Except as set forth in the following sentence, no dividends shall be declared by the Board of Directors or paid or funds set apart for the payment of dividends by the Company on any Parity Securities for any period unless full cumulative dividends shall have been or contemporaneously are declared and paid in cash or declared and a sum in cash set apart sufficient for such payment on the Preferred Stock for all Dividend Periods terminating on or prior to the date of payment of such dividends on such Parity Securities. If full dividends in cash are not so paid upon the shares of the Preferred Stock and any other Parity Securities, all dividends declared upon the Preferred Stock and any other Parity Securities shall be declared pro rata so that the amount of dividends declared on each class or series of the Preferred Stock and such Parity Securities shall in all cases bear to each other the same ratio that the aggregate accrued dividends on the Preferred Stock and such Parity Securities bear to each other. (vi) (A) Holders of shares of the Preferred Stock shall be entitled to receive the dividends provided for in paragraph I(c)(i) of this Article Fourth in preference to and in priority over any dividends upon any of the Junior Securities. (B) So long as any shares of Preferred Stock are outstanding, the Company shall not declare, pay or set apart for payment any dividend on any Junior Securities or make any payment on account of, or set apart for payment money for a sinking or other similar fund for, the purchase, redemption or other retirement of, any Junior Securities or any warrants, rights, calls or options exercisable for or convertible into any Junior Securities, or make any distribution in respect thereof, either directly or indirectly, and whether in cash, obligations or shares of the Company or other property (other than distributions or dividends in Junior Securities to the holders of Junior Securities), and shall not permit any corporation or other entity directly or indirectly controlled by the Company to purchase or redeem any Junior Securities or any such warrants, rights, calls or options unless full cumulative dividends determined in accordance herewith have been paid or deemed paid in full on the Preferred Stock for all past Dividend Periods. (C) So long as any shares of the Preferred Stock are outstanding, the Company shall not make any payment on account of, or set apart for payment money for a sinking or other similar fund for, the purchase, redemption or other retirement of, any Parity Securities or any warrants, rights, calls or options exercisable for or convertible into any Parity Securities, and shall not permit any corporation or other entity directly or indirectly controlled by the -3- 6 Company to purchase or redeem any Parity Securities or any such warrants, rights, calls or options unless the dividends determined in accordance herewith on the Preferred Stock have been paid or deemed paid in full for all past Dividend Periods. (vii) Dividends payable on shares of the Preferred Stock for any period of less than a year shall be computed on the basis of a 360-day year of twelve 30-day months and the actual number of days elapsed in any period of less than one month. If any Dividend Payment Date occurs on a day that is not a Business Day, any accrued dividends otherwise payable on such Dividend Payment Date shall be paid on the next succeeding Business Day. (d) Liquidation Preference. (i) Upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company, the Holders of shares of Preferred Stock then outstanding shall be entitled to be paid, out of the assets of the Company available for distribution, the Liquidation Preference, plus an amount in cash equal to accumulated and unpaid dividends and Liquidated Damages, if any, thereon to the date fixed for liquidation, dissolution or winding-up (including an amount equal to a prorated dividend for the period from the last Dividend Payment Date to the date fixed for liquidation, dissolution or winding-up), before any payment shall be made or any assets distributed to the holders of any Junior Securities. If, upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company, the amounts payable with respect to the Preferred Stock and all other Parity Securities are not paid in full, then the holders of the Preferred Stock and the Parity Securities shall share equally and ratably in any distribution of assets of the Company in proportion to the full liquidation preference and accumulated and unpaid dividends and Liquidated Damages, if any, determined as of the date of such voluntary or involuntary liquidation, dissolution or winding-up, to which each is entitled. After payment of the full amount of the liquidation preferences and accumulated and unpaid dividends and Liquidated Damages, if any, to which they are entitled, the Holders of shares of Preferred Stock shall not be entitled to any further participation in any distribution of assets of the Company. (ii) For the purposes of this paragraph (d) only, neither the sale, lease, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Company nor the consolidation or merger of the Company with or into one or more entities shall be deemed to be a liquidation, dissolution or winding-up of the Company. -4- 7 (e) Conversion. (i) A Holder of shares of Preferred Stock may convert such shares into cash at any time. For the purposes of conversion, each share of Preferred Stock shall be convertible into $33.33. Immediately following such conversion, the rights of the Holders of converted Preferred Stock shall cease. (ii) To convert Preferred Stock, a Holder must (A) surrender the certificate or certificates evidencing the shares of Preferred Stock to be converted, duly endorsed in a form satisfactory to the Company, at the office of the Company or transfer agent for the Preferred Stock, (B) notify the Company at such office that he elects to convert Preferred Stock and the number of shares he wises to convert, and (C) pay any transfer or similar tax if required. In the event that a Holder fails to notify the Company of the number of shares of Preferred Stock which he wises to convert, he shall be deemed to have elected to convert all shares represented by the certificate or certificates surrendered for conversion. The date on which the Holder satisfies all those requirements is the "Conversion Date." As soon as practical, the Company shall deliver a payment in cash and a new certificate representing the unconverted portion, if any, of the shares of Preferred Stock represented by the certificate or certificates surrendered for conversion. No payment or adjustment will be made for accrued and unpaid dividends on converted shares of Preferred Stock. A share of Preferred Stock surrendered for conversion during the period from the close of business on any record date for the payment of dividends to the opening of business of the corresponding Dividend Payment Date must be accompanied by a payment in cash in an amount equal to the dividend payable on such Dividend Payment Date, unless such share of Preferred Stock has been called for redemption on a redemption date occurring during the period from the close of business on any record date for the payment of dividends to the close of business on the business day immediately following the corresponding Dividend Payment Date. The dividend payment with respect to a share of Preferred Stock called for redemption on a date during the period from the close of business on any record date for the payment of dividends to the close of business on the business day immediately following the corresponding Dividend Payment Date will be payable on such Dividend Payment Date to the record Holder of such share on such record date, notwithstanding the conversion of such share after such record date and prior to such Dividend Payment Date, and the Holder converting such share of Preferred Stock need not include a payment of such dividend amount upon surrender of such share of Preferred Stock for conversion. If the last day on which Preferred Stock may be converted is not a Business Day, Preferred Stock may be surrendered for conversion on the next succeeding Business Day. (iii) All shares of Preferred Stock converted pursuant to this paragraph (e) shall be restored to the status of authorized and unissued shares of Preferred Stock. -5- 8 (f) Redemption (i) Optional Redemption. (A) The Company may, at the option of the Board of Directors, redeem at any time on or after May 3, 2000, from any source of funds legally available therefor, in whole or in part, in the manner provided in paragraph I(e)(iii) of this Article Fourth, any or all of the shares of the Preferred Stock, at the redemption prices (expressed as a percentage of the Liquidation Preference) set forth below if redeemed during the 12-month period beginning on May 3 of each of the years indicated below:
Year Percentage ---- ---------- 2000................................. 104.86% 2001................................. 103.64% 2002................................. 102.43% 2003................................. 101.21% 2004 and thereafter.................. 100.00%
plus, in each case, an amount in cash equal to all accumulated and unpaid dividends per share (including an amount in cash equal to a prorated dividend for the period from the Dividend Payment Date immediately prior to the date fixed for redemption (the "Redemption Date") and Liquidated Damages, if any (the "Optional Redemption Price"), provided, that no optional redemption pursuant to this paragraph (f)(i)(A) shall be authorized or made unless prior to the applicable Redemption Notice all accumulated and unpaid dividends for Dividend Periods ended prior to the date of such Redemption Notice shall have been paid in cash. (B) In the event of a redemption pursuant to paragraph I(f)(i)(A) of this Article Fourth of only a portion of the then outstanding shares of the Preferred Stock, the Company shall effect such redemption pro rata according to the number of shares held by each Holder of the Preferred Stock or by lot, as may be determined by the Company in its sole discretion; provided that the Company may redeem all shares held by Holders of fewer than 100 shares of Preferred Stock (or by Holders that would hold fewer than 100 shares of Preferred Stock following such redemption) prior to its redemption of other shares of Preferred Stock. (ii) Procedures for Redemption. (A) At least 30 days and not more than 60 days prior to the Redemption Date of the Preferred Stock, the Company shall make a public announcement of the redemption, and shall mail written notice (the "Redemption Notice") by first class mail, postage prepaid, to each Holder of record on the record date fixed for such redemption of the Preferred Stock at such Holder's address as the same appears on the stock register of the 9 Company, provided that no failure to give such notice nor any deficiency therein shall affect the validity of the procedure for the redemption of any shares of Preferred Stock to be redeemed except as to the Holder or Holders to whom the Company has failed to give said notice or except as to the Holder or Holders whose notice was defective. The Redemption Notice shall state: (1) that the redemption is pursuant to paragraph I(f)(i)(A) of this Article Fourth; (2) the Optional Redemption Price; (3) whether all or less than all the outstanding shares of the Preferred Stock are to be redeemed and the total number of shares of the Preferred Stock being redeemed; (4) the number of shares of Preferred Stock held, as of the appropriate record date, by the Holder that the Company intends to redeem; (5) the Redemption Date; (6) that the Holder is to surrender to the Company, at the place or places where certificates for shares of Preferred Stock are to be surrendered for redemption, in the manner and at the price designated, his certificate or certificates representing the shares of Preferred Stock to be redeemed; (7) the name of any bank or trust company performing the duties referred to in paragraph I(f)(ii)(D) of this Article Fourth; and (8) that dividends on the shares of the Preferred Stock to be redeemed shall cease to accrue on such Redemption Date unless the Company defaults in the payment of the Optional Redemption Price. (B) Each Holder of Preferred Stock shall surrender the certificate or certificates representing such shares of Preferred Stock to the Company, duly endorsed, in the manner and at the place designated in the Redemption Notice, and on the Redemption Date the full Optional Redemption Price for such shares shall be payable in cash to the Person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be canceled and retired. In the event that less than all of the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. -7- 10 (C) Unless the Company defaults in the payment in full of the applicable redemption price, dividends on the Preferred Stock called for redemption shall cease to accumulate on the Redemption Date, and the Holders of such redemption shares shall cease to have any further rights with respect thereto on the Redemption Date, other than the right to receive the Optional Redemption Price without interest. (D) If a Redemption Notice shall have been duly given or if the Company shall have given to the bank or trust company hereinafter referred to irrevocable authorization promptly to give such notice, and if on or before the Redemption Date specified therein the funds necessary for such redemption shall have been deposited by the Company with such bank or trust company in trust for the pro rata benefit of the Holders of the Preferred Stock called for redemption, then, notwithstanding that any certificate for shares so called for redemption shall not have been surrendered for cancellation, from and after the close of business on the day on which such funds are so deposited, all shares so called, or to be so called pursuant to such irrevocable authorization, for redemption shall no longer be deemed to be outstanding and all rights with respect of such shares shall forthwith cease and terminate and, for the purposes of paragraphs (f)(ii)(A)(8) and (f)(ii)(C) above, the Company will be deemed to have paid the Optional Redemption Price on the Redemption Date, except only the right of Holders thereof to receive from such bank or trust company at any time after the time of such deposit the funds so deposited, without interest, and the right of the Holders thereof to convert such shares as provided in paragraph I(f) of this Article Fourth to the Business Day preceding the Redemption Date. The aforesaid bank or trust company shall be organized and in good standing under the laws of the United States of America or any state thereof, shall have capital, surplus and undivided profits aggregating at least $100,000,000 according to its last published statement of condition, and shall be identified in the Redemption Notice. Any interest accrued on such funds shall be paid to the Company from time to time. Any funds so set aside or deposited, as the case may be, in respect of shares of the Preferred Stock that are subsequently converted shall be promptly returned to the Company. Any funds so set aside or deposited, as the case may be, and unclaimed at the end of three years from such redemption shall, to the extent permitted by law, be released or repaid to the Company, after which repayment the Holders of the shares so called for redemption shall look only to the Company for payment thereof. (g) Voting Rights. (i) The holders of shares of Preferred Stock shall be entitled to vote (together with the holders of shares of Common Stock as one class) upon all matters submitted to a vote of the stockholders of the Company and shall be entitled to one vote for each share held. Holders of Preferred Stock shall further be entitled to vote as set forth in paragraphs I(g)(ii), I(g)(iii) and I(g)(iv) of this Article Fourth. -8- 11 (ii) (A) So long as any shares of the Preferred Stock are outstanding, the Company shall not authorize any class of Senior Securities without the affirmative vote or consent of Holders of at least 66 2/3% of the outstanding shares of Preferred Stock, voting or consenting, as the case may be, as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting. (B) So long as any shares of the Preferred Stock are outstanding, the Company shall not amend this Section I of this Article Fourth so as to affect adversely the specified rights, preferences, privileges or voting rights of Holders of shares of Preferred Stock or to authorize the issuance of any additional shares of Preferred Stock without the affirmative vote or consent of Holders of at least 66 2/3% of the issued and outstanding shares of Preferred Stock, voting or consenting, as the case may be, as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting. (C) Except as set forth in paragraph (g)(ii)(A) above, (1) the creation, authorization or issuance of any shares of any Junior Securities, Parity Securities or Senior Securities or (2) the increase or decrease in the amount of authorized capital stock of any class, including any preferred stock, shall not require the consent of the Holders of Preferred Stock and shall not be deemed to affect adversely the rights, preferences, privileges or voting rights of the Preferred Stock. (iii) (A) If (1) dividends on the Preferred Stock are in arrears and unpaid for six quarterly dividend periods (whether or not consecutive) (a "Dividend Default"); or (2) the Company fails to make a Preferred Stock Change of Control Offer or to repurchase all of the Preferred Stock validly tendered in a Preferred Stock Change of Control Offer pursuant to the provisions of paragraph I(i) of this Article Fourth (a "Change of Control Default") (in each case, a "Voting Rights Triggering Event"), then the number of directors constituting the Board of Directors shall be adjusted to permit the Holders of the majority of the then outstanding Preferred Stock, voting separately as one class, to elect two directors. Holders of a majority of the issued and outstanding shares of the Preferred Stock, voting separately as one class, shall have the exclusive right to elect such members of the Board of Directors at a meeting therefor called upon occurrence of such Dividend Default or Change of Control Default, as the case may be, and at every subsequent meeting at which the terms of office of the directors so elected by the Holders of the Preferred Stock expire (other than as described in (g)(iii)(B) below). (B) The right of the Holders of Preferred Stock voting separately as one class to elect members of the Board of Directors as set forth in paragraph (g)(iii)(A) above shall continue until such time as (1) in the event such right arises due to a Dividend Default, all accumulated dividends and Liquidated Damages, if any, that are in arrears on the Preferred Stock are paid in full; and (2) 12 in the event such right arises because a Change of Control Default, the Company remedies any such failure, breach or default, at which time the term of any directors elected pursuant to paragraph I(g)(iii)(A) of this Article Fourth shall terminate, subject always to the same provisions for the renewal and divestment of such special voting rights in the case of any future Voting Rights Triggering Event. At any time after voting power to elect directors shall have become vested and be continuing in the Holders of shares of the Preferred Stock pursuant to paragraph I(g)(iii)(A) of this Article Fourth if vacancies shall exist in the offices of directors elected by the Holders of shares of the Preferred Stock, a proper officer of the Company may, and upon the written request of the Holders of record of at least 10% of the shares of Preferred Stock then outstanding addressed to the Secretary of the Company shall, call a special meeting of the Holders of Preferred Stock, for the purpose of electing the directors that such Holders are entitled to elect. If such meeting shall not be called by the proper officer of the Company within 20 days after personal service of said written request upon the Secretary of the Company, or within 20 days after mailing the same within the United States by certified mail, addressed to the Secretary of the Company at its principal executive offices, then the Holders of record of at least 20% of the outstanding shares of the Preferred Stock may designate in writing one of their number to call such meeting at the expense of the Company, and such meeting may be called by the Person so designated upon the notice required for the annual meetings of stockholders of the Company and shall be held at the place for holding the annual meetings of stockholders or such other place in the United States as shall be designated in such notice. Notwithstanding the provisions of this paragraph (g)(iii)(B), no such special meeting shall be called if any such request is received less than 30 days before the date fixed for the next ensuing annual or special meeting of stockholders of the Company. Any Holder of shares of the Preferred Stock so designated shall have, and the Company shall provide, access to the lists of Holders of shares of the Preferred Stock for purposes of calling a meeting pursuant to the provisions of this paragraph (g)(iii)(B). (C) At any meeting held for the purpose of electing directors at which the Holders of Preferred Stock shall have the right, voting separately as one class, to elect directors as aforesaid, the presence in person or by proxy of the Holders of at least a majority of the outstanding Preferred Stock shall be required to constitute a quorum of such Preferred Stock. (D) Directors elected pursuant to this paragraph (g) shall serve until the earlier of (1) the next annual meeting of the stockholders and until their successors are qualified or (2) the time specified in paragraph (g)(iii)(B) above. Any vacancy occurring in the office of a director elected by the Holders of shares of the Preferred Stock may be filled by the remaining director elected by the Holders of shares of the Preferred Stock unless and until such vacancy shall be filled by the Holders of shares of the Preferred Stock. -10- 13 (iv) In any case in which the Holders of shares of the Preferred Stock shall be entitled to vote pursuant to this paragraph (g) or pursuant to Delaware law, each Holder of shares of the Preferred Stock shall be entitled to one vote for each share of Preferred Stock held. (h) Exchange. (i) Requirements. (A) The Company at its option may exchange all, but not less than all, of the then outstanding shares of Preferred Stock into the Company's 8 1/2% Convertible Subordinated Debentures due 2009 (the "Exchange Debentures") on any Dividend Payment Date on or after April 