-----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, P4WC1599fe/3GGWqQXkRMXYuUv7aulu6OA/394Bxd8vPW3AwfQeW7EpyQ1vN/hSA 2DIYEkYJJW9wlgIR93Xt3w== 0000950172-96-000612.txt : 19961010 0000950172-96-000612.hdr.sgml : 19961010 ACCESSION NUMBER: 0000950172-96-000612 CONFORMED SUBMISSION TYPE: F-1/A PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19961008 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSORTIUM G DINA GROUP INC CENTRAL INDEX KEY: 0000893188 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: F-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-08843 FILM NUMBER: 96640870 BUSINESS ADDRESS: STREET 1: DOMICILIO CONOCIDO COREDOR INDUSTRIAL CITY: 43990 CD SHAGUN HIDA STATE: O5 BUSINESS PHONE: 5253250927 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCII HOLDINGS USA INC CENTRAL INDEX KEY: 0001019534 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: F-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-08843-01 FILM NUMBER: 96640871 BUSINESS ADDRESS: STREET 1: 1850 NORTH CENTRAL AVE CITY: PHOENIX STATE: AZ ZIP: 85004 BUSINESS PHONE: 6022075000 F-1/A 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 1996 REGISTRATION STATEMENT NO. 333-08843 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------------------ AMENDMENT NO. 1 TO FORM F-1/S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------------------------ CONSORCIO G GRUPO DINA, S.A. DE C.V. (Exact name of co-registrant as specified in its Charter) CONSORTIUM G DINA GROUP, INC. (Translation of co-registrant name into English) UNITED MEXICAN STATES 3711 NOT APPLICABLE (State or other juris- (Primary standard (I.R.S. Employer diction of incorporation industrial classi- Identification No.) or organization) fication code number) Tlacoquemecatl 41 Colonia Del Valle 03100, Mexico, D.F. Mexico (525) 420-3900 (Address and telephone number of co-registrant's principal executive offices) MCII HOLDINGS (USA), INC. (Exact name of co-registrant as specified in its Charter) DELAWARE 3711 86-0830781 (State or other juris- (Primary standard (I.R.S. Employer diction of incorporation industrial classification Identification No.) or organization) code number) Dial Tower 1850 North Central Avenue Phoenix, Arizona 85004 (602) 207-5000 (Address and telephone number of co-registrant's principal executive offices) ------------------------------------------ RANDALL H. DOUD, ESQ. Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, New York 10022 (212) 735-3000 (Name, address, including zip code, and telephone number, including area code, of agent for service of co-registrants) ------------------------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box: |X| If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_| ------------------------------------------ THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE CO-REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------- - -------------------------------------------------------------------------- Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This Prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these secur- ties in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED OCTOBER 8, 1996 OFFER FOR ALL OUTSTANDING SENIOR SECURED DISCOUNT NOTES DUE 2002 IN EXCHANGE FOR SENIOR SECURED DISCOUNT EXCHANGE NOTES DUE 2002 OF CONSORCIO G GRUPO DINA, S.A. DE C.V. AND MCII HOLDINGS (USA), INC. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON NOVEMBER __, 1996, UNLESS EXTENDED Consorcio G Grupo Dina, S.A. de C.V., a Mexican corporation ("Grupo Dina"), and MCII Holdings (USA), Inc., a Delaware corporation and a wholly-owned subsidiary of Grupo Dina ("MCII Holdings" and, together with Grupo Dina, the "Issuers"), hereby offer, upon the terms and subject to the conditions set forth in this Prospectus and the accompanying Letter of Transmittal (which together constitute the "Exchange Offer"), to exchange an aggregate principal amount of up to US$206,499,680 of Senior Secured Discount Exchange Notes due 2002 (the "New Notes") of the Issuers, which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for a like principal amount of the issued and outstanding Senior Secured Discount Notes due 2002 (the "Old Notes" and, with the New Notes, the "Notes"), of the Issuers from the holders thereof. The terms of the New Notes are identical in all material respects to the Old Notes, except for certain transfer restrictions and registration rights relating to the Old Notes and except that, if the Exchange Offer is not consummated by December 30, 1996, the Old Notes will bear additional interest as described herein. See "Description of the Notes." The Old Notes were issued on June 3, 1996 pursuant to an offering exempt from registration under the Securities Act in which Old Notes were exchanged for 10 1/2% Guaranteed Notes due 1997 (the "Eurobonds") of Grupo Dina. The Issuers are fully and unconditionally liable with respect to payments of principal and interest on the Notes. It is intended that all payments in respect of the Notes will be paid by Grupo Dina, and that payments will be made by MCII Holdings only in the event of a failure to pay by Grupo Dina. MCII Holdings will have subrogation rights against Grupo Dina if MCII Holdings is required to make any payments under the Notes. Such subrogation rights will be subordinated to the prior payment in full of the Notes. Holders of the New Notes, by their acceptance of the New Notes, will agree to report the New Notes as indebtedness of Grupo Dina which is guaranteed by MCII Holdings for all tax purposes. In addition, Grupo Dina and MCII Holdings have treated the Old Notes, and intend to treat the New Notes, as debt of Grupo Dina guaranteed by MCII Holdings for all tax purposes. The Notes will be redeemable at the option of Grupo Dina, in whole or in part, at any time on or after November 15, 1998, at a redemption price of 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date. The Old Notes are, and the New Notes will be, dated as of, and accrue interest from, November 18, 1995 and will bear interest at the rate of 12% per annum through maturity; provided, that, if the Notes are not rated either BB-or better by Standard & Poor's Corporation ("S&P") or Ba3 or better by Moody's Investors Service, Inc. ("Moody's") at November 15, 1999, the per annum interest rate shall be increased on such date to 15% until maturity. Prior to and including the interest payment due on November 15, 1998, the Notes will accrue interest on a zero coupon basis and, accordingly, the principal value of the Notes will accrete from US$705.65 as of November 18, 1995 for each US$1,000 in principal amount to US$1,000 at November 15, 1998. Thereafter, all interest will be payable in cash semiannually on May 15 and November 15 of each year, commencing May 15, 1999. See "Description of the Notes." ------------------ SEE "RISK FACTORS" COMMENCING ON PAGE 9 OF THIS PROSPECTUS FOR A DESCRIPTION OF CERTAIN RISKS TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESEN- TATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------ THE DATE OF THIS PROSPECTUS IS __________, 1996. The Old Notes are, and the New Notes will be, general senior obligations of the Issuers. MCII Holdings' obligation under the Old Notes is, and under the New Notes will be, secured by (i) a pledge of the common stock (the "MCII Shares") of Motor Coach Industries International, Inc. ("MCII"), a Delaware corporation which is a direct subsidiary of MCII Holdings, (ii) a pledge of all certificates representing any of the pledged MCII Shares, and (iii) a perfected first priority security interest in any cash or Cash Equivalents (as defined herein) deposited with the Trustee (as defined herein). Under certain circumstances, collateral in the form of MCII Shares may be released by the Trustee and sold by MCII Holdings. The obligation of Grupo Dina in respect of the New Notes will rank pari passu with the Old Notes and with all other outstanding unsecured and unsubordinated obligations of Grupo Dina, present or future, other than obligations which are mandatorily preferred by statute or operation of law. The obligation of MCII Holdings in respect of the New Notes will rank pari passu with the Old Notes and, by reason of its being secured by collateral, will effectively rank senior to any outstanding unsecured obligations of MCII Holdings. See "Description of the Notes." At June 30, 1996, Grupo Dina had outstanding Ps 2,442.2 million in aggregate principal amount of indebtedness that, by reason of its being secured by collateral, ranks effectively senior to the Old Notes and the New Notes. At such date, MCII Holdings had no outstanding indebtedness ranking senior to the Old Notes or the New Notes. At such date, MCII and its subsidiaries had outstanding indebtedness in an aggregate principal amount of US$195.6 million that is structurally senior to the Old Notes and the New Notes. For each Old Note accepted for exchange, the holder of such Old Note will receive a New Note having a principal amount equal to that of the surrendered Old Note. Old Notes accepted for exchange will cease to accrue interest from and after the date of consummation of the Exchange Offer. Holders of Old Notes whose Old Notes are accepted for exchange will not receive any payment in respect of interest on such Old Notes otherwise payable on any interest payment date the record date for which occurs on or after consummation of the Exchange Offer. The New Notes are being offered hereunder in order to satisfy certain obligations of the Issuers contained in the Registration Agreement dated June 3, 1996 among the Issuers and the other signatories thereto (the "Registration Agreement"). See "The Exchange Offer--Consequences of Exchanging Old Notes" for a discussion of the Issuers' belief, based on interpretations by the staff of the Securities and Exchange Commission (the "SEC") as set forth in no-action letters issued to third parties, as to the transferability of the New Notes upon satisfaction of certain conditions. Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that, by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Issuers have agreed that starting on the Expiration Date (as defined herein) and ending on the close of business on the first anniversary of the Expiration Date, they will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." The Issuers will not receive any proceeds from the Exchange Offer. The Issuers will pay expenses in connection with the Exchange Offer estimated to be approximately US$_________. Tenders of Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. In the event the Issuers terminate the Exchange Offer and do not accept for exchange any Old Notes, the Issuers will promptly return the Old Notes to the holders thereof. See "The Exchange Offer." There is no existing trading market for the New Notes, and there can be no assurance regarding the future development of a market for the New Notes, or the ability of holders of the New Notes to sell their New Notes or the price at which such holders may be able to sell their New Notes. The Issuers do not intend to apply for listing or quotation of the New Notes on any securities exchange or stock market. AVAILABLE INFORMATION The Issuers have filed with the SEC a Registration Statement (the "Registration Statement") under the Securities Act with respect to the New Notes being offered by this Prospectus. This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits thereto, to which reference is hereby made. Any statements made in this Prospectus concerning the provisions of certain documents are not necessarily complete and, in each instance, reference is made to the copy of such documents filed as an exhibit to the Registration Statement. Grupo Dina is subject to the information and reporting requirements of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"), applicable to foreign private issuers. In accordance therewith, Grupo Dina files reports and other information with the SEC. MCII Holdings is not currently subject to the information and reporting requirements of the Exchange Act. As a result of the Exchange Offer, MCII Holdings will become subject to the informational requirements of the Exchange Act applicable to domestic issuers and as such will be required to file with the SEC periodic reports, but would not be required to file proxy or information statements. Reports and other information filed by Grupo Dina or MCII Holdings with the SEC can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional Offices at 7 World Trade Center, 13th Floor, New York, New York 10048, and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can also be obtained by mail from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The SEC maintains a Web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC (such as MCII Holdings). In addition, reports and other information filed by Grupo Dina may be inspected at the offices of the New York Stock Exchange (the "NYSE"), 11 Wall Street, New York, New York 10005, on which American Depositary Shares ("ADSs") representing shares of Grupo Dina stock are listed. Reports and information of a public nature filed by Grupo Dina are available for review at the offices of the Bolsa Mexicana de Valores (the "Mexican Stock Exchange"). Each of the Issuers is required under the Indenture among the Issuers and IBJ Schroder Bank & Trust Company, as trustee (the "Trustee"), pursuant to which the Old Notes have been, and the New Notes will be, issued (the "Indenture"), to furnish the Trustee with copies of all reports required to be filed by it with the SEC under the Exchange Act, including annual reports in English, which will include a review of operations and annual audited financial statements prepared, with respect to Grupo Dina, in conformity with generally accepted accounting principles in Mexico ("Mexican GAAP") together with a reconciliation of net income and total stockholders' equity to generally accepted accounting principles in the United States ("U.S. GAAP") and, with respect to MCII Holdings, in conformity with U.S. GAAP. Upon receipt thereof, the Trustee will promptly mail such reports to all holders of the New Notes. ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS Most of the directors and officers of Grupo Dina and MCII Holdings, as well as certain of the experts named herein, reside in Mexico and all or a substantial portion of the assets of these persons and of Grupo Dina are located in Mexico. As a result, it may not be possible for investors to effect service of process in the United States upon such persons or to enforce against them or Grupo Dina in U.S. courts judgments predicated upon the civil liability provisions of the U.S. federal securities laws. Grupo Dina has been advised by its Mexican counsel, Ritch, Heather y Mueller, S.C., that there is doubt as to the enforceability, in original actions in Mexican courts, of liabilities predicated solely on the U.S. federal securities laws and as to the enforceability in Mexican courts of judgments of U.S. courts obtained in actions predicated upon the civil liability provisions of the U.S. federal securities laws. Under Mexican law, in the event that proceedings are brought in Mexico seeking to enforce obligations under the New Notes, such obligations may be paid in Pesos at the rate of exchange in effect on the date and in the place payment occurs. Such rate is currently determined by Banco de Mexico (the "Bank of Mexico") and published in the Diario Oficial de la Federacion every business day in Mexico. The names of certain of Grupo Dina's coaches -- DINA(R), DIMEX(R), Avante(R), Avante Plus(R) and Dorado(R) -- are registered trademarks of Grupo Dina. The names of Grupo Dina's other coaches -- Paradiso(R) and Viaggio(R) -- are registered trademarks of Marcopolo S.A. ("Marcopolo"). MCI(R) is a registered trademark of MCII. MCII has applied for but not yet received trade name protection for the name "MCII" and trademark protection for "COACHGUARD" and "DIESEL GUARD." PRESENTATION OF CERTAIN INFORMATION On January 1, 1993, the Mexican Congress approved the establishment of a new currency unit, the New Peso, which replaced the previous currency unit (the "Old Peso") at the rate of one New Peso per one thousand Old Pesos. Effective January 1, 1996, the New Peso was replaced by the Peso, at the rate of one Peso per one New Peso, as Mexico's currency unit. In this Prospectus, references to "$", "US$" and "Dollars" are to United States Dollars, references to "C$" are to Canadian dollars and references to "Ps" or "Pesos" are to Pesos. All New Peso amounts for periods prior to January 1, 1996 and all Old Peso amounts for periods prior to January 1, 1993, have been expressed in Pesos. Certain amounts (including percentage amounts) which appear in this Prospectus have been rounded. Grupo Dina maintains its financial books and records in Pesos and prepares its consolidated financial statements in conformity with Mexican GAAP, which differs in certain respects from U.S. GAAP. Notes 1, 23 and 24 to the audited consolidated financial statements of Grupo Dina contained elsewhere in this Prospectus provide a description of the principal differences between Mexican GAAP and U.S. GAAP, as they relate to Grupo Dina, and a reconciliation to U.S. GAAP of net income and total stockholders' equity. The Mexican Institute of Public Accountants has issued Bulletin B-10, "Recognition of the Effects of Inflation on Financial Information," and Bulletin B-12, "Statement of Changes in Financial Position." Bulletin B-10 outlines the inflation accounting methodology employed by companies reporting under Mexican GAAP. Inflation adjusted accounting is mandatory for Mexican companies. The third amendment to Bulletin B-10, which has been effective since January 1, 1990, calls for all financial information (including historical statements) to be presented in constant Pesos as of the date of the most recent balance sheet. The intended effect of such restatements is to present all information for comparable periods in comparable monetary units and thereby eliminate the distorting effect of inflation in the financial statements. Unless otherwise stated herein, all of the financial information included in this Prospectus is presented in constant Pesos as of June 30, 1996. EXCHANGE RATES For the convenience of the reader, this Prospectus contains translations of certain Peso amounts into Dollars at specified exchange rates published by the Bank of Mexico. Unless otherwise indicated, Dollar equivalent information is based on the exchange rate reported by the Bank of Mexico on June 30, 1996, which was Ps 7.5814 = US$1.00. The exchange rate reported as of December 31, 1995, was Ps 7.7396 = US$1.00. The noon buying rates (the "Fed Noon Rate") in New York City for cable transfers payable in Pesos, as certified by the Federal Reserve Bank of New York for customs purposes on December 31, 1995 and June 30, 1996 were Ps 7.7396 = US$1.00 and Ps 7.5814 = US$1.00, respectively. The Fed Noon Rate on October__, 1996 was Ps 7.5550 = US$1.00. No representation is made that the Peso or Dollar amounts set forth in this Prospectus could be converted into Dollars or Pesos, as the case may be, at any particular exchange rate or at all. TABLE OF CONTENTS Page Available Information.............................................iii Enforceability of Civil Liabilities against Foreign Persons.......iii Presentation of Certain Information............................... iv Summary........................................................... 1 Risk Factors...................................................... 9 Exchange Rates.....................................................18 Ratio of Earnings to Fixed Charges.................................20 Selected Financial Date of Grupo Dina..............................21 Management's Discussion and Analysis of Financial Condition and Results of Operations of Grupo Dina..........................23 Selected Financial Data of MCII Holdings...........................36 Management's Discussion and Analysis of Financial Condition and Results of Operations of MCII Holdings.......................38 The Exchange Offer.................................................46 Business of Grupo Dina.............................................53 Business of MCII Holdings..........................................69 Management.........................................................79 Ownership of Common Stock..........................................85 Certain Transactions...............................................87 Description of the Notes...........................................88 Tax Considerations................................................107 Plan of Distribution..............................................111 Legal Matters.....................................................111 Experts...........................................................111 Index to Financial Statements.....................................F-1 SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements and the notes thereto appearing elsewhere in this Prospectus. As used herein, unless the context otherwise requires, "Grupo Dina" means Consorcio G Grupo Dina, S.A. de C.V. and its consolidated subsidiaries, "MCII Holdings" means MCII Holdings (USA), Inc., a wholly-owned subsidiary of Grupo Dina, and "MCII" means Motor Coach Industries International, Inc. and its consolidated subsidiaries. Unless otherwise defined herein, capitalized terms used in this summary have the respective meanings ascribed to them elsewhere in this Prospectus. See "Risk Factors" for a discussion of certain factors that should be considered in connection with the Exchange Offer. CONSORCIO G GRUPO DINA, S.A. DE C.V. Grupo Dina is one of the leading suppliers of medium-duty and heavy-duty trucks in Mexico in the combined Class 5, 6, 7 and 8 truck market. Classifications in the truck market are made on the basis of gross vehicle weight ("GVW"). Class 5, 6 and 7 trucks are considered to be medium-duty trucks while Class 8 trucks, which are characterized primarily by "cabs" consisting of a separate engine and drive compartment section to which trailers are attached, are considered heavy-duty trucks. Grupo Dina is a domestic manufacturer of European-style intercity coaches in Mexico and a major supplier of intercity coaches used primarily in the executive and first-class service segments of the Mexican intercity transportation market. Grupo Dina also manufactures and distributes replacement parts for trucks and coaches and plastic components for truck, coach, bus and other industries. See "Business of Grupo Dina." The principal executive offices of Grupo Dina are located at Tlacoquemecatl 41 Colonia Del Valle, 03100, Mexico D.F., Mexico, (525) 420-3900. MCII HOLDINGS (USA), INC. MCII Holdings is a Delaware corporation and a wholly-owned subsidiary of Grupo Dina. MCII Holdings is a limited purpose corporation and will conduct virtually no operations for so long as the Notes are outstanding. Until such time as the MCII Shares are sold in accordance with the terms set forth herein, MCII Holdings' wholly owned subsidiary will be MCII. MCII Holdings, through its wholly owned subsidiary, MCII, designs, manufactures, assembles and markets intercity coaches and replacement parts for coaches and transit buses, principally in the United States and Canada. See "Business of MCII Holdings." The principal executive offices of MCII Holdings are located at Dial Tower, 1850 North Central Avenue, Phoenix, Arizona 85004, (602) 207-5000. THE EXCHANGE OFFER Securities Offered...... Up to US$206,499,680 aggregate principal amount of Senior Secured Discount Exchange Notes due 2002, which have been registered under the Securities Act. The terms of the New Notes and the Old Notes are identical in all material respects, except for certain transfer restrictions and registration rights relating to the Old Notes and except that, if the Exchange Offer is not consummated by December 30, 1996, the Old Notes will bear additional interest as described herein. See "Description of the Notes -- Registration Rights." The Exchange Offer...... The New Notes are being offered in exchange for a like principal amount of Old Notes. The issuance of the New Notes is intended to satisfy obligations of the Issuers contained in the Registration Agreement. For procedures for tendering, see "The Exchange Offer." Tenders, Expiration Date; Withdrawal...... The Exchange Offer will expire at 5:00 p.m., New York City time, on November __, 1996, or such later date and time to which it is extended. The tender of Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. Any Old Note not accepted for exchange for any reason will be returned without expense to the tendering holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. Certain Tax Consequences.......... The exchange of Old Notes for New Notes pursuant to the Exchange Offer will not be subject to Mexican or U.S. income tax. See "Tax Considerations." Use of Proceeds......... There will be no proceeds to the Issuers from the exchange pursuant to the Exchange Offer. Exchange Agent.......... IBJ Schroder Bank & Trust Company is serving as exchange agent (the "Exchange Agent") in connection with the Exchange Offer. CONSEQUENCES OF EXCHANGING OLD NOTES Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant to the Exchange Offer will continue to be subject to the provisions in the Indenture regarding transfer and exchange of the Old Notes and the restrictions on transfer of such Old Notes as set forth in the legend thereon as a consequence of the issuance of the Old Notes pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Old Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. The Issuers do not currently anticipate that they will register Old Notes under the Securities Act. See "Description of the Notes--Registration Rights." Based on interpretations by the staff of the SEC as set forth in no-action letters issued to third parties, the Issuers believe that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold or otherwise transferred by holders thereof (other than any holder which is an "affiliate" of the Issuers within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement with any person to participate in the distribution of such New Notes. However, the Issuers do not intend to request the SEC to consider, and the SEC has not considered, the Exchange Offer in the context of a no-action letter and there can be no assurance that the staff of the SEC would make a similar determination with respect to the Exchange Offer as in such other circumstances. Each holder, other than a broker-dealer, must acknowledge that it is not engaged in, and does not intend to engage in, a distribution of New Notes and has no arrangement or understanding to participate in a distribution of New Notes. Each broker-dealer that receives New Notes for its own account in exchange for Old Notes must acknowledge that such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities and that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribution." In addition, to comply with the state securities laws, the New Notes may not be offered or sold in any state unless they have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with. The offer and sale of the New Notes to "qualified institutional buyers" (as such term is defined under Rule 144A of the Securities Act) is generally exempt from registration or qualification under the state securities laws. The Issuers currently do not intend to register or qualify the sale of the New Notes in any state where an exemption from registration or qualification is required and not available. See "The Exchange Offer--Consequences of Exchanging Old Notes" and "Description of the Notes--Registration Rights." SUMMARY DESCRIPTION OF THE NEW NOTES The terms of the New Notes and the Old Notes are identical in all material respects, except for certain transfer restrictions and registration rights relating to the Old Notes and except that, if the Exchange Offer is not consummated by December 30, 1996, the Old Notes will bear additional interest as described under "Description of the Notes -- Registration Rights." Old Notes accepted for exchange will cease to accrue interest from and after the date of consummation of the Exchange Offer. Holders of Old Notes whose Old Notes are accepted for exchange will not receive any payment in respect of interest on such Old Notes otherwise payable on any interest payment date the record date for which occurs on or after consummation of the Exchange Offer. Securities Offered........ Up to US$206,499,680 aggregate principal amount of Senior Secured Discount Exchange Notes due 2002, which have been registered under the Securities Act, each with an initial accreted value as of November 18, 1995 of US$705.65 for each US$1,000 in principal amount. Payment of Interest....... The Old Notes are, and the New Notes will be, dated as of, and accrue interest from, November 18, 1995 and will bear interest at the rate of 12% per annum through maturity; provided, that, if the Notes are not rated either BB-or better by S&P or Ba3 or better by Moody's at November 15, 1999 the per annum interest rate shall be increased on such date to 15% until maturity. Prior to and including the interest payment due on November 15, 1998, the Notes will accrue interest on a zero coupon basis and, accordingly, the accreted value of the Notes will accrete from US$705.65 as of November 18 1995 for each US$1,000 in principal amount to US$1,000 at November 15, 1998. Thereafter, all interest will be payable in cash semiannually on May 15 and November 15 of each year, commencing May 15, 1999. Original Issue Discount... The New Notes, like the Old Notes, will be issued with original issue discount ("OID"). Each U.S. holder of the New Notes will be required to include OID in income as it accrues under a constant yield method in advance of cash payments attributable to such income. See "Tax Considerations." Repayment of Principal.... Principal of the Notes will be payable in full on November 15, 2002. Optional Redemption....... The Notes will be redeemable at the option of Grupo Dina, in whole or in part, at any time on or after November 15, 1998 at 100% of the principal amount thereof plus accrued and unpaid interest. Security.................. MCII Holdings' obligation under the Old Notes is, and under the New Notes will be, secured by (i) a pledge of MCII Shares held by MCII Holdings and (ii) a perfected first priority security interest in any cash or Cash Equivalents deposited with the Trustee under the Indenture governing the New Notes. Under certain circumstances, collateral in the form of MCII Shares may be released by the Trustee and sold by MCII Holdings. See "Description of the Notes." Change of Control......... Upon a Change of Control, each holder of New Notes shall have the right to require Grupo Dina and MCII Holdings to repurchase all or any part of the outstanding New Notes at a purchase price equal to the Accreted Value thereof, if on or prior to November 15, 1998, and equal to the aggregate principal amount thereof, plus accrued and unpaid interest, if any, thereafter. See "Description of the Notes--Change of Control." Ranking................... The obligation of Grupo Dina in respect of the New Notes will rank pari passu with the Old Notes and with all other outstanding unsecured and unsubordinated obligations of Grupo Dina, present or future, other than obligations which are mandatorily preferred by statute or by operation of law. The obligation of MCII Holdings in respect of the New Notes will rank pari passu with the Old Notes and, by reason of its being secured by collateral, effectively senior to any outstanding unsecured obligations of MCII Holdings. At June 30, 1996, Grupo Dina had outstanding Ps 2,442.2 million in aggregate principal amount of indebtedness that, by reason of its being secured by collateral, ranks effectively senior to the Old Notes and the New Notes. At such date, MCII Holdings had no outstanding indebtedness ranking senior to the Old Notes or the New Notes. At such date, MCII and its subsidiaries had outstanding indebtedness in an aggregate principal amount of US$195.6 million that is structurally senior to the Old Notes and the New Notes. Form and Denominations.... New Notes will generally be issued in denominations of US$1,000 and integral multiples of US$1,000. Covenants................. The indenture governing the Notes provides for certain affirmative and negative covenants by MCII Holdings and to a lesser extent by Grupo Dina for the benefit of the holders of Notes. Use of Proceeds........... The Issuers will not receive any proceeds from the Exchange Offer. Exchange Offer; Registra- tion Rights............. Holders of New Notes are not entitled to any registration rights with respect to the New Notes. Pursuant to the Registration Agreement, the Issuers agreed to file, at their cost, a registration statement with respect to the Exchange Offer. The Registration Statement of which this Prospectus is a part constitutes the registration statement for the Exchange Offer. See "Description of the Notes--Registration Rights." Governing Law............. The Notes and any controversy arising thereunder will be governed by the laws of the State of New York. RISK FACTORS Prospective purchasers of the New Notes should consider carefully all of the information set forth in this Prospectus and, in particular, should evaluate the specific factors set forth under "Risk Factors" before making a decision to tender their Old Notes in the Exchange Offer. GRUPO DINA SUMMARY FINANCIAL DATA The following summary consolidated financial data as of and for the years ended December 31, 1991, 1992, 1993, 1994 and 1995 were derived from the audited consolidated financial statements of Grupo Dina. The summary consolidated financial data as of and for the six months ended June 30, 1995 and 1996 were derived from the unaudited consolidated financial statements of Grupo Dina. The unaudited financial statements for the six months ended June 30, 1995 and 1996 include all adjustments, consisting of only normal recurring adjustments, that management considers necessary for fair presentation of the financial position and results of operations for the periods then ended. Results of operations for the six months ended June 30, 1996 are not necessarily indicative of results which may be expected for the entire year. The following summary consolidated financial data should be read in conjunction with "Selected Financial Data of Grupo Dina", "Management's Discussion and Analysis of Financial Condition and Results of Operations of Grupo Dina" and the consolidated financial statements of Grupo Dina and notes thereto included elsewhere in this Prospectus. The consolidated financial statements of Grupo Dina are prepared in accordance with Mexican GAAP, which differs in certain respects from U.S. GAAP.