16, 1999, provided that within 30 days of the Exchange Date, the Company shall send a written notice (the "Exchange Notice") of exchange by mail to each Holder, which notice shall state: (1) that the Company is exercising its option to exchange the Preferred Stock into Exchange Debentures pursuant to this Section I of this of this Article Fourth; (2) the date of the exchange (the "Exchange Date"), which date shall not be less than 30 days nor more than 60 days following the date on which the Exchange Notice is mailed; (3) that the Holder is to surrender to the Company, at the place or places where certificates for shares of Preferred Stock are to be surrendered for exchange, in the manner designated in the Exchange Notice, his certificate or certificates representing the shares of Preferred Stock to be exchanged; (4) that dividends on the shares of Preferred Stock to be exchanged shall cease to accrue on the Exchange Date whether or not certificates for shares of Preferred Stock are surrendered for exchange on the Exchange Date unless the Company shall default in the delivery of Exchange Debentures; and (5) that interest on the Exchange Debentures shall accrue from the Exchange Date whether or not certificates for shares of Preferred Stock are surrendered for exchange on the Exchange Date. On the Exchange Date, if the conditions set forth in clauses (u) through (z) below are satisfied, the Company shall issue Exchange Debentures in exchange for the Preferred Stock as provided in the clause (B) of this paragraph (h)(i) provided that on the Exchange Date: (u) there are no accumulated and unpaid dividends or Liquidated Damages on the Preferred Stock (including the dividends payable and Liquidated Damages on such date) or other contractual impediment to such exchange; (v) there shall be legally available funds sufficient therefore; (w) a registration statement relating to the Exchange Debentures shall have been declared effective under the Securities Act prior to such exchange and shall continue to be in effect on the date of such exchange, or the Company shall have obtained a written opinion of counsel that an exemption from the registration requirements of the Securities Act is available for such exchange, and that upon receipt of such Exchange Debentures pursuant to such exchange made in accordance with such exemption, the holders (assuming such holder is not an Affiliate of the Company) thereof will not be subject to any restrictions imposed by the Securities Act upon the resale thereof, other than any such restriction to which the holder thereof already is subject on the Exchange Date, and such exemption is relied upon by the Company for such exchange; (x) the Exchange Debenture Indenture and the trustee thereunder shall have been -11- 14 qualified under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"); (y) immediately after giving effect to such exchange, no Default or Event of Default (each as defined in the Exchange Debenture Indenture) would exist under the Exchange Debenture Indenture; and (z) the Company shall have delivered to the trustee under the Exchange Debenture Indenture a written opinion of counsel, dated the Exchange Date, regarding the satisfaction of the conditions set forth in clauses (u), (v), (w) and (x). In the event that the issuance of the Exchange Debentures is not permitted on the Exchange Date or any of the condition set forth in clause (u) through (z) of the preceding sentence are not satisfied on the Exchange Date, the Company shall use its best efforts to satisfy such conditions and effect such exchange as soon as practicable. (B) Upon any exchange pursuant to paragraph I(g)(i)(A) of this Article Fourth, Holders of outstanding shares of Preferred Stock shall be entitled to receive $1,000 principal amount of Exchange Debentures for each 40 shares of Preferred Stock, plus an amount in cash equal to accumulated and unpaid dividends (including a prorated dividend for the period from the immediately preceding Dividend Payment Date to the date of exchange) and Liquidated Damages, if any; provided, that the Company shall pay cash in lieu of issuing an Exchange Debenture in a principal amount of less than $1,000. On and after the Exchange Date, unless the Company defaults in the issuance of Exchange Debentures in exchange for the Preferred Stock, dividends will cease to accrue on the outstanding shares of Preferred Stock, and all rights of the Holders of Preferred Stock (except the right to receive the Exchange Debentures, an amount in cash equal to the accrued and unpaid dividends and Liquidated Damages, if any, to the Exchange Date and cash in lieu of any Exchange Debenture that is in an amount that is not an integral multiple of $1,000) will terminate, and the Person entitled to receive the Exchange Debentures issuable upon such exchange will be treated for all purposes as the registered holder of such Exchange Debentures. (ii) Procedure for Exchange. (A) On or before the Exchange Date, each Holder of Preferred Stock shall surrender the certificate or certificates representing such shares of Preferred Stock, in the manner and at the place designated in the Exchange Notice. The Company shall cause the Exchange Debentures to be executed on the Exchange Date and, upon surrender in accordance with the Exchange Notice of the certificates for any shares of Preferred Stock so exchanged (properly endorsed or assigned for transfer, if the notice shall so state), such shares shall be exchanged by the Company into Exchange Debentures. The Company shall pay interest on the Exchange Debentures at the rate and on the dates specified therein from the Exchange Date. (B) If notice has been mailed as aforesaid, and if before the Exchange Date specified in such notice (1) the Exchange Debenture Indenture shall have been duly executed and delivered by the Company and the trustee and (2) all Exchange Debentures necessary for such exchange shall have been duly executed by the Company and delivered to the trustee with irrevocable -12- 15 instructions to authenticate the Exchange Debentures necessary for such exchange, then dividends shall cease to accrue on the outstanding shares of Preferred Stock, and all rights of the Holders of Preferred Stock (except the right to receive the Exchange Debentures, an amount in cash equal to the accrued and unpaid dividends and Liquidated Damages, if any, to the Exchange Date and cash in lieu of any Exchange Debenture that is in an amount that is not an integral multiple of $1,000) will terminate. The Person entitled to receive the Exchange Debentures issuable upon such exchange will be treated for all purposes as the holder of such Exchange Debentures. (i) Change of Control. (i) Subject to paragraph I(i)(v) of this Article Fourth, upon the occurrence of a Change of Control, the Company shall be required to make an offer (a "Preferred Stock Change of Control Offer") to each Holder of shares of Preferred Stock to repurchase all or any part of such Holder's shares of Preferred Stock at an offer price in cash equal to 100% of the aggregate Liquidation Preference thereof plus an amount in cash equal to all accumulated and unpaid dividends (including an amount in cash equal to a prorated dividend for the period from the Dividend Payment Date immediately prior to the Change of Control Payment Date) and Liquidated Damages, if any, thereon to the date of repurchase (the "Change of Control Payment"). (ii) Within 30 days following any Change of Control, the Company shall mail a notice to each Holder describing the transaction that constitutes the Change of Control, together with such other information as may be required pursuant to the securities laws, and stating: (A) that the Change of Control Offer is being made pursuant to this Section I of this Article Fourth and that, to the extent lawful, all shares of Preferred Stock validly tendered will be accepted for payment; (B) the purchase price and the purchase date, which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"); (C) that any shares of Preferred Stock not tendered will continue to accrue dividends in accordance with the terms of this Section I of this Article Fourth; (D) that, unless the Company defaults in the payment of the Change of Control Payment, all shares of Preferred Stock accepted for payment pursuant to the Change of Control Offer shall cease to accrue dividends on the Change of Control Payment Date; and (E) a description of the procedures to be followed by such Holder in order to have its shares of Preferred Stock repurchased. (iii) On the Change of Control Payment Date, (A) the Company shall, to the extent lawful, (A) accept for payment shares of Preferred Stock validly tendered pursuant to the Change of Control Offer and (B) promptly mail to each Holder of shares of Preferred Stock so accepted payment in an amount equal to the purchase price for such shares and (B) unless the Company defaults in the payment for the shares of Preferred Stock tendered pursuant to the Preferred Stock -13- 16 Change of Control Offer, dividends will cease to accrue with respect to the shares of Preferred Stock tendered and all rights of Holders of such tendered shares will terminate, except for the right to receive payment therefor, on the Change of Control Payment Date. The Company shall publicly announce the results of the Preferred Stock Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. (iv) The Company shall comply with any securities laws and regulations, to the extent such laws and regulations are applicable to the repurchase of shares of the Preferred Stock in connection with a Change of Control. (v) Notwithstanding the foregoing, prior to complying with this paragraph (i), but in any event within 90 days following a Change of Control, the Company shall either repay all outstanding indebtedness or obtain the requisite consents, if any, under all agreements governing outstanding indebtedness necessary to permit the repurchase of the Preferred Stock required by this paragraph (i). (vi) Notwithstanding the foregoing, the Company will not be required to make a Change of Control Offer following a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Section I of this Article Fourth applicable to a Change of Control Offer made by the Company and purchases all of the Preferred Stock validly tendered and not withdrawn under such Change of Control Offer. (j) Preemptive Rights. No shares of Preferred Stock shall have any rights of preemption whatsoever as to any securities of the Company, or any warrants, rights or options issued or granted with respect thereto, regardless of how such securities or such warrants, rights or options may be designated, issued or granted. (k) Reissuance of Preferred Stock. Shares of Preferred Stock that have been issued and reacquired in any manner, including shares purchased or redeemed or exchanged, shall (upon compliance with any applicable provisions of the laws of Delaware) have the status of authorized but unissued shares of Preferred Stock and may be issued or reissued, as the case may be, provided that any issuance of such shares as Preferred Stock must be in compliance with the terms in this Section I of this Article Fourth. (l) Business Day. If any payment, redemption or exchange shall be required by the terms in this Section I of this Article Fourth to be made on a day that is not a Business Day, such payment, redemption or exchange shall be made on the immediately succeeding Business Day. -14- 17 (m) Merger. Consolidation and Sale of Assets. Without the vote or consent of the Holders of a majority of the then outstanding shares of Preferred Stock, the Company may not consolidate or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, any person unless (i) the entity formed by such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (in any such case, the "resulting entity") is a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia; (ii) if the Company is not the resulting entity, the Preferred Stock is converted into or exchanged for and becomes shares of such resulting entity, having in respect of such resulting entity the same (or more favorable) powers, preferences and relative, participating, optional or other special rights thereof that the Preferred Stock had immediately prior to such transaction; and (iii) immediately after giving effect to such transaction, no Voting Rights Triggering Event has occurred and is continuing. The resulting entity of such transaction shall thereafter be deemed to be the "Company" for all purposes of this Section I of this Article Fourth. (n) Reports. Whether or not the Company is required to do so by the rules and regulations of the Commission, the Company shall file with the Commission (unless the Commission will not accept such a filing) and, within 15 days of filing, or attempting to file, the same with the Commission, furnish to the Holders of the Preferred Stock (i) all quarterly and annual financial and other information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's certified independent accountants, and (ii) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports. In addition, the Company shall furnish to the Holders of the Preferred Stock, prospective purchasers of shares of Preferred Stock and securities analysts, upon their request, the information, if any, required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. (o) Mutilated or Missing Preferred Stock Certificates. If any of the Preferred Stock certificates shall be mutilated, lost, stolen or destroyed, the Company shall issue, in exchange and in substitution for and upon cancellation of the mutilated Preferred Stock certificate, or in lieu of and substitution for the Preferred Stock certificate lost, stolen or destroyed, a new Preferred Stock certificate of like tenor and representing an equivalent amount of shares of Preferred Stock, but only upon receipt of evidence of such loss, theft or destruction of such Preferred Stock certificate and indemnity, if requested, satisfactory to the Company and the transfer agent (if other than the Company). (p) Headings of Subdivision. The headings of various subdivisions in this Section I of this Article Fourth are for convenience of reference only and shall not affect the interpretation of any of the provisions in this Section I of this Article Fourth. -15- 18 (q) Severability of Provisions. If any right, preference or limitation of the Preferred Stock set forth in this Section I of this Article Fourth filed pursuant hereto (as this Section I of this Article Fourth may be amended from time to time) is invalid, unlawful or incapable of being enforced by reason of any rule or law or public policy, all other rights, preferences and limitations set forth in this Section I of this Article Fourth, as amended, which can be given effect without the invalid, unlawful or unenforceable right, preference or limitation shall, nevertheless remain in full force and effect and no right, preference or limitation herein set forth shall be deemed dependent upon any other such right preference or limitation unless so expressed herein. (r) Notice of the Company. All notices other communications required or permitted to be given to the Company hereunder shall be made by first-class mail, postage prepaid, to the Company at its principal executive offices, Attention: General Counsel. Minor imperfections in any such notice shall not affect the validity thereof. (s) Limitations. Except as may otherwise be required by law, the shares of Preferred Stock shall not have any powers, preferences or relative, participating, optional or other special rights other than those specifically set forth in this Section I of this Article Fourth (as may be amended from time to time) or otherwise in the Certificate of Incorporation of the Company. (t) Definitions. As used in this Section I of this Article Fourth, the following terms shall have the following meanings (with terms defined in the singular having comparable meanings when used in the plural and vice versa), unless the context otherwise requires: "Affiliate" of any specified Person means an "affiliate" of such Person. as such term is defined for purposes of Rule 144 under the Securities Act. "Board of Directors" means the Board of Directors of Greyhound Lines, Inc. "Business Day" means any day except a Saturday, a Sunday, or any day on which banking institutions in New York, New York are required or authorized by law or other governmental action to be closed. "Capital Stock" means any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock or partnership interests, whether common or preferred. "Certificate of Incorporation" means the Certificate of Incorporation of Greyhound Lines, Inc., as in effect from time to time. "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, (ii) the adoption of a plan relating to the liquidation or dissolution of the Company, (iii) -16- 19 the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" or "group" (as such terms are used in Section 13(d)(3) of the Exchange Act) becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule l3d-5 under the Exchange Act), directly or indirectly through one or more intermediaries, of more than 50% of the voting power of the outstanding voting stock of the Company, unless at least 90% of the consideration in the transaction or transactions constituting a Change of Control pursuant to clause (iii) consists of shares of common stock traded or to be traded immediately following such Change of Control on a national securities exchange or the NASDAQ National Market and, as a result of such transaction or transactions, the Preferred Stock become, convertible solely into such common stock (and any rights attached thereto), or (iv) the first day on which more than a majority of the Board of Directors are not Continuing Directors; provided, however, that a transaction in which the Company becomes a subsidiary of another entity shall not constitute a Change of Control if (A) the stockholders of the Company immediately prior to such transaction "beneficially own" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly through one or more intermediaries, at least a majority of the voting power of the outstanding voting stock of the Company immediately following the consummation of such transaction and (B) immediately following the consummation of such transaction, no "person" or "group" (as such terms are defined above), other than such other entity (but including holders of equity interests of such other entity), "beneficially owns" (as such term is defined above), directly or indirectly through one or more intermediaries, more than 50 % of the voting power of the outstanding voting stock of the Company. "Change of Control Default" has the meaning set forth in paragraph I(g)(iii) of this Article Fourth. "Change of Control Payment" has the meaning set forth in paragraph I(i)(i) of this Article Fourth. "Control of Control Payment Date " has the meaning set forth in paragraph I(i)(ii) of this Article Fourth. "Commission" means the Securities and Exchange Commission. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of the Board of Directors on the date of original issuance of the Preferred Stock or (ii) was nominated for election to the Board of Directors with the approval of, or whose election to the Board of Directors was ratified by, at least two-thirds of the Continuing Directors who were members of the Board of Directors at the time of such nomination or election. -17- 20 "Conversion Date" has the meaning set forth in paragraph I(e)(ii) of this Article Fourth. "Dividend Default" has the meaning set forth in paragraph I(g)(iii) of this Article Fourth. "Dividend Payment Date" means February 1, May 1, August 1 and November 1 of each year. "Dividend Period" means the Initial Dividend Period and, thereafter, each Quarterly Dividend Period. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Date" means a date on which shares of Preferred Stock are exchanged by the Company for Exchange Debentures. "Exchange Debentures" has the meaning set forth in paragraph I(h)(i) of this Article Fourth. "Exchange Debenture Indenture" means that certain indenture under which the Exchange Debentures will be issued. "Exchange Notice" has the meaning set forth in paragraph I(h)(i) of this Article Fourth. "Holder" means a holder of shares of Preferred Stock as reflected in the stock records of the Company or the transfer agent for the Preferred Stock. "Initial Dividend Period" means the dividend period commencing on the Preferred Stock Issue Date and ending on the day before the first Dividend Payment Date to occur thereafter. "Junior Securities" has the meaning set forth in paragraph I(b) of this Article Fourth. "Liquidated Damages" means all liquidated damages then owing under the Registration Rights Agreement. "Liquidation Preference" has the meaning set forth in paragraph I(a) of this Article Fourth. "Optional Redemption Price" has the meaning set forth in paragraph I(f)(i) of this Article Fourth. -18- 21 "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust or unincorporated organization (including any subdivision or ongoing business of any such entity or substantially all of the assets of any such entity, subdivision or business). "Preferred Stock Change of Control Offer" has the meaning set forth in paragraph I(i)(i) of this Article Fourth. "Preferred Stock Issue Date" means the date on which the Preferred Stock is originally issued by the Company. "Quoted Price " means the last reported sales price of the applicable security on the principal exchange (including, if applicable, the NASDAQ National Market) on which the applicable security is listed or admitted for trading (which shall be for consolidated trading if applicable to such exchange), or if neither so reported or listed or admitted for trading, the last reported bid price of the applicable security in the over-the-counter market. In the event that the Quoted Price cannot be determined as aforesaid, the Board of Directors of the Company shall determine the Quoted Price on the basis of such quotations as it in good faith considers appropriate. "Quarterly Dividend Period" shall mean the quarterly period commencing on each February 1, May 1, August 1 and November 1 and ending on the before the following Dividend Payment Date. "Redemption Date" with respect to any shares of Preferred Stock, means the date on which such shares of Preferred Stock are redeemed by the Company. "Redemption Notice" has the meaning set forth in paragraph I(f)(ii) of this Article Fourth. "Registration Rights Agreement" means the Registration Rights Agreement with respect to the Preferred Stock, dated as of April 16, 1997, by and between the Company and Bear, Stearns & Co. Inc., as such agreement may be amended, modified or supplemented from time to time. "Senior Securities" has the meaning set forth in paragraph I(b) of this Article Fourth. "Shareholder Rights Plan" means the Amended and Restated Rights Agreement dated as of April 8, 1997 by and between the Company and Mellon Securities Trust Company, as Rights Agent. "Trading Day" means any day on which the American Stock Exchange or other applicable stock exchange or market is open for business. -19- 22 "Trust Indenture Act" has the meaning set forth in paragraph I(h)(i) of this Article Fourth. "Voting Rights Triggering Event" has the meaning set forth in paragraph I(g)(iii) of this Article Fourth. II. Provisions Relating to the Common Stock (a) General. Each share of Common Stock of the Company shall have identical rights and privileges in every respect. The holders of shares of Common Stock shall be entitled to vote upon all matters submitted to a vote of the stockholders of the Company and shall be entitled to one vote for each share held. (b) Dividends and Distributions. Subject to the prior rights and preferences, if any, applicable to shares of Preferred Stock, the holders of shares of Common Stock shall be entitled to receive such dividends or other distributions, payable in cash, property, stock, or otherwise, as may be declared thereon by the Board of Directors at any time and from time to time out of any funds of the Company legally available therefor. (c) Dissolution. In the event of any voluntary or involuntary liquidation, dissolution, or winding-up of the affairs of the Company, after distribution in full of the preferential amounts, if any, to be distributed to the holders of shares of the Preferred Stock, the holders of shares of Common Stock shall be entitled to receive all of the remaining assets of the Company available for distribution to its stockholders, ratably in proportion to the number of shares of Common Stock held by them. Neither the consolidation with nor the merger of the Company into any other corporation or corporations or other entity or entities, nor the merger of any other corporation or other entity into the Company, nor a reorganization of the Company, nor the purchase or redemption of all or any part of the outstanding shares of any class or classes of the capital stock of the Company, nor a voluntary sale or transfer of the property and business of the Company as, or substantially as, an entirety, shall be deemed a liquidation, dissolution, or winding-up of the affairs of the Company within the meaning of any of the provisions of this Section II. III. General. (a) Subject to the foregoing provisions of this Certificate of Incorporation, the Company may issue shares of its Preferred Stock and Common Stock from time to time for such consideration (not less than the par value thereof) as may be fixed by the Board of Directors, which is expressly authorized to fix the same in its absolute and uncontrolled discretion subject to the foregoing conditions. Shares so issued for which the consideration shall have been paid or delivered to the Company shall be deemed fully paid stock and shall not be liable to any further call or assessment thereon, and the holders of such shares shall not be liable for any further payments in respect of such shares. (b) The Company shall have authority to create and issue rights and options entitling their holders to purchase shares of the Company's capital stock of any class or series or -20- 23 other securities of the Company, and such rights and options shall be evidenced by instrument(s) approved by the Board of Directors. The Board of Directors shall be empowered to set the exercise price, duration, times for exercise, and other terms of such options or rights; provided, however, that the consideration to be received for any shares of capital stock subject thereto shall not be less than the par value thereof. FIFTH. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized: (1) To adopt, amend or repeal the by-laws of the Company and (2) To provide for the indemnification of directors, officers, management, employees and agents of the Company, and of persons who serve other enterprises in such or similar capacities at the request of the Company, to the full extent permitted by the General Corporation Law of the State of Delaware, as amended, or any other applicable laws, as may from time to time be in effect. SIXTH: The Company shall indemnify any person who was, is, or is threatened to be made a party to a proceeding (as hereinafter defined) by reason of the fact that he or she (i) is or was a director or officer of the Company or (ii) while a director or officer of the Company, is or was serving at the request of the Company as a director, officer, partner, venturer, proprietor, trustee, employee, agent, or similar functionary of another foreign or domestic corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan, or other enterprise, to the fullest extent permitted under the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended. Such right shall be a contract right and as such shall run to the benefit of any director or officer who is elected and accepts the position of director or officer of the Company or elects to continue to serve as a director or officer of the Company while this Article Sixth is in effect. Any repeal or amendment of this Article Sixth shall be prospective only and shall not limit the rights of any such director or officer or the obligations of the Company with respect to any claim arising from or related to the services of such director or officer in any of the foregoing capacities prior to any such repeal or amendment to this Article Sixth. Such right shall include the right to be paid by the Company expenses incurred in defending any such proceeding in advance of its final disposition to the maximum extent permitted under the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended. If a claim for indemnification or advancement of expenses hereunder is not paid in full by the Company within sixty (60) days after a written claim has been received by the Company, the claimant may at any time thereafter bring suit against the Company to recover the unpaid amount of the claim, and if successful in whole or in part, the claimant shall also be entitled to be paid the expenses of prosecuting such claim. It shall be a defense to any such action that such indemnification or advancement of costs of defense is not permitted under the General Corporation Law of the State of Delaware, but the burden of proving such defense shall be on the Company. Neither the failure of the Company (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to have made its determination prior to the commencement of such action that indemnification of, or advancement of costs of defense to, the claimant is permissible in the circumstances nor an actual determination by the -21- 24 Company (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) that such indemnification or advancement is not permissible shall be a defense to the action or create a presumption that such indemnification or advancement is not permissible. In the event of the death of any person having a right of indemnification under the foregoing provisions, such right shall inure to the benefit of his or her heirs, executors, administrators, and personal representatives. The rights conferred above shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, bylaw, resolution of stockholders or directors, agreement, or otherwise. The Company may additionally indemnify any employee or agent of the Company to the fullest extent permitted by law. As used herein, the term "proceeding" means any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, arbitrative, or investigative, any appeal in such an action, suit, or proceeding, and any inquiry or investigation that could lead to such an action, suit, or proceeding. SEVENTH. A director of the Company shall not be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal or amendment of this Article Seventh by the stockholders of the Company shall be prospective only, and shall not adversely affect any limitation on the personal liability of a director of the Company arising from an act or omission occurring prior to the time of such repeal or amendment. In addition to the circumstances in which a director of the Company is not personally liable as set forth in the foregoing provisions of this Article Seventh, a director shall not be liable to the Company or its stockholders to such further extent as permitted by any law hereafter enacted, including without limitation any subsequent amendment to the General Corporation Law of the State of Delaware. EIGHTH. Elections of directors need not be by written ballot unless the by-laws of the Company shall so provide. NINTH. Action may be taken by the stockholders of the Company, without a meeting, by written consent as and to the extent provided at the time by the General Corporation Law of the State of Delaware, provided that the matter to be acted upon by such written consent previously has been approved by the Board of Directors of the Company and directed by such board to be submitted to the stockholders for their action thereon by written consent. TENTH. Whenever a compromise or arrangement is proposed between this Company and its creditors or any class of them and/or between this Company and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Company or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Company under the provisions of -22- 25 section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Company under the provisions of section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Company, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Company, as the case may be, agree to any compromise or arrangement and to any reorganization of this Company as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Company, as the case may be, and also on this Company. ELEVENTH. The Company reserves the right to amend its certificate of incorporation, and thereby to change or repeal any provision therein contained, from time to time, in the manner prescribed at the time by statute, and all rights conferred upon stockholders by such certificate of incorporation are granted subject to this reservation. -23- EX-3.2 3 BYLAWS OF GREYHOUND LINES, INC. 1 EXHIBIT 3.2 BY-LAWS OF GREYHOUND LINES, INC. (A Delaware corporation) (Effective March 16, 1999) ARTICLE 1 OFFICES; REGISTERED AGENT ARTICLE 1.1 Registered Office And Agent. The corporation shall maintain in the State of Delaware a registered office and a registered agent whose business office is identical with such registered office. ARTICLE 1.2 Principal Business Office. The corporation shall have its principal business office at such location within or without the State of Delaware as the board of directors may from time to time determine. ARTICLE 1 STOCKHOLDERS ARTICLE 2.1 Annual Meeting. The annual meeting of the stockholders shall be held on the second Tuesday of April each year, at the hour of 10:00 a.m., for the purpose of electing directors and for the transaction of such other business as may properly come before the meeting. If the day fixed for the annual meeting shall be a legal holiday, such meeting shall be held on the next succeeding business day. ARTICLE 2.2 Special Meetings. Special meetings of the stockholders of for any purpose or purposes may be called by the Chairman, the Board of Directors or by the President. ARTICLE 2.3 Place Of Meetings. The board of directors may designate any place, either within or without the State of Delaware, as the place of meeting for any annual meeting or for any special meeting called by the board of directors, but if no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal business office of the corporation; provided, however, that for any meeting of the stockholders for which a waiver of notice designating a place is signed by all of the stockholders, then that shall be the place for the holding of such meeting. 2 ARTICLE 2.4 Notice Of Meetings. Written or printed notice stating the place, date and hour of the meeting of the stockholders and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each stockholder of record entitled to vote at the meeting, not less than 10 nor more than 60 days before the date of the meeting, or in the case of a meeting called for the purpose of acting upon a merger or consolidation not less than 20 nor more than 60 days before the meeting. Such notice shall be given by or at the direction of the secretary. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the stockholder at his or her address as it appears on the records of the corporation, with postage thereon prepaid. If delivered (rather than mailed) to such address, such notice shall be deemed to be given when so delivered. ARTICLE 2.5 Adjournments. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken, unless the adjournment is for more than 30 days or unless a new record date is fixed for the adjourned meeting. ARTICLE 2.6 Waiver Of Notice. A waiver of notice in writing signed by a stockholder entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Attendance of a stockholder in person or by proxy at a meeting of stockholders shall constitute a waiver of notice of such meeting except when the stockholder or his or her proxy attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. ARTICLE 2.7 Meeting Of All Stockholders. If all of the stockholders shall meet at any time and place, either within or without the State of Delaware, and shall, in writing signed by all of the stockholders, waive notice of, and consent to the holding of, a meeting at such time and place, such meeting shall be valid without call or notice, and at such meeting any corporate action may be taken. ARTICLE 2.8 Record Dates. (a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted by the board of directors, and which record date shall not be more than 60 nor less than 10 days before the date of such meeting (or 20 days if a merger or consolidation is to be acted upon at such meeting). If no record date is fixed by the board of directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the -2- 3 close of business on the next day preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. (b) In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted by the board of directors, and which date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the board of directors. If no record date has been fixed by the board of directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required by the certificate of incorporation of the corporation or by statute, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered in the manner required by law to the corporation at its registered office in the State of Delaware or at its principal place of business or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of the corporation's stockholders are recorded. If no record date has been fixed by the board of directors and prior action by the board of directors is required by the certificate of incorporation or by statute, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the board of directors adopts the resolution taking such prior action. (c) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall not be more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. (d) Only those who shall be stockholders of record on the record date so fixed as aforesaid shall be entitled to such notice of, and to vote at, such meeting and any adjournment thereof, or to consent to such corporate action in writing, or to receive payment of such dividend or other distribution, or to receive such allotment of rights, or -3- 4 to exercise such rights, as the case may be, notwithstanding the transfer of any stock on the books of the corporation after the applicable record date. ARTICLE 2.9 Lists Of Stockholders. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least 10 days before each meeting of stockholders, a complete list of the stockholders entitled to vote thereat, arranged in alphabetical order, and showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the municipality where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where said meeting is to be held, and the list shall be produced and kept at the time and place of meeting during the whole time thereof, for inspection by any stockholder who may be present. ARTICLE 2.10 Quorum and Vote Required For Action. Except as may otherwise be provided in the certificate of incorporation of the corporation, the holders of stock of the corporation having a majority of the total votes which all of the outstanding stock of the corporation would be entitled to cast at the meeting, when present in person or by proxy, shall constitute a quorum at any meeting of the stockholders; provided, however, that where a separate vote by a class or classes of stock is required, the holders of stock of such class or classes having a majority of the total votes which all of the outstanding stock of such class or classes would be entitled to cast at the meeting, when present in person or by proxy, shall constitute a quorum entitled to take action with respect to the vote on the matter. Unless a different number of votes is required by statute or the certificate of incorporation of the corporation, (a) if a quorum is present with respect to the election of directors, directors shall be elected by a plurality of the votes cast by those stockholders present in person or represented by proxy at the meeting and entitled to vote on the election of directors, and (b) in all matters other than the election of directors, if a quorum is present at any meeting of the stockholders, a majority of the votes entitled to be cast by those stockholders present in person or by proxy shall be the act of the stockholders except where a separate vote by class or classes of stock is required, in which case, if a quorum of such class or classes is present, a majority of the votes entitled to be cast by those stockholders of such class or classes present in person or by proxy shall be the act of the stockholders of such class or classes. If a quorum is not present at any meeting of stockholders, then holders of stock of the corporation who are present in person or by proxy representing a majority of the votes cast may adjourn the meeting from time to time without further notice and, where a separate vote by a class or classes of stock is required on any matter, then holders of stock of such class or classes who are present in person or by proxy representing a majority of the votes of such class or classes cast may adjourn the meeting with respect to the vote on that matter from time to time without further notice. -4- 5 At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the original meeting. Withdrawal of stockholders from any meeting shall not cause failure of a duly constituted quorum at that meeting. ARTICLE 2.11 Proxies. Each stockholder entitled to vote at a meeting of the stockholders or to express consent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, but no proxy shall be valid after three years from its date unless otherwise provided in the proxy. Such proxy shall be in writing and shall be filed with the secretary of the corporation before or at the time of the meeting or the giving of such written consent, as the case may be. ARTICLE 2.12 Voting Of Shares. Each stockholder of the corporation shall be entitled to such vote (in person or by proxy) for each share of stock having voting power held of record by such stockholder as shall be provided in the certificate of incorporation of the corporation or, absent provision therein fixing or denying voting rights, shall be entitled to one vote per share. ARTICLE 2.13 Voting By Ballot. Any question or any election at a meeting of the stockholders may be decided by voice vote unless the presiding officer shall order that voting be by ballot or unless otherwise provided in the certificate of incorporation of the corporation or required by statute. ARTICLE 2.14 Inspectors. At any meeting of the stockholders the presiding officer may, or upon the request of any stockholder shall, appoint one or more persons as inspectors for such meeting. Such inspectors shall ascertain and report the number of shares represented at the meeting, based upon their determination of the validity and effect of proxies; count all votes and report the results; and do such other acts as are proper to conduct the election and voting with impartiality and fairness to all the stockholders. Each report of an inspector shall be in writing and signed by him or a majority of them if there is more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof. ARTICLE 2.15 Informal Action. Any corporate action upon which a vote of stockholders is required or permitted may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation in the manner required by law at its registered office within -5- 6 the State of Delaware or at its principal place of business or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders of the corporation are recorded. Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated consent delivered, as aforesaid, written consents signed by a sufficient number of holders to take action are delivered to the corporation in the manner required by law at its registered office within the State of Delaware or at its principal place of business or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders of the corporation are recorded. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not so consented in writing. ARTICLE 3 DIRECTORS ARTICLE 3.1 Powers. The business and affairs of the corporation shall be managed under the direction of its board of directors which may do all such lawful acts and things as are not by statute or by the certificate of incorporation of the corporation or by these by-laws directed or required to be exercised or done by the stockholders. ARTICLE 3.2 Number, Election, Term Of Office And Qualifications. The number of directors of the Corporation shall be not less than one (1) and not more than seven (7), the actual number of directors to be determined from time to time by the board of directors. The directors shall be elected at the annual meeting of the stockholders, except as provided in ss. 3.3, and each director elected shall hold office until his or her successor is elected and qualified or until his or her earlier death, resignation or removal in a manner permitted by statute or these by-laws. Directors need not be stockholders. ARTICLE 3.2 Vacancies. Vacancies occurring in the board of directors and newly-created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and any director so chosen shall hold office until the next annual election of directors and until his or her successor is duly elected and qualified or until his or her earlier death, resignation or removal in a manner permitted by statute or these by-laws. ARTICLE 3.3 Regular Meetings. A regular meeting of the board of directors shall be held immediately following the close of, and at the same place as, each annual -6- 7 meeting of stockholders. No notice of any such meeting, other than this by-law, shall be necessary in order legally to constitute the meeting, provided a quorum shall be present. In the event such meeting is not held at such time and place, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors or as shall be specified in a written waiver signed by all of the directors. The board of directors may provide, by resolution, the time and place for the holding of additional regular meetings without notice other than such resolution. ARTICLE 3.4 Special Meetings. Special meetings of the board may be called by the president or any director. The person or persons calling a special meeting of the board shall fix the time and place at which the meeting shall be held and such time and place shall be specified in the notice of such meeting. ARTICLE 3.5 Notice. Notice of any special meeting of the board of directors shall be given at least 2 days previous thereto by written notice to each director at his or her business address or such other address as he or she may have advised the secretary of the corporation to use for such purpose. If delivered, such notice shall be deemed to be given when delivered to such address or to the person to be notified. If mailed, such notice shall be deemed to be given two business days after deposit in the United States mail so addressed, with postage thereon prepaid. If given by telegraph, such notice shall be deemed to be given the next business day following the day the telegram is given to the telegraph company. Such notice may also be given by telephone or other means not specified herein, and in each such case shall be deemed to be given when actually received by the director to be notified. Notice of any meeting of the board of directors shall set forth the time and place of the meeting. Neither the business to be transacted at, nor the purpose of, any meeting of the board of directors (regular or special) need be specified in the notice or waiver of notice of such meeting. ARTICLE 3.6 Waiver Of Notice. A written waiver of notice, signed by a director entitled to notice of a meeting of the board of directors or of a committee of such board of which the director is a member, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice to that director. Attendance of a director at a meeting of the board of directors or of a committee of such board of which the director is a member shall constitute a waiver of notice of such meeting except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. ARTICLE 3.7 Quorum And Vote Required For Action. At all meetings of the board of directors, a majority of the number of directors fixed by these by-laws shall constitute a quorum for the transaction of business and the act of a majority of the -7- 8 directors present at any meeting at which there is a quorum shall be the act of the board of directors except as may be otherwise specifically provided by statute, the certificate of incorporation of the corporation or these by-laws. If a quorum shall not be present at any meeting of the board of directors, a majority of the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. ARTICLE 3.8 Attendance By Conference Telephone. Members of the board of directors or any committee designated by the board may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such a meeting. ARTICLE 3.9 Presumption Of Assent. A director of the corporation who is present at a duly convened meeting of the board of directors at which action on any corporate matter is taken shall be conclusively presumed to have assented to the action taken unless his or her dissent shall be entered in the minutes of the meeting or unless he or she shall file his or her written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered or certified mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. ARTICLE 3.10 Informal Action. Unless otherwise restricted by statute, the certificate of incorporation of the corporation or these by-laws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if a written consent thereto is signed by all the directors or by all the members of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the board of directors or of such committee. ARTICLE 3.11 Compensation. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and at each meeting of a committee of the board of directors of which they are members. The board of directors, irrespective of any personal interest of any of its members, shall have authority to fix compensation of all directors for services to the corporation as directors, officers or otherwise. ARTICLE 3.12 Removal. Any director or the entire board of directors may be removed by the stockholders, with or without cause, by a majority of the votes entitled to be cast at an election of directors. -8- 9 ARTICLE 4 COMMITTEES By resolution passed by a majority of the whole Board, the Board of Directors may designate one or more committees, each such committee to consist of two or more directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member of any meeting of the committee. Any such committee, to the extent provided in the resolution or in these by-laws, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. In the absence or disqualification of any member of such committee or committees, the member or members thereof present at the meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of such absent or disqualified member. ARTICLE 5 OFFICERS ARTICLE 5.1 Designation; Number; Election. The board of directors, at its initial meeting and thereafter at its first regular meeting after each annual meeting of stockholders, shall choose the officers of the corporation. Such officers shall be a chairman, a president, a secretary, and a treasurer, and such vice presidents, assistant secretaries and assistant treasurers as the board of directors may choose. The board of directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. Any two or more offices may be held by the same person. Except as provided in Article 6, election or appointment as an officer shall not of itself create contract rights. ARTICLE 5.2 Salaries. The salaries of all officers and agents of the corporation chosen by the board of directors shall be fixed by the board of directors, and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the corporation. ARTICLE 5.3 Term Of Office; Removal; Vacancies. Each officer of the corporation chosen by the board of directors shall hold office until the next annual appointment of officers by the board of directors and until his or her successor is appointed and qualified, or until his or her earlier death, resignation or removal in -9- 10 the manner hereinafter provided. Any officer or agent chosen by the board of directors may be removed at any time by the board of directors whenever in its judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any vacancy occurring in any office of the corporation at any time or any new offices may be filled by the board of directors for the unexpired portion of the term. ARTICLE 5.4 Chairman. The chairman of the board, if appointed, shall, if present, preside at all meetings of the Board of Directors and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors. ARTICLE 5.5 President. The president shall be the chief executive officer of the corporation and, subject to the direction and control of the board of directors, shall be in charge of the business of the corporation. In general, the president shall discharge all duties incident to the principal executive office of the corporation and such other duties as may be prescribed by the board of directors from time to time. Without limiting the generality of the foregoing, the president shall see that the resolutions and directions of the board of directors are carried into effect except in those instances in which that responsibility is specifically assigned to some other person by the board of directors; shall preside at all meetings of the stockholders and, if he or she is a director of the corporation, of the board of directors; and, except in those instances in which the authority to execute is expressly delegated to another officer or agent of the corporation or a different mode of execution is expressly prescribed by the board of directors, may execute for the corporation certificates for its shares of stock (the issue of which shall have been authorized by the board of directors), and any contracts, deeds, mortgages, bonds, or other instruments which the board of directors has authorized, and may (without previous authorization by the board of directors) execute such contracts and other instruments as the conduct of the corporation's business in its ordinary course requires, and may accomplish such execution in each case either under or without the seal of the corporation and either individually or with the secretary, any assistant secretary, or any other officer thereunto authorized by the board of directors, according to the requirements of the form of the instrument. The president may vote all securities which the corporation is entitled to vote except as and to the extent such authority shall be vested in a different officer or agent of the corporation by the board of directors. ARTICLE 5.6 Vice Presidents. The vice president (and, in the event there is more than one vice president, each of the vice presidents) shall render such assistance to the president in the discharge of his or her duties as the president may direct and shall perform such other duties as from time to time may be assigned by the president or by the board of directors. In the absence of the president or in the event of his or her inability or refusal to act, the vice president (or in the event there may be more than one -10- 11 vice president, the vice presidents in the order designated by the board of directors, or by the president if the board of directors has not made such a designation, or in the absence of any designation, then in the order of seniority of tenure as vice president) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. Except in those instances in which the authority to execute is expressly delegated to another officer or agent of the corporation or a different mode of execution is expressly prescribed by the board of directors or these by-laws, the vice president (or each of them if there are more than one) may execute for the corporation certificates for its shares of stock (the issue of which shall have been authorized by the board of directors), and any contracts, deeds, mortgages, bonds or other instruments which the board of directors has authorized, and may (without previous authorization by the board of directors) execute such contracts and other instruments as the conduct of the corporation's business in its ordinary course requires, and may accomplish such execution in each case either under or without the seal of the corporation and either individually or with the secretary, any assistant secretary, or any other officer thereunto authorized by the board of directors, according to the requirements of the form of the instrument. ARTICLE 5.7 Treasurer. The treasurer shall be the principal accounting and financial officer of the corporation and as such shall perform all the duties incident to the office of treasurer and such other duties as from time to time may be assigned by the board of directors or the president. Without limiting the generality of the foregoing, the treasurer shall have charge of and be responsible for the maintenance of adequate books of account for the corporation and shall have charge and custody of all funds and securities of the corporation and be responsible therefor and for the receipt and disbursement thereof. If required by the board of directors, the treasurer shall give a bond for the faithful discharge of his or her duties in such sum and with such surety or sureties as the board of directors may determine. ARTICLE 5.8 Secretary. The secretary shall perform all duties incident to the office of secretary and such other duties as from time to time may be assigned by the board of directors or president. Without limiting the generality of the foregoing, the secretary shall (a) record the minutes of the meetings of the stockholders and the board of directors in one or more books provided for that purpose and shall include in such books the actions by written consent of the stockholders and the board of directors; (b) see that all notices are duly given in accordance with the provisions of these by-laws or as required by statute; (c) be the custodian of the corporate records and the seal of the corporation; (d) keep a register of the post office address of each stockholder which shall be furnished to the secretary by such stockholder; (e) sign with the president, or a vice president, or any other officer thereunto authorized by the board of directors, certificates for shares of stock of the corporation (the issue of which shall have been authorized by the board of directors), and any contracts, deeds, mortgages, bonds, or -11- 12 other instruments which the board of directors has authorized, and may (without previous authorization by the board of directors) sign with such other officers as aforesaid such contracts and other instruments as the conduct of the corporation's business in its ordinary course requires, in each case according to the requirements of the form of the instrument, except when a different mode of execution is expressly prescribed by the board of directors; and (f) have general charge of the stock transfer books of the corporation. ARTICLE 5.9 Assistant Treasurers And Assistant Secretaries. The assistant treasurers and assistant secretaries shall perform such duties as shall be assigned to them by the treasurer, in the case of assistant treasurers, or the secretary, in the case of assistant secretaries, or by the board of directors or president in either case. Each assistant secretary may sign with the president, or a vice president, or any other officer thereunto authorized by the board of directors, certificates for shares of stock of the corporation (the issue of which shall have been authorized by the board of directors), and any contracts, deeds, mortgages, bonds, or other instruments which the board of directors has authorized, and may (without previous authorization by the board of directors) sign with such other officers as aforesaid such contracts and other instruments as the conduct of the corporation's business in its ordinary course requires, in each case according to the requirements of the form of the instrument, except when a different mode of execution is expressly prescribed by the board of directors. The assistant treasurers shall, if required by the board of directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the board of directors shall determine. ARTICLE 6 INDEMNIFICATION ARTICLE 6.1 Indemnification Of Directors And Officers. The corporation shall, to the fullest extent to which it is empowered to do so by the General Corporation Law of Delaware or any other applicable laws, as may from time to time be in effect, indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding. -12- 13 ARTICLE 6.2 Advancement of Expenses. Expenses incurred by an officer or director of the corporation in defending a civil or criminal action, suit or proceeding shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall be ultimately determined that he or she is not entitled to be indemnified as authorized by the General Corporation Law of Delaware, as amended. ARTICLE 6.3 Contract With The Corporation. The provisions of this Article 6 shall be deemed to be a contract between the corporation and each person who serves as such officer or director in any such capacity at any time while this Article and the relevant provisions of the General Corporation Law of Delaware, as amended, or other applicable laws, if any, are in effect, and any repeal or modification of any such law or of this Article 6 shall not affect any rights or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought or threatened based in whole or in part upon any such state of facts. ARTICLE 6.4 Indemnification Of Employees And Agents. Persons who are not covered by the foregoing provisions of this Article 6 and who are or were employees or agents of the corporation, or are or were serving at the request of the corporation as employees or agents of another corporation, partnership, joint venture, trust or other enterprise, may be indemnified to the extent authorized at any time or from time to time by the board of directors. ARTICLE 6.5 Other Rights Of Indemnification. The indemnification and the advancement of expenses provided or permitted by this Article 6 shall not be deemed exclusive of any other rights to which those indemnified may be entitled by law or otherwise, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. ARTICLE 7 LIMITATION ON DIRECTOR'S LIABILITY The personal liability for monetary damages to the corporation or its stockholders of a person who serves as a director of the corporation shall be limited if and to the extent provided at the time in the certificate of incorporation of the corporation, as then amended. -13- 14 ARTICLE 8 CERTIFICATES OF STOCK AND THEIR TRANSFER ARTICLE 8.1 Form And Execution Of Certificates. Every holder of stock in the corporation shall be entitled to have a certificate signed by, or in the name of, the corporation by the president or a vice president and by the secretary or an assistant secretary of the corporation, certifying the number of shares owned. Such certificates shall be in such form as may be determined by the board of directors. During the period while more than one class of stock of the corporation is authorized there will be set forth on the face or back of the certificates which the corporation shall issue to represent each class or series of stock a statement that the corporation will furnish, without charge to each stockholder who so requests, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. In case any officer, transfer agent or registrar of the corporation who has signed, or whose facsimile signature has been placed upon, any such certificate shall have ceased to be such officer, transfer agent or registrar of the corporation before such certificate is issued by the corporation, such certificate may nevertheless be issued and delivered by the corporation with the same effect as if the officer, transfer agent or registrar who signed, or whose facsimile signature was placed upon, such certificate had not ceased to be such officer, transfer agent or registrar of the corporation. ARTICLE 8.2 Replacement Certificates. The board of directors may direct a new certificate to be issued in place of any certificate evidencing shares of stock of the corporation theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of the fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such manner as it shall require and may require such owner to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. The board of directors may delegate its authority to direct the issuance of replacement stock certificates to the transfer agent or agents of the corporation upon such conditions precedent as may be prescribed by the board. ARTICLE 8.3 Transfers Of Stock. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares of stock of the corporation duly endorsed or accompanied by proper evidence of succession, assignment, or other authority to transfer, it shall be the duty of the corporation to issue a new certificate to -14- 15 the person entitled thereto, cancel the old certificate and record the transaction upon its books, provided the corporation or a transfer agent of the corporation shall not have received a notification of adverse interest and that the conditions of Section 8-401 of Title 6 of the Delaware Code have been met. ARTICLE 8.4 Registered Stockholders. The corporation shall be entitled to treat the holder of record (according to the books of the corporation) of any share or shares of its stock as the holder in fact thereof and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other party whether or not the corporation shall have express or other notice thereof, except as expressly provided by the laws of the State of Delaware. ARTICLE 9 CONTRACTS, LOANS, CHECKS AND DEPOSITS ARTICLE 9.1 Contracts. The board of directors may authorize any officer or officers, or agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances; provided, however, that this ss. 9.1 shall not be a limitation on the powers of office granted under Article 5 of these by-laws. ARTICLE 9.2 Loans. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the board of directors. Such authority may be general or confined to specific instances. ARTICLE 9.3 Checks, Drafts And Other Instruments. All checks, drafts or other orders for the payment of money and all notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers or such agent or agents of the corporation and in such manner as from time to time may be determined by the resolution of the board of directors or by an officer or officers of the corporation designated by the board of directors to make such determination. ARTICLE 9.4 Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as the board of directors, or an officer or officers designated by the board of directors, may select. -15- 16 ARTICLE 10 MISCELLANEOUS PROVISIONS ARTICLE 10.1 Dividends. Subject to any provisions of any applicable statute or of the certificate of incorporation, dividends may be declared upon the capital stock of the corporation by the board of directors at any regular or special meeting thereof; and such dividends may be paid in cash, property or shares of stock of the corporation. ARTICLE 10.2 Reserves. Before payment of any dividends, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the board of directors from time to time, in its discretion, determines to be proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the board of directors shall determine to be conducive to the interests of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE 10.3 Voting Stock Of Other Corporations. In the absence of specific action by the board of directors, the president shall have authority to represent the corporation and to vote, on behalf of the corporation, the securities of other corporations, both domestic and foreign, held by the corporation. ARTICLE 10.4 Fiscal Year. The fiscal year of the corporation shall begin on the first day of January in each year and end on the last day of the next following December. ARTICLE 10.5 Seal. The corporate seal shall have inscribed thereon the name of the corporation and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise applied. ARTICLE 10.6 Severability. If any provision of these by-laws, or its application thereof to any person or circumstances, is held invalid, the remainder of these by-laws and the application of such provision to other persons or circumstances shall not be affected thereby. ARTICLE 10.7 Amendment. These by-laws may be amended or repealed, or new by-laws may be adopted, by the board of directors of the corporation. These by-laws may also be amended or repealed, or new by-laws may be adopted, by action taken by the stockholders of the corporation. -16- EX-4.3 4 2ND SUPPLEMENTAL INDENTURE TO 8 1/2% CONVERTIBLE 1 EXHIBIT 4.3 -------------------------------------------------------------- SECOND SUPPLEMENTAL INDENTURE DATED AS OF MARCH 16, 1999 TO INDENTURE DATED AS OF APRIL 10, 1992 ----------------------------------- BETWEEN GREYHOUND LINES, INC. AND STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE ----------------------------------- 8-1/2% CONVERTIBLE DEBENTURES DUE MARCH 31, 2007 -------------------------------------------------------------- 2 SECOND SUPPLEMENTAL INDENTURE, dated as of March 16, 1999 (this "Second Supplemental Indenture"), between GREYHOUND LINES, INC., a Delaware corporation (the "Company"), and STATE STREET BANK AND TRUST COMPANY, as trustee (the "Trustee"). WHEREAS, the Company and the Trustee (as successor to Shawmut Bank Connecticut, N.A., formerly The Connecticut National Bank) entered into an Indenture, dated as of April 10, 1992 as supplemented by the First Supplemental Indenture dated as of December 22, 1994 (the "Indenture"), pursuant to which the Company issued its 8-1/2% Convertible Subordinated Debentures due March 31, 2007 (the "Debentures"); and WHEREAS, pursuant to Section 1301 of the Indenture, Holders of the Debentures presently have the right prior to Maturity to convert any Debenture or Debentures into shares of Common Stock of the Company at the rate of 80.81 shares of Common Stock for each $1,000 principal amount of Debentures; and WHEREAS, pursuant to Section 1306 of the Indenture, in the case of any merger of another person into the Company, the Debentures will be convertible only into the kind and amount of securities, cash and other property receivable in such merger by a holder of the number of shares of Common Stock of the Company into which such Debentures might have been converted immediately prior to such merger; and WHEREAS, the Company, Laidlaw Inc., a Canadian corporation ("Laidlaw") and Laidlaw Transit Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Laidlaw ("Acquisition") have entered into the Amended and Restated Agreement and Plan of Merger, dated as of November 5, 1998 (the "Merger Agreement"), pursuant to which Acquisition will be merged with and into the Company, with the Company being the surviving corporation ("Merger"); and WHEREAS, upon completion of the Merger, each share of Common Stock of the Company will be converted into the right to receive $6.50 in cash; and WHEREAS, the Merger was completed on March 16, 1999; and WHEREAS, to establish the conversion rights of a Holder of Debentures following the Merger and in accordance with Section 1306 of the Indenture, the Company has agreed to execute and deliver this Second Supplemental Indenture; and WHEREAS, the Company has complied with all the conditions and requirements necessary under the Indenture to effect this Second Supplemental Indenture, and the execution and delivery of this Second Supplemental Indenture has been duly authorized in all respects by the Company; NOW, THEREFORE, in consideration of the above premises, the Company and the Trustee agree, for the benefit of the other and for the equal and ratable benefit of the Holders of the Debentures, as follows: 3 ARTICLE I AMENDMENT OF INDENTURE Section 1.01 Amendment. The Indenture is hereby amended as follows: (a) Notwithstanding anything to the contrary contained in the Indenture, including Article Thirteen thereof, from and after the date of this Second Supplemental Indenture, a Holder of any Debenture or Debentures shall have the right to receive, upon conversion of such Debenture or Debentures in accordance with the Indenture, an amount in cash equal to $525.27 for each $1,000 principal amount of Debentures so converted. ARTICLE II MISCELLANEOUS PROVISIONS SECTION 2.01 Terms Defined. For all purposes of this Second Supplemental Indenture, except as otherwise defined or unless the context otherwise requires, terms used in capitalized form in this Second Supplemental Indenture and defined in the Indenture have the meanings specified in the Indenture. SECTION 2.02 Indenture. Except as amended by this Second Supplemental Indenture, the Indenture and the Debentures are in all respects ratified and confirmed and all the terms shall remain in full force and effect. The Trustee has no responsibility for correctness of the recitals of facts herein contained which shall be taken as the statements of the Company, and makes no representations as to the validity or sufficiency of this Second Supplemental Indenture and shall incur no liability or responsibility in respect of the validity thereof. SECTION 2.03 Governing Law. THIS SECOND SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. SECTION 2.04 Successors. All agreements of the Company in this Second Supplemental Indenture shall bind it successors. All agreements of the Trustee in this Second Supplemental Indenture shall bind its successors. SECTION 2.05 Multiple Counterparts. The parties may sign multiple counterparts of this Second Supplemental Indenture. Each signed counterpart shall be deemed an original, but all of them together represent the same agreement. 4 SIGNATURES IT WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed as of the date first written above. GREYHOUND LINES, INC. /s/ Craig R. Lentzsch ATTEST: --------------------------------- Craig R. Lentzsch, President and Chief Executive Officer /s/ Mark E. Southerst --------------------------------- Mark E. Southerst, Vice President and General Counsel and Secretary STATE STREET BANK AND TRUST COMPANY, as Trustee By: /s/ Susan C. Merker ----------------------------- ATTEST: Name: Susan C. Merker ---------------------------- By: /s/ Elizabeth C. Hammer Title: Vice President ---------------------------------- --------------------------- Name: Elizabeth C. Hammer -------------------------------- Title: Vice President ------------------------------ EX-10.33 5 TERMINATION AGREEMENT DATED 3/17/99 1 EXHIBIT 10.33 TERMININATION AGREEMENT This Termination Agreement ("Termination Agreement") dated as of March 17, 1999, is entered into by and between GREYHOUND LINES, INC., a Delaware corporation ("Borrower"). FOOTHILL CAPITAL CORPORATION, a California corporation as the facility agent (in such capacity "Facility Agent") for the Lenders (as defined below) and BANKBOSTON, N.A., a national banking association as facility co-agent for the Lender ("Facility Co-Agent" and collectively with Facility Agent, the "Agents"). A. borrower has entered into that certain Third Amended and Restated Loan and Security Agreement, dated as of May 21, 1997 (as amended, the "Loan Agreement") with various financial institutions party thereto (collectively, the "Lenders") and the Agents. Initially capitalized terms used but not defined in this Termination Agreement shall have the meanings given to them in the Loan Agreement. B. Pursuant to the terms of the Loan Agreement and the other Loan Documents the Lenders have made certain loans to the borrower, and have arranged for the issuance of, or have guaranteed the reimbursement of, certain letters of credit for the account of the Borrower that are outstanding as of the date hereof (the "Existing Letters of Credit"). C. Borrower has notified Facility Agent that it intends to terminate the Loan Agreement, repay in full all non-contingent Obligations existing under the Loan Documents, and back up all outstanding Letters of Credit as provided in the Loan Agreement. NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good and valuable consideration, the parties agree as follows: 1. Payment of Pay-Out Amount and Deposit. Upon (a) payment to Facility Agent (for the benefit of the Lenders) of the amount specified in Schedule 1 attached hereto ("Pay-Out Amount") and (b) the receipt by Facility Agent of "back up" letters of credit in all respects satisfactory to Agents (the "Backup LCs") in an amount equal to at least 102% of the maximum amount of the Lender Group's obligations under the Existing Letters of Credit specified in Schedule 1 (the meeting of both such conditions constituting the "Payoff") all of the obligations and liabilities (exclusive of any indemnification by Borrower or its subsidiaries of Agents or Lenders contained herein or in the Loan Documents and all non-liquidated and contingent obligations of Borrower owing to the Lender Group) of Borrower or its subsidiaries under the Loan Documents shall be terminated and satisfied in full. Agents hereby confirm to Borrower that payment to the Facility Agent of the Pay-Out Amount and receipt by the Facility Agent of the Backup LCs will not cause any prepayment penalty or other charge under the Loan Agreement except as specified in Schedule 1. 2. Effect of Payoff. Agents hereby agree that upon the Payoff (a) all security interests, mortgages and liens which Borrower or any of its subsidiaries may have granted to the Facility Agent pursuant to the Loan Documents will be released and terminated, (b) all security interests of the Facility agent in the stock of Borrower's subsidiaries will be released and terminated, and (c) all lockbox, blocked depository account, or similar agreements with La Salle National Bank, Chase Texas and Questpoint concerning the Borrower shall be terminated, and all funds received by the Facility Agent in any related accounts after the Payoff promptly will be returned to the Borrower; and (d) the Borrower and its subsidiaries will have no further liability or obligation (exclusive of any indemnification by borrower or its subsidiaries of Agents or Lenders contained herein or in the Loan Documents and all non-liquidated and contingent obligations of Borrower or its subsidiaries owing to the Agents or lenders) under or in connection with the Loan Documents. 3. Deliver of Lien Releases. Following the Payoff, the Facility Agent will deliver to Borrower UCC termination statements relating to the UCC's filed in favor of Facility Agent and shall return to the Borrower all certificates of title in the Facility Agent's possession respecting the Borrower's or its subsidiaries' motor vehicles 2 and execute any required releases of its lien with respect thereto. Facility Agent has prepared some of the releases and reconveyances relating to the deeds of trust and mortgages securing the Loan Documents which shall also be delivered to Borrower following the Payoff. On a post termination basis, the Facility Agent has agreed to execute and deliver to Borrower all additional releases, termination statements, reconveyances of real property, and other agreements in connection with releasing any lien or security interest it may have pursuant to the Loan Documents (collectively, the "Lien Releases"). The Borrower acknowledges that it has instructed the Facility Agent to halt all work that the Facility Agent and its attorneys have been performing in preparing the Lien Releases and has undertaken all responsibility for preparing the Lien Releases; and that, as a result, if such attorneys are requested in the future to prepare (or review) such Lien Releases in bulk or individually, the time and costs of such counsel shall be paid for by Borrower. The Facility Agent agrees that it will promptly execute all additional Lien Releases reasonably requested by the Borrower in the future and will cooperate with Borrower rewarding same. 4. Release of Certain Claims. Upon the Payoff, and in consideration of the Lender Group discounting the breakage fees that would otherwise be payable under Section 2.17(d) of the Loan Agreement associated with the prepayment of the Eurodollar Rate Loans existing at such time and the Agents' agreements contained in this Termination Agreement, the Borrower hereby releases and forever discharges the Agents and the rest of the Lender Group and their respective successors, representatives, assigns, officers, directors, agents, employees, and attorneys, and each of them (collectively the "Affiliated Parties"), of and from any and all claims, demands, debts, liabilities, actions and causes of action of every kind and character and the Borrower hereby agrees to indemnify and hold the Lender Group harmless from any and all loss, cost, damage or expense (including, but not limited to, attorney's fees) which the Lender Group of the Affiliated Parties may suffer or incur at any time, based on or arising out of any delay or failure to release and reconvey the liens held by or assigned to the Facility Agent and recorded against the real and personal property of the Borrower or any of its subsidiaries; provided, however, that such release and indemnification shall not excuse any party's compliance with the terms of Section 3 above. 5. No Assignment of Claims; Advice of Counsel. The Borrower hereby warrants and represents that neither it nor any of its subsidiaries has assigned or in any other way conveyed, transferred, or encumbered all or any portion of the claims or rights covered by the release set forth above. The Borrower executes this Termination Agreement voluntarily, after consultation with counsel, and with full knowledge of it significance. 6. Indemnity for Dishonored Items. The Borrower acknowledges that the Pay-Out Amount is calculated on the premise that all checks and other instruments delivered by Borrower to the Facility Agent have been or will be honored and paid in full. The Borrower agrees to indemnify and hold the Lender Group harmless from any and all loss, cost, damage or expense (including, but not limited to attorneys' fees) which the Lender Group may suffer or incur at any time as a result of any non-payment, claim, refund or dishonor of any checks or other similar items which have been credited by the Facility Agent to the account of the Borrower, together with any expenses or other charges incident thereto. Notwithstanding anything to the contrary contained herein, the Facility Agent reserves all of its right in and to any checks or similar instruments for payment of money heretofore received by the Facility Agent in connection with the Facility Agent's arrangements with the Borrower, and all of its rights to any money due or to become due under said checks or similar instruments and/or all of the Facility Agent's claims thereon. Notwithstanding anything to the contrary contained herein, in the event any payment made to, or other amount or value received by the Facility Agent from or for the account of the Borrower is avoided, rescinded, set aside or must otherwise be returned or repaid by the Facility Agent or any of the Lenders whether in any bankruptcy, reorganization, insolvency or similar proceeding involving the Borrower or otherwise, the indebtedness intended to be repaid thereby shall be reinstated (without further action by any party) and shall be enforceable against the Borrower. In such event, the Borrower shall be and remain liable to the Facility Agent and the Lenders for the amount so repaid or recovered to the same extent as if such amount had never originally been received by the Facility Agent and if Borrower fails or refuses to pay Facility Agent for any amounts repaid by or recovered from the Facility Agent, all liens shall automatically attach to all of the real and personal property of Borrower with the same lien priority that such liens would have enjoyed if Facility Agent had not released its liens. Borrower shall perform all acts reasonably required by Facility Agent to accomplish such results. 3 7. Sole Agreement; Amendments. This Termination Agreement, the Loan Documents, and the other written documents and instruments between the parties set fort in full all of the representations and agreements of the parties, and this Termination Agreement may not be modified or amended, nor may any rights hereunder be waived, except in a writing signed by the parties hereto. 8. Fees; Costs; Deposit. The Borrower agrees that it will pay the Facility Agent's costs (including its attorneys' fees) incurred in connection with this Termination Agreement, and any instruments or documents contemplated hereunder, including those incurred in connection with the review, approval, execution and delivery of such Lien Releases prepared by the Borrower, and in connection with preparing any Lien Releases that the Borrower requests such counsel to prepare. The Borrower agrees that the Pay-Out Amount will include a deposit in the amount shown on Schedule 1 (the "Deposit") which shall be held by the Facility Agent. To the extent that the Facility Agent incurs such fees and costs after the Payoff, whether arising out of Section 3 or this Section 8 hereof or otherwise, the Facility Agent shall be permitted to recoup such costs from the Deposit. In addition, while any Existing Letters of Credit are outstanding, the Facility Agent may charge any Letter of Credit fees accruing thereon (as calculated in accordance with the terms of the Loan Agreement), and recoup such fees from the Deposit. Moreover, lender may use part of the Deposit to pay all legal fees and costs that it has incurred prior to the Payoff. Upon the earlier to occur of (a) June 30,1999 or (b) the Borrower providing the Facility Agent with a written confirmation that all Lien Releases have been filed and recorded and that no further Lien Releases shall be required of the Facility Agent or the Lender Group, and the termination of the Existing Letters of Credit, the Facility Agent shall return the remaining balance of the Deposit to the Borrower. The amount and duration of the Deposit shall in no way limit the Borrower's liability under this Termination Agreement. 9. Counterparts; Effectiveness. This Termination Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which when so executed and delivered shall be deemed to be an original. All such counterparts, taken together, shall constitute but one and the same 4 Termination Agreement. This Termination Agreement shall become effective upon the execution of a counterpart of this Termination Agreement by each of the parties hereto. "BORROWER" GREYHOUND LINES, INC., a Delaware corporation By: ------------------------------------------------ Type Name: Jeff Sanders ---------------------------------------- Type Title: Vice President - Finance & Corporate Development ---------------------------------------- "FACILITY AGENT" FOOTHILL CAPITAL CORPORATION, a California corporation By: ------------------------------------------------ Type Name: Tom Sigurdson ---------------------------------------- Type Title: Vice-President ---------------------------------------- "FACILITY CO-AGENT" BANK BOSTON, N.A., a national banking association By: ------------------------------------------------ Type Name: Paul Feloney, Jr. ---------------------------------------- Type Title: Director. ---------------------------------------- EX-10.36 6 2ND AMENDMENT TO SUPPLEMENTAL EXECUTIVE RETIREMENT 1 EXHIBIT 10.36 SECOND AMENDMENT TO SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN This Second Amendment to the Greyhound Lines, Inc. (the "Company") Supplemental Executive Retirement Plan is made as of January 20, 1999. WHEREAS, the Company previously adopted the Greyhound Lines, Inc. Supplemental Executive Retirement Plan, as restated effective January 1, 1994, and as amended by the First Amendment dated as of December 9, 1996 (the "Plan"); and WHEREAS, the Company, having sought the approval of the Compensation and Organization Committee of the Board of Directors of the Company, desires to amend the Plan as set forth herein. NOW, THEREFORE, the Plan shall be amended as follows. 1. Section 6.3 of the Plan shall be deleted in its entirety and replaced with the following: "Section 6.3 Investment Earnings Credit. Accounts shall be credited as of each Valuation Date with an allocable portion of the earnings of the Trust or with an amount representing an investment return rate on 10-year Treasury notes as of each Valuation Date, plus 150 basis points, whichever is greater, or such other rate as is determined from time to time by the Sponsor." 2. Sections 8.1 (a) and (b) of the Plan shall be deleted in their entirety and replaced with the following: "Section 8.1 Trust Payments. (a) General. Any obligation of the Sponsor to pay benefits hereunder shall be an unsecured promise and any right to enforce such obligation shall be solely as a general creditor of the Sponsor. For the convenience and benefit of the Sponsor and to the extent not inconsistent with the foregoing sentence, the Sponsor may establish one or more irrevocable trusts to hold assets to meet its obligations under the Plan to Participants. However, in the event of a Change in Control as defined in Section 2.1 (e) of the Plan, the Sponsor shall immediately transfer 1 2 or cause to be transferred such amounts and rights to a Trust as are necessary to pay all Plan benefits, and shall continue to transfer or cause to be transferred additional amounts and rights as become necessary to pay Plan benefits following the Change in Control. (b) Trust Assets. The property comprising the assets of a Trust established under subsection (a) shall, at all times, remain the property of the Trust. The Trustee shall distribute the assets comprising the Trust in accordance with the provisions of the Plan and Trust, but in no event shall the Trustee distribute the assets of the Trust to or for the benefit of the Sponsor, except as provided in the Trust. 3. Capitalized terms used herein without definition shall have the meaning ascribed to such terms as set forth in the Plan. GREYHOUND LINES, INC. By: ---------------------------------- Craig R. Lentzsch President and CEO 2 EX-10.37 7 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TRUST AGRMT 1 EXHIBIT 10.37 - ------------------------------------------------------------------------------- TRUST AGREEMENT Between GREYHOUND LINES, INC. and LASALLE NATIONAL BANK March 12, 1999 - ------------------------------------------------------------------------------- 2 TABLE OF CONTENTS (Not a part of the Agreement)