GRUPO DINA CONSOLIDATED FINANCIAL INFORMATION ---------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------------- -------------------------------------- 1991 1992(2) 1993 1994 1995 1995 1996 1996(1) ---- ------- ---- ---- ---- ---- ---- ------- (IN MILLIONS, EXCEPT SHARE, PER SHARE AND PER ADS INFORMATION)(2) INCOME STATEMENT INFORMATION: MEXICAN GAAP: NET SALES PS 4,221.2 PS 4,833.7 PS 5,236.5 PS 4,327.5 PS 4,742.9 PS 2,695.8 PS 2,796.7 US$ 368.9 OPERATING INCOME 632.2 505.2 547.3 (292.2) (69.1) 11.7 85.1 11.2 NET INCOME (LOSS), MAJORITY INTEREST(4) 607.7 518.4 465.7 (1,015.2) (529.9) 113.7 89.7 11.8 NET INCOME (LOSS) PER SHARE, MAJORITY 6.90 3.06 2.39 (4.50) (2.05) 0.44 0.35 0.05 INTEREST NET INCOME (LOSS) PER ADS, MAJORITY INTEREST 27.59 12.21 9.56 (18.01) (8.21) 1.76 1.39 0.18 CASH DIVIDENDS PER SHARE(5) 0 1.12 0.42 0.15 0 0 0 0 CASH DIVIDENDS PER ADS(5) 0 4.49 1.67 0.60 0 0 0 0 WEIGHTED AVERAGE SHARES OUTSTANDING 88,082,620 169,833,640 194,866,714 225,490,658 258,026,136 258,026,136 258,026,136 258,026,136 U.S. GAAP: NET SALES PS 4,221.2 PS 4,833.7 PS 5,236.5 PS 4,327.5 PS 4,742.9 -- -- -- NET INCOME (LOSS)(4) 558.1 461.9 401.3 (535.3) (284.4) -- -- -- NET INCOME (LOSS) PER ADS 25.34 10.86 8.24 (9.50) (4.41) -- -- -- WEIGHTED AVERAGE ADSS OUTSTANDING 22,020,655 42,458,410 48,716,679 56,372,665 64,506,534 64,506,534 64,506,534 64,506,534 NUMBER OF NEW UNITS SOLD: COACHES 984 1,165 1,818 804 1,176 655 800 800 TRUCKS 11,233 12,631 11,365 10,463 2,520 931 836 836
DECEMBER 31, JUNE 30, -------------------------------------------------------- -------------------------------------- 1991 1992 1993 1994 1995 1995 1996 1996(1) ---- ---- ---- ---- ---- ---- ---- ------- BALANCE SHEET INFORMATION: MEXICAN GAAP: PROPERTY, PLANT AND EQUIPMENT, NET PS 567.0 PS 744.1 PS 962.5 PS 1,455.6 PS 1,641.2 PS 1,539.4 PS 1,768.7 US$ 233.3 TOTAL ASSETS 2,610.4 3,032.3 4,039.6 8,231.4 7,836.2 6,984.1 7,138.9 941.6 TOTAL LONG-TERM DEBT 557.2 949.4 874.9 4,371.0 4,621.4 4,060.6 3,920.6 517.1 TOTAL STOCKHOLDERS' EQUITY, MAJORITY 826.2 1,038.0 2,107.1 1,962.6 1,853.3 1,664.6 1,732.6 228.5 INTEREST(6) U.S. GAAP: TOTAL ASSETS (7) 2,610.4 3,032.3 4,039.6 9,198.2 7,836.2 -- -- -- TOTAL STOCKHOLDERS' EQUITY, MAJORITY INTEREST(6) 593.2 756.4 1,761.1 2,250.1 1,979.8 -- -- --
- ------------------------ (1) Translations of Pesos into U.S. dollars have been made at the rate of Ps 7.5814 to US$1.00. Such translations are provided solely for the convenience of the reader and do not reflect the financial information in accordance with generally accepted accounting principles for foreign currency translation. (2) In February 1992, Grupo Dina's coach assembly lines were shut down for a three-month period for planned modernization and expansion. Production resumed in April 1992 on a limited basis for a three-month period, with full production commencing in August 1992. (3) Each Common and Series L ADS represents four shares of Common and Series L Stock, respectively. (4) Net income for the years ended December 31, 1991, 1992, 1993, 1994 and 1995 is shown after elimination of the income attributable to the minority interest in Camiones. Under U.S. GAAP, income before extraordinary credits for the years ended December 31, 1991, 1992, 1993, 1994 and 1995 and net income for the corresponding periods are identical. (5) Dividends are calculated on the basis of the Pesos amount and the number of outstanding shares of Common and Series L Stock or Common and Series L ADSs, as the case may be, on the date the dividends were declared. (6) Stockholders' equity for the years ended December 31, 1991, 1992, 1993, 1994 and 1995 is shown after elimination of the income attributable to the minority interests in Camiones. (7) Total assets under U.S. GAAP as of December 31, 1994 differ from Mexican GAAP because of "pushdown" accounting for goodwill. MCII HOLDINGS SUMMARY FINANCIAL DATA MCII Holdings was incorporated in connection with the issuance of the Old Notes and carries out its operations through MCII and MCII's subsidiaries. MCII Holdings was formed for the purpose of holding MCII as its wholly owned subsidiary. On May 28, 1996, Grupo Dina transferred to MCII Holdings all 100 shares of MCII, US$.01 par value common stock, in exchange for which MCII Holdings issued to Grupo Dina all 1,000 shares of its US$.01 par value common stock. As a result of this exchange between entities under common control, the transaction was accounted for at historical cost in a manner similar to that in a pooling of interests and, therefore, all prior financial statements presented have been restated as if the exchange took place at the beginning of such periods. The following summary consolidated financial data as of and for the twelve months ended December 31, 1991, 1992, 1993, the seven months ended July 31, 1994, the five months ended December 31, 1994 and the twelve months ended December 31, 1995 were derived from the audited financial statements of MCII Holdings. The summary consolidated financial data as of and for the six months ended June 30, 1995 and 1996 has been derived from the unaudited consolidated financial statements of MCII Holdings. The unaudited financial statements for the six months ended June 30, 1995 and 1996 include all adjustments, consisting of only normal recurring adjustments, that management considers necessary for fair presentation of the financial position and results of operations for the periods then ended. Results of operations for the six months ended June 30, 1996 are not necessarily indicative of results which may be expected for the entire year. The Dial Corp. ("Dial") sold MCII pursuant to an initial public offering on August 12, 1993. As a result, for periods prior to August 12, 1993, the summary consolidated financial data of MCII Holdings set forth below represent the combined operating results and activities of Dial's transportation manufacturing and replacement parts segment now conducted by MCII Holdings, excluding the Canadian transit bus manufacturing business formerly conducted by Dial that is not owned by MCII Holdings. In accordance with U.S. GAAP, the assets and liabilities of the transportation manufacturing and replacement parts business have been reflected in the consolidated financial statements of MCII Holdings on the basis of Dial's historical costs. Operating results and activities subsequent to August 12, 1993 mean the consolidated results and activities of MCII Holdings and its subsidiaries. On August 8, 1994, Grupo Dina acquired all of the issued and outstanding common stock of MCII (the "Merger"). The Merger was accounted for as a purchase in accordance with Accounting Principles Board Opinion No. 16 and therefore, the assets and liabilities of MCII were stated at their estimated fair values as of the acquisition date ("purchase accounting"). The excess of the consideration paid by Grupo Dina over the estimated fair value of the net assets acquired was recorded as goodwill in MCII's financial statements. As a result of the application of purchase accounting, the financial statements before and after the Merger may not be comparable in all material respects. For financial reporting purposes, the Merger was accounted for effective August 1, 1994. Therefore, all financial information for periods prior to August 1, 1994, is labeled as "Predecessor." The following summary financial data should be read in conjunction with "Selected Financial Data of MCII Holdings", "Management's Discussion and Analysis of Financial Condition and Results of Operations of MCII Holdings" and the consolidated financial statements of MCII Holdings and notes thereto included elsewhere in this Prospectus.
PREDECESSOR --------------------------- YEAR ENDED DECEMBER 31, SIX MONTHS ENDED ---------------------------- ------------------ SEVEN FIVE YEAR MONTHS MONTHS ENDED ENDED ENDED DECEMBER JUNE JUNE JULY 31, DECEMBER 31, 30, 30, 1991 1992 1993 1994 31, 1994 1995 1995 1996 ---- ---- ---- ---- -------- ---- ---- ---- (IN MILLIONS, EXCEPT NUMBER OF NEW COACHES DELIVERED) INCOME STATEMENT INFORMATION: REVENUES: SALES........................... US$311.4 US$337.0 US$394.1 US$271.8 US$191.8 US$509.9 US$267.3 US$316.1 FINANCE INCOME.................. 8.0 7.0 4.9 1.3 2.6 6.4 2.7 3.7 319.4 344.0 399.0 273.1 194.4 516.3 270.0 319.8 OPERATING COSTS AND EXPENSES: COST OF SALES (EXCLUSIVE OF ITEMS SHOWN SEPARATELY BELOW)............... 237.5 253.6 303.1 203.5 151.6 397.4 203.8 249.1 PROVISION FOR RELOCATION OF MANUFACTURING FACILITIES...................... 9.6 DEPRECIATION AND AMORTIZATION.................... 4.6 5.0 4.5 3.3 5.8 14.6 7.0 8.6 INTEREST EXPENSE, FINANCE operations.............. 3.4 2.5 .8 0.3 0.7 2.7 1.1 1.6 RESEARCH AND development EXPENSES........................ 2.5 2.3 1.4 1.3 0.5 2.9 1.4 3.4 SELLING, GENERAL AND ad- MINISTRATIVE EXPENSES........... 34.9 38.0 43.9 27.8 26.6 60.4 28.3 28.4 MERGER RELATED EXPENSES......... 11.3 292.5 301.4 353.7 247.5 185.2 478.0 241.6 291.1 OPERATING INCOME................. 26.9 42.6 45.3 25.6 9.2 38.3 28.4 28.7 OTHER COSTS AND EXPENSES: INTEREST EXPENSE................ .8 .7 1.5 1.8 2.5 13.4 6.4 6.7 OTHER (INCOME).................. (1.7) (1.4) (0.2) (0.2) (0.5) (0.3) (0.5) GAIN FROM SALE OF MARKETABLE SECURITIES........... (10.5) MINORITY INTERESTS.............. 1.8 2.4 2.0 0.4 2.6 1.4 2.1 2.0 2.3 2.4 6.1 6.2 INCOME BEFORE INCOME TAXES....... 24.3 41.2 43.2 23.6 6.9 35.9 22.3 22.5 INCOME TAXES..................... 10.0 15.7 16.6 11.5 4.0 17.6 9.9 10.0 INCOME FROM CONTINUING OPERATIONS...................... 14.3 25.5 26.6 12.1 2.9 18.3 12.4 12.5 DISCONTINUED OPERATIONS.......... (30.2) (46.6) (60.4) (3.5) (5.0) INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE....................... (15.9) (21.1) (33.8) 8.6 2.9 18.3 12.4 7.5 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE(1).................... (2.9) NET INCOME (LOSS) US$(15.9) US$(24.0) US$(33.8) US$8.6 US$2.9 US$18.3 US$12.4 US$7.5 NUMBER OF NEW COACHES DELIVERED....................... 602 776 897 628 431 1,169 641 784
PREDECESSOR ------------------------------- DECEMBER 31, DECEMBER 31, JUNE 30, -------------------------------- --------------------- ------------------ 1991 1992 1993 1994 1995 1995 1996 ---- ---- ---- ---- ---- ---- ---- BALANCE SHEET INFORMATION: TOTAL ASSETS................................... US$279.3 US$322.7 US$286.0 US$558.9 US$614.0 US$581.1 US$614.0 WORKING CAPITAL................................ 28.0 84.7 70.3 103.3 156.7 116.0 128.3 LONG-TERM DEBT, INCLUDING CURRENT PORTION...... 2.6 .8 90.5 195.0 217.8 178.9 195.7 STOCKHOLDERS' EQUITY(2)........................ 158.3 235.9 98.4 272.8 294.8 298.5 302.4
- --------------------- (1) Initial application of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions." (2) Stockholders' equity for periods prior to August 1993 represent Dial's investment and advances in the transportation, manufacturing and replacement parts segment now conducted by MCII Holdings. RISK FACTORS The following factors should be considered carefully by holders tendering Old Notes pursuant to the Exchange Offer, although the Risk Factors set forth below (other than "--Consequences of Failure to Exchange and Requirements for Transfer of New Notes") are generally applicable to the Old Notes as well as the New Notes. In addition, tendering holders should consider, among other things, certain considerations with respect to investments in securities which are obligations of a United States company and a Mexican company, not normally associated with investments in securities of United States companies, including those set forth below. MEXICAN GOVERNMENTAL, ECONOMIC AND POLITICAL FACTORS Grupo Dina is a Mexican corporation and a significant portion of its manufacturing facilities and assets are situated in Mexico. Beginning in 1987, Mexico embarked on a series of economic reforms, including the privatization of numerous state-owned commercial ventures, tax reform, reduction of trade barriers, deregulation of commercial activity, renegotiation of external debt and substantial reduction of the public sector deficit. However, while the stated policy of the Mexican government since 1983 has been to sell non-strategic, state-owned enterprises, the Mexican government has exercised and continues to exercise a significant influence over many aspects of the Mexican economy. Although the Mexican economy experienced gradual improvement in a number of areas from 1988 until the end of 1994, in 1995 the Mexican economy experienced negative rates of growth, high rates of interest, inflation, unemployment and large devaulations of its currency. Mexican governmental actions concerning the economy or regulating certain industries could have a significant effect on private sector entities including Grupo Dina, and on market conditions, prices, and the performance of Mexican securities, including the New Notes. As a result of the current Mexican recession, the demand in the domestic market for products has decreased substantially. The value of Grupo Dina's assets and its levels of earnings are expected to continue to be affected by such events, inflation, interest rates, future currency fluctuations, taxation, new regulatory environments, and other political, economic or diplomatic developments affecting Mexico. On December 1, 1994, Ernesto Zedillo Ponce de Leon was elected as President of Mexico. President Zedillo's administration has indicated that the Mexican government will continue to pursue the market-oriented economic policies followed by the previous administration. Nevertheless, there can be no assurance that the Zedillo administration, or any future administrations, will continue to pursue market-oriented economic policies. Certain political and economic events in Mexico during 1994 created economic uncertainty which continued in 1995. These events included an armed uprising in Chiapas and assassinations of prominent Mexican public figures, including the initial presidential candidate of the Partido Revolucionario Institucional (the "PRI"), the political party that has dominated the Mexican Government for over 65 years. Additionally, the exchange rate policy followed by the Mexican Government in recent years was abandoned in December 1994. Previously, the Bank of Mexico, the Mexican central bank, permitted the exchange rate between the Peso and the Dollar to fluctuate within a specified band, with only a minor daily adjustment to the upper limit of the band. However, the above-referenced political events, combined with reduced access to international financial markets and increasing interest rates in the United States, put strong pressures on the Bank of Mexico's ability to adhere to this exchange rate policy. A decrease in capital inflows to Mexico, coupled with a large current account deficit, led to diminishing foreign exchange reserves, ultimately resulting in the Bank of Mexico, in December 1994, allowing the Peso to float freely. Between December 19, 1994 and December 31, 1994, the New Peso depreciated from Ps 3.46 per US$1.00 to Ps 5.00 per US$1.00, a 44% decline, and in 1995, the New Peso devalued approximately 55% against the Dollar, decreasing from approximately Ps 5.00 per US$1.00 to approximately Ps 7.740 per US$1.00, in each case based on the Fed Noon Rate. From January 2, 1996 through September 30, 1996, the Peso has increased in value 0.98% against the Dollar, based on the Fed Noon Rate. However, throughout this period the value of the Peso against the Dollar has been and continues to be subject to significant volatility. The exchange rate reported by the Bank of Mexico was 7.7396 Pesos per US$1.00 at December 31, 1995 and 7.5519 Pesos per US$1.00 at October __, 1996. The Mexican Stock Exchange experienced increased volatility, including a 25% decline in the Mexican Stock Exchange Index (the leading market index, based upon the share prices of 30 major Mexican issuers) in 1995. From January 1, 1996 to October __, 1996, the Mexican Stock Exchange Index increased __%. In an effort to ease the financial crisis in Mexico, the international community (including the International Monetary Fund, the World Bank, the Bank for International Settlements, the Inter-American Development Bank, a syndicate of commercial banks and certain Latin American governments), led by the United States, agreed to provide to the Government of Mexico a financial aid package (the "Aid Package") of approximately US$51 billion, which was subsequently reduced to US$26.6 billion. The Aid Package imposed stringent financial conditions on the Government. Under the terms of the Aid Package, Mexico committed to cut Government spending, generate a surplus in 1995, pursue a tight monetary policy and allow the real supply of domestic credit to contract, make publicly available on a timely basis key fiscal and financial data on money and credit aggregates, international reserves, the evolution of public sector debt, and other measures of economic performance and continue privatizations and other structural reforms. Although the Mexican Government has drawn on the Aid Package, the financial crisis has continued. No assurance can be given that the Aid Package will fully achieve its purpose and restore investors' confidence in the economy. The events occurring during 1994 and 1995 resulted in an economic recession in Mexico characterized by a strong contraction in demand for many products and services, including those of Grupo Dina, reduced availability of credit, a severe liquidity and non-performing loan crisis in the Mexican banking sector, high domestic interest rates, high inflation, instability of foreign exchange policies, high unemployment and the loss of international investor confidence in Mexico. The annual rate of inflation as measured by changes in the Mexican National Consumer Price Index ("NCPI") was 52.0% in 1995. Although Mexico's gross domestic product "(GDP") grew at an annual rate of 2.8%, 0.7% and 3.5% during 1992, 1993 and 1994, respectively, Mexico's GDP declined by 6.6% during 1995. Although Grupo Dina has no Dollar-denominated debt with Mexican banks, Grupo Dina cannot provide any assurance that actions by the Mexican Government or future developments in the Mexican economy, over which it has no control, will not continue to adversely affect operations, financial conditions or results. In response to the adverse economic situation that developed at the end of 1994, the administration of President Zedillo announced a series of initiatives. In January 1995, President Zedillo announced an emergency economic plan and a new accord among the Mexican Government and business and labor leaders called, the Acuerdo de Unidad Para Superar la Emergencia Economica (the "AUSEE"). On March 9, 1995, the Mexican Government announced an economic plan called the Programa de Accion para Reforzar el AUSEE (the "PARAUSEE"), which strengthened key aspects of the AUSEE. It consisted of the following principal elements: o The Mexican Government would seek to increase public sector revenues. This was to be accomplished by increasing the value added tax rate, effective April 1, 1995, from 10% to 15%, and increasing the prices for gasoline, fuel oil, natural gas and electricity. o The adoption of fiscal measures to increase the Mexican Government's primary surplus and promote private sector savings. These measures included reductions in the number of public sector employees and postponement and cancellation of new infrastructure projects, as well as investment incentives for the private sector. o A 10% raise in the minimum wage, effective as of the beginning of 1995. A further 12% increase was implemented as of April 1, 1995. o The adoption of a monetary policy the goal of which was to stabilize the New Peso and thereby induce capital inflows. This policy was implemented by means of strict controls on domestic credit with the intention of creating a significant decrease in the monetary base in real terms. o The continuation of a floating exchange rate policy. Although the Bank of Mexico remains authorized to intervene in the foreign exchange market, in order to minimize volatility and promote an orderly foreign exchange market, the Mexican Government announced it would promote market-based mechanisms for stabilizing the exchange rate. On March 19, 1995, the Bank of Mexico approved the establishment of forward and option contracts for over-the-counter transactions in the New Peso, and trading of New Peso futures contracts on the Chicago Mercantile Exchange began on April 25, 1995. Pursuant to its authorization, the Bank of Mexico intervened in the foreign exchange markets when the New Peso suffered further devaluations on November 9 and 10, 1995. o The adoption of measures to stabilize the Mexican banking sector. These measures included increasing the funds available for capitalization of insolvent banks and for providing temporary capital to banks with short term needs, increasing the level of loan loss provisions and adopting various reforms to the legal ownership structure which are intended to encourage increased foreign investment. o A policy of sharing the burden of the economic adjustment among all sectors of society, but protecting the poorest segments of the population. On May 31, 1995, President Zedillo announced the development plan for his administration called the Plan Nacional de Desarrollo (the "PND"), which established economic, political and social goals for the period from 1995 to 2000. On October 29, 1995, the Mexican Government signed a new pact with labor and business leaders aimed at reviving the country's shrinking economy while controlling prices. Under the new pact, known as the Alianza para la Recuperacion Economica ("ARE"), the Government increased gasoline, diesel and electricity prices 7% in December 1995 and has increased such prices 1.2% per month during 1996 (except during April of 1996, during which such prices increased by 6%). The ARE also included wage hike targets of 10% for Mexico's minimum wage on December 4, 1995, plus an additional 10% in April 1996. Other wage increases are to be negotiated on a case-by-case basis. The ARE, which is scheduled to terminate on December 31, 1996, also includes a series of tax incentives aimed at boosting private investment throughout 1996. For example, companies will be able to deduct any increases in investments made in 1996 above the amounts invested in 1995. Economic plans of the Mexican Government in the past have not, in certain respects, fully achieved their objectives, and there can be no assurance that the PARAUSEE, the PND, the ARE and the other economic plans of the Mexican Government will achieve their stated goals or as to their effect on the Mexican economy or what effect these plans or the implementation thereof will have on Grupo Dina's businesses, financial condition or results of operations. The Mexican Government's economic policies and any significant future devaluation of the Peso against the Dollar could adversely affect the Dollar value of an investment in securities the primary obligor of which is a Mexican company. In recent months, the press in Mexico and internationally has reported on various allegations that some prominent Mexican business persons received improper preferential treatment under the Salinas administration. Grupo Dina cannot assess the accuracy of these reports as they may relate to other Mexican businesses or predict the action that the current administration may take, if any, in a particular case, but Grupo Dina and its controlling shareholders, one of whom has been mentioned in some of the reports, deny that they have received any improper benefits and believe that such reports will not adversely affect Grupo Dina. INDUSTRY CYCLICALITY As in other countries, unit sales of new trucks in Mexico have historically been subject to substantial cyclical variation based on general economic conditions. Over the past two decades the Mexican truck industry has been subject to several cycles, influenced by overall levels of economic activity, changes in the availability of credit, fluctuations in interest rates and governmental actions. During the mid-1970's (1973-1976), sales of Class 6, 7 and 8 trucks averaged 25,000 units per year. Sales declined to 17,867 units in 1977, then progressively increased to 54,463 units in 1981. With the balance of payments crisis in 1982 and subsequent economic contraction, sales declined from 27,957 units in 1982 to 10,305 units in 1983 before recovering to an average of 18,323 units per year during 1984 and 1985. As a result of economic volatility and adjustments in Mexico between 1986 and 1988, sales declined to an average of 6,925 units per year during the 1986 to 1989 period. After experiencing approximately 60% annual sales growth rates in 1990 (15,382 units) and 1991 (25,199 units), the Mexican truck industry leveled, to an average of 30,000 units per year for the 1992 to 1994 period. In 1995, unit sales declined to 5,219 as a result of the economic crisis in Mexico. The Mexican coach industry also has historically been subject to substantial cyclical variation based on general economic conditions. The Mexican coach industry experienced annual increases in unit sales from 1987 (217 units) to 1993 (4,318 units). In 1994, there were 2,297 unit sales but due to the Mexican economic crisis, unit sales in 1995 declined to 174, excluding exports. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Grupo Dina." The United States and Canadian intercity coach industries also have historically been subject to substantial cyclical variation based on general economic conditions. During the period from 1984 to 1990, MCII delivered an average of 1,152 units per year, with the high and low delivery years being 1989 (1,367 units) and 1986 (870 units), respectively. In 1991, however, MCII's deliveries declined to 602 units as a weak economic environment and reduced travel by foreigners in the United States resulted in lower bookings for tour and charter operations as well as a decline in ridership on regularly scheduled intercity passenger services. This downturn was exacerbated by the 1990 strike and bankruptcy proceeding involving Greyhound Lines, Inc. ("GLI") which caused significant disruption in the United States coach industry. After emerging from bankruptcy in 1991, GLI began ordering coaches from MCII and took delivery of nearly 1,000 units during 1992 to 1995. The GLI deliveries, along with a general economic improvement in the U.S. and Canada, resulted in annual improvements in MCII's total deliveries during the period from 1992 to 1995, with 1995 unit deliveries totalling 1,169. There can be no assurance that such upturn will continue or that it will have a material positive effect on MCII's business, financial condition and results of operations. MCII's coach deliveries totaled 784 units during the first six months of 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of MCII Holdings." NORTH AMERICAN FREE TRADE AGREEMENT The North American Free Trade Agreement ("NAFTA"), which is designed to reduce trade barriers among the United States, Canada and Mexico and thereby integrate the North American economy, became effective on January 1, 1994. NAFTA is expected to remove, over a transition period which commenced in January 1994, most customs duties imposed on goods traded among the three countries, remove or limit many investment restrictions, liberalize trade in services, provide a specialized means for settlement of, and remedies for, trade disputes arising under NAFTA, and result in new laws and regulations to further these goals. The Mexican government's objectives in seeking a free trade agreement included improving access to the United States and Canadian markets for Mexican exporters and promoting increased foreign investment in Mexico. As a result of the ratification of NAFTA, Grupo Dina anticipates that it will, over a period of time, face the potential for increased competition from U.S. and Canadian truck suppliers as tariff restrictions on new truck imports are eliminated over a ten-year period and non-tariff restrictions are eliminated over a five-year period. See "Business Strategy of Grupo Dina" and "Business of Grupo Dina--Regulation." In addition, Grupo Dina expects that its combined Grupo Dina and MCII coach operations will face substantial competition in the U.S., Canadian and other markets in which it will compete. See "Business of Grupo Dina--Strategy" and "Business of Grupo Dina--Regulation." CURRENCY FLUCTUATIONS AND EXCHANGE CONTROLS The depletion of international reserves, coupled with other adverse political and economic events described above, and the Bank of Mexico's decision in December 1994 to abandon a controlled exchange rate policy in favor of the present floating exchange rate policy had an adverse effect on the results of operations of Grupo Dina. The value of the Peso, as indicated by its volatility in late 1994 and 1995 may be subject to significant future devaluation. Significant future devaluations of the Peso or the imposition of restrictive exchange control policies by the Mexican Government can result in substantial fluctuation in Grupo Dina's foreign exchange positions and, therefore, its results of operations as reported under Mexican GAAP. Furthermore, significant future devaluation of the Peso, or the imposition of restrictive exchange control policies by the Mexican government, could adversely affect the value of the New Notes and/or the ability of Grupo Dina to obtain or transfer Dollars in order to satisfy its dollar-denominated obligations. While the Mexican government does not currently restrict, on the date of this Prospectus, and has not recently restricted, the right or ability of Mexican or foreign persons or entities to convert Pesos to Dollars, no assurance can be given that the Mexican government will not institute restrictive exchange rate policies in the future. INFLATION During most of the 1980s, Mexico experienced high levels of inflation. This led to high interest rates, devaluations of the Peso and substantial government controls over exchange rates and prices, which adversely affected operating revenues and margins. As a result of the devaluation of the Peso, inflation increased substantially in Mexico during 1995. The annual rates of inflation, as measured by changes in the NCPI were 11.9%, 8.0%, 7.1% and 52.0% for the years 1992, 1993, 1994 and 1995, respectively. Annual inflation is expected to decline to approximately 30.6% by the end of 1996, according to the Bank of Mexico. If inflation in Mexico does not decline, the Mexican economy and, consequently, the performance of Grupo Dina may continue to be adversely affected. The economic instability that began at the end of 1994 led to sharply higher interest rates in 1995, both domestically and externally, on Mexican public and private sector debt and reduced opportunities for refinancing or refunding maturing debt issues. High interest rates in Mexico have an effect on financing costs and thus on Grupo Dina's results of operations. LOSSES IN 1994 AND 1995; INABILITY OF EARNINGS TO COVER FIXED CHARGES Grupo Dina's earnings were not sufficient to cover fixed charges by Ps (2.76) under Mexican GAAP and by Ps (2.82) under U.S. GAAP for the year ended 1994 and by 0.35 for the year ended 1995. Such inability of earnings to cover fixed charges is attributable to the significant downturn in the Mexican economy at the end of 1994 which continued through 1995 and resulted in net losses of Ps 1,015.2 million or Ps 4.50 per share and Ps 529.9 million or Ps 2.05 per share, for 1994 and 1995, respectively. At June 30, 1996, Grupo Dina's ratio of earnings to fixed charges was 1.88. There can be no assurance that Grupo Dina's earnings in 1996 will be sufficient to cover fixed charges. PRODUCT LIABILITY; LACK OF INSURANCE Manufacturers and sellers of defective products in Mexico may be subject to liability for loss and injury caused by such products under Mexican law. Grupo Dina does not carry product liability insurance. Although Grupo Dina has never had a product liability claim brought against it and Mexican laws providing for such liability appear to have been seldom utilized, no assurance can be given that Grupo Dina may not be exposed to future product liability claims. However, if any such claims are successful, Grupo Dina considers that it will have sufficient resources to pay such claims. Grupo Dina through MCII Holdings has purchased insurance covering its exposure to product liability claims relating to all coaches sold by Grupo Dina through MCII Holdings in the United States and Canada. MCII Holdings is subject to various product liability claims for personal injuries and property damage allegedly relating to the use of products manufactured or sold by it. MCII Holding's management considers litigation of this nature to be in the ordinary course of its business. The ultimate outcome of these claims, or potential future claims, cannot presently be determined. MCII maintains product liability insurance in customary amounts; however, there can be no assurance that such insurance will be available in the future or on terms acceptable to MCII. HOLDING COMPANY STRUCTURE MCII Holdings conducts virtually no operations. MCII Holdings' operations are conducted through MCII. MCII Holdings' ability to pay interest on the Notes when interest thereon becomes due, and to pay the principal of the Notes at maturity, will be dependent on MCII's ability to pay dividends, or to otherwise loan, advance or transfer funds, to MCII Holdings in amounts sufficient to service MCII Holdings' debt obligations. MCII is currently a party to various debt agreements which, among other things, restrict MCII's ability to pay dividends, or otherwise loan, advance or transfer funds, to MCII Holdings and the amount of borrowings that MCII may incur. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of MCII Holdings -- Liquidity and Capital Resources." In addition, MCII Holdings' rights, and the rights of MCII Holdings' creditors, including the holders of the New Notes, to participate in the assets of MCII upon any liquidation or reorganization of MCII or otherwise will be subordinated to the prior claims of the creditors, including trade creditors, of MCII, except to the extent that MCII Holdings may itself be a creditor with recognized claims against MCII. As a result, holders of the Notes may recover less ratably than creditors of MCII or its subsidiaries in the event of the liquidation or reorganization of MCII. RELEASE OF COLLATERAL MCII Holdings' obligation under the Old Notes is, and under the New Notes will be, secured by (i) a pledge of MCII Shares and (ii) a perfected first priority security interest in any cash or Cash Equivalents deposited with the Trustee under the Indenture governing the New Notes. Under certain circumstances, collateral in the form of MCII Shares may be released by the Trustee and sold by MCII Holdings. See "Description of the Notes -- Security for the Notes." MCII CANADIAN TAX LIABILITY The Canadian income tax returns of MCII's subsidiary, Motor Coach Industries Limited, a Canadian corporation ("MCIL"), for the years 1982 through 1992 are currently under review by Revenue Canada, the Canadian tax authority, which is reviewing the profit allocation procedures between MCIL and Motor Coach Industries, Inc. ("MCI"), a wholly owned subsidiary of MCII. Revenue Canada's position is that, under such procedures, insufficient income was allocated to MCIL, the Canadian tax-paying entity, and that, as a result, Canadian income taxes were underpaid. A formal reassessment has been issued by Revenue Canada with respect to the 1985 return. A notice of objection has been filed by MCII for 1985. In the event of an adverse judgment, the additional income taxes for 1982 through 1992 could amount to up to US$25,000,000 plus interest of approximately US$25,000,000 and, in addition, MCII may be subject to potential reassessments for years subsequent to 1992 on the same basis which could result in additional income taxes and interest, all before recoveries of U.S. Federal income taxes which may be available to offset a portion of any additional taxes paid to Canada. Although MCII is still in the process of obtaining additional information, based upon its review of current relevant information, including the advice of outside counsel, MCII is of the opinion that Revenue Canada's arguments are without merit and that any liability from this matter will not be material to its financial condition or results of operations. GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL MATTERS The number and types of trucks and coaches which can be imported into Mexico and thus compete with Grupo Dina's products are regulated through a system of compensatory quotas, which under the provisions of NAFTA will be phased out over a five-year period, and tariffs, which under provisions of NAFTA will be phased out over a ten-year period. See "--North American Free Trade Agreement." Grupo Dina's operations and products are subject to Mexican federal and state laws and regulations relating to protection of the environment. Grupo Dina has voluntarily undertaken a program designed to cause its operations and products to exceed standards required by current Mexican federal and state environmental laws. However, it is possible that changes in Mexican federal or state environmental laws, or their interpretation or enforcement, could result in material costs to Grupo Dina. See "Business of Grupo Dina--Environmental Matters." MCII Holdings' operations and products are subject to various laws and regulations applicable in the United States, Canada and other countries, including, in the United States, the Clean Air Act and other environmental regulations, United States federal motor vehicle safety standards, and the Americans with Disabilities Act, and in Canada, various environmental acts and Canadian motor vehicle safety regulations. The cost of compliance with future regulations cannot be predicted with any degree of certainty and may significantly affect MCII's operations and financial results. See "Business of MCII Holdings--Government Regulation." PENDING REVISIONS TO HANDICAPPED ACCESSIBILITY STANDARDS FOR COACHES The Americans with Disabilities Act required, among other things, that the U.S. Department of Transportation (the "DOT") promulgate handicapped accessibility standards for coaches. Although the DOT has not issued proposed regulations for public comment, there are indications that the regulations (which are expected to be issued for comment in December 1996 and finalized in 1997) might require each coach in an operator's fleet to be handicapped accessible, rather than permitting the operation of a limited number of accessible coaches. Requiring complete fleet accessibility could have a material adverse effect on an operator's business and possibly on MCII's coach business and U.S. coach sales by Grupo Dina. The final regulations will be applicable to operators with larger fleets two years after issuance of the final regulations and applicable to operators with smaller fleets three years after issuance of the final regulations. No prediction can be made concerning the final content of the regulations promulgated by the DOT, nor the effect these regulations may have on Grupo Dina or MCII Holdings' business, financial condition and operating results. DIFFERENCES IN CORPORATE DISCLOSURE AND ACCOUNTING STANDARDS A principal objective of the securities laws of the United States, Mexico and other countries is to promote full and fair disclosure of all material corporate information. It should be realized, however, that there may be less publicly available information about foreign issuers of securities listed in the United States than is regularly published by or about domestic issuers of listed securities. In addition, Grupo Dina prepares its financial statements in accordance with Mexican GAAP, which differs from U.S. GAAP in a number of respects. For example, most Mexican companies must incorporate the effects of inflation directly in accounting records and in their published financial statements. Thus, Mexican financial statements and reported earnings may differ from those of companies in other countries in this and other respects. For a discussion of the principal differences between Mexican GAAP and U.S. GAAP and for a reconciliation to U.S. GAAP of net income and total stockholders' equity, see notes 1, 23 and 24 to the audited consolidated financial statements of Grupo Dina contained elsewhere in this Prospectus. LACK OF A PUBLIC MARKET FOR THE NOTES The New Notes are being offered to the holders of the Old Notes. The Old Notes were issued on June 3, 1996 to a small number of institutional investors and are eligible for trading in the Private Offering, Resale and Trading through Automated Linkages (PORTAL) Market, the National Association of Securities Dealers' screenbased, automated market for trading of securities eligible for resale under Rule 144A. To the extent that Old Notes are tendered and accepted in the Exchange Offer, the trading market for the remaining untendered Old Notes could be adversely affected. There is no existing trading market for the New Notes, and there can be no assurance regarding the future development of a market for the New Notes, or the ability of holders of the New Notes to sell their New Notes or the price at which such holders may be able to sell their New Notes. The Issuers do not intend to apply for listing or quotation of the New Notes on any securities exchange or stock market. CUSTOMER CONCENTRATION IN THE COACH BUSINESS Grupo Dina and MCII Holdings have historically sold a significant percentage of new coaches each year to a limited number of large coach operators. In 1994, Grupo Estrella Blanca, Grupo Tres Estrellas de Oro and Grupo Mexico Pachuca together accounted for over 10% of Grupo Dina's unit sales of coaches. However, because of the economic crisis in Mexico, these Mexican large coach operators were not significant customers during 1995 and are not expected to be such in 1996. The lack of orders from these customers resulted in lower unit sales during 1995. In 1994 and 1995, GLI purchased 282 and 111 new coaches from MCII Holdings, accounting for 27% and 10% of MCII Holdings' unit sales of coaches, respectively. See "Business of Grupo Dina--Coach Segment--Customers" and "Business of MCII Holdings--Coach--Customers." EXPIRATION OF NAVISTAR CONTRACT Since 1987, Navistar International Transportation Corp. ("Navistar") has supplied Grupo Dina with technology for cabin assembly, engines and other components for medium and heavy-duty trucks. The components and technology supply contracts with Navistar will expire as of March 1998. Grupo Dina is in the process of negotiating an agreement with a manufacturer of standard engines to replace its current product offerings. In addition, Grupo Dina is in the process of exploring the development of its own technology in the area of cabin assembly or, alternatively, of establishing a relationship with a cabin manufacturer. Management estimates that development of its own cabin assembly technology will cost approximately US$30 million and that the establishment of new relationships with engine and cabin manufacturers will cost approximately US$15 million. The transition to alternate technology, whether obtained from a new supplier or developed internally, will entail additional capital expenditures and may result in possible delays in production. There can be no assurance that satisfactory arrangements can be concluded with such manufacturers or that Grupo Dina will have available the necessary funds to pursue its own development efforts. See "Business of Grupo Dina--Truck Segment--Production." RISK OF FRAUDULENT CONVEYANCE LIABILITY In addition to constraints imposed by loan covenants of MCII, MCII's ability to make distributions to MCII Holdings (which would be necessary to pay cash interest on, or to repay, the New Notes) may be limited by state law restrictions on the declaration of dividends, and by state and federal fraudulent transfer laws. If a court were to find that, at the time that MCII made a distribution to MCII Holdings, MCII (i) was insolvent, (ii) was rendered insolvent by reason of such payment, (iii) was engaged in a business or transaction for which the assets remaining with MCII constituted unreasonably small capital, or (iv) intended to incur, or believed that it would incur, debts beyond its ability to pay as such debts matured, such court could avoid the distribution and order that it be returned to MCII or to a fund for the benefit of MCII's creditors. The measure of insolvency for purposes of the foregoing will vary depending upon the law of the jurisdiction which is being applied. Generally, however, MCII would be considered insolvent if the sum of MCII's debts is greater than all of MCII's property at a fair valuation or if the present fair salable value of MCII's assets is less than the amount that will be required to pay its probable liability on its existing debts (including contingent liabilities) as they become absolute and matured. Under Mexican bankruptcy law, the granting of a security interest in assets of a debtor to secure previously unsecured obligations of such debtor may be voided to the extent such security interest is granted during a period in which the debtor could be considered insolvent and the beneficiary of such security interest knew or should have known the debtor's condition. Such legal provision could be invoked by a Mexican trustee in respect of the security interest created by MCII Holdings in the MCII Shares, which were previously directly owned by Grupo Dina. PAYMENT OF JUDGMENTS IN PESOS Under Mexican monetary law, in the event that proceedings were brought in Mexico seeking to enforce in Mexico Grupo Dina's obligations under the Notes, Grupo Dina would not be required to discharge such obligations in Mexico in a currency other than Mexican currency. Under such law, an obligation in a currency other than Mexican currency, which is payable in Mexico, may be satisfied in Mexican currency at a rate of exchange in effect on the date and in the place payment occurs. Such rate is currently determined by the Bank of Mexico every business day in Mexico and published the following business day in the Diario Oficial de la Federacion. CONSEQUENCES OF FAILURE TO EXCHANGE AND REQUIREMENTS FOR TRANSFER OF NEW NOTES Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant to the Exchange Offer will continue to be subject to the provisions in the Indenture regarding transfer and exchange of the Old Notes and the restrictions on transfer of such Old Notes as set forth in the legend thereon as a consequence of the issuance of the Old Notes pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Old Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. The Issuers do not currently anticipate that they will register Old Notes under the Securities Act. Based on interpretations by the staff of the SEC, as set forth in no-action letters issued to third parties, the Issuers believe that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold or otherwise transferred by holders thereof (other than any such holder which is an "affiliate" of the Issuers within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement with any person to participate in the distribution of such New Notes. However, the Issuers do not intend to request the SEC to consider, and the SEC has not considered, the Exchange Offer in the context of a no-action letter and there can be no assurance that the staff of the SEC would make a similar determination with respect to the Exchange Offer as in such other circumstances. Each holder, other than a broker-dealer, must acknowledge that it is not engaged in, and does not intend to engage in, a distribution of New Notes and has no arrangement or understanding to participate in a distribution of New Notes. If any holder is an affiliate of any of the Issuers, is engaged in or intends to engage in or has any arrangement or understanding with respect to the distribution of the New Notes to be acquired pursuant to the Exchange Offer, such holder (i) could not rely on the applicable interpretations of the staff of the SEC and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that, by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Issuers