Page I. TRUST FUND........................................................................... 1 II. PAYMENTS TO TRUST BENEFICIARIES...................................................... 4 III. THE TRUSTEE'S RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARIES WHEN THE COMPANY IS INSOLVENT ................................... 5 IV. PAYMENTS TO COMPANY.................................................................. 6 V. INVESTMENT OF TRUST FUND............................................................. 6 VI. INCOME OF THE TRUST.................................................................. 6 VII. ACCOUNTING BY TRUSTEE................................................................ 6 VIII. RESPONSIBILITY AND INDEMNIFICATION OF TRUSTEE........................................ 7 IX. AMENDMENTS, ETC., TO PLAN AND EXHIBITS............................................... 10 X. REPLACEMENT OF TRUSTEE............................................................... 10 XI. AMENDMENT OR TERMINATION OF AGREEMENT................................................ 11 XII. SPECIAL DISTRIBUTIONS................................................................ 12 XIII. GENERAL PROVISIONS................................................................... 13 XIV. NOTICES.............................................................................. 14
-i- 3 TABLE OF DEFINITIONS (Not a part of the Agreement)
Section ------- "Agreement" Introduction "Bank" 1.4(d) "Board" 3.1 "CEO" 3.1 "Change in Control" 1.7 "Code" 1.6 "Company" Introduction "ERISA" 1.6 "Exhibit A" Recitals "Exhibit B" 1.5 "Exhibit C" 8.11 "Fiduciary" 8.11 "Insolvent" Recitals "Laidlaw" 1.7 "Letter of Credit" 1.4(d) "Participants" Recitals "Plan" Recitals "Plan Year" 1.4(c) "President" 3.1 "Secured Amount" 1.4(b) "Successor" 9.2.1 "Supplemental Benefits" Recitals "Trust Beneficiaries" Recitals "Trust" Recitals "Trustee" Introduction
-ii- 4 TRUST AGREEMENT This trust agreement ("Agreement") made as of this 12th day of March, 1999 by and between Greyhound Lines, Inc., a Delaware corporation (the "Company"), and LaSalle National Bank, a national bank (the "Trustee"). WITNESSETH: WHEREAS, the employees of the Company listed on an exhibit ("Exhibit A") to this Agreement (the "Participants") and their beneficiaries are, or may become, entitled to benefits under the provisions of the Greyhound Lines, Inc. Supplemental Executive Retirement Plan, as the same may hereafter be amended or restated, or any successor thereto (the "Plan"); WHEREAS, the Plan provides for certain benefits, and the Company wishes specifically to assure the payment to the Participants and their beneficiaries (the Participants and their respective beneficiaries being collectively referred to herein as the "Trust Beneficiaries") of amounts due thereunder (the amounts so payable being collectively referred to herein as the "Supplemental Benefits"); WHEREAS, the Company wishes to establish a trust (the "Trust") and to transfer to the Trust assets and rights which shall be held subject to the claims of the creditors of the Company to the extent set forth in Article III until (i) paid in full to all Trust Beneficiaries as Supplemental Benefits in such manner and as specified in this Agreement unless the Company is Insolvent (as that term is defined below) at the time that such Supplemental Benefits become payable or (ii) otherwise disposed of pursuant to the terms of this Agreement; and WHEREAS, the Company shall be considered "Insolvent" for purposes of this Agreement at such time as the Company (i) is subject to a pending proceeding as a debtor under the United States Bankruptcy Code, as heretofore or hereafter amended, or (ii) is unable to pay its debts as they become due; NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: I. TRUST FUND 1.1 Subject to the claims of creditors to the extent set forth in Article III, the Company shall deposit with the Trustee in trust One Hundred Dollars ($100.00), which shall become the principal of this Trust, to be held, administered and disposed of by the Trustee as provided in this Agreement. 1.2 The Trust hereby established shall be revocable by the Company at any time prior to the date on which occurs a Change in Control (as that term is defined in Section 1.7); on or after such date, this Trust shall be irrevocable. In the event that a Change in Control has occurred, the Chief Executive Officer, President, Chief Financial Officer or Treasurer of the Company shall so notify the Trustee promptly. The Trustee shall be entitled to rely upon such 5 notice as to whether and when a Change in Control has occurred and shall not be required to make any independent verification of a Change in Control. 1.3 The principal of the Trust and any earnings shall be held in trust separate and apart from other funds of the Company and shall be used exclusively for the uses and purposes set forth in this Agreement. No Trust Beneficiary shall have any preferred claim on, or any beneficial ownership interest in, any assets of the Trust prior to the time that such assets are paid to a Trust Beneficiary as Supplemental Benefits. Any rights created under the Plan and this Agreement shall be mere unsecured contractual rights of Trust Beneficiaries with respect to the Company. The obligation of the Trustee to pay Supplemental Benefits pursuant to this Agreement constitutes merely an unfunded and unsecured promise to pay such Benefits. 1.4 (a) The Company may at any time or from time to time make additional deposits of cash or other property as may be acceptable to the Trustee in the Trust, make provision for cash or other property as may be acceptable to the Trustee to be transferred to the Trust or arrange for the issuance of a letter of credit, to augment the principal to be held, administered and disposed of by the Trustee as herein provided, but no payment of all or any portion of the principal of the Trust or earnings thereon shall be made to the Company or any other person or entity on behalf of the Company except as herein expressly provided. (b) Prior to the first event constituting a Change in Control, the Company shall make a contribution to the Trust that is sufficient as of such date, taking into account the assets of the Trust prior to such contribution, to provide for the payment of all Supplemental Benefits and any other amounts payable or reimbursable pursuant to the terms of this Agreement including, without limitation, the fees of the Trustee and the Fiduciary (as that term is defined in Section 8.11) and other expenses of the Trust for a period of at least two years (collectively, the "Secured Amount"). (c) Within 30 days after the end of any Plan Year (as that term is defined in the Plan) (a "Plan Year") ending after a Change in Control, the Company shall make a contribution to the Trust that is sufficient as of such date, taking into account the assets of the Trust prior to such contribution, to provide for the payment of the Secured Amount. (d) Laidlaw (as that term is defined in Section 1.7) or the Company may at any time cause to be issued to the Trust an irrevocable clean letter of credit (the "Letter of Credit") in an initial aggregate amount of not less than $2,500,000 for the benefit of the Trustee by a bank having combined capital and surplus in excess of $500,000,000 (the "Bank"). The Letter of Credit shall provide that Laidlaw must pay all fees associated therewith, and that the amounts of the Supplemental Benefits and the Trust and Fiduciary expenses, including the fees of the Trustee and the Fiduciary, shall be paid to the Trustee on a regular, periodic basis upon presentation by the Trustee to the Bank of a statement or statements satisfactory to the Bank and prepared by the Trustee (the "Draw Documents"). Upon a Change in Control, or if later, the issuance of the Letter of Credit to the Trust, to the extent that the assets of the Trust, including the initial aggregate amount of the Letter of Credit, then exceed the Secured Amount, such excess shall be paid to the Company by the Trustee from the assets of the Trust. Before the twentieth day prior to the stated expiration date of the Letter of Credit, the Company and/or -2- 6 Laidlaw shall take any actions it or they deem appropriate to renew or replace the Letter of Credit and/or to contribute additional assets to the Trust. On or after the twentieth day prior to the stated expiration date of the Letter of Credit, the Trustee is authorized, empowered and directed to sign and present the Draw Documents for an amount of the Letter of Credit (and to hold and disburse the funds received thereby pursuant to the terms of this Agreement) equal to the excess, if any, of (i) the then applicable Secured Amount, over (ii) the sum of (a) the assets of the Trust (excluding any Letter of Credit) and (b) the initial aggregate amount of any renewal or replacement irrevocable clean letter of credit drawn upon a commercial bank selected by Laidlaw or the Company, as the case may be, and approved by the Fiduciary, in either case, upon substantially the same terms and conditions as contained in the Letter of Credit that is due to expire. A letter of credit that is renewed or provided in accordance with this Section 1.4(d) shall thereafter be referred to as the "Letter of Credit." 1.5 Within five business days after the date on which the Trust has become irrevocable and within 30 days after the first day of each Plan Year thereafter, the Company shall (a) specify the nature, amounts and timing of the Supplemental Benefits to which each Trust Beneficiary may become entitled, subject to Article IX hereof, in an exhibit ("Exhibit B") which shall become a part of this Agreement and be incorporated herein by this reference, (b) provide any corresponding revisions to Exhibit A that may be required and (c) provide the Fiduciary with copies of the Plan and any amendments thereto. 1.6 The Trust is intended to be a grantor trust, within the meaning of section 671 of the Internal Revenue Code of 1986, as amended (the "Code") and shall be construed accordingly. The purpose of the Trust is to assure that the Company's obligations to the Participants pursuant to the Plan are fulfilled. The Trust is neither intended nor designed to qualify under section 401(a) of the Code or to be subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The Trust established under this Agreement does not fund and is not intended to fund the Plan or any other employee benefit plan or program of the Company. Such Trust is and is intended to be a depository arrangement with the Trustee for the setting aside of cash and other assets of the Company for the meeting of part or all of its future obligations with respect to Supplemental Benefits to some or all of the Trust Beneficiaries under the Plan. 1.7 As used in this Agreement, the term "Change in Control" shall have the same meaning assigned to that term in the Plan; provided, however, that the term "Change in Control" shall include the merger to be effected pursuant to the Amended and Restated Agreement and Plan of Merger dated as of October 16, 1998, and amended and restated as of November 5, 1998, by and among Laidlaw, Inc., a Canadian corporation ("Laidlaw"), Laidlaw Transit Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Laidlaw, and the Company, pursuant to which Laidlaw Transit Acquisition Corp. will be merged with and into the Company, with the Company as the surviving entity. II. PAYMENTS TO TRUST BENEFICIARIES 2.1 Provided that the Company is not Insolvent and commencing with the earlier to occur of (a) appropriate notice to the Trustee by the Company, or (b) the date on which the -3- 7 Trustee has been notified in accordance with Section 1.2 that the Trust has become irrevocable, the Trustee shall make payments of Supplemental Benefits to each Trust Beneficiary when and as due under the Plan from the assets of the Trust as it shall be directed in writing by the Fiduciary. 2.2 The Trustee shall continue to pay Supplemental Benefits to the Trust Beneficiaries when and as due under the Plan until the assets of the Trust are depleted, subject to Section 11.2. If any current payment by the Trustee under the terms of this Agreement would deplete the assets of the Trust below the amount necessary to provide adequately for Supplemental Benefits known to the Trustee to be due and payable in the future, the Trustee shall nevertheless make the current payment when due. If, after application of the preceding sentence, amounts in the Trust are not sufficient to provide for full payment of the Supplemental Benefits to which any Trust Beneficiary is entitled as provided in this Agreement, the Company shall make the balance of each such payment directly to the Trust Beneficiary as it becomes due. 2.3 Notwithstanding Sections 2.1 and 2.2, the Company may make payments of Supplemental Benefits to each Trust Beneficiary when and as due under the Plan. The Company shall notify the Trustee in writing of its decision to pay Supplemental Benefits directly at least 30 days prior to the time amounts are due to be paid to a Trust Beneficiary and shall provide the Trustee promptly after the due date of each payment written confirmation as specified by the Trustee that such payment has been made. 2.4 Nothing in this Agreement shall in any way diminish any rights of any Trust Beneficiary to pursue such Trust Beneficiary's rights as a general creditor of the Company with respect to Supplemental Benefits or otherwise, and the rights of each Trust Beneficiary under the Plan shall in no way be affected or diminished by any provision of this Agreement or action taken pursuant to this Agreement, except that any payment actually received by any Trust Beneficiary hereunder shall reduce dollar-per-dollar amounts otherwise due to such Trust Beneficiary pursuant to the Plan. 2.5 The Trustee shall withhold from any payment to a Trust Beneficiary the amount required by law to be so withheld under federal, state and local tax withholding requirements as it shall be directed in writing by the Fiduciary, and shall pay over the amounts withheld to the Company to forward to the appropriate government authority. The Company shall have sole responsibility for all related reporting requirements. III. THE TRUSTEE'S RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARIES WHEN THE COMPANY IS INSOLVENT 3.1 At all times during the continuance of this Trust, the principal and income of the Trust shall be subject to claims of creditors of the Company as set forth in this Section 3.1. The Board of Directors of the Company (the "Board"), the Chief Executive Officer of the Company (the "CEO") and the President of the Company (the "President") shall have the duty to inform the Trustee in writing if either the Board, the CEO or the President believes that the Company is Insolvent. If the Trustee receives a notice in writing from the Board, the CEO or the President stating that the Company is Insolvent or if a person claiming to be a creditor of the Company -4- 8 alleges in writing to the Trustee that the Company has become Insolvent, the Trustee shall request that the Company's independent accountants determine within 30 days after receipt of such notice whether the Company is Insolvent. The Trustee shall be fully protected under Section 8.7 in relying upon the opinion and advice of such independent accountants. The Company shall provide its independent accountants with any information reasonably requested, and otherwise cooperate with the accountants in making the determination. Pending such determination, or if the Trustee has actual knowledge that the Company is Insolvent, the Trustee shall discontinue or refrain from making payments to any Trust Beneficiary and hold the Trust assets for the benefit of the general creditors of the Company. The Trustee shall pay any undistributed principal and income in the Trust to the extent necessary to satisfy the claims of the creditors of the Company as a court of competent jurisdiction may direct in writing. If the Trustee has discontinued or refrained from making payments to any Trust Beneficiary pursuant to this Section 3.1, the Trustee shall pay or resume payments to such Trust Beneficiary in accordance with this Agreement if the Company's independent accountants have determined that the Company is not Insolvent, or is no longer Insolvent (if the Trustee initially determined the Company to be Insolvent), or pursuant to the order of a court of competent jurisdiction. Unless the Trustee has actual knowledge of Insolvency, or has received notice from the Board, the President, the CEO or a person claiming to be a creditor of the Company alleging that the Company is Insolvent, the Trustee shall have no duty to inquire as to whether the Company is Insolvent and may rely on information concerning the Insolvency of the Company that has been furnished to the Trustee by any creditor of the Company or by any person (other than an employee or director of the Company) acting with apparent or actual authority with respect to the Company. 3.2 If the Trustee is precluded from paying Supplemental Benefits from the Trust assets pursuant to Section 3.1 and such prohibition is subsequently removed, the Trustee shall pay the aggregate amount of all Supplemental Benefits that would have been paid to the Trust Beneficiaries in accordance with this Agreement during the period of such prohibition, less the aggregate amount of Supplemental Benefits otherwise paid to any Trust Beneficiary directly by the Company during any such period, together with interest on the delayed amount determined at a rate equal to the rate actually earned (including, without limitation, market appreciation or depreciation, plus receipt of interest and dividends) during such period with respect to the assets of the Trust corresponding to such net amount delayed. IV. PAYMENTS TO COMPANY 4.1 Except to the extent expressly contemplated by Sections 1.2, 1.4(d) and 2.5 and this Article IV, the Company shall have no right or power to direct the Trustee to return any of the Trust assets to the Company before all payments of Supplemental Benefits have been made to all Trust Beneficiaries as provided in this Agreement. Upon the written request of the Company made prior to the date on which the Trust becomes irrevocable, the Trustee shall return to the Company any Trust assets in excess of One Hundred Dollars ($100.00) as may be specified in such request by the Company. -5- 9 V. INVESTMENT OF TRUST FUND 5.1 Prior to the date on which the Trust becomes irrevocable, the Trustee shall invest and reinvest the assets of the Trust as the Company or its designee shall prescribe in writing from time to time. 5.2 On or after the date on which the Trust becomes irrevocable, or in the absence of the instructions from the Company specified in Section 5.1, the provisions of this Section 5.2 shall apply to the investment of the Trust assets. The investment objective of the Trustee shall be to preserve the principal of the Trust while obtaining a reasonable total rate of return, measurement of which shall include, without limitation, market appreciation or depreciation plus receipt of interest and dividends. The Trustee shall be mindful, in the course of its management of the Trust, of the liquidity demands on the Trust. 5.3 The Trustee shall have the sole power to invest the assets of the Trust, in accordance with the provisions of Sections 5.1 and 5.2. The Trustee shall not be liable for any failure to maximize income on such portion of the Trust assets as may be from time to time invested or reinvested as set forth above, nor for any loss of principal or income due to the liquidation of any investment that the Trustee, in its sole discretion, believes necessary to make payments or to reimburse expenses under the terms of this Agreement. The Trustee shall have the right to invest assets of the Trust for short-term investment periods, pending distribution or long-term investment of such assets, as the Trustee may deem proper in the circumstances. VI. INCOME OF THE TRUST 6.1 Except as provided in Articles III and IV, during the continuance of this Trust all net income of the Trust shall be retained in the Trust. VII. ACCOUNTING BY TRUSTEE 7.1 The Trustee shall maintain such books, records and accounts as may be necessary for the proper administration of the Trust assets, including such specific records as shall be agreed upon in writing by the Company and the Trustee. Within 60 days following the close of each Plan Year that includes or commences after the date of this Trust until the termination of this Trust or the removal or resignation of the Trustee (and within 60 days after the date of such termination, removal or resignation), the Trustee shall render to the Company an accounting with respect to the Trust assets as of the end of the then most recent Plan Year (and as of the date of such termination, removal or resignation, as the case may be). The Trustee shall furnish to the Company on a quarterly basis and in a timely manner such information regarding the Trust as the Company shall require for purposes of preparing its statements of financial condition. Upon the written request of the Company or, on or after the date on which the Trust has become irrevocable, the Fiduciary, the Trustee shall deliver to the Fiduciary or the Company, as the case may be, a written report setting forth the amount held in the Trust and a record of the deposits made with respect thereto by the Company. Unless the Company or the Fiduciary shall have filed with the Trustee written exception or objection to the statement and account furnished by the Trustee within 90 days after receipt thereof, the Company and the Trust Beneficiaries shall be deemed to have approved such statement and account, and in such case the Trustee shall be forever released and discharged with respect to all matters and things reported in such statement -6- 10 and account as though it had been settled by a decree of a court of competent jurisdiction in an action or proceeding to which the Company and the Participants were parties. 7.2 Nothing in this Article VII shall preclude the commingling of Trust assets for investment. VIII. RESPONSIBILITY AND INDEMNIFICATION OF TRUSTEE 8.1 The duties and responsibilities of the Trustee shall be limited to those expressly set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement against the Trustee. 8.2 In addition to and without limiting any other provision of this Agreement, on or after the date on which the Trust has become irrevocable, the Trustee shall, based upon the written direction of the Fiduciary and any payment schedules attached to this Agreement as Exhibits, carry out the duties allocated to it by this Agreement in accordance with the terms of Section 8.4. The Company hereby agrees that it will not contest, dispute or otherwise challenge any decision made by the Trustee pursuant to the terms of this Agreement. 8.3 If all or any part of the Trust assets are at any time attached, garnished, or levied upon by any court order, or in case the payment, assignment, transfer, conveyance or delivery of any such property shall be stayed or enjoined by any court order, or in case any order, judgment or decree shall be made or entered by a court affecting such property or any part of such property, then and in any of such events the Trustee shall rely upon and comply with any such order, judgment or decree, and it shall not be liable to the Company or any Trust Beneficiary by reason of such compliance even though such order, judgment or decree subsequently may be reversed, modified, annulled, set aside or vacated. 8.4 The Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; provided, however, that the Trustee shall incur no liability to anyone for any action taken pursuant to a direction, request, or approval given by the Company, the Fiduciary or any Trust Beneficiary contemplated by and complying with the terms of this Agreement. The Trustee shall discharge its responsibility for the investment, management and control of the Trust assets solely in the interest of the Trust Beneficiaries and for the exclusive purpose of assuring that, to the extent of available Trust assets, and in accordance with the terms of this Agreement, all payments of Supplemental Benefits are made when due to the Trust Beneficiaries. 8.5 The Trustee may consult with legal counsel (who may be counsel for the Company) to be selected by it, and the Trustee shall not be liable for any action taken or suffered by it in accordance with the advice of such counsel. 8.6 The Trustee shall be reimbursed by the Company for its reasonable expenses incurred in connection with the performance of its duties (including, but not limited to, the fees and expenses of counsel, accountants and others incurred pursuant to Section 8.5, 8.11 or 12.2) -7- 11 and shall be paid reasonable fees for the performance of such duties in the manner provided by Section 8.7. 8.7 The Company agrees to indemnify and hold harmless the Trustee from and against any and all damages, losses, claims or expenses as incurred (including expenses of investigation and fees and disbursements of counsel to the Trustee, the fees and expenses of the Fiduciary and any taxes imposed on the Trust assets or income of the Trust) arising out of or in connection with the performance by the Trustee of its duties, other than such damages, losses, claims or expenses arising out of the Trustee's gross negligence or willful misconduct. The Trustee shall not be required to undertake or to defend any litigation arising in connection with this Agreement unless it be first indemnified by the Company against its prospective costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses), and the Company agrees to indemnify the Trustee and be primarily liable for such costs, expenses, and liabilities. Any amount payable to the Trustee under Section 8.6 or this Section 8.7 or payable to the Fiduciary pursuant to Section 8.11 shall be paid by the Company promptly upon demand by the Trustee or, in the event that the Company fails to make such payment within 30 days of such demand, from the Trust assets. In the event that payment is made to the Trustee or the Fiduciary from the Trust assets, the Trustee shall promptly notify the Company in writing of the amount of such payment. The Company agrees that, upon receipt of such notice, it will deliver to the Trustee to be held in the Trust an amount in cash equal to any payments made from the Trust assets to the Trustee pursuant to Section 8.6, 8.11 or this Section 8.7. The failure of the Company to transfer any such amount shall not in any way impair the Trustee's right to indemnification, reimbursement and payment pursuant to Section 8.6 or this Section 8.7. 8.8 The Trustee may vote any stock or other securities and exercise any right appurtenant to any stock, other securities or other property held hereunder, either in person or by general or limited proxy, power of attorney or other instrument. 8.9 The Trustee may hold securities in bearer form and may register securities and other property held in the Trust fund in its own name or in the name of a nominee, combine certificates representing securities with certificates of the same issue held by the Trustee in other fiduciary capacities, and deposit, or arrange for deposit of, property with any depository; provided that the books and records of the Trustee shall at all times show that all such securities are part of the assets of the Trust. 8.10 The Trustee may exercise all rights appurtenant to any letter of credit made payable to the Trustee of the Trust for the benefit of the Trust in accordance with the terms of such letter of credit. 8.11 (a) The Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals, who may be agents, accountants, actuaries, investment advisors, financial consultants, or otherwise act in a professional capacity, as the case may be, for the Company or with respect to the Plan, to assist the Trustee in performing any of its duties. -8- 12 (b) Without limiting the foregoing, the Trustee shall retain an independent third party (the "Fiduciary") to provide services, as described in a separate fiduciary services agreement, to the Trustee in connection with the administration of the Trustee's obligations under this Agreement. The duties, responsibilities and obligations of the Fiduciary shall be set forth in a separate fiduciary services agreement between the Fiduciary and the Trustee as set forth in an exhibit ("Exhibit C") hereto or as subsequently agreed to by the Fiduciary, the Trustee and the Company. The initial Fiduciary will be CRG Fiduciary Services, Inc., a California corporation. Any successor Fiduciary shall be appointed by the Trustee, as directed by a majority of the Participants. The Fiduciary shall be reimbursed by the Company for its reasonable expenses incurred in connection with the performance of its services pursuant to the fiduciary services agreement and shall be paid such fees by the Company as may be prescribed by such agreement. See Section 13.11, regarding the effectiveness of the Fiduciary's services. 8.12 The Trustee shall have, without exclusion, all powers conferred on trustees by applicable law unless expressly provided otherwise in this Agreement. 8.13 Notwithstanding any other provision of this Agreement, in the event of the termination of the Trust, or the resignation or discharge of the Trustee, the Trustee shall have the right to a settlement of its accounts in accordance with the procedures set forth in Section 7.1, which may be made, at the option of the Trustee, either (a) by a judicial settlement in a court of competent jurisdiction, or (b) by agreement of settlement, release and indemnity from the Company to the Trustee. 8.14 Notwithstanding any powers granted to the Trustee pursuant to this Agreement or applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of Treasury Regulation ss. 301.7701-2. IX. AMENDMENTS, ETC., TO PLAN AND EXHIBITS 9.1 The Company shall furnish the Trustee and the Fiduciary with any amendments, restatements, or other changes in the Plan, and the Company shall from time to time prescribe or amend, as the case may be, Exhibit B hereto to reflect any such amendment, restatement, or other change, or any changes in the compensation of the Participants, or otherwise. 9.2 The Company shall furnish to the Trustee any amendment to Exhibit A and any corresponding amendment to Exhibit B required as a result of such amendment to Exhibit A; provided, however, that on or after the date on which the Trust becomes irrevocable, any amendment to Exhibit A must be (a) approved by the Fiduciary, and (b) in the case of an amendment that adds a new Participant as a Trust Beneficiary, accompanied by the deposit into the Trust by the Company, on or before the effective date on which the new Participant would become a Trust Beneficiary, an amount sufficient to pay such new Participant's Supplemental Benefits hereunder (with such sufficiency determined on the same actuarial basis as that used to determine sufficiency with respect to the Supplemental Benefits as in effect hereunder immediately prior to the addition of such new Participant). -9- 13 9.3 Notwithstanding the foregoing provisions of this Article IX, any amendment, restatement, successor or other change in the Plan or the addition of a new Plan that would materially increase the responsibilities or liabilities of the Trustee or materially change its duties shall also require the consent of the Trustee, which consent shall not be unreasonably withheld. X. REPLACEMENT OF TRUSTEE 10.1 The Trustee may resign and be discharged from its duties hereunder after providing not less than 90 days' notice in writing to the Company. On or after the date on which the Trust becomes irrevocable, the Trustee shall also provide notice of its resignation to the Fiduciary. Prior to the date on which the Trust becomes irrevocable, the Trustee may be removed at any time upon notice in writing by the Company. On or after such date, such removal shall also require the approval of the Fiduciary. Prior to the date on which the Trust becomes irrevocable, a replacement or successor trustee shall be appointed by the Company. On or after such date, such appointment shall also require the approval of the Fiduciary. No such removal or resignation shall become effective until the effectiveness of the acceptance of the trust by a successor trustee designated in accordance with this Article X. If the Trustee should resign, and within 45 days of the notice of such resignation the Company and, if required, the Fiduciary shall not have notified the Trustee of an agreement as to a replacement trustee, the Trustee shall petition a court of competent jurisdiction to appoint a successor trustee. Upon the acceptance of the trust by a successor trustee, the Trustee shall release all of the moneys and other property in the Trust to its successor, who shall thereafter for all purposes of this Agreement be considered to be the "Trustee." In the event of its removal or resignation, the Trustee shall duly file with the Company and, after the Trust becomes irrevocable, the Fiduciary, a written statement or statements of accounts and proceedings as provided in Section 7.1 for the period since the last previous annual accounting of the Trust, and if written objection to such account is not filed as provided in Section 7.1, the Trustee shall to the maximum extent permitted by applicable law be forever released and discharged from all liability and accountability with respect to the propriety of its acts and transactions shown in such account. The successor trustee shall not be responsible for, and the Company shall indemnify and defend the successor trustee from any claim or liability resulting from any action or inaction of any prior trustee or from any other past event, or any condition existing at the time it becomes successor trustee. In the event that no party is then serving as a Fiduciary, this Section 10.1 shall be applied by substituting the Participants for the Fiduciary and approval by a majority of the Participants for approval by the Fiduciary. XI. AMENDMENT OR TERMINATION OF AGREEMENT 11.1 This Agreement may be amended at any time and to any extent by a written instrument executed by the Trustee and the Company and, after the Trust has become irrevocable, approved by the Fiduciary; provided, however, that no amendment shall have the effect of (a) making the Trust revocable after it has become irrevocable in accordance with Section 1.2 or (b) altering Section 11.2. Notwithstanding the previous sentence, amendments contemplated by Article IX shall be made as therein provided. -10- 14 11.2 The Trust shall terminate (a) prior to the date on which the Trust has become irrevocable, upon the written request of the Company, and (b) on or after such date, upon the earliest to occur of (i) a determination by the Fiduciary that no Trust Beneficiary is or will be entitled to any further payment of Supplemental Benefits; (ii) such time as the Trust no longer contains any assets, or contains assets that, in the sole judgment of the Trustee, are insubstantial in relation to the actual and potential liabilities of the Trustee to pay Supplemental Benefits under the terms of this Agreement and any other amounts to be paid from the assets of the Trust, including, without limitation, the fees and expenses of the Trustee, the Fiduciary and counsel; or (iii) notwithstanding anything to the contrary contained in the Plan, such time as the Trustee shall have received consents from the Fiduciary and a majority of the Participants to the termination of this Agreement. Notwithstanding the previous sentence (other than clause (ii) thereof), if payments under the Plan with respect to a Trust Beneficiary are the subject of litigation or arbitration, the Trust shall not terminate and the funds held in the Trust with respect to such Trust Beneficiary shall continue to be held by the Trustee until the final resolution of such litigation or arbitration. The Trustee may assume that the Plan is not the subject of such litigation or arbitration unless the Trustee receives written notice from a Trust Beneficiary or the Company with respect to such litigation or arbitration. The Trustee may rely upon written notice from a Trust Beneficiary as to the final resolution of such litigation or arbitration. 11.3 Upon a termination of the Trust as provided in Section 11.2, any assets remaining in the Trust, less all payments, expenses, taxes and other charges under this Agreement as of such date of termination, shall be returned to the Company in such amounts and in the manner instructed by the Company, whereupon the Trustee shall be released and discharged from all obligations under this Agreement. From and after the date of termination, and until final distribution of the Trust assets, the Trustee shall continue to have all of the powers provided in this Agreement as are necessary or expedient for the orderly liquidation and distribution of the Trust. XII. SPECIAL DISTRIBUTIONS 12.1 It is intended that (a) the creation of, transfer of assets to, and irrevocability of, the Trust will not cause the Plan to be other than "unfunded" for purposes of title I of ERISA; (b) transfers of assets to the Trust or the Trust becoming irrevocable will not be transfers of property for purposes of section 83 of the Code, or any successor provision thereto, nor will such transfers or irrevocability cause a currently taxable benefit to be realized by a Trust Beneficiary pursuant to the "economic benefit" doctrine; and (c) pursuant to section 451 of the Code, or any successor provision thereto, amounts will be includible as compensation in the gross income of a Trust Beneficiary in the taxable year or years in which such amounts are actually distributed or made available to such Trust Beneficiary by the Trustee. 12.2 Notwithstanding anything to the contrary contained in the Plan, if the Trustee obtains an opinion of tax counsel selected by the Trustee to the effect that based upon any of the following occurring after the date of this Agreement: (a) a change in the federal tax or revenue laws, (b) a decision in a controlling case, (c) a published ruling or similar announcement issued by the Internal Revenue Service, (d) a -11- 15 regulation issued by the Secretary of the Treasury, (e) a decision by a court of competent jurisdiction involving a Trust Beneficiary, or (f) a closing agreement made under section 7121 of the Code that is approved by the Internal Revenue Service and involves a Trust Beneficiary, it is more likely than not that an amount is includible in the gross income of a Trust Beneficiary in a taxable year that is prior to the taxable year or years in which such amount would, but for this Section 12.2, otherwise actually be distributed or made available to such Trust Beneficiary by the Trustee, then the Trustee shall promptly distribute to each affected Trust Beneficiary an amount equal to the amount determined to be includible in gross income in such prior taxable year. The Trustee shall seek such an opinion of tax counsel if and only if requested to do so by the Fiduciary. 12.3 Notwithstanding anything to the contrary contained in the Plan, if a Trust Beneficiary provides evidence satisfactory to the Trustee demonstrating that, as a result of an assertion by the Internal Revenue Service, a final nonappealable binding determination has been made with respect to a taxable year of such Trust Beneficiary that an amount is includible in the gross income of such Trust Beneficiary in a taxable year that is prior to the taxable year in which such amount would, but for this Section 12.3, otherwise actually be distributed or made available to such Trust Beneficiary by the Trustee, then the Trustee shall promptly distribute to such Trust Beneficiary an amount equal to such amount determined by the Internal Revenue Service to be includible in gross income in such prior taxable year. XIII. GENERAL PROVISIONS 13.1 The Company shall, at any time and from time to time, upon the reasonable request of the Trustee, provide information, execute and deliver such further instruments and do such further acts as may be necessary or proper to effectuate the purposes of this Trust. 13.2 Each Exhibit referred to in this Agreement shall become a part of this Agreement and is expressly incorporated herein by reference. 13.3 This Agreement sets forth the entire understanding of the parties with respect to its subject matter and supersedes any and all prior agreements, arrangements and understandings. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and legal representatives. 13.4 This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois, other than and without reference to any provisions of such laws regarding choice of laws or conflict of laws. 13.5 In the event that any provision of this Agreement or the application of any provision to any person or circumstances shall be determined by a court of competent jurisdiction to be invalid or unenforceable to any extent, the remainder of this Agreement, or the application of such provision to persons or circumstances other than those as to which it is held invalid or -12- 16 unenforceable, shall not be affected, and each provision of this Agreement shall be valid and enforced to the maximum extent permitted by law. 13.6 (a) The preamble to this Agreement shall be considered a part of the agreement of the parties as if set forth in a section of this Agreement. (b) The headings and table of contents contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement. (c) Unless otherwise noted, all section and article references are to sections and articles of this Agreement. (d) Any reference to a provision of a statute, regulation or rule shall also include any successor to such statute, regulation or rule. 13.7 The right of any Trust Beneficiary to any benefit or to any payment hereunder may not be anticipated, assigned (either at law or in equity), alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process except as required by law. Any attempt by any Trust Beneficiary to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the same shall be void. The Trust assets shall not in any manner be subject to the debts, contracts, liabilities, engagement or torts of any Trust Beneficiary and payments hereunder shall not be considered an asset of the Trust Beneficiary in the event of the insolvency or bankruptcy of such Trust Beneficiary. 13.8 Each Participant is an intended beneficiary under this Trust, and as an intended beneficiary shall be entitled to enforce all terms and provisions with the same force and effect as if such person had been a party to this Agreement. 13.9 Notwithstanding any other provision, the parties' respective rights and obligations under Section 13.8 and all releases and indemnities provided in this Agreement shall survive any termination or expiration of this Agreement. 13.10 This Agreement may be executed in two or more counterparts, each of which shall be considered an original agreement, but all of which together shall constitute one agreement. 13.11 The provisions in this Agreement regarding the Fiduciary (including the last sentence of Section 10.1) shall become effective only as set forth in the fiduciary services agreement described in Section 8.11(b). In the absence of such fiduciary services agreement or prior to the effectiveness of the Fiduciary's services as set forth in such agreement, the Company shall be treated as the Fiduciary for all purposes of this Agreement. XIV. NOTICES 14.1 For all purposes of this Agreement, any communication, including without limitation, any notice, consent, report, demand or waiver required or permitted to be given -13- 17 hereunder shall be in writing and, unless otherwise provided in this Agreement, shall be deemed to have been duly given when hand delivered or dispatched or transmitted by electronic facsimile (with receipt thereof orally confirmed), or five business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, or three business days after having been dispatched by a nationally recognized overnight courier service to the appropriate party at the address specified below: If to the Company, to: Greyhound Lines, Inc. 15110 North Dallas Parkway, Suite 600 Dallas, Texas 75248 Attention: General Counsel If to the Trustee, to: LaSalle National Bank 135 South LaSalle Street Chicago, Illinois 60603 Attention: Senior Vice President Employee Benefits Group If to a Participant, to: the address of such Participant as listed next to such Participant's name on Exhibit A hereto, provided, however, that if any party or such party's successors shall have designated a different address by notice to the other parties, then to the last address so designated. -14- 18 IN WITNESS WHEREOF, the Company and the Trustee caused this Agreement to be executed on its behalf as of the date first above written. Attested GREYHOUND LINES, INC. By: By: ------------------------------- --------------------------------- Its: Its: --------------------------- ----------------------------- Attested LASALLE NATIONAL BANK By: By: ------------------------------- --------------------------------- William Kursar Its: Its: Senior Vice President --------------------------- ----------------------------- -15- 19 Exhibit A