have agreed that, starting on the Expiration Date and ending on the close of business on the first anniversary of the Expiration Date, they will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." However, to comply with the state securities laws, the New Notes may not be offered or sold in any state unless they have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with. The offer and sale of the New Notes to "qualified institutional buyers" (as such term is defined under Rule 144A of the Securities Act) is generally exempt from registration or qualification under the state securities laws. The Issuers currently do not intend to register or qualify the sale of the New Notes in any state where an exemption from registration or qualification is required and not available. See "The Exchange Offer--Consequences of Exchanging Old Notes." USE OF PROCEEDS The Issuers will not receive any proceeds from the Exchange Offer. EXCHANGE RATES From 1982 through November 10, 1991, Mexican residents and companies were entitled to purchase and obligated to sell foreign currencies for certain purposes at a controlled rate of exchange (the "Controlled Rate") that was set daily by the Bank of Mexico. For all transactions to which the Controlled Rate did not apply, foreign currencies could also be purchased, if they were available, or sold at the free-market exchange rate (the "Free Market Rate"), which was generally higher than the Controlled Rate. The Controlled Rate and the Free Market Rate were held nearly constant against the Dollar from December 1987 through December 1988. From January 1, 1989 to May 28, 1990, the price of one Dollar at the Controlled Rate increased at a regular rate of 0.001 New Pesos per day, 0.0008 New Pesos per day from May 29 to November 12, 1990 and 0.0004 New Pesos per day from November 13, 1990 to November 11, 1991. The Bank of Mexico intervened from time to time in the foreign exchange market to minimize temporary disparities between the free-market rate and the Controlled Rate. Effective November 11, 1991, the Mexican government ended exchange controls. As a result, all conversions between New Pesos and Dollars now occur at market rates. At the same time, the Mexican government announced that it expected the exchange rate to be depreciated within a prescribed range of 0.0002 New Pesos per dollar per day, equivalent to a maximum devaluation of the New Peso against the Dollar of approximately 2.4% per year. On October 21, 1992, the Mexican government announced the prescribed range to be 0.0004 New Pesos per Dollar per day, equivalent to a devaluation of approximately 4.8% per year. In December 1994, the Bank of Mexico allowed the New Peso to float freely. Between December 19, 1994 and December 31, 1994, the New Peso depreciated from Ps 3.46 per Dollar to Ps 5.00 per Dollar, a 44% decline. Since this period the value of the New Peso against the Dollar has been subject to significant volatility. Pursuant to the PARAUSEE, the Mexican government announced the continuation of its floating exchange rate policy, with the Bank of Mexico still authorized to intervene in the foreign exchange market, in order to minimize volatility. Pursuant to this authorization, the Bank of Mexico intervened when the New Peso suffered further devaluations on November 9 and 10, 1995. In 1995, the New Peso devalued approximately 55% against the Dollar from approximately Ps 5.00 per US$1.00 to approximately Ps 7.740 per US$1.00, in each case based on the Fed Noon Rate. The exchange rate reported by the Bank of Mexico was 7.7396 New Pesos per US$1.00 at December 31, 1995, and was 7.5519 Pesos per US$1.00 at October __, 1996. The Mexican government does not currently restrict the ability of Mexican or foreign persons or entities to convert Pesos to Dollars, or vice versa. Except for the period from September through December 1982 during the Mexican financial crisis, the Bank of Mexico consistently has made foreign currency available to Mexican private sector entities such as Grupo Dina to meet their foreign currency obligations. Nevertheless, in the event of renewed shortages of foreign currency, there can be no assurance that the Bank of Mexico would continue to make foreign currency available to private sector companies. Effective January 1, 1996, the New Peso was replaced by the Peso, at a rate of one Peso per one New Peso, as Mexico's currency unit. MEXICAN PESO EXCHANGE RATES The following table sets forth the average, the end-of-period and high and low points of the Controlled Rate of exchange as established by Banco de Mexico until November 1991 and the Fed Noon Rate which the Federal Reserve Bank of New York began quoting for the Peso on November 8, 1993 for the Peso against the U.S. Dollar for the periods indicated. Peso Exchange Rates Controlled Rate and Fed Noon Rate Year End of Period Average High Low 1991 Ps3.017 Ps3.072 Ps3.075 Ps2.951 1992 -- -- -- -- 1993 3.102 3.120 3.240 3.102 1994 5.000 3.393 5.750 3.105 1995 7.740 6.442 8.050 5.270 1996 (through October __, 1996) RATIO OF EARNINGS TO FIXED CHARGES GRUPO DINA The following table sets forth Grupo Dina's consolidated ratio of earnings to fixed charges for the years ended December 31, 1991, 1992, 1993, 1994 and 1995 and for the six-month period ended June 30, 1996, in accordance with Mexican GAAP and U.S. GAAP. Earnings for this purpose consist of earnings before provision for income tax and asset tax but after provision for employee statutory profit sharing (for U.S. GAAP purposes only) plus fixed charges. Grupo Dina has no equity in losses of less than 50%-owned persons accounted for on the equity method, interest capitalized during the periods, equity in earnings of less than 50%-owned persons accounted for on the equity method or minority interest in losses of majority-owned subsidiaries. Fixed charges for this purpose consist of interest expense plus amortization of deferred charges for debt issuance costs. Fixed charges do not take into account the gain on monetary position associated with Grupo Dina's indebtedness or the exchange gains or losses attributable to Grupo Dina's indebtedness. Year Ended December 31 Six Months Ended 1991 1992 1993 1994 1995 June 30, 1996 ---- ---- ---- ---- ---- ---------------- Mexican GAAP....... 4.91 6.90 5.41 (2.76) 0.35 1.88 U.S. GAAP.......... 4.39 6.27 5.45 (2.82) 0.35 -- (A) Grupo Dina's earnings were not sufficient to cover fixed charges for the year ended December 31, 1994 by Ps (2.76), under Mexican GAAP and by Ps (2.82) under U.S. GAAP. MCII HOLDINGS The following table sets forth MCII Holdings' consolidated ratio of earnings to fixed charges for the years ended December 31, 1991, 1992, 1993, 1994 and 1995 and for the six months ended June 30, 1996. In computing the ratio of earnings to fixed charges: (i) earnings have been based on income from continuing operations before income taxes and fixed charges and (ii) fixed charges consist of interest and the amortization of debt issuance costs. For the period prior to its initial public offering on August 12, 1993, MCII and its subsidiaries were owned by Dial and relied on funds provided by Dial to fund its operations and capital expenditures. The intercompany advances provided by Dial are reflected in the financial statements as non-interest bearing. Therefore, for the years ended December 31, 1991 and 1992 and for the period from January 1, 1993 through August 12, 1993, MCII and its subsidiaries had minimal amounts of outside financing and therefore, a minimum of interest expense. Subsequent to MCII's initial public offering, MCII incurred significant indebtedness to fund its working capital needs as well as to finance capital expenditures, to purchase the MCIL minority interest in February 1994 and to pay a US$34 million cash dividend to Grupo Dina in December 1994. As a result, a comparison of the ratio of earnings to fixed charges for the periods prior to and subsequent to the initial public offering may not be meaningful. Year Ended December 31 Six Months Ended 1991 1992 1993 1994 1995 June 30, 1996 ---- ---- ---- ---- ---- ----------------- U.S. GAAP...... 6.8 13.7 19.9 6.8 3.2 3.8 SELECTED FINANCIAL DATA OF GRUPO DINA The following selected consolidated financial data as of and for the years ended December 31, 1991, 1992, 1993, 1994 and 1995 were derived from the audited consolidated financial statements of Grupo Dina. The selected consolidated financial data as of and for the six months ended June 30, 1995 and 1996 were derived from the unaudited consolidated financial statements of Grupo Dina. The unaudited financial statements for the six months ended June 30, 1995 and 1996 include all adjustments, consisting of only normal recurring adjustments, that management considers necessary for fair presentation of the financial position and results of operations for the periods then ended. Results of operations for the six months ended June 30, 1996 are not necessarily indicative of results which may be expected for the entire year. The following selected consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations of Grupo Dina" and the consolidated financial statements of Grupo Dina and notes thereto included elsewhere in this Prospectus. The consolidated financial statements of Grupo Dina are prepared in accordance with Mexican GAAP, which differs in certain respects from U.S. GAAP.
GRUPO DINA CONSOLIDATED FINANCIAL INFORMATION --------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ----------------------------------------------------------- -------------------------------------- 1991 1992(2) 1993 1994 1995 1995 1996 1996(1) ---- ------- ---- ---- ---- ---- ---- ------- (IN MILLIONS, EXCEPT SHARE, PER SHARE AND PER ADS INFORMATION)(2) INCOME STATEMENT INFORMATION: MEXICAN GAAP: NET SALES PS 4,221.2 PS 4,221.2 PS 5,236.5 PS 4,327.5 PS 4,742.9 PS 2,695.8 PS 2,796.7 US$ 368.9 OPERATING INCOME 632.2 505.2 547.3 (292.2) (69.1) 11.7 85.1 11.2 NET INCOME (LOSS), 607.7 518.4 465.7 (1,015.2) (529.9) 113.7 89.7 11.8 MAJORITY INTEREST(4) NET INCOME (LOSS) PER 6.90 3.06 2.39 (4.50) (2.05) 0.44 0.35 0.05 SHARE, MAJORITY INTEREST NET INCOME (LOSS) PER ADS, 27.59 12.21 9.56 (18.01) (8.21) 1.76 1.39 0.18 MAJORITY INTEREST CASH DIVIDENDS PER SHARE(5) 0 1.12 0.42 0.15 0 0 0 0 CASH DIVIDENDS PER ADS(5) 0 4.49 1.67 0.60 0 0 0 0 WEIGHTED AVERAGE SHARES 88,082,620 169,833,640 194,866,714 225,490,658 258,026,136 258,026,136 258,026,136 258,026,136 OUTSTANDING U.S. GAAP: NET SALES PS 4,221.2 PS 4,833.7 PS 5,236.5 PS 4,327.5 PS 4,742.9 -- -- -- NET INCOME (LOSS)(4) 558.1 461.9 401.3 (535.3) (284.4) -- -- -- NET INCOME (LOSS) PER ADS 25.34 10.86 8.24 (9.50) (4.41) -- -- -- WEIGHTED AVERAGE ADSS 22,020,655 42,458,410 48,716,679 56,372,665 64,506,534 64,506,534 64,506,534 64,506,534 OUTSTANDING NUMBER OF NEW UNITS SOLD: COACHES 984 1,165 1,818 804 1,176 655 800 800 TRUCKS 11,233 12,631 11,365 10,463 2,520 931 836 836
DECEMBER 31, JUNE 30, ------------------------------------------------------- ------------------------------ 1991 1992 1993 1994 1995 1995 1996 1996(1) ---- ---- ---- ---- ---- ---- ---- ------- BALANCE SHEET INFORMATION: MEXICAN GAAP: PROPERTY, PLANT AND PS 567.0 PS 744.1 PS 962.5 PS 1,455.6 PS 1,641.2 PS 1,539.4 PS 1,768.7 US$ 233.3 EQUIPMENT, NET TOTAL ASSETS 2,610.4 3,032.3 4,039.6 8,231.4 7,836.2 6,984.1 7,138.9 941.6 TOTAL LONG-TERM DEBT 557.2 949.4 874.9 4,371.0 4,621.4 4,060.6 3,920.6 517.1 TOTAL STOCKHOLDERS' EQUITY, 826.2 1,038.0 2,107.1 1,962.6 1,853.3 1,664.6 1,732.6 228.5 MAJORITY INTEREST(6) U.S. GAAP: TOTAL ASSETS (7) 2,610.4 3,032.3 4,039.6 9,198.2 7,836.2 -- -- -- TOTAL STOCKHOLDERS' EQUITY, 593.2 756.4 1,761.1 2,250.1 1,979.8 -- -- -- MAJORITY INTEREST(6)
- ----------------------- (1) Translations of Pesos into U.S. dollars have been made at the rate of Ps 7.5814 to US$1.00. Such translations are provided solely for the convenience of the reader and do not reflect the financial information in accordance with generally accepted accounting principles for foreign currency translation. (2) In February 1992, Grupo Dina's coach assembly lines were shut down for a three-month period for planned modernization and expansion. Production resumed in April 1992 on a limited basis for a three-month period, with full production commencing in August 1992. (3) Each Common and Series L ADS represents four shares of Common and Series L Stock, respectively. (4) Net income for the years ended December 31, 1991, 1992, 1993, 1994 and 1995 is shown after elimination of the income attributable to the minority interest in Camiones. Under U.S. GAAP, income before extraordinary credits for the years ended December 31, 1991, 1992, 1993, 1994 and 1995 and net income for the corresponding periods are identical. (5) Dividends are calculated on the basis of the Pesos amount and the number of outstanding shares of Common and Series L Stock or Common and Series L ADSs, as the case may be, on the date the dividends were declared. (6) Stockholders' equity for the years ended December 31, 1991, 1992, 1993, 1994 and 1995 is shown after elimination of the income attributable to the minority interests in Camiones. (7) Total assets under U.S. GAAP as of December 31, 1994 differ from Mexican GAAP because of "pushdown" accounting for goodwill. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF GRUPO DINA The following discussion encompasses the consolidated financial results of Grupo Dina and its subsidiaries (collectively, the "Company"). The major subsidiaries include Dina Camiones, S.A. de C.V. ("Camiones"), Dina Autobuses, S.A. de C.V. ("Autobuses"), Dina Comercializadora, S.A. de C.V. ("Comercializadora"), Plasticos Automotrices Dina, S.A. de C.V. ("Plasticos") (hereinafter eferred to collectively as the "Mexican subsidiaries") and MCII Holdings. This discussion should be read in conjunction with the audited consolidated financial statements of Grupo Dina and the notes thereto included elsewhere in this Prospectus. Grupo Dina prepares its financial statements in accordance with Mexican GAAP, which differs in certain respects from U.S. GAAP. To better comprehend Management's Discussion and Analysis, see Notes 23 and 24 to the consolidated financial statements for a discussion of the principal differences between Mexican GAAP and U.S. GAAP and a reconciliation of net income and stockholders' equity to U.S. GAAP. Under Mexican accounting principles, Bulletin B-10 of the Mexican Institute of Certified Public Accountants, as amended, requires that all prior years financial statements presented be restated to constant currency. Bulletin B-10 does not address the restatement of financial statements of foreign subsidiaries included in the consolidated totals. The Company's management has presented the consolidated financial statements restated by the inflation rate for 1995 of 52%. Because MCII Holdings' financial statements are originally prepared in dollars, and inflation and devaluation of the Peso against the dollar have been disparate in recent years, the comparison between years of constant Peso amounts, as presented herein, may be different from a comparison of dollar amounts. OVERVIEW The Company's performance in 1995 was significantly impacted by the downturn in the Mexican economy during the year and a substantial devaluation of the Peso against the U.S. dollar in December 1994 and a more gradual, yet substantial, devaluation during 1995. The Company reported a net loss for the year ended 1995 of Ps 529.9 million, or Ps 2.05 per share, compared with a net loss of Ps 1,015.2 million or Ps 4.50 per share, for 1994. The Company reported net income of Ps 465.7 million, or Ps 2.39 per share, for 1993. Net loss before taxes and employee profit sharing in 1995 was Ps 357.8 million which compares with net loss before taxes and employee profit sharing of Ps 935.3 million for 1994, compared to net income before taxes and profit sharing in 1993 of Ps 614.9 million. Accounting for the majority of the 1994 loss was the devaluation of the Peso which resulted in a net foreign exchange loss of Ps 630.2 million. In addition, in response to the downturn in the Mexican economy and the Peso devaluation, the 1994 loss included Ps 323.3 million in other charges relating to the restructuring of the Mexican subsidiaries and special provisions for certain losses on inventories and receivables. Excluding the foreign exchange loss and the other charges, 1994 resulted in income before taxes and profit sharing of Ps 18.2 million compared to Ps 610.2 million for 1993. Net sales in 1995 were Ps 4,742.9 million compared to Ps 4,327.5 million for 1994, an increase of Ps 415.4 million. Net sales during 1994 decreased Ps 909.0 million (or 17.4%), compared to 1993 net sales of Ps 5,236.5 million. Gross profit margin for 1995 was 21.5%, compared to 18.4% and 21.1% for the same periods in 1994 and 1993, respectively. The current condition of the Mexican economy is a major concern for the Company. The timing for recovery of the economy and the stabilization of the Peso remain uncertain. Factors which could impact the timing include the government's success in managing the crisis, and reinstilling confidence in the long-term growth of the Mexican economy. The economic recession adversely impacted sales of the Company in 1995. In 1994, 1995 and the first half of 1996, unit sales of trucks, coaches and transit buses in Mexico, including exports, were as follows: Unit Sales for Six Months Ended Year Ended June 30, ----------------------- -------------------- 1994 1995 1995 1996 ---- ---- ---- ---- Trucks 10,463 2,520 1,211 951 Intercity Coaches 297 21 14 16 Transit Buses 77 34 26 1 Such annual unit sales reflect declines of 75.9% for trucks and 92.9% for intercity coaches from 1994 to 1995. Unit sales of trucks declined 21.5% during the six months ended June 30, 1996 compared to the same prior year period. Until such time as the economy recovers and stabilizes, adverse impacts on the Company's sales may continue. As the timing remains uncertain for the recovery, management is continually reviewing the strategic alternatives available to respond to the economic environment. Management has already responded in part by taking actions to restructure the work force, revise union agreements and temporarily reduce, and from time to time suspend, production at Camiones, Autobuses and Plasticos subsidiaries. Other strategic alternatives include: a) continuing cost reduction measures; b) reviews of the wage component of union contracts; c) intense marketing to other Latin American countries, including specifically Chile, Colombia and Ecuador, as well as the United States; and d) more favorable payment terms being extended to the Company's distributors. RESULTS OF OPERATIONS FIRST HALF 1996 COMPARED TO FIRST HALF 1995 Net sales. During the first half of 1996, consolidated net sales were Ps 2,796.7 million compared to Ps 2,695.8 million reported during the first half of 1995. MCII Holdings' Dollar-denominated sales represented approximately 85% and 80% of Grupo Dina's consolidated sales during the first half of 1996 and 1995, respectively. Gross profit. Gross profit during the first half of 1996 totaled Ps 490.3 million, compared to Ps 488.1 million during the prior year period. This increase in gross profit was mainly attributable to a 14% increase in unit intercity coaches sales as explained below. Consolidated operating income. Consolidated operating income was Ps 85.1 million, compared to an operating income of Ps 11.7 million reported during the first half of 1995. Grupo Dina's Mexican operations reported an operating loss of Ps 120.4 million during the first half of 1996, compared to an operating loss of Ps 217.4 million during the same prior year period. Selling, general and administrative expenses. Although the decrease in sales from Grupo Dina's Mexican operations impacted the Company's operating income, the loss in gross profit was more than offset by stringent cost reduction programs which have substantially reduced selling, general and administrative expenses. Grupo Dina's selling, general and administrative expenses were Ps 405.2 million during the first half of 1996 compared to Ps 476.4 million during the same prior year period, a decrease of 15% attributable to Grupo Dina's cost reduction programs. Operating income. Operating income from MCII Holdings during the first half of 1996 was Ps 205.5 million, compared to Ps 229.1 million during the prior year period. This decrease is primarily attributable to increased research and development expenses. Pretax income. Pretax income during the first half of 1996 was Ps 178.8 million, compared to a pretax income of 235.0 million during the same prior year period. This Ps 56.2 million decrease in income before taxes for the six months ended June 30, 1996 compared to the same prior year period is principally due to the gain on shares of Greyhound Lines, Inc. in the amount of Ps 77,709 million in 1995. There were no similar gains or "other income" of this magnitude in the six months ended June 30, 1996. Net income. During the first half of 1996, Grupo Dina recorded a net income of Ps 89.7 million, or Ps 0.35 per share, compared to a net income of Ps 113.7 million or Ps 0.44 per share during the first half of 1995, both based on 258 million weighted average shares outstanding. TRUCK SEGMENT The truck segment sold 951 trucks during the first half of 1996, compared to 1,211 trucks sold during the first half of 1995, resulting in a market share of 20% and 28% for the first half of 1996 and 1995, respectively. During the first half of 1996, truck inventories decreased by 43% from the levels recorded at June 30, 1995. At June 30, 1996 Grupo Dina had approximately 721 trucks in inventory which it believes represents the minimum inventory level required to adequately service expected future sales. COACH SEGMENT Grupo Dina's Mexican coach division sold 144 intercity coaches during the first half of 1996 versus 57 intercity coaches during the first half of 1995. Mexican industry sales of intercity coaches have increased 53% from 112 units sold during the first half of 1995 to 171 units sold during the first half of 1996. Group Dina's share of the Mexican intercity coach market decreased from 13% at June 30, 1995 to 9% at June 30, 1996. Grupo Dina's coach segment exports to MCII Holdings for the U.S. market totaled 41 intercity coaches in the first half of 1995 and 128 during the first half of 1996. 