Employee Address Soc. Sec. No. - -------- ------- -------------
20 Exhibit B 21 Exhibit C Fiduciary Services Agreement EX-10.38 8 2ND AMENDED EMPLOYMENT AGREEMENT-CRAIG R. LENTZSCH 1 EXHIBIT 10.38 SECOND AMENDED EXECUTIVE EMPLOYMENT AGREEMENT This SECOND AMENDED EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") dated as of the 16th day of March, 1999, but effective as provided herein, by and between GREYHOUND LINES, INC. (together with its successors, the "Company"), LAIDLAW, INC. (together with its successors, the "Parent") 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 a First Amended Executive Employment Agreement (the "Prior Agreement"), effective November 15, 1998; and WHEREAS, pursuant to the Agreement and Plan of Merger dated as of October 16, 1998 (the "Merger Agreement") by and among Parent, Laidlaw Transit Acquisition Corp., a wholly-owned subsidiary of Parent, and the Company, as amended, at the Effective Time of the Merger (the "Effective Time"), as defined in the Merger Agreement, Laidlaw Transit Acquisition Corp. will be merged with and into the Company, with the Company as the surviving entity (the "Merger"); and WHEREAS, the Company and Parent desire and intend 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, in view of the changes in the nature and scope of the duties and responsibilities of the Executive that will occur as a result of the Merger, the Company, Parent and the Executive desire to amend and restate certain of the terms and conditions of the Executive's employment with the Company as set forth in the Prior Agreement; WHEREAS, the Company, Parent 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 Agreement, the Executive, Parent 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 Time until changed as provided in this section, the Company agrees to pay the Executive an annual salary of $500,000.00 (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 2 "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 those applicable to other officers of the Company. The Executive shall be eligible for annual incentive bonus consideration under the successor to the Company's 1998 Management Incentive Plan beginning at the Effective Time and continuing for the duration of this Agreement with an Annual Target Award of at least 55% of Base Salary and a maximum award of 110% of Base Salary. For the period beginning on the Effective Time and ending August 31, 1999, Executive's Incentive Compensation shall be pro-rated to reflect the partial year. The Company shall honor and pay all Incentive Compensation accruing and/or payable for the period while the Prior Agreement was in effect. 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. These employee benefits shall continue without amendment or change, except changes that increase compensation, for a period of not less than 12 months following the Effective Time. Thereafter, benefits may be amended, terminated or replaced, provided that the employee benefits provided to the Executive shall provide, in the aggregate, not less than a substantially equivalent level of benefits to the Executive. 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 "401 k 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 401 k Plan, the Company will match fifty percent (50%) of the first six (6%) of Executive's contributions to such 401 k 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: 2 3 (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 SERP), the Executive shall continue to be a designated person eligible for coverage and benefits under the SERP, and the Executive shall be entitled to an annual contribution equal to 20% of Executive's annual Base Salary. At the Effective Time, to the extent not theretofore in effect, the Company shall establish and fully fund, at the Company's option, in cash, a letter of credit of Parent, or any combination thereof, a so-called "rabbi" trust for the benefit of the Executive to secure the payment of benefits provided to the Executive under this Subsection. Not less frequently than annually thereafter, the Company shall contribute sufficient additional assets to such trust to fund any increase in the liabilities of the SERP attributable to the Executive. (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. (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. 3 4 (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 to the same extent Executive was eligible for such benefits immediately prior to the Effective Time. 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. 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 Time and expiring on the third anniversary thereof (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 the first anniversary of the Effective Time, 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 4 5 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. 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 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; 5 6 (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. (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. 6 7 (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 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 7 8 "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. 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 inter-city coach, coach charter, and line haul and any other related business thereto of Parent and its subsidiaries subject to and in accordance with the authority and direction of the President and Chief Executive Officer of Parent. Without limiting the foregoing, Executive shall be delegated the authority to commit the Company and/or its subsidiaries to up to $5 million in capital or operating expenses per project or transaction; provided that such expenditures are included in the Company's approved annual budgets. 4. CHANGE OF CONTROL: The parties acknowledge that the Executive has agreed to continue in the position of Chief Executive Officer of the Company and to enter into this Agreement based upon his confidence in the current shareholder 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, or in the case of Section 4(d), in all events, the parties agree as follows: a. VESTING OF STOCK INCENTIVES AND AWARDS: At the Effective Time and 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 at the Effective Time and on the date of the Change of Control, as the case may be, 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 8 9 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 exist in the event that any of the following occurs: (1) Parent ceases to be the beneficial owner, directly or indirectly, of 51% or more of the voting shares of the Company or Parent and its subsidiaries sell or cause to be sold all or substantially all of the assets of the Company; or (2) Any individual, or incorporated or unincorporated entity or group of the foregoing acting jointly and in concert acquires beneficial ownership, directly or indirectly, of 30% or more of Parent's voting shares; or (3) A majority of the individuals who serve as directors of Parent at the commencement of any 18 month period are replaced other than by replacement directors who became directors at the initiative of management or pursuant to a management proxy solicitation. For the purpose of this Agreement, the acquisition of the Company by Parent is not a Change of Control. 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). 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 9 10 (other than the Gross-Up payments provided for in this Section 4(d)) or distribution by Parent, 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 or of Parent, 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 (as such term is defined in the Prior 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 10 11 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 Tax, 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; (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 11 12 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, 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). 12 13 (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 three (3) 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. 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 13 14 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 forth in this Agreement, Executive shall be entitled to participate in such stock options plans, incentives and awards on terms applicable to other officers and directors of Parent, except that Parent 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 Time: 14 15 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 Agreement will affect to the Executive's disadvantage any non-qualified stock options previously granted to Executive, whether under an 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 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 at the Effective Time. 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 15 16 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, Parent, 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 (as such terms are defined in the Prior 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 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." 16 17 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 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: 17 18 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 and by Parent. 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 all 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: 18 19 Craig R. Lentzsch Greyhound Lines Inc. Laidlaw, Inc. 6606 Waggoner Drive 15110 North Dallas Parkway 3221 North Service Dallas, Texas 75230 Dallas, Texas 75248 Burlington, Ontario Attn: General Counsel Canada L7R 3Y8 Attn: General Counsel With a copy to: With a copy to: With a copy to: Robert E. Sheeder, Esq. Chairman of the Board of Directors President and Chief 1445 Ross Avenue, Suite 3200 Board of Directors Executive Officer Dallas, Texas 75202 Greyhound Lines Inc. Laidlaw, Inc. 15110 North Dallas Parkway 3221 North Service Dallas, Texas 75248 Burlington, Ontario Dallas, Texas 75248 Canada L7R 3Y8 Attn: General Counsel
14. EFFECTIVENESS; PRIOR AGREEMENT: This Agreement will become effective upon and the Prior Agreement will terminate immediately prior to, the Effective Time. Notwithstanding any other provision of this Agreement, if the Merger Agreement is terminated prior to the Effective Time, this Agreement will have no further force or effect, and the Prior Agreement will remain in full force and effect as though this Agreement had not been entered into. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written, but effective as provided in Section 14. CRAIG R. LENTZSCH ------------------------------------- GREYHOUND LINES, INC. By: ---------------------------------- Title: ------------------------------- LAIDLAW, INC. By: ---------------------------------- Title: ------------------------------- 19 EX-10.39 9 2ND AMENDED EMPLOYMENT AGREEMENT-JOHN W. HAUGSLAND 1 EXHIBIT 10.39 SECOND AMENDED EXECUTIVE EMPLOYMENT AGREEMENT This SECOND AMENDED EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") dated as of the 16th day of March, 1999, but effective as provided herein, by and between GREYHOUND LINES, INC. (together with its successors, the "Company"), LAIDLAW, INC. (together with its successors, the "Parent") 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 a First Amended Executive Employment Agreement (the "Prior Agreement"), which was effective May 15, 1995; and WHEREAS, pursuant to the Agreement and Plan of Merger dated as of October 16, 1998 (the "Merger Agreement") by and among Parent, Laidlaw Transit Acquisition Corp., a wholly-owned subsidiary of Parent, and the Company, as amended, at the Effective Time of the Merger (the "Effective Time"), as defined in the Merger Agreement, Laidlaw Transit Acquisition Corp. will be merged with and into the Company, with the Company as the surviving entity (the "Merger"); and WHEREAS, the Company and Parent desire and intend 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, in view of the changes in the nature and scope of the duties and responsibilities of the Executive that will occur as a result of the Merger, the Company, Parent and the Executive desire to amend and restate certain of the terms and conditions of the Executive's employment with the Company as set forth in the Prior Agreement; WHEREAS, the Company, Parent 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 Agreement, the Executive, Parent 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 Time 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 2 "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 Officer of the Company). For the year ending August 31, 1999, Executive's Incentive Compensation shall be determined on the same basis as prior years, except that such Incentive Compensation shall be pro-rated to approximately reflect the partial year. For subsequent years, the Executive shall be eligible for annual incentive bonus consideration under the successor to the 1998 Management Incentive Plan for the duration of this Agreement with an annual Target Award of at least 45% of Base Salary and a maximum award of 90% 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). These employee benefits shall continue without amendment or change, except changes that increase compensation, for a period of not less than 12 months following the Effective Time. Thereafter, benefits may be amended, terminated or replaced, provided that the employee benefits provided to the Executive shall provide, in the aggregate, not less than a substantially equivalent level of benefits to the Executive. 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 continue to be a designated person eligible for coverage and benefits under the SERP, and the Executive shall be entitled to an annual contribution of 20% of Executive's annual Base Salary. At the Effective Time, to the extent not theretofore in effect, the Company shall establish and fully fund, at the Company's option, in cash, a letter of credit of Parent, or any combination thereof, a so-called "rabbi" trust for the benefit of the Executive to secure the payment of benefits provided to the Executive under this Subsection. Not less frequently than annually thereafter, the Company shall contribute sufficient additional assets to such trust to fund any increase in the liabilities of the SERP attributable to the Executive. 2 3 (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. (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. (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 to the same extent Executive was eligible for such benefits immediately prior to the Effective Time. 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. 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 Time and expiring on the third anniversary thereof (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 party terminates the Agreement in accordance with Subsection 2(c). If any Change of Control (as hereafter defined) occurs on or after the first anniversary of the Effective Time, 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 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. 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. 4 5 (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 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. 5 6 (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 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 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 6 7 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 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. Executive's responsibilities shall include the inter-city coach, coach charter and line haul and any other related business thereto of Parent and its subsidiaries in the United States. 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 continue in the position of Executive Vice President and Chief Operating Officer of the Company and to enter into this Agreement based upon his confidence in the current shareholder 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, or in the case of Section 4(d), in all events, the parties agree as follows: a. VESTING OF STOCK INCENTIVES AND AWARDS: At the Effective Time and 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 at the Effective Time and on the date of the 7 8 Change of Control, as the case may be, 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 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 exist in the event that any of the following occurs: (1) Parent ceases to be the beneficial owner, directly or indirectly, of 51% or more of the voting shares of the Company or Parent and its subsidiaries sell or cause to be sold all or substantially all of the assets of the Company; or (2) Any individual, or incorporated or unincorporated entity or group of the foregoing acting jointly and in concert acquires beneficial ownership, directly or indirectly, of 30% or more of Parent's voting shares; or (3) A majority of the individuals who serve as directors of Parent at the commencement of any 18 month period are replaced other than by replacement directors who became directors at the initiative of management or pursuant to a management proxy solicitation. For the purpose of this Agreement, the acquisition of the Company by Parent is not a Change of Control. 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 8 9 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). 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 Parent, 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 or of Parent, 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 (as such term is defined in the Prior 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 9 10 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 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 Tax, 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 10 11 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; (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 11 12 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(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: 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). 12 13 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 three (3) 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. 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). 13 14 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 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 (as such term is defined in the Prior Agreement), 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 Parent 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 Time: 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 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 14 15 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 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 at the Effective Time, 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, Parent, 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 (as such terms are defined in the Prior Agreement). 15 16 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. 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 16 17 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 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 17 18 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 and by Parent. 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 all 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. Laidlaw, Inc. 17824 Cedar Creek Canyon 15110 No. Dallas Parkway 3221 North Service Dallas, Texas 75252 Dallas, Texas 75248 Burlington, Ontario Attn: General Counsel Canada L7R 3Y8 Attn: General Counsel With a copy to: With a copy to: With a copy to: Robert E. Sheeder, Esq. Craig R. Lentzsch President and Chief 1445 Ross Avenue, Suite 3200 President and Chief Executive Executive Officer Dallas, Texas 75202 Officer Laidlaw, Inc. Greyhound Lines, Inc. 3221 North Service 15110 North Dallas Parkway Burlington, Ontario Dallas, Texas 75248 Canada L7R 3Y8 Attn: General Counsel
18 19 14. EFFECTIVENESS; PRIOR AGREEMENT: This Agreement will become effective upon and the Prior Agreement will terminate immediately prior to, the Effective Time. Notwithstanding any other provision of this Agreement, if the Merger Agreement is terminated prior to the Effective Time, this Agreement will have no further force or effect, and the Prior Agreement will remain in full force and effect as though this Agreement had not been entered into. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written, but effective as provided in Section 14. JOHN WERNER HAUGSLAND ------------------------------------ GREYHOUND LINES, INC. By: --------------------------------- Title: ------------------------------ LAIDLAW, INC. By: --------------------------------- Title: ------------------------------ 19 EX-21 10 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 Greyhound Lines. Inc. Amarillo Trailways Bus Center Inc. (75%) Atlantic Greyhound Lines of Virginia, Inc. (100%) Continental Panhandle Lines, Inc. (50%) Gateway Ticketing Systems, Inc. (25%) GLI Holding Company (100%) ASI Associations, Inc. (100%) Carolina Associates, Inc. (100%) Carolina Coach Company (100%) Wilmington Union Bus Station Corporation (3%) Red Bus Systems, Inc. (100%) Seashore Transportation Company (100%) Wilmington Union Bus Station Corporation (39.5%) PRB Acquisition, LLC (99%) Texas New Mexico & Oklahoma Coaches, Inc. (100%) T.N.M.&O. Tours, Inc. (100%) Vermont Transit Co. Inc. (100%) Valley Garage Company (100%) Valley Transit Co., Inc. (100%) Greyhound de Mexico, S.A. de C.V. (99.9%) PRB Acquisition, LLC (1%) SET Acquisition Corp. (100%) Sistema Internacional De Transporte de Autobuses, Inc. (100%) American Bus Sales Associates, Inc. (100%) Americanos U.S.A., LLC (51%) Autobus Leasing Co., LLC (51%) Autobuses Americanos, S.A. de C. V. (49%) Autobuses Amigos, LLC (51%) Autobuses Amigos, S.A. de C. V. (49%) Autobuses Crucero, S.A. de C. V. (49%) Gonzalez, Inc. d/b/a Golden State Transportation (51%) Grupo Centro, Inc. (100%) Los Buenos Leasing Co., Inc. (100%) Los Rapidos, Inc. (51%) Omnibus Americanos, S.A. de C. V. (49%) Transportation Reality Income Partners, L.P. (48.9%) Union Bus Station of Oklahoma City, Oklahoma (40%) Wilmington Union Bus Station Corporation (24.6%) EX-27 11 FINANCIAL DATA SCHEDULE
5 ART. 5 FOR 12-MOS 10-K 0000813040 GREYHOUND LINES, INC. 1,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 4,736 0 40,972 198 5,705 93,374 513,885 151,468 643,378 135,623 225,688 0 60,000 603 157,410 643,378 0 845,996 0 512,179 0 0 27,899 18,932 (16,856) 35,232 0 0 0 30,048 .50 .47
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