1995 COMPARED TO 1994 General. The Company reported a net loss of Ps 529.9 million in 1995, compared with a net loss of Ps 1.015.2 million for 1994. The 1995 results included Ps 363.1 million of exchange loss and Ps 548.1 million of interest expenses, and a gain in net monetary position of Ps 399.4 million. In addition, due to the low level of sales in Mexico, the Company had an operating loss of Ps 69.1 million during 1995, which compares with an operating loss of Ps 292.2 million in 1994. Additionally, the Company reported an increase in "Other Income" of Ps 45.6 million when compared with 1994 figures, due mainly to a gain on sale of marketable securities held by MCII Holdings, which were sold in October. Given the low level of economic activity and despite actions taken to reduce costs and expenses, the Company does not anticipate an improvement in its operating results. However, because of the high inflation experienced throughout 1995 and anticipated for 1996, the Company expects to continue registering monetary gains. On December 20, 1994, the Bank of Mexico allowed the Peso to undergo a significant devaluation against the dollar. The Peso to dollar exchange rate at 1994 year-end was Ps 4.995 compared to Ps 3.107 at December 31, 1993, a 62.2% decline. At December 31, 1995, the Peso/dollar exchange rate was Ps 7.7396 per dollar. The devaluation's impact on the Company has been, and will continue to be, significant. Due to the decline in the buying power of the Peso, the effective cost to the Company of importing raw materials and the cost of servicing the Company's dollar-denominated debt have increased. The Peso devaluation has also resulted in an increase in interest and inflation rates in Mexico. With interest rates in 1995 exceeding 55% and inflation of 52%, credit availability in Mexico has tightened and loan defaults have increased dramatically. As a result of the unfavorable exchange, interest and inflation rates, and with high unemployment and related social unrest, the constraints on the Mexican economy and, therefore, on the Company's Mexican operations are, and will continue for some time to be, substantial. The following discussion of the Company's principal segments is based, in part, on Note 25 to the Consolidated Financial Statements of the Company and excludes the effects of the nonrecurring charges as discussed above. TRUCK SEGMENT Net sales. Net sales for the truck segment during 1995 were Ps 809.2 million compared to sales of Ps 2,625.2 million for 1994. The decline in truck sales reflects a 75.9% reduction in units sold, from 10,463 in 1994 to 2,520 units sold in 1995. This decline is attributable to a sharp decline in demand because of the contraction of the Mexican economy, which caused an overall market decline of 76.7%. The Company's market share in the truck segment in 1995 is 34% compared with 35% in 1994. Given the low level of sales for this market, market shares swing significantly from month to month whenever a medium size order is completed by any of the market participants. Therefore, the Company believes market share figures are less relevant in this environment. Gross profit margins. Gross profit margins on trucks decreased from 17.6% for 1994 to 13.2% for 1995. The decrease was mainly attributable to a lower production level during 1995, which resulted in unabsorbed fixed plant costs of Ps 99.5 million, or 12.3% of sales. Operating income (loss). Operating loss for this segment was Ps 209.2 million in 1995 compared with Ps 1.5 million of operating profit in 1994. This decline resulted from the reduction in margins partially offset by a 45% reduction in selling, general and administrative expenses. COACH SEGMENT The coach segment has operations in Mexico and, beginning in August 1994 upon the acquisition of MCII, in the United States and Canada. Due to the impact of the operations of MCII Holdings on the Company as a whole and on the coach segment in particular, the following discussion of the coach segment is presented in two parts: 1) an overview of the operating results as presented in the segment information contained in Note 25 to the consolidated financial statements of the Company contained herein, followed by 2) a detailed discussion of Mexican and U.S./Canada coach operations on a pro forma basis reflecting full-year presentations of MCII Holdings operations. OVERVIEW. Net sales for the coach segment during 1995 were Ps 3,898.7 million, an increase of Ps 2,228.0 million from the prior year. The increase in coach sales reflects a 35.9% decrease in sales in Mexico, more than offset by MCII Holdings sales of Ps 3,880.0 million. Gross profit margins on coaches increased from 18.6% in 1994 to 20.0% in 1995. In addition, the Mexican gross margin reflects an increase due to export sales in 1995. The coach segment generated an operating profit of Ps 322.4 million in 1995, which compares with an operating loss of Ps 234.8 million in 1994. The 1995 results are comprised of net operating income on the Mexican operation of Ps 18.3 million and Ps 304.0 million at MCII Holdings. EXPANDED DISCUSSION OF COACH SEGMENT USING PRO FORMA DATA. Due to the impact of the operations of MCII Holdings, through its wholly owned subsidiary, MCII, selected operating results for the Company's coach segment are presented on a pro forma basis giving effect to MCII Acquisition (as herein defined) as if it occurred January 1, 1994. This presentation allows a more meaningful comparison of the ongoing operations of the coach segment in both Mexico and the U.S./Canada. Moreover, since the structure of the operations of MCII continue as they were before the acquisition, management believes that the pro forma data is meaningful in understanding future operations. PRO FORMA TABLE FOR COACH SEGMENT FOR 1995 AND 1994 AS IF MCII ACQUISITION OCCURRED JANUARY 1, 1994: 1995 1994 -------- -------- (In millions of Ps) Net sales Ps 3,898.7 Ps 3,311.4 Gross profit 843.4 623.4 Operating expense 545.4 476.4 Operating Income, excluding Other Charges 297.9 147.0 Net sales. As depicted in the above table, net sales for the coach segment in 1995 were Ps 3,898.7 million, an increase of Ps 587.3 million, or 17.7%, from 1994. Net sales of the Mexican operation declined 35.9%, to Ps 18.8 million, as intercity coaches and transit buses sold decreased from 374 units in 1994 to 57 in 1995. This decline was a result of the collapse in the Mexican economy and a consolidation of coach operators beginning in late 1993 and the shifting of some sales of the Viaggio model in the United States through MCII. Sales by the entire Mexican coach industry in 1995 declined 93% from 1994. During 1995, the Company's positioning within the Mexican market declined to a market share of 12% from 16% in 1994. The Mexican economic crisis and the consolidation of operators had a significant impact on this market-share decline. The Company's principal customer group, Estrella Blanca and its affiliates who represented approximately 69% of the Company's coach sales in Mexico in 1993, and 38% in 1994, generated no sales in 1995. MCII sales in 1995 totaled Ps 3,880.0 million reflecting an increase of 36.8%, compared to Ps 2,835.8 million for 1994. This increase was driven by increases in volume and average sales price and by an increase in the exchange rate used to translate dollar figures to Pesos. New unit sales were 1,119 (1,007 MCII models and 112 Dina Viaggio models) in 1995 compared to 1,059 (all MCII models) in 1994. Gross profit margins. The coach gross profit margins presented in the table above increased from 18.8% to 21.6%. The Mexican operation's gross margin was 24.9%, compared to 3.7% for the prior year. The margins reflect a low level of production in Mexico, with the ensuing lack of absorption of fixed costs. MCII margins slightly diminished from 21.4% in 1994 to 19.6% in 1995. The decline in the MCII margin percentage was primarily due to a larger percentage of sales of the Viaggio model, which generates a lower margin in the United States as the manufacturing profit is recognized in the Mexican coach segment and higher distribution costs in the replacement parts division. In addition, the 1995 margin was impacted by increased research and development expense incurred for the development of a new tour and charter model. Operating income. In 1995, the coach segment operating income of Ps 322.4 million is comprised of net operating income of Ps 18.5 million and nonrecurring credits of Ps 24.5 million of the Mexican operation and operating income of the MCII operation of Ps 303.9 million. The Mexican coach operation reported operating income of Ps 18.5 million for 1995, compared to operating loss of Ps 122.6 million for 1994. The constrained operating results in Mexico resulted from the contracted market for coaches. Operating income attributable to MCII operations increased from Ps 269.6 million in 1994 to Ps 303.9 million in 1995, reflecting the increase in the exchange rate as reported above. In dollar terms operating income declined primarily due to reductions in margins. Comprehensive financing results. Net loss includes the effects of Comprehensive Result of Financing, of provisions for certain taxes and employee profit sharing, and of the equity in earnings of associated companies. During 1995, the net loss of Ps 529.9 million included net financing expense of Ps 292.2 million and net expense from taxes and profit sharing of Ps 185.5 million. As is customary under Mexican GAAP, four items are presented within Comprehensive Result of Financing: interest income, interest expense, foreign exchange gain or loss and monetary position gain or loss. For 1995, interest expense of Ps 548.1 million represented an increase of 122% over 1994. This increase reflects the MCII acquisition (the "MCII Acquisition") in which the debt of MCII was assumed and the issuance by Grupo Dina of 8% Convertible Subordinated Debentures due 2004 (the "Debentures") to finance a portion of the purchase of the MCII common stock (the "MCII Common Stock"). The 1995 loss on foreign exchange of Ps 363.1 million resulted from the continued devaluation of the Peso throughout 1995, compared to the exchange loss for 1994 of Ps 630.2 million. Net monetary position reflects the difference between monetary assets and liabilities at a point in time. Monetary assets and liabilities are those whose real purchasing power fluctuates with the general price-level index because they are fixed in terms of the monetary unit to be received or paid. Inflation diminishes the purchasing power of monetary assets, such as accounts receivable, and reduces the real value of monetary liabilities, such as accounts payable. A net monetary asset position results in losses in times of inflation and in gains in times of deflation. A net monetary liability position results in gains in times of inflation and in losses in times of deflation. During 1995, the Company had a gain of Ps 399.4 million from its monetary position, an increase over the Ps 53.9 million gain in 1994 as inflation was 52% in 1995 compared to 7.1% in 1994. The following table sets forth the change in the percentage of the NCPI for each of the years ended for which financial information is presented: Period Ended Inflation December 31, 1992................... 11.9% December 31, 1993................... 8.0% December 31, 1994................... 7.1% December 31, 1995................... 52.0% Tax and profit sharing provisions. Income and asset taxes and employee profit sharing expenses totaled Ps 185.5 million for 1995 compared to Ps 93.5 million in 1994. Income tax expense, net of tax benefits utilized, was Ps 146.2 million for 1995, an increase from Ps 32.8 million for 1994. The income tax provision is determined on the basis of separate taxable income of each company and, for 1995, primarily reflects MCII income tax expense of Ps 132.0 million. The provision for asset tax in Mexico is a type of minimum tax based on the average of the majority of restated assets less certain liabilities, as defined by law, and is paid only to the extent it exceeds net income tax expense. The 1995 asset tax, net of refundable taxes, decreased to a Ps 20.3 million expense from a Ps 40.2 million expense in 1994. Equity of affiliated companies. The equity in results of affiliated companies represents the Company's share of 1995 and 1994 earnings in its finance affiliate and in Grupo Dina distributors. Other charges. In 1995, Grupo Dina charged to expense certain provisions for uncollectible accounts, obsolete inventories and severance costs in the amount of Ps 86,746 million, Ps 11,485 million and Ps 3,072 million, respectively, compared to Ps 117,223 million, Ps 122,112 million and Ps 84,000 million for such charges in 1994. The Ps 117,223 million charge for obsolete inventories in 1994 is attributable to management's decision to discontinue certain models that year. The provisions for uncollectible accounts in 1994 and 1995 reflect the fact that some of Grupo Dina's major customers were experiencing financial difficulties because of the economic crisis in Mexico. As a result of such economic crisis and the ensuing reduction in demand for Grupo Dina products, approximately 900 employees were laid off and corresponding severance payments charged to expense. Management of the company does not believe these charges are indicative of future anticipated trends in the collectibility of accounts receivable, obsolescence of inventories and severance costs, however, no assurance can be made that similar charges will not be incurred in the future. 1994 COMPARED TO 1993 General. The Company reported a net loss for 1994 of Ps 1,015.2 million compared to net income of Ps 465.7 million for 1993. The 1994 net loss included a total of Ps 630.2 million net foreign exchange loss resulting from the devaluation of the Peso during 1994. The net loss also included Ps 323.3 million in other charges resulting from corporate downsizing and from special provisions for certain losses on inventories and receivables. Net sales during 1994 were Ps 4,327.5 million, a decrease of approximately 17.4% compared to 1993, and the gross profit margin dropped to 18.4% in 1994 compared to 21.1% in 1993. Operating expenses as a percentage of net sales increased from 10.7% in 1993 to 17.7% in 1994. The following discussion of the Company's principal segments are based in part on Note 25 to the Consolidated Financial Statements and excludes the effects of the nonrecurring charges as discussed above. TRUCK SEGMENT Net sales. Net sales for the truck segment in 1994 totaled Ps 2,625.2 million, a decrease of Ps 342.5 million or 11.5% from 1993 levels. The decline in truck sales reflects a 7.9% decrease in units sold from 11,365 units in 1993 to 10,463 units in 1994. This decline is attributable to the troubled economic environment in Mexico which precluded any growth in the industry during 1994, as well as increased competition from Ford Motor Company's entrance into the market. Nevertheless, the Company's truck segment continued to lead the market with a 35% market share in 1994. Gross profit margins. Gross profit margins on trucks decreased from 20.4% in 1993 to 17.6% in 1994 reflecting higher fixed costs per unit as a result of lower volumes. Operating income. Operating income for the truck segment totaled Ps 50.2 million, excluding the segment's portion of nonrecurring charges, or 1.9% of net sales for the segment in 1994, compared to the prior year's Ps 274.5 million, or 9.2% of net sales. This decline resulted from the decrease in truck margins and sales, partially offset by lower selling and administrative expenses. COACH SEGMENT The coach segment has operations in Mexico and, beginning in August 1994 upon the acquisition of MCII, in the U.S. and Canada. Due to the impact of the operations of MCII Holdings on the Company as a whole and on the coach segment in particular, the following discussion of the coach segment is presented in two parts as follows: 1) an overview of the operating results as presented in the segment information contained in Note 25 to the financial statements, and 2) a detailed discussion of Mexican and U.S./Canada coach operations on a pro forma basis reflecting full-year presentations of MCII operations. OVERVIEW. Net sales for the coach segment were Ps 1,670.7 million in 1994, a decrease of Ps 572.5 million, or 25.5% from the prior year. The 1994 decline in coach sales reflects a 77% decrease in sales in Mexico, partially offset by the acquisition of MCII with sales of Ps 1,206.2 million for the five months ended December 31, 1994. Gross profit margins on coaches decreased from 20.2% in 1993 to 14.4% in 1994. This decline reflects the pressures on margins in Mexico during 1994, partially offset by gross margin contributed by MCII for the five months ended December 31, 1994. The coach segment had operating income of Ps 25.1 million, excluding nonrecurring charges, compared to the prior year's operating income of Ps 293.9 million. The 1994 results are comprised of a net operating loss on the Mexican operation of Ps 30.3 million, partially offset by operating earnings at MCII for the five months ended December 1994 of Ps 55.4 million. EXPANDED DISCUSSION OF COACH SEGMENT USING PRO FORMA DATA. Due to the impact of the operations of MCII, selected operating results for the Company's coach segment are presented on a pro forma basis giving effect to the MCII Acquisition as if it occurred January 1, 1993. This presentation allows a more meaningful comparison of the ongoing operations of the coach segment in both geographic areas of Mexico and the U.S./Canada. Moreover, since the structure of the operations of MCII continue as they were before the acquisition, management believes that the pro forma data is meaningful in understanding future operations. PRO FORMA TABLE FOR COACH SEGMENT FOR 1994 AND 1993 AS IF MCII ACQUISITION OCCURRED JANUARY 1, 1993: 1994 1993 --------- -------- (In millions of Ps) Net sales Ps 3,311.4 Ps 4,546.2 Gross profit 623.4 975.2 Operating expense 476.4 443.7 Operating Income, excluding Nonrecurring Charges 147.0 531.6 Net sales. As depicted in the above table, net sales for the coach segment in 1994 totaled Ps 3,311.4 million, a decrease of Ps 1,234.8 million, or 27.2%, from 1993. Net sales of the Mexican operation declined 79%, to Ps 475.5 million, as intercity coaches and transit buses sold in Mexico decreased from 1,818 units in 1993 to 373 in 1994. This decline was a result of a contraction in the Mexican coach market which was prompted by a softening of the economy and by a consolidation of coach operators beginning in late 1993. Sales of the entire Mexican industry in 1994 declined 47% from 1993 and 40% compared to 1992. During 1994, the Company's position within the Mexican market declined to a market share of 16% from 42% in 1993. The consolidation of operators had a significant impact on this market-share decline. The Company's principal customer group, Estrella Blanca and its affiliates who represented approximately 69% of the Company's coach sales in Mexico in 1993, acquired four smaller operators and then combined its coach lines and restructured route coverage. During 1994, sales to this customer comprised 38% of the Company's coach sales in Mexico. MCII sales on a pro forma basis for the year-ended 1994 totaled Ps 2,835.8 million reflecting an increase of 23.1%, compared to Ps 2,303.0 million for 1993. This increase was driven primarily by the sale of 1,059 new units, 162 (18%) more than 1993, and, to a lesser extent, by an improved sales mix of higher-priced models. Gross profit margins. The coach gross profit margins presented in the table above indicate a decrease from a 21.5% margin in 1993 to 18.8% in 1994. The Mexican operation's gross margin was 3.7% in 1994, compared to 21.3% for the prior year. The margin decline reflects the 1994 contraction in the Mexican coach market which resulted in higher per unit overhead costs due to lower production volume. MCII margins remained steady at 21.8% for both 1994 and 1993. Operating income (loss). The coach segment operating income, excluding nonrecurring charges, of Ps 147.0 million is comprised of net operating losses of the Mexican operation of Ps 122.6 million offset by operating income of the MCII operation for the year-ended 1994 of Ps 269.6 million. The operating losses in Mexico resulted from the contracted market for coaches. The Mexican coach operation operating loss of Ps 122.6 million, compared to income of Ps 234.4 million for 1993, resulted from the decline in coach margins and sales, partially offset by lower selling and administrative expenses which declined by 25.3% from 1993 to 1994. Operating income attributable to the MCII operations increased slightly from Ps 240.8 million in 1993 to Ps 269.6 million in 1994, reflecting an increase in sales, partially offset by higher selling and administrative expenses which resulted primarily from the increase in production levels, and business improvement and development costs. Comprehensive financing results. Net income includes the effects of comprehensive result of financing, of provisions for certain taxes and employee profit sharing, and of the equity in earnings of associated companies. During 1994, the net loss of Ps 1,015.2 million included net costs of financing of Ps 682.4 million, net expense from taxes and profit sharing of Ps 93.5 million and Ps 4.8 million in earnings of associated companies accounted for under the equity method. As is customary under Mexican GAAP, four items are presented within comprehensive result of financing: interest income, interest expense, foreign exchange gain or loss and monetary position gain or loss. For 1994, interest expense of Ps 247.2 million represented an increase of Ps 113.8 million, or 85%, over 1993. This increase reflects the MCII Acquisition in which the debt of MCII was assumed and the issuance by Grupo Dina of Debentures to finance a portion of the purchase of MCII Common Stock. The 1994 loss on foreign exchange of Ps 630.2 million resulted from the devaluation of the Peso in December 1994, compared to the slight exchange gain for 1993 of Ps 4.7 million. During 1994, the Company recorded a gain of Ps 53.9 million from its monetary position, an increase over the Ps 45.6 million gain in 1993. Tax and profit sharing provisions. Income and asset taxes and employee profit sharing expenses totaled Ps 93.5 million for 1994 compared to Ps 134.6 million in 1993. Income tax expense, net of tax benefits utilized, was Ps 32.8 million for 1994, a decrease from the Ps 108.1 million for 1993. The income tax provision is determined on the basis of separate taxable income of each company and, for 1994, primarily reflects MCII income tax expense for the five months since its acquisition, of Ps 32.8 million. The provision for asset tax in Mexico is a type of minimum tax based on the average of the majority of restated assets less certain liabilities, as defined by law, and is paid only to the extent it exceeds net income tax expense. The 1994 asset tax, net of refundable taxes, increased to a Ps 40.2 million expense from a Ps 7.5 million benefit in 1993, reflecting the lack of income tax expense in Mexico after the utilization of loss carryforwards. Employee profit sharing expense is based on taxable income (loss) of each of the Mexican subsidiaries before reductions from utilization of tax benefits and, due to Mexican subsidiaries with taxable income, the Company had a Ps 13.6 million expense for employee profit sharing even though the Company on a consolidated basis reported a net loss for 1994. Equity of affiliated companies. The equity in results of affiliated companies represents the Company's share of 1994 earnings in its finance affiliate and in Grupo Dina distributors. LIQUIDITY AND CAPITAL RESOURCES The Peso's devaluation since December 1994 and the resulting contraction of the Mexican economy during 1995 led to sharp decreases within Mexico in the demand for trucks and coaches including those of the Company. The sharp reduction in sales has led to liquidity shortfalls for Grupo Dina. The Peso devaluation has also made access to the United States and international capital markets, which had been a source of liquidity in the past, extremely difficult. During 1995, the major source of cash and cash equivalents was the collection of sales and accounts receivable at the beginning of the year. These cash and cash equivalents were used to finance Grupo Dina's operations throughout 1995. In 1995, Grupo Dina experienced difficulties collecting on its accounts receivable from Estrella Blanca, Tres Estrellas and their respective licensees. Accordingly, in January 1996, Grupo Dina restructured all of its accounts receivable from Estrella Blanca, Tres Estrellas and their respective licensees through global restructuring agreements (the "Restructuring Agreements"). Pursuant to the Restructuring Agreements, all balances payable to Grupo Dina were renegotiated using as a reference "Units of Investment" ("UDIS") which value changes based on the Mexican inflation rate. The principal balances, increased for inflation, will be payable in equal monthly installments over six years beginning July 1, 1997. These balances bear interest at a rate of 10% over the monthly reference value of UDIS payable beginning February 29, 1996. On July 31, 1996, Grupo Dina sold the accounts receivable under the Restructuring Agreements, which had a total value of Ps 306.9 million, to AF Dina, a leasing company which provides financing in connection with sales of Grupo Dina products. The debt resulting from this sale was capitalized in AF Dina, which is currently negotiating the repayment of its debt with several Mexican banks using these accounts receivable. Grupo Dina has recorded a reserve in the amount of Ps 43.9 million for any loss that may result from these negotiations. As of July 31, 1996, Grupo Dina owned 92.89% of the equity of AF Dina. Although the maximum ownership in finance companies by non-financial companies permitted under Mexican law is 10%, Grupo Dina has obtained authorization from the corresponding Mexican authorities to maintain equity ownership levels in excess of the legal limit for six months from July 31, 1996. During such interim period, Grupo Dina will endeavor to complete a transaction whereby MCI Acceptance Corporation, an indirect subsidiary of MCII Holdings, will acquire the shares of AF Dina owned by Grupo Dina. In the event that such transaction is not completed in such time period, Grupo Dina will be required to reduce its equity ownership level in AF Dina to no more than 10%. See "Business of Grupo Dina -- Business Strategy of Grupo Dina -- Sales Financing" and "Certain Transactions." Grupo Dina has mitigated the impact of liquidity shortfalls in several important ways. First, Grupo Dina has undertaken severe cost reduction measures, pursuant to its cost reduction strategy, including worker lay-offs. See "Business of Grupo Dina -- Strategy." Second, Grupo Dina intends to minimize its capital expenditures in Mexico for the foreseeable future, other than its development of engine and cabin assembly technology. Because of Grupo Dina's major investment in the modernization of its plant and equipment in recent years, however, the decision to minimize capital expenditures is not expected to negatively impact Grupo Dina's ability to remain competitive. Third, Grupo Dina is in the process of completing arrangements with a Mexican bank to provide a US$35 million working capital facility of which up to US$20 million will be available to finance exports by Grupo Dina to the United States and of which up to US$15 million will be available to finance exports to South America. Grupo Dina has also created additional liquidity through a US$6.6 million loan obtained in January 1996 which was initially repayable in July 1996 and whose maturity has been extended to February 1997. Net working capital (current assets less current liabilities) at June 30, 1996 was Ps 1,607.8 million compared to Ps 2,333.9 million at December 31, 1995, a decrease of 31%. This decrease in net working capital resulted primarily from a Ps 585.1 million decrease in the level of inventory and a Ps 114.5 million decrease in the net investment in discontinued operations from December 31, 1995 to June 30, 1996. At December 31, 1995, net working capital was Ps 2,333.9 million compared to Ps 2,871.9 million at December 31, 1994. This 19% decrease in net working capital resulted primarily from a Ps 309.0 million decrease in the level of inventory, a Ps 227.1 million decrease in accounts receivable and the Ps 207.9 million decrease in the net investment in discontinued operations from 1994 to 1995. At June 30, 1996, the current ratio (current assets to current liabilities) was 2.3:1. The current ratio was 3.1:1 at year end 1995 compared to 2.7:1 at year end 1994. Excluding inventory and discontinued operations from current assets and current liabilities presents an acid test ratio as of June 30, 1996 of 0.79:1, which indicates the Company's ability to pay off short-term obligations without relying on the sale of inventories or the liquidation of the discontinued operations. At year-end 1995, the acid test ratio was 1.2:1. Cash flows continue to be constrained by the economic environment in Mexico and thus the Company is negotiating with suppliers to extend terms of payments. The Company has granted certain concessions to its customers. In limited cases in the truck segment, the Company has extended the collection period for receivables from a range of 30 to 60 days to 60 to 180 days. While the time frame for collection may be over longer periods and may place additional cash flow pressures on the Company, management believes that the Company will be able to collect on these accounts. Furthermore, management has established loss reserves for these amounts which it believes to be adequate. Management regularly reviews and forecasts cash flow requirements. For 1996, due to the severe decrease in demand for trucks and coaches in the Mexican market, management anticipates having an operating loss in Mexico. The cash needs due to this expected operating loss may be funded from various sources, including reductions in working capital investments such as inventories and receivables. In 1995, the Company consolidated substantially all functions into its Sahagun facilities. As part of this process, the Mexico City corporate office building was sold in October for approximately US$5 million. Only certain administrative functions continue to be conducted in Mexico City. All other operations are conducted at the Sahagun facility. All other operations are conducted at the Sahagun facility. As of year-end 1995, the Company had available in the U.S. short-term lines of credit of Ps 359.9 million while none were available in Mexico. Because of the current economic situation's impact on Mexican banks, the extension of these short-term lines of credit in Mexico is restricted. While Grupo Dina received cash and other asset dividends from MCII totaling US$40 million in 1994 and none in 1995 and anticipates receiving up to US$30 million in dividends during 1996 and early 1997 (including US$20 million in dividends which have been paid as of the date of this Prospectus) future dividends or loans to Grupo Dina are constrained by loan covenants of MCII Holdings and MCII, as outlined below. Most of the Company's operations involve the assembly of components that are manufactured by others. Accordingly, large capital expenditures normally associated with heavy equipment manufacturing are not required of the Company. As of June 30, 1996, the Company did not have any material commitments for capital expenditures. The Company currently expects capital expenditures in Mexico of US$6 million in 1996, of which US$2.2 million has been spent through August 1996, and US$10 million in 1997 for plant and systems reengineering and production start up of new cabin models. Capital expenditures in the U.S. are expected to range from US$15 to US$25 million annually during the next two years for plant and systems reengineering and production start up of new coach models. Anticipated capital expenditures in Mexico will be contingent upon the timing and extent of a recovery in the Mexican economy. For capital resources, the Company has customarily accessed both the debt and equity markets. In August 1994, in conjunction with the MCII Acquisition, Grupo Dina issued no par Series L shares, listed on the NYSE in the form of Series L ADSs, and the Debentures, which are convertible into Series L ADSs. The Series L ADSs and the Debentures were issued in exchange for 51% and 49%, respectively, of the MCII Common Stock. Grupo Dina's ratio of long-term debt to total capital (long-term debt plus total stockholders equity, including minority interest) was 68.8%, 70.8%, and 68.2% at June 30, 1996, year-end 1995 and year-end 1994, respectively. The decrease in the ratio of long-term debt to total capital from year-end 1995 to June 30, 1996 is attributable to the decrease in MCII's long-term debt during such period. The increase in such ratio from 1994 to 1995 is mainly due to the devaluation of the Peso since the total long-term debt is denominated in dollars. The long-term debt balance at December 31, 1994 of Ps 4.4 billion is an increase of Ps 3.5 billion over year end 1993. This increase reflects the issuance of the Debentures and the long-term debt of MCII as well as the revaluation of the Eurobonds and the Debentures to reflect the Peso devaluation. The long-term debt used by MCII in its operations is comprised of a bank credit facility and term notes payable. In October 1996, MCII established a new bank credit facility to replace its then existing bank credit facility. While such facility is unsecured, it is guaranteed by certain MCII subsidiaries and provides funding on a revolving basis through September 1999. The facility will be used to provide working capital financing, to issue standby letters of credit (up to US$35 million) and to fund other general corporate needs, including a US$30 million dividend to be paid to MCII Holdings, which will in turn pay dividends in the same amount to Grupo Dina (of which US$20 million had been paid as of the date of this Prospectus). The credit facility contains various covenants including, among others, minimum net worth, leverage and fixed charges coverage ratios. Furthermore, the new credit facility provides for various events of default including an event of default that would be triggered by the involuntary termination of certain executive officers of MCII Holdings and its subsidiaries. In November 1994, MCII issued term notes payable as private placement debt totaling US$125 million. While these notes are unsecured debt, they are guaranteed by certain MCII subsidiaries and contain various covenants, including, among others, limitations on dividend payments, investments, sales of assets, transactions with affiliates, and minimum net worth, leverage and current ratio requirements. Loan covenants of MCII result in constraints on dividends, loans and other cash flows that otherwise could be extended to the Company, thereby restricting the Company's ability to access funds from MCII. The principal of the Notes (together with all interest accrued and unpaid thereon) may be accelerated upon certain events of default, including, among others, the failure to pay principal and interest due on the Notes, the failure to comply with certain of the covenants or agreements in the Indenture if such failure continues beyond the applicable notice period, the failure by MCII Holdings or any of its subsidiaries to pay certain debts when due within the applicable grace period or the acceleration of such debt, a default under the indenture governing the Debentures or the fiscal agency agreement governing the Eurobonds, and the occurrence of a Change of Control (as defined below). The Notes are redeemable at the option of Grupo Dina at any time on or after November 15, 1998 at 100% of the principal amount thereof plus accrued and unpaid interest. Upon a Change of Control, holders of New Notes will have the right to require Grupo Dina and MCII Holdings to repurchase all or a portion of their Notes at a purchase price equal to the Accreted Value thereof, if on or prior to November 15, 1998, and equal to the aggregate principal amount thereof, plus accrued and unpaid interest, if any, thereafter. See "Description of the Notes." The Indenture includes covenants which place restrictions on MCII Holdings' ability to, among other things, (i) incur debt; (ii) issue preferred stock; (iii) make certain payments, including MCII Holdings' ability to pay dividends on its capital stock; (iv) incur liens; (v) dispose of the capital stock of MCII and (vi) consolidate or merge with any person, or sell, lease, convey, transfer or otherwise dispose of all or substantially all of its assets, or acquire all or substantially all of the assets or capital stock of any other person. In the case of Grupo Dina, the covenants under the Indenture restrict its ability to, among other things, (i) make certain payments, including Grupo Dina's ability to pay dividends on its capital stock; (ii) incur liens and (iii) sell, lease, convey, transfer or otherwise dispose of its securities, property or other assets. MCII Holdings' obligation under the New Notes is secured by, among other things, a pledge of the shares it holds of MCII. See "Description of the Notes." The principal of the Debentures (together with all interest accrued and unpaid thereon) may be accelerated upon certain events of default, including, among others, the failure to pay principal and interest due on the Debentures, the failure in the performance of any other covenant of Grupo Dina in the related indenture beyond the applicable notice period and the default under certain other types of indebtedness of Grupo Dina. In addition, such indenture includes certain restrictions on Grupo Dina's ability to consolidate with, or merge into, or sell, lease, transfer or convey its properties or assets substantially as an entirety to another person. Under certain circumstances, Grupo Dina may redeem the Debentures, in whole or in part, at defined redemption prices. At June 30, 1996, the Company was in compliance with its debt covenants. While management believes the Company's cash flows and borrowing capacity will be sufficient to satisfy operating and debt service needs for the near-term, these sources and operating needs could also be impacted negatively by a prolonged downturn in the Mexican economy. Moreover, the Company's continued compliance with debt covenants, its access to debt and equity markets and the declaration of future dividends also may be impacted by any downturn and management's response thereto. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS For U.S. GAAP financial statements, Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," is required in 1996. SFAS No. 121 requires that long-lived assets be reviewed for impairment whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable. If the sum of the expected future cash flows (undiscounted and without interest charges) from an asset to be held and used in operations is less than the carrying value of the assets, an impairment loss must be recognized in the amount of the difference between the carrying value and the fair value. Assets to be disposed of must be valued at the lower of carrying value or fair value less cost to sell. In management's opinion, SFAS No. 121 has not had a material impact on the Company's financial position under U.S. GAAP. IMPACT OF GOVERNMENTAL POLICIES In addition to the discussion relating to the Peso devaluation presented above, the Mexican government will continue to have a significant impact on the Company as a result of any fiscal or political changes which it might implement. Now that NAFTA has been implemented, and assuming a recovery from the current economic recession, management expects that cross-border trade and tourism between Mexico and the U.S. will steadily increase. This trend should generate additional truck sales in Mexico as Mexican truck operators seek to compete with their U.S. and Canadian counterparts by, among other strategies, upgrading their equipment and as U.S. and Canadian truck operators, operating in Mexico through joint ventures, invest in vehicles especially adapted to Mexican road conditions. However, management expects competition to increase as U.S. automakers, with a presence in the Mexican automobile market may also enter the truck market. Sales of intercity coaches may also be favorably impacted by increased cross-border tourism. CONTINGENCIES MCII Holdings is in the process of obtaining information in order to quantify any potential liability related to certain U.S. and Canadian tax contingencies. The time frame for ultimate resolution of this matter is uncertain; however, based on information currently available, management believes that any resulting liability will not be material to the Company's financial condition or results of operations. SELECTED FINANCIAL DATA OF MCII HOLDINGS MCII Holdings was incorporated in connection with the issuance of the Old Notes and carries out its operations through MCII and MCII's subsidiaries. MCII Holdings was formed for the purpose of holding MCII as its wholly owned subsidiary. On May 28, 1996, Grupo Dina transferred to Holdings all 100 shares of MCII, US$.01 par value common stock, in exchange for which MCII Holdings issued to Grupo Dina all 1,000 shares of its US$.01 par value common stock. As a result of this exchange between entities under common control, the transaction was accounted for at historical cost in a manner similar to that in a pooling of interests and, therefore, all prior financial statements presented have been restated as if the exchange took place at the beginning of such periods. The following selected consolidated financial data as of and for the twelve months ended December 31, 1991, 1992, 1993, the seven months ended July 31, 1994, the five months ended December 31, 1994 and the twelve months ended December 31, 1995 were derived from the audited financial statements of MCII Holdings. The selected consolidated financial data as of June 30, 1996 and for the six months ended June 30, 1995 and 1996 has been derived from the unaudited consolidated financial statements of MCII Holdings. The unaudited financial statements for the six months ended June 30, 1995 and 1996 include all adjustments, consisting of only normal recurring adjustments, that management considers necessary for fair presentation of the financial position and results of operations for the periods then ended. Results of operations for the six months ended June 30, 1996 are not necessarily indicative of results which may be expected for the entire year. The Dial Corp. ("Dial") sold MCII pursuant to an initial public offering on August 12, 1993. As a result, for periods prior to August 12, 1993, the summary consolidated financial data of MCII Holdings set forth below represent the combined operating results and activities of Dial's transportation manufacturing and replacement parts segment now conducted by MCII Holdings, excluding the Canadian transit bus manufacturing business formerly conducted by Dial that is not owned by MCII Holdings. In accordance with U.S. GAAP, the assets and liabilities of the transportation manufacturing and replacement parts business have been reflected in the consolidated financial statements of MCII Holdings on the basis of Dial's historical costs. Operating results and activities subsequent to August 12, 1993 mean the consolidated results and activities of MCII Holdings and its subsidiaries. On August 8, 1994, Grupo Dina acquired all of the issued and outstanding common stock of MCII (the "Merger"). The Merger was accounted for as a purchase in accordance with Accounting Principles Board Opinion No. 16 and therefore, the assets and liabilities of MCII were stated at their estimated fair values as of the acquisition date ("purchase accounting"). The excess of the consideration paid by Grupo Dina over the estimated fair value of the net assets acquired was recorded as goodwill in MCII's financial statements. As a result of the application of purchase accounting, the financial statements before and after the Merger may not be comparable in all material respects. For financial reporting purposes, the Merger was accounted for effective August 1, 1994. Therefore, all financial information for periods prior to August 1, 1994, is labeled as "Predecessor." The following selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations of MCII Holdings" and the consolidated financial statements of MCII Holdings and notes thereto included elsewhere in this Prospectus.
Predecessor Year ended December 31, Six Months Ended Seven Five Months Months Year Ended Ended Ended July December December June June 31, 31, 31, 30, 30, 1991 1992 1993 1994 1994 1995 1995 1996 (In millions, except number of new coaches delivered) Income Statement Information: Revenues: Sales..................... US$311.4 US$337.0 US$394.1 US$271.8 US$191.8 US$509.9 US$267.3 US$316.1 Finance income............ 8.0 7.0 4.9 1.3 2.6 6.4 2.7 3.7 319.4 344.0 399.0 273.1 194.4 516.3 270.0 319.8 Operating costs and expenses: Cost of sales (exclusive of items shown separately below)......... 237.5 253.6 303.1 203.5 151.6 397.4 203.8 249.1 Provision for relocation of manufacturing facilities................ 9.6 Depreciation and amortization.............. 4.6 5.0 4.5 3.3 5.8 14.6 7.0 8.6 Interest expense, finance operations................ 3.4 2.5 .8 0.3 0.7 2.7 1.1 1.6 Research and development expenses.................. 2.5 2.3 1.4 1.3 0.5 2.9 1.4 3.4 Selling, general and administrative expenses..... 34.9 38.0 43.9 27.8 26.6 60.4 28.3 28.4 Merger related expenses... 11.3 292.5 301.4 353.7 247.5 185.2 478.0 241.6 291.1 Operating income.......... 26.9 42.6 45.3 25.6 9.2 38.3 28.4 28.7 Other costs and expenses: Interest expense.......... .8 .7 1.5 1.8 2.5 13.4 6.4 6.7 Other (income)............ (1.7) (1.4) (0.2) (0.2) (0.5) (0.3) (0.5) Gain from sale of marketable securities..... (10.5) Minority interests........ 1.8 2.4 2.0 0.4 2.6 1.4 2.1 2.0 2.3 2.4 6.1 6.2 Income before income taxes..................... 24.3 41.2 43.2 23.6 6.9 35.9 22.3 22.5 Income taxes.............. 10.0 15.7 16.6 11.5 4.0 17.6 9.9 10.0 Income from continuing operations................ 14.3 25.5 26.6 12.1 2.9 18.3 12.4 12.5 Discontinued operations... (30.2) (46.6) (60.4) (3.5) (5.0) Income (loss) before cumulative effect of change in accounting principle................. (15.9) (21.1) (33.8) 8.6 2.9 18.3 12.4 7.5 Cumulative effect of change in accounting principle(1).............. (2.9) Net income (loss) US$(15.9) US$(24.0) US$(33.8) US$8.6 US$2.9 US$18.3 US$12.4 US$7.5 ========= ========= ======== ====== ====== ======= ======= ====== Number of New Coaches Delivered................. 602 776 897 628 431 1,169 641 784
Predecessor December 31, December June 30, 31, 1991 1992 1993 1994 1995 1995 1996 ---- ---- ---- ---- ---- ---- ---- Balance Sheet Information: Total assets.......... US$279.3 US$322.7 US$286.0 US$558.9 US$614.0 US$581.1 US$614.0 1 Working capital....... 28.0 84.7 70.3 103.3 156.7 116.0 128.3 Long-term debt, including current portion........ 2.6 .8 90.5 195.0 217.8 178.9 195.7 Stockholders' equity(2).. 158.3 235.9 98.4 272.8 294.8 298.5 302.4 - --------------------- (1) Initial application of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions." 2) Stockholders' equity for periods prior to August 1993 represent Dial's investment and advances in the transportation, manufacturing and replacement parts segment now conducted by MCII Holdings.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF MCII HOLDINGS The following discussion should be read in conjunction with the historical financial statements of MCII Holdings and notes thereto included elsewhere in this Prospectus and the information set forth under "Selected Historical Consolidated Financial Data of MCII Holdings." OVERVIEW MCII Holdings, through its wholly owned subsidiary, MCII, operates in two principal business segments--coach manufacturing and support, and replacement parts. MCII's coach manufacturing and support segment designs, manufactures, assembles and markets new coaches in the United States and Canada, and supports its product offerings with new and used coach dealership marketing services and, on a limited basis, coach financing. During 1995, MCII Holdings' coach manufacturing and support segment also began purchasing from Grupo Dina the Viaggio, an intercity coach manufactured by Grupo Dina, for resale in the United States. MCII Holdings' replacement parts distribution operation provides OEM-quality replacement parts for intercity coaches and transit buses in the United States and Canada which were manufactured by MCII Holdings or, in the case of transit buses, MCII Holdings' predecessor or successors. MCII Holdings' replacement parts operation also provides selected replacement parts for non-MCII Holdings manufactured coaches, transit buses, school buses, and diesel engines. MCII's coach manufacturing business is highly cyclical, while its replacement parts distribution business has certain counter cyclical characteristics. During times of general economic weakness, many coach manufacturing customers may postpone fleet replacement programs and, in some cases, reduce the size of their fleets. As economic recovery occurs, these customers tend to accelerate fleet replacement programs and, in some cases, increase the size of their fleets. The replacement parts business is affected by somewhat different factors than the coach manufacturing business. Deferrals of new coach or transit bus purchases can have a favorable impact on replacement parts sales as the resultant older fleet requires increased maintenance and more parts. Reduced usage of an aging fleet and overall fleet downsizing, however, may cause replacement parts sales to decline. On August 12, 1993, Dial sold, through an initial public offering, 20 million shares of MCII pursuant to an underwriting agreement dated August 5, 1993. Dial's transportation manufacturing and service parts subsidiaries were transferred to MCII immediately after and in connection with the public offering of MCII shares. In November 1993, the Board of Directors approved a plan of disposition of the transit manufacturing segment. This decision was based upon management's review of market activities, business prospects, competitive bidding, evaluation of backlogs, economic value analysis, and opportunities for cost reduction, which indicated that the transit manufacturing business may not achieve acceptable profitability in the foreseeable future. As a result of this decision, a charge to discontinued operations of US$87.2 million (US$53.6 million after-tax) was recorded in the third quarter of 1993 to reflect the estimated loss on disposal of the transit manufacturing segment. During 1994 and 1996, based upon further analysis of the estimated loss to be incurred on the disposal, additional provisions of US$5.4 million (US$3.5 million after-tax) and US$8.1 million (US$5.0 million after-tax), respectively, were recorded. In November 1994, MCII Holdings sold the fixed assets and certain of the inventory of the transit manufacturing business for aggregate consideration of US$14.9 million, consisting of US$10.0 million in cash and a US$4.9 million note receivable. As part of the transaction, the purchaser agreed not to distribute parts for transit buses previously made by MCII Holdings for a period of five years. MCII Holdings retained all other assets and remaining liabilities of the transit manufacturing business, consisting primarily of accounts receivable, inventory, warranty reserves, and reserves for employee benefits. On November 4, 1993, the Board of Directors authorized an offer by MCII (the "MCIL Offer") to acquire the approximately 2.6 million common shares (31% of the total outstanding common shares) of MCIL that MCII did not own, at a price of C$16.00 per share. MCII subsequently agreed to make an additional payment of C$1.00 per share upon successful completion of the Merger. The MCIL Offer closed on February 18, 1994, with over 92% of the publicly held stock being tendered to MCII. MCII exercised its statutory right to purchase the remaining publicly held stock and now owns 100% of MCIL (collectively the "MCIL Acquisition"). The acquisition was accounted for as a purchase and all outstanding assets and liabilities of MCIL were recorded at their estimated fair market value on the date of the acquisition. The excess of the purchase price over the fair value of net assets acquired was US$11.9 million and is recorded as goodwill, which is being amortized over 40 years using the straight line method. On August 8, 1994, Grupo Dina acquired all of the issued and outstanding common stock of MCII for aggregate consideration of US$311.6 million. The transaction was effected through the exchange of 54.2 million Series L shares of Grupo Dina for 51% of the outstanding shares of MCII and US$164.0 million of the Debentures for the remaining 49% of the outstanding shares. The Merger was accounted for as a purchase and "push-down accounting" was applied, with the result that purchase accounting adjustments were reflected in the financial statements of MCII and its subsidiaries. Application of push-down accounting resulted in an adjustment of all outstanding assets and liabilities of MCII to their estimated fair market value on the date of the acquisition. The excess of the consideration paid by Grupo Dina over the estimated fair value of the assets acquired was US$236.1 million and is recorded as goodwill, which is being amortized over 40 years using the straight line method. The application of push down accounting has resulted in an increase in depreciation expense due to the step-up in basis of property, plant and equipment, and an increase in amortization expense due to the creation of the goodwill. RESULTS OF OPERATIONS SECOND QUARTER 1996 COMPARED TO SECOND QUARTER 1995 General. Revenues for the quarter ended June 30, 1996 were US$177.8 million, an increase of 22.1% from US$145.6 million for 1995. The increase is due to increases in both the coach manufacturing and support segment and the replacement parts segment. The overall gross margin, defined as sales less cost of sales (exclusive of depreciation and amortization), as a percent of sales was 22.0% compared to 24.1% for the second quarter of 1995. Operating income was US$20.7 million in the second quarter of 1996 compared to US$17.8 million in 1995. The increase is primarily attributable to increased sales volume partially offset by the lower gross margin percentage, increased research and development expenses and depreciation and amortization expenses. Income from continuing operations was US$10.1 million, compared to US$8.1 million for the second quarter of 1995. Net income for the second quarter of 1996 was US$5.1 million and included an after-tax loss of US$5.0 million from discontinued operations which resulted from an adjustment to the estimated loss on the disposal of the transit manufacturing segment. Coach manufacturing and support. Coach manufacturing and support sales (excluding finance income) for the second quarter of 1996 increased 25.1% to US$137.2 million, reflecting sales of 416 new units (351 MCIs and 65 Viaggios), compared to US$109.7 million for the same period of 1995 which was driven by sales of 313 new units (295 MCIs and 18 Viaggios). In addition to the units sold, 55 units in 1996 and 59 units in 1995 were delivered to customers who have entered into operating leases with the Company and, as such, are not reflected in sales. Taking into account these units, new coach deliveries increased 26.6% from 372 to 471 units. The increase in unit deliveries is primarily due to increased deliveries to GLI, which received 130 units during the second quarter of 1996 compared to 62 units during the comparable period for 1995. Additionally, continuing customer acceptance has resulted in a large increase in deliveries of Viaggios following this product's introduction to the United States which occurred during the first half of 1995. In the second quarter of 1996, the gross margin percentage was 22.1% compared to 24.5% for the second quarter of 1995. The decrease in margin percentage reflects an increase in the volume of Viaggios sold, which sales produced a 12.7% margin for MCII, lower-margins realized on the resale of used units and sales of 75 lower-margin MC-12 units in the second quarter of 1996 compared to no such sales in 1995. Order backlog as of June 30, 1996 was 429 units, which included 96 units for GLI, compared to 280 units at June 30, 1995, which included 50 units for GLI. Replacement parts. Replacement parts revenues were US$40.6 million in the second quarter of 1996 compared to US$35.9 million in 1995. The 13.1% increase is primarily attributable to sales in the new diesel engine and school bus product lines, increased sales of remanufactured parts and sales promotion programs introduced in 1996. Gross margin percentage decreased to 21.7% in 1996 from 23.1% in 1995. The lower gross margins are primarily due to product mix, including remanufactured parts which have a lower margin, and promotional pricing. Depreciation and amortization. Depreciation and amortization expenses increased to US$4.4 million in the second quarter of 1996, an 18.9% increase over the US$3.7 million recorded in 1995. The increase is attributable to an increase in coaches held for lease and property, plant and equipment additions. Research and development. Research and development expenses increased to US$1.5 million, a 36% increase over the US$1.1 million recorded in 1995 reflecting increased expenditures for the new tour and charter coach model to be introduced in 1997. Selling, general and administrative expenses. Selling, general and administrative expenses remained relatively constant at US$13.4 million in the second quarter of 1996 compared to US$13.3 million in 1995. As a percentage of sales, selling, general and administrative expenses decreased to 7.6% from 9.2% in 1995. Interest expense. Interest expense was virtually unchanged at US$3.4 million in the second quarter of 1996 and US$3.5 million in the second quarter of 1995. Income taxes. MCII Holdings' effective income tax rates in the second quarter of 1996 and 1995, excluding non-deductible goodwill amortization, were comparable at 40.3% and 40.1% respectively. FIRST HALF 1996 COMPARED TO FIRST HALF 1995 General. Revenues for the six month period ended June 30, 1996 were US$319.8 million, an increase of 18.4% from US$270.0 million for 1995. The increase is due to increases in both the coach manufacturing and support segment and the replacement parts segment. The overall gross margin, defined as sales less cost of sales (exclusive of depreciation and amortization), as a percent of sales was 21.2% compared to 23.8% for the first six months of 1995. Operating income was US$28.8 million in the first six months of 1996 compared to US$28.4 million in 1995. The increase is primarily attributable to increased sales volume partially offset by the lower gross margin percentage, increased research and development expenses and depreciation and amortization expenses. Income from continuing operations was US$12.5 million, compared to US$12.4 million for the first six months of 1995. Net income for the first six months of 1996 was US$7.5 million and included an after-tax loss of US$5.0 million from discontinued operations which resulted from an adjustment to the estimated loss on the disposal of the transit manufacturing segment. Coach manufacturing and support. Coach manufacturing and support sales (excluding finance income) for the first six months of 1996 increased 19.8% to US$240.4 million, reflecting sales of 708 new units (609 MCIs and 99 Viaggios), compared to US$200.7 million for the same period of 1995 which was driven by sales of 580 new units (557 MCIs and 23 Viaggios). In addition to the units sold, 76 units in 1996 and 61 units in 1995 were delivered to customers who have entered into operating leases with the Company and, as such, are not reflected in sales. Taking into account these units, new coach deliveries increased 22.3% from 641 to 784 units. The increase in unit deliveries is primarily due to increased deliveries to GLI, which received 151 units during the first six months of 1996 compared to 62 units during the comparable period for 1995. Additionally, continuing customer acceptance has resulted in a large increase in deliveries of Viaggios following this product's introduction to the United States which occurred during the first half of 1995. In the first half of 1996, the gross margin percentage was 21.0% compared to 23.9% for the first half of 1995. The decrease in margin percentage reflects an increase in the volume of Viaggios sold, which sales produced a 10.5% margin for MCII, lower margins realized on the resale of used units and sales of 75 lower-margin MC-12 units in 1996 compared to no such sales in 1995. Replacement parts. Replacement parts revenues were US$79.4 million in the first half of 1996 compared to US$69.3 million in 1995. The 14.6% increase is primarily attributable to sales in the new diesel engine and school bus product lines, increased sales of remanufactured parts and sales promotion programs introduced in 1996. Gross margin percentage decreased to 21.7% in 1996 from 23.3% in 1995. The lower gross margins are primarily due to product mix, including remanufactured parts which have a lower margin, and promotional pricing. Depreciation and amortization. Depreciation and amortization expenses increased to US$8.6 million in the first half of 1996, a 22.9% increase over the US$7.0 million recorded in 1995. The increase is attributable to an increase in coaches held for lease and property, plant and equipment additions. Research and development. Research and development expenses increased to US$3.4 million, a US$2.0 million increase over the US$1.4 million recorded in 1995, reflecting increased expenditures for the new tour and charter coach model to be introduced in 1997. Selling, general and administrative expenses. Selling, general and administrative expenses remained relatively constant at US$28.4 million in the first half of 1996 compared to US$28.3 million in 1995. As a percentage of sales, selling, general and administrative expenses decreased to 9.0% from 10.6% in 1995. Interest expense. In the first half of 1996, interest expense increased slightly to US$6.7 million from US$6.4 million in 1995. The increase is primarily due to increased debt balances primarily to support higher levels of coaches held for lease. Income taxes. MCII Holdings' effective income tax rates in the first half of 1996 and 1995, excluding non-deductible goodwill amortization, were comparable at 40.7% and 40.6%, respectively. 1995 COMPARED TO 1994 General. Revenues for 1995 were US$516.3 million, up 10.4% from US$467.5 million for 1994. The increase is primarily attributable to an increase in new and used coach sales. The overall gross margin, defined as sales less cost of sales (exclusive of depreciation and amortization) as a percent of sales, was 22.1% for 1995 compared to 23.4% for 1994. Operating income was US$38.3 million and US$34.7 million in 1995 and 1994, respectively. Excluding merger related expenses and the additional depreciation and amortization which resulted from the Merger, operating income would have been US$44.7 million in 1995 compared to US$48.7 million in 1994. On an adjusted basis, the overall operating margin declined from 10.4% in 1994 to 8.7% in 1995. Income from continuing operations was US$18.3 million, up 22.0% from US$15.0 million during 1994. Income from continuing operations in 1995 included an after-tax gain from the sale of an investment in GLI common stock of US$6.9 million while 1994 included expenses of US$8.6 million after tax related to the Merger. Excluding these items, income from continuing operations would have been US$11.4 million and US$23.6 million for 1995 and 1994, respectively. Coach manufacturing and support. Coach manufacturing and support sales (excluding finance income) were US$369.4 million reflecting 1,119 new units sold (of which 112 units were Grupo Dina's Viaggio model) in 1995 compared to US$328.9 million based on 1,059 new units sold (of which none were Viaggio models) in 1994. This increase in sales was due to an increase in the average sales price of new coaches and a change in the mix of units sold as higher-priced 45-foot models comprised a larger percentage of units sold while lower-priced GLI models comprised a smaller percentage. GLI purchased 282 units in 1994 compared to 111 units in 1995. Also, in 1995 50 units were delivered to GLI under intermediate-term leases and, as such, these units were not included in sales for 1995. Including these 50 units, total new coach deliveries in 1995 were 1,169 units compared to 1,059 units for 1994. Gross margins decreased to 23.0% in 1995 from 23.7% in 1994. The decrease in gross margin percentage resulted primarily from an increase in sales of lower-margin units. Grupo Dina manufactured Viaggio units, which only produced a 6.6% margin for MCII as the manufacturing profit accrues to the benefit of Grupo Dina. Replacement parts. Replacement parts revenues increased by 4.3% to US$140.5 million in 1995 from US$134.7 million in 1994. The introduction of a line of diesel engine parts and increased school bus parts sales and sales to GLI contributed to the increase in replacements parts revenues. The increase in school bus parts sales is primarily attributable to the April 1995 acquisition of a school bus parts distribution company. Gross margin as a percent of revenues decreased to 23.2% in 1995 from 24.9% in the preceding year. The reduction in gross margin percentage primarily resulted from higher distribution costs in 1995 compared to 1994 reflecting an increase in capacity to accommodate anticipated growth from diesel engine and school bus parts sales. Depreciation and amortization. Depreciation and amortization increased from US$9.1 million during 1994 to US$14.6 million during 1995. The increase is due to the depreciation and amortization related to the revaluation of fixed assets and recognition of goodwill, which occurred due to the Merger with Grupo Dina. Research and development expenses. For 1995 research and development expenses were US$2.9 million, or US$1.2 million higher than 1994. The increase is due to higher spending in 1995 for the development of a new "tour and charter" model which management expects to introduce in early 1997. Selling, general and administrative expenses. Selling, general and administrative expenses increased to US$60.4 million for 1995 from US$54.4 million for 1994. During 1995, MCII experienced increased payroll and consulting expenses as a result of the introduction of the diesel engine and school bus parts lines and implementation of a new information system for use in new coach manufacturing. However, as a percentage of revenues, selling, general and administrative expenses in 1995 were consistent with 1994 at 11.7% and 11.6%, respectively. Interest expense. Interest expense for 1995 was US$13.4 million compared to US$4.3 million in the preceding year. The increase is a result of additional borrowings outstanding and a higher average interest rate during 1995 compared to 1994. Other income. For 1995, other income increased primarily as a result of the US$10.5 million gain on sale of an investment in GLI common stock. Income taxes. MCII Holdings' effective combined income tax rates, excluding the effect of non-deductible goodwill amortization, merger related costs in 1994, a lower Canadian capital gains rate and the tax effect of a foreign dividend received were 40.7% and 41.2% for 1995 and 1994, respectively. 1994 COMPARED TO 1993 General. MCII Holdings' revenues in 1994 were US$467.5 million, up 17.2% from US$399.0 million in the prior year. Both segments of the Company contributed to this increase, with coach manufacturing posting the strongest gains primarily due to shipments of 162 more units in 1994 compared with 1993. The gross margin percentage remained relatively constant at 23.4% and 23.1% in 1994 and 1993, respectively. Operating income decreased to US$34.7 million in 1994 from US$45.4 million in 1993. Excluding the effects of the Merger (merger related expenses and additional depreciation and amortization) and the MCIL Acquisition, operating income improved by US$4.9 million in 1994, an increase of 9.7% compared to 1993. The adjusted operating margin fell slightly to 10.6% in 1994 from 11.4% in 1993. Income from continuing operations was US$15.0 million, down 43.6% from US$26.6 million in 1993. However, excluding the effects of the Merger and the MCIL Acquisition, income from continuing operations increased US$0.6 million compared to 1993. The improvement in income from continuing operations primarily reflects stronger operating results which is partially offset by higher interest expense in 1994 and a one-time tax benefit of US$1.3 million in 1993. Net income for 1994 was US$11.5 million, compared to a US$33.8 million loss in 1993. Net income in 1994 includes a US$3.5 million provision (after tax) for the additional estimated losses to be incurred on the disposal of MCII Holdings' transit business. The 1993 net loss includes a US$53.6 million charge recognized upon discontinuance of the transit manufacturing segment as well as transit manufacturing operating losses of US$6.8 million. Coach manufacturing and support. Coach manufacturing and support sales (excluding finance income) increased 22.8% to US$328.9 million based on 1,059 new units delivered in 1994 from US$267.9 million based on 897 units delivered in the prior year. The sales improvement reflects stronger volume in new coach sales to independent operators which also results in a favorable mix of models with higher sales prices primarily due to the lower percentage of lower-cost GLI units, and stronger used coach volume. Gross margins were 23.7% and 22.0% in 1994 and 1993, respectively. The improvement reflects lower 1993 margins primarily resulting from higher engineering costs incurred on production start-up for the 45-foot coach model and as a result of increased warranty expense in 1993 due to difficulties with a then new cooling system, while margins were improved in 1994 primarily due to efficiencies achieved through higher line rates, partially offset by lower margins in the used and custom coach segments. Replacement parts. Replacement parts revenue improved US$8.5 million, or 6.7%, to US$134.7 million in 1994 compared with US$126.2 million in 1993. The improvement in revenues reflects volume increases of 9% and 14% to transit customers and GLI, respectively. Gross margins decreased slightly to 24.9% from 25.4% in 1993. Depreciation and amortization. Depreciation and amortization increased to US$9.1 million during 1994 from US$4.5 million during 1993. The increase is principally due to depreciation and amortization related to the revaluation of fixed assets and recognition of goodwill, which occurred as a result of the MCIL Acquisition and the Merger. Selling, general and administrative expenses. Selling, general and administrative expenses increased by US$10.5 million or 23.9% in 1994 from US$43.9 million in 1993. The increase results from higher revenues and additional costs incurred as a stand-alone company for a full year in 1994 compared with only five months in 1993. When viewed as a percentage of revenues, selling, general and administrative expenses remained relatively constant at 11.6% and 11.0% in 1994 and 1993, respectively. Merger related expenses. In connection with the Merger in 1994, MCII Holdings incurred US$11.3 million of Merger related expenses for the cash settlement of all outstanding stock options and the acceleration of vesting on all unvested restricted stock (US$6.8 million) and for professional fees, printing, travel and other costs related to the transaction (US$4.5 million). Interest expense. Interest expense was US$4.3 million and US$1.5 million in 1994 and 1993, respectively. The increase in interest expense results primarily from higher average external debt during 1994. Prior to the initial public offering of MCII in August 1993, Dial provided funding for MCII Holdings' operations and capital expenditures, and such Dial advances were reflected in the financial statements on an interest-free basis. Subsequent to the initial public offering, MCII has utilized external financing to meet its cash needs. Income taxes. MCII Holdings' effective combined income tax rates, excluding the effect of non-deductible goodwill amortization and Merger-related costs, as well as a one time deferred tax benefit of US$1.3 million resulting from a 1% increase in the U.S. corporate tax rate in 1993, were 41.2% and 41.4% for 1994 and 1993, respectively. SEASONALITY Generally, MCII Holdings' results of operations are somewhat seasonal, as quarterly sales and earnings in the intercity coach business have been stronger in the second quarter and weaker in the third quarter since operators have tended to request delivery just prior to their busiest travel season and not prior to non-peak seasons. In addition, MCII Holdings traditionally shuts down its plants in the third quarter for routine maintenance and employee vacations, thus reducing the number of production days in the quarter. The following table sets forth the condensed quarterly operating results of MCII Holdings. In the opinion of management, such quarterly information has been prepared on the same basis as MCII Holdings' annual audited consolidated financial statements and includes all adjustments consisting of normal recurring adjustments, necessary to present fairly the information for the periods when read in conjunction with the consolidated financial statements and notes thereto. The operating results for any one quarter are not necessarily indicative of the results to be achieved for a full year or any future quarter.
(In millions of Dollars) Mar 31, Jun 30, Sep 30, Dec 31, Mar 31, Jun 30, Sep 30, Dec 31, Mar 31 Jun 30, 1994 1994 1994(a) 1994 1995 1995 1995 1995 1996 1996 -------- -------- -------- --------- --------- ------- --------- --------- -------- ------- Revenues 105.9 132.7 110.1 118.7 124.4 145.6 96.6 149.7 142.1 177.7 Operating Income 12.1 22.1 (2.3) 2.9 10.6 17.8 1.4 8.5 8.1 20.6 Income From Continuing Operations 6.6 12.7 (4.1) (0.1) 4.2 8.1 (1.8) 7.8 2.4 10.1 Discontinued Operations (3.5) (5.0) Net Income (Loss) 6.6 12.7 (7.6) (0.1) 4.2 8.1 (1.8) 7.8 2.4 5.1
- ---------------------- (a) The unaudited data for the quarter ended September 30, 1994 includes the recognition of Merger related expenses (US$11.3 million pre-tax). LIQUIDITY AND CAPITAL RESOURCES MCII Holdings has historically relied primarily on internally generated funds, funds available through credit facilities, and, for the periods prior to August 1993, funds provided by Dial to finance its operations and capital expenditures. MCII Holdings' working capital requirements can vary greatly from period to period, depending on the volume of production, the timing of deliveries of coaches, and to a lesser extent, replacement parts, the payment terms offered to customers and the level of MCII Holdings' financing activities. However, MCII Holdings believes that its cash flows from operations and the availability of additional borrowings under credit facilities will be sufficient to satisfy its working capital and capital expenditure requirements for the foreseeable future. Cash flows used in operating activities were US$0.3 million and US$12.6 million for 1995 and 1994, respectively. Cash flows from operating activities were primarily impacted by changes in operating assets and liabilities which used cash of US$26.0 million and US$33.6 million over such periods respectively. The cash flows used for operating assets and liabilities were primarily affected by increases in inventories. In 1995, the increase in inventories was a result of product line expansion and an increase in used coach inventory. The product line expansion included diesel engine and school bus products in the parts segment and the Grupo Dina produced Viaggio in the new coach segment while the increase in used coaches was due to a greater mix of higher value (newer model) coaches. During the 1994 period, the increase was primarily related to an increase in parts inventories to improve customer service levels and an increase in coach manufacturing inventories due to higher line rates. Cash flows provided by or (used) in investing activities were US$7.2 million and US$(54.5) million for 1995 and 1994, respectively. In 1995, the cash provided by investing activities was principally due to realization of US$24.2 million through the disposition of assets of the discontinued operations, partially offset by US$12.6 million of capital expenditures. In 1994 investment activities were primarily the purchase of the remaining 31% of MCI Ltd., a net increase of US 37.8 million in coach financings, partially offset by a US$24.2 million reduction in the investment in discontinued operations. Cash flows provided by financing activities were US$16.7 million and US$68.2 million for 1995 and 1994, respectively. Cash flows provided during 1995 and 1994, were primarily related to the net additional borrowing on the long term credit facility to fund MCII Holdings' operating and investing cash flow needs and dividends to Grupo Dina. The long-term debt used by MCII in its operations is comprised of a bank credit facility and term notes payable. In October 1996, MCII established a new bank credit facility to replace its then existing bank credit facility. While such facility is unsecured, it is guaranteed by certain MCII subsidiaries and provides funding on a revolving basis through September 1999. The facility will be used to provide working capital financing, to issue standby letters of credit (up to US$35 million) and to fund other general corporate needs, including a US$30 million dividend to be paid to MCII Holdings, which will in turn pay dividends in the same amount to Grupo Dina (of which US$20 million had been paid as of the date of this Prospectus). The credit facility contains various covenants including, among others, minimum net worth, leverage and fixed charges coverage ratios. Furthermore, the new credit facility provides for various events of default including an event of default that would be triggered by the involuntary termination of certain executive officers of MCII Holdings and its subsidiaries. In November 1994, MCII issued term notes payable as private placement debt totaling US$125 million. While these notes are unsecured debt, they are guaranteed by certain MCII subsidiaries and contain various covenants, including, among others, limitations on dividend payments, investments, sales of assets, transactions with affiliates, and minimum net worth, leverage and current ratio requirements. Loan covenants of MCII result in constraints on dividends, loans and other cash flows that otherwise could be extended to the Company, thereby restricting the Company's ability to access funds from MCII. MCII's capital expenditures were US$3.9 million, US$12.6 million, US$6.8 million and US$5.5 million for the six months ended June 30, 1996, and the years ended December 31, 1995, 1994 and 1993, respectively. Although MCII did not have any material commitments for capital expenditures as of June 30, 1996, MCII expects to make capital expenditures at levels ranging from US$15 to US$25 million per year during the next three years. The increase over historical levels is for plant reengineering and systems, as well as machinery, tooling and production start up expenditures for the expected introduction of new coach models. Most of MCII's operations involve the assembly of components manufactured by others and, therefore, large capital expenditures associated with heavy manufacturing operations generally are not required in MCII's business. THE EXCHANGE OFFER TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES Upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal (which together constitute the Exchange Offer), the Issuers will accept for exchange Old Notes which are properly tendered on or prior to the Expiration Date and not withdrawn as permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New York City time, on November __, 1996; provided, however, that if the Issuers, in their sole discretion, have extended the period of time for which the Exchange Offer is open, the term "Expiration Date" means the latest time and date to which the Exchange Offer is extended. As of the date of this Prospectus, US$206,499,680 aggregate principal amount of the Old Notes is outstanding. This Prospectus, together with the Letter of Transmittal, is first being sent on or about October __, 1996, to all holders of Old Notes known to the Issuers. The Issuers' obligation to accept Old Notes for exchange pursuant to the Exchange Offer is subject to certain conditions as set forth below under "--Certain Conditions to the Exchange Offer." The Issuers expressly reserve the right, at any time or from time to time, to extend the period of time during which the Exchange Offer is open, and thereby delay acceptance for exchange of any Old Notes, by giving oral or written notice of such extension to the holders thereof as described below. During any such extension, all Old Notes previously tendered will remain subject to the Exchange Offer and may be accepted for exchange by the Issuers. Any Old Notes not accepted for exchange for any reason will be returned without expense to the tendering holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. Old Notes tendered in the Exchange Offer must be in denominations of principal amount of US$1,000 and any integral multiple thereof or denominations of less than US$1,000 as provided under the Indenture. The Issuers expressly reserve the right to amend or terminate the Exchange Offer, and not to accept for exchange any Old Notes not theretofore accepted for exchange, upon the occurrence of any of the events specified below under "--Certain Conditions to the Exchange Offer." The Issuers will give oral or written notice of any extension, amendment, non-acceptance or termination to the holders of the Old Notes as promptly as practicable, such notice in the case of any extension to be issued by means of a press release or other public announcement no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. PROCEDURES FOR TENDERING OLD NOTES The tender to the Issuers of Old Notes by a holder thereof as set forth below and the acceptance thereof by the Issuers will constitute a binding agreement between the tendering holder and the Issuers upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal. Except as set forth below, a holder who wishes to tender Old Notes for exchange pursuant to the Exchange Offer must transmit a properly completed and duly executed Letter of Transmittal, including all other documents required by such Letter of Transmittal, to IBJ Schroder Bank & Trust Company, as Exchange Agent, at the address set forth below under "--Exchange Agent" on or prior to the Expiration Date. In addition, either (i) certificates for such Old Notes must be received by the Exchange Agent along with the Letter of Transmittal, or (ii) a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is available, into the Exchange Agent's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE ISSUERS. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the Old Notes surrendered for exchange pursuant thereto are tendered (i) by a registered holder of the Old Notes who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution (as defined herein). In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantees must be by a firm which is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company having an office or correspondent in the United States (collectively, "Eligible Institutions"). If Old Notes are registered in the name of a person other than a signer of the Letter of Transmittal, the Old Notes surrendered for exchange must be endorsed by, or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by the Issuers in their sole discretion, duly executed by, the registered Holder with the signature thereon guaranteed by an Eligible Institution. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of Old Notes tendered for exchange will be determined by the Issuers in their sole discretion, which determination shall be final and binding. The Issuers reserve the absolute right to reject any and all tenders of any particular Old Notes not properly tendered or to not accept any particular Old Notes which acceptance might, in the judgment of the Issuers or their counsel, be unlawful. The Issuers also reserve the absolute right to waive any defects or irregularities or conditions of the Exchange Offer as to any particular Old Notes either before or after the Expiration Date (including the right to waive the ineligibility of any holder who seeks to tender Old Notes in the Exchange Offer). The interpretation of the terms and conditions of the Exchange Offer as to any particular Old Notes either before or after the Expiration Date (including the Letter of Transmittal and the instructions thereto) by the Issuers shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes for exchange must be cured within such reasonable period of time as the Issuers shall determine. Neither the Issuers, the Exchange Agent nor any other person shall be under any duty to give notification of any defect or irregularity with respect to any tender of Old Notes, for exchange, nor shall any of them incur any liability for failure to give such notification. If the Letter of Transmittal is signed by a person or persons other than the registered holder or holders of Old Notes, such Old Notes must be endorsed or accompanied by appropriate powers of attorney, in either case signed exactly as the name or names of the registered holder or holders that appear on the Old Notes. If the Letter of Transmittal or any Old Notes or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Issuers, proper evidence satisfactory to the Issuers of their authority to so act must be submitted. By tendering, each holder will represent to the Issuers that, among other things, the New Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such New Notes, whether or not such person is the holder, and that neither the holder nor such other person has any arrangement or understanding with any person to participate in the distribution of the New Notes. In the case of a holder that is not a broker-dealer, each such holder, by tendering, will also represent to the Issuers that such holder is not engaged in, or intends to engage in, a distribution of the New Notes. If any holder or any such other person is an "affiliate," as defined under Rule 405 of the Securities Act, of the Issuers, or is engaged in or intends to engage in or has an arrangement or understanding with any person to participate in a distribution of such New Notes to be acquired pursuant to the Exchange Offer, such holder or any such other person (i) could not rely on the applicable interpretations of the staff of the SEC and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribution." The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES Upon satisfaction or waiver of all of the conditions to the Exchange Offer, the Issuers will accept, promptly after the Expiration Date, all Old Notes properly tendered and will issue the New Notes promptly after acceptance of the Old Notes. See "-- Certain Conditions to the Exchange Offer." For purposes of the Exchange Offer, the Issuers shall be deemed to have accepted properly tendered Old Notes for exchange when, as and if the Issuers have given oral or written notice thereof to the Exchange Agent, with written confirmation of any oral notice to be given promptly thereafter. For each Old Note accepted for exchange, the holder of such Old Note will receive a New Note having a principal amount equal to that of the surrendered Old Note. Old Notes accepted for exchange will cease to accrue interest from and after the date of consummation of the Exchange Offer. Holders of Old Notes whose Old Notes are accepted for exchange will not receive any payment in respect of accrued interest on such Old Notes otherwise payable on any interest payment date the record date for which occurs on or after consummation of the Exchange Offer. If the Exchange Offer is not consummated by December 30, 1996, the Old Notes will bear additional interest as described under "Description of the Notes -- Registration Rights." In all cases, issuance of New Notes for Old Notes that are accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry Confirmation of such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility, a properly completed and duly executed Letter of Transmittal and all other required documents. If any tendered Old Notes are not accepted for any reason set forth in the terms and conditions of the Exchange Offer or if Old Notes are submitted for a greater principal amount that the holder desired to exchange, such unaccepted or non-exchanged Old Notes will be returned without expense to the tendering holder thereof (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry procedures described below, such non-exchanged Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility) as promptly as practicable after the expiration or termination of the Exchange Offer. BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the Old Notes at the Book-Entry Transfer Facility for purposes of the Exchange Offer within two business days after the date of this Prospectus, and any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of Old Notes by causing the Book-Entry Transfer Facility to transfer such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's procedures for transfer. However, although delivery of Old Notes may be effected through book-entry transfer at the Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof, with any required signature guarantees and any other required documents, must, in any case, be transmitted to and received by the Exchange Agent at one of the addresses set forth below under "-- Exchange Agent" on or prior to the Expiration Date. WITHDRAWAL RIGHTS Tenders of Old Notes may be withdrawn at any time prior to the Expiration Date. For a withdrawal to be effective, a written notice of withdrawal must be received by the Exchange Agent at one of the addresses set forth below under "-- Exchange Agent." Any such notice of withdrawal must specify the name of the person having tendered the Old Notes to be withdrawn, identify the Old Notes to be withdrawn (including the principal amount of such Old Notes), and (where certificates for Old Notes have been transmitted) specify the name in which such Old Notes are registered, if different from that of the withdrawing holder. If certificates for Old Notes have been delivered or otherwise identified to the Exchange Agent, then, prior to the release of such certificates the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and signed notice of withdrawal with signatures guaranteed by an Eligible Institution unless such holder is an Eligible Institution. If Old Notes have been tendered pursuant to the procedure for book entry transfer described above, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Issuers, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Old Notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to such holder (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described above, such Old Notes will be credited to an account maintained with such Book Entry Transfer Facility for the Old Notes) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described under "--Procedures for Tendering Old Notes" above at any time on or prior to the Expiration Date. CERTAIN CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other provision of the Exchange Offer, the Issuers shall not be required to accept for exchange, or to issue New Notes in exchange for, any Old Notes and may terminate or amend the Exchange Offer, if at any time before the acceptance of such Old Notes for exchange or the exchange of the New Notes for such Old Notes, any of the following events shall occur: (a) there shall be threatened, instituted or pending any action or proceeding before, or any injunction, order of decree shall have been issued by, any court or governmental agency or other governmental regulatory or administrative agency or commission, (i) seeking to restrain or prohibit the making or consummation of the Exchange Offer or any other transaction contemplated by the Exchange Offer, or assessing or seeking any damages as a result thereof, or (ii) resulting in a material delay in the ability of the Issuers to accept for exchange or exchange some or all of the Old Notes pursuant to the Exchange Offer; or any statute, rule, regulation, order or injunction shall be sought, proposed, introduced, enacted, promulgated or deemed applicable to the Exchange Offer or any of the transactions contemplated by the Exchange Offer by any government or governmental authority, domestic or foreign, or any action shall have been taken, proposed or threatened, by any government, governmental authority, agency or court, domestic or foreign, that in the sole judgment of the Issuers might directly or indirectly result in any of the consequences referred to in clauses (i) or (ii) above or, in the reasonable judgment of the Issuers, might result in the holders of New Notes having obligations with respect to resales and transfers of New Notes which are greater than those described in the interpretation of the SEC referred to on the cover page of this Prospectus, or would otherwise make it inadvisable to proceed with the Exchange Offer; or (b) there shall have occurred (i) any general suspension of or general limitation on prices for, or trading in, securities on any national securities exchange or in the over-the-counter market, (ii) any limitation by any governmental agency or authority which may adversely affect the ability of the Issuer to complete the transactions contemplated by the Exchange Offer, (iii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States or any limitation by any governmental agency or authority which adversely affects the extension of credit or (iv) a commencement of a war, armed hostilities or other similar international calamity directly or indirectly involving the United States, or, in the case of any of the foregoing existing at the time of the commencement of the Exchange Offer, a material acceleration or worsening thereof; or (c) any change (or any development involving a prospective change) shall have occurred or be threatened in the business, properties, assets, liabilities, financial condition, operations, results of operations or prospects of the Issuers and its subsidiaries taken as a whole that, in the reasonable judgment of the Issuers, is or may be adverse to the Issuers, or the Issuers shall have become aware of facts that, in the reasonable judgment of the Issuers, have or may have adverse significance with respect to the value of the Old Notes or the New Notes; which in the reasonable judgment of the Issuers in any case, and regardless of the circumstances (including any action by the Issuers) giving rise to any event described above, makes it inadvisable to proceed with the Exchange Offer and/or with such acceptance for exchange or with such exchange. The foregoing conditions are for the sole benefit of the Issuers and may be asserted by the Issuers regardless of the circumstances giving rise to any such condition or may be waived by the Issuers in whole or in part at any time and from time to time in its sole discretion. The failure by the Issuers at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. In addition, the Issuers will not accept for exchange any Old Notes tendered, and no New Notes will be issued in exchange for any such Old Notes, if at such time any stop order shall be threatened or in effect with respect to the Registration Statement of which this Prospectus constitutes a part or the qualification of the Indenture under the Trust Indenture Act of 1939 (the "TIA"). EXCHANGE AGENT IBJ Schroder Bank & Trust Company has been appointed as the Exchange Agent for the Exchange Offer. All executed Letters of Transmittal should be directed to the Exchange Agent at one of the addresses set forth below. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notices of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows: Delivery To: IBJ Schroder Bank & Trust Company By Mail: By Overnight Courier or Hand: P.O. Box 84 One State Street Bowling Green Station New York, New York 10004 New York, New York 10274-0084 Attention: Securities Processing Attention: Reorganization Dept. Window, SC-1 By Facsimile: (212) 858-2611 For Information Call: (212) 858-2103 DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL. FEES AND EXPENSES The Issuers will not make any payment to brokers, dealers, or others soliciting acceptances of the Exchange Offer. The estimated cash expenses to be incurred in connection with the Exchange Offer and paid by the Issuers are estimated in the aggregate to be US$________. TRANSFER TAXES Holders who tender their Old Notes for exchange will not be obligated to pay any transfer taxes in connection therewith, except that holders who instruct the Issuer to register New Notes in the name of, or request that Old Notes not tendered or not accepted in the Exchange Offer be returned to, a person other than the registered tendering holder will be responsible for the payment of any applicable transfer tax thereon. CONSEQUENCES OF EXCHANGING OLD NOTES Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant to the Exchange Offer will continue to be subject to the provisions in the Indenture regarding transfer and exchange of the Old Notes and the restrictions on transfer of such Old Notes as set forth in the legend thereon as a consequence of the issuance of the Old Notes pursuant to an exemption from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Old Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. The Issuers do not currently anticipate that they will register Old Notes under the Securities Act. See "Description of the Notes -- Registration Rights." Based on interpretations by the staff of the SEC, as set forth in no-action letters issued to third parties, the Issuers believe that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold or otherwise transferred by holders thereof (other than any such holder which is an "affiliate" of the Issuers within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement or understanding with any person to participate in the distribution of such New Notes. However, the Issuers do not intend to request the SEC to consider, and the SEC has not considered, the Exchange Offer in the context of a no-action letter and there can be no assurance that the staff of the SEC would make a similar determination with respect to the Exchange Offer as in such other circumstances. Each holder, other than a broker-dealer, must acknowledge that it is not engaged in, and does not intend to engage in, a distribution of New Notes and has no arrangement or understanding to participate in a distribution of New Notes. If any holder is an affiliate of the Issuers, is engaged in or intends to engage in or has any arrangement or understanding with respect to the distribution of the New Notes to be acquired pursuant to the Exchange Offer, such holder (i) could not rely on the applicable interpretations of the staff of the SEC and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribution." In addition, to comply with the state securities laws, the New Notes may not be offered or sold in any state unless they have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with. The offer and sale of the New Notes to "qualified institutional buyers" (as such term is defined under Rule 144A of the Securities Act) is generally exempt from registration or qualification under the state securities laws. The Issuers currently do not intend to register or qualify the sale of the New Notes in any state where an exemption from registration or qualification is required and not available. BUSINESS OF GRUPO DINA GENERAL Grupo Dina is a holding company organized in 1989 in the United Mexican States as a limited liability company with variable capital (sociedad anonima de capital variable or S.A. de C.V.). It operates its businesses through four primary subsidiaries: Camiones, the truck operation, Autobuses, the Mexican coach operation, Comercializadora, the truck and coach sales and marketing operation, and MCII Holdings and its subsidiaries, the United States and Canadian coach operation. Grupo Dina and its subsidiaries (collectively, the "Company") operate in two principal business segments -- truck manufacturing and intercity coach manufacturing. The Company is one of the leading suppliers of medium-duty and heavy-duty trucks and tractor trailers in Mexico and of intercity coaches in North America. In 1994, approximately 28.1% of the Company's revenues resulted from sales of medium-duty trucks, 26.6% from heavy-duty trucks and 38.8% from the coach operations. In 1995, approximately 6.4% of the Company's revenues resulted from sales of medium-duty trucks, 16.8% from heavy-duty trucks and 82.2% from the coach operations. The truck segment assembles and markets class 5, 6, and 7 trucks (medium-duty trucks) and class 8 trucks (heavy-duty trucks). The technology, design and components of the trucks are principally purchased from third parties. In addition, the Company manufactures plastic components and distributes replacement parts for trucks and coaches. The coach segment manufactures, assembles and markets intercity coaches. Historically, its sales have been in Mexico, using designs and technology most of which have been purchased from third parties. In 1994, the coach segment expanded by entering the United States and Canadian coach markets through the acquisition of MCII. MCII Holdings' coach operation includes designing, manufacturing, assembling and marketing intercity coaches, as well as providing replacement parts for the intercity coach and transit bus markets. MCII Holdings represented 37.3% and 47.1% of the Company's consolidated assets at year-end 1994 and 1995, respectively, in each case as determined in accordance with Mexican GAAP. MCII Holdings represented 76% and 78% of the Company's consolidated revenues, and 141.5% and 99.4% of the Company's consolidated earnings, for the year ended December 31, 1995 and for the first half of 1996, respectively, in each case as determined in accordance with Mexican GAAP. Set forth below is an organizational chart for Grupo Dina and its direct subsidiaries with a net book value as of June 30, 1996 greater than 2% of the net book value of Grupo Dina, as well as the principal operating subsidiaries of MCII Holdings. The principal business segment of each subsidiary is described. CONSORCIO G GRUPO DINA, S.A. de C.V. and SUBSIDIARIES Consorcio G Grupo Dina, S.A. de C.V. (holding company) __________________________ _____|_______________ | _______________|___________100%_ 92.59%* | MCII Holdings (USA), Inc. Dina Camiones, S.A. de C.V. | (holding company) (truck manufacturing and marketing) | 31% 22% | ________________________________ _____________________________________| | 99.99% | ___________________________100%_ Dina Autobuses, S.A. de C.V. | Motor Coach Industries (coach manufacturing and marketing) | International, Inc. 20% | holding company _____________________________________| ________________________________ 99.99% | | Dina Comercializadora, | ________________________________ S.A. de C.V. | | Transportation Manufacturing Plasticos Automotrices Dina, | | Operations, Inc. S.A. de C.V. | | (holding company and (truck and coach sales and marketing)| | corporate operations) 19% | |_______________________________ _____________________________________| | MCIL Holdings, Ltd. 99.99% | | (Canadian coach manufacturing, Plasticos Automotrices Dina, | | new coach sales and replacement S.A. de C.V. | | parts sales) (plastic manufacturing and marketing)| |_______________________________ 3% | | Motor Coach Industries, Inc _____________________________________| | (U.S. coach manufacturing) |_______________________________ | Hausman Bus Sales, Inc. | (U.S. new and used coach sales) |________________________________ | Universal Coach Parts, Inc. | (U.S. replacement parts sales) |________________________________ * Denotes percentage ownership by Grupo Dina. HISTORICAL BACKGROUND The Company business traces its origins to the establishment of Diesel Nacional, S.A. ("Diesel Nacional") in 1951, which was formed by the Mexican government with minority ownership by Mexican and Italian private investors. Diesel Nacional manufactured trucks, tractor trailers and coaches. In 1988, the Mexican government, consistent with its policy of privatization of certain sectors of the Mexican economy, announced an auction for the sale of Diesel Nacional's businesses. On November 27, 1989, Grupo Dina, which was formed for the purpose of participating in the auction and acquiring the assets of Diesel Nacional, acquired majority ownership of its operating subsidiaries from Diesel Nacional. The total consideration paid by Grupo Dina was US$84 million. On August 8, 1994, Grupo Dina acquired MCII. MCII is the leading manufacturer of intercity coaches in the United States and Canada. MCII, through its Canadian subsidiary, began manufacturing intercity coaches and distributing replacement parts in Canada in 1932 and in the United States in 1963. Minority ownership reflected in the consolidated financial statements of the Company represents 7.4% of the capital stock of Camiones which is owned by Navistar. Capitalization of the Company reflects the manner in which it has accessed both debt and equity markets in the past. In November 1992, Grupo Dina issued the Eurobonds with a principal of US$150 million, the net proceeds of which were used for working capital and to prepay bank borrowings. In April 1993, Grupo Dina made an initial public offering of 33,966,810 no par common shares of which 10,190,043 shares were sold in Mexico and listed on the Mexican Stock Exchange and 23,776,767 shares in the form of ADSs were sold in the United States and other countries and listed on the NYSE. The net proceeds from the issuance of such shares, US$129.8 million, were utilized for plant and equipment. In August 1994, in conjunction with the acquisition of MCII, Grupo Dina issued no par Series L shares and Debentures. The Series L shares, which have limited voting rights, are listed on the Mexican Stock Exchange with the related ADSs listed on the NYSE. The Debentures, with a face value of US$163,993,000 and convertible into Series L ADSs, are also listed on the NYSE. The Series L ADSs and Debentures were issued in exchange for 51% and 49%, respectively, of the MCII Common Stock for an aggregate consideration of US$311.6 million. In November 1994, MCII issued term notes payable as private placement debt totaling US$125 million. These notes are unsecured debt and are due in annual installments beginning in November 1998 and extending through November 2002. On May 24, 1996, the Company completed its offer to exchange Eurobonds for Old Notes, pursuant to which US$206,499,680 aggregate principal amount of Old Notes were issued and exchanged for US$143,040,000 aggregate principal amount of Eurobonds. The Old Notes were exchanged at an aggregate principal amount equal to 1.417 times the principal amount of the Eurobonds. Concurrently with such exchange offer, the Company completed its solicitation of consents from the holders of the Eurobonds in connection with proposed amendments to the Eurobonds and the related fiscal agency agreement dated as of November 18, 1992 (the "Fiscal Agency Agreement") and a waiver to any defaults thereunder for the purpose of rescinding the obligations of certain guarantors and eliminating most of the restrictive covenants under the Fiscal Agency Agreement. Grupo Dina executed a supplemental fiscal agency agreement dated as of May 28, 1996 giving effect to such amendments and waiver. In connection with such exchange offer, Grupo Dina contributed its ownership interest in MCII to MCII Holdings, and MCII Holdings pledged such interest for the benefit of holders of Notes. Under an October 1996 agreement, MCII has an unsecured credit facility with a group of banks. Borrowings are available on a revolving basis for up to US$125 million through September 1999. The outstanding borrowings under such facility were used in part to repay borrowings under MCII's previous bank credit facility and to fund US$20 million in dividends to MCII Holdings, which has in turn paid dividends in the same amount to Grupo Dina. BUSINESS STRATEGY OF GRUPO DINA General Grupo Dina's principal business strategy is to capitalize on its strengths and its market position as one of the leading suppliers of medium-duty and heavy-duty trucks in the Combined Class 5, 6, 7 and 8 truck market in Mexico and as one of the most important suppliers of intercity coaches in the Mexican market. Grupo Dina believes that its strengths are its quality products, state of the art technology, brand name recognition, quality research and development capabilities, the high degree of automation at its production facilities, low cost base, nationwide and developing Latin American distribution networks, and access to the United States market through its MCII subsidiary. Grupo Dina faces significant competition from Mexican and other assemblers in the Class 7 and 8 truck markets and the intercity coach market, including competition from companies which may have substantial financial resources. To meet this competition, and in order to maintain a substantial market share, Grupo Dina is attempting to increase its manufacturing efficiency thereby lowering unit costs and has introduced new product models, improved product quality and incorporated state-of-the-art technology (particularly in the areas of emissions control and fuel efficiency) in its products. Grupo Dina believes that successful implementation of its business strategy will aid it in competing effectively both within and outside of Mexico. From time to time, Grupo Dina evaluates opportunities to expand its business both within and outside of Mexico. The Merger with MCII has created the largest intercity coach manufacturer in North America, offering economies of scale and strategic benefits to Grupo Dina. MCII Holdings' existing distribution network and service organization aids Grupo Dina in selling coaches in the United States and Canada. In addition, Grupo Dina coaches can be exported through MCII Holdings' nascent Far Eastern export activities. The merged operations are gradually reducing the cost of components, such as engines, axles, transmissions and other drive train components. In addition, fixed design and engineering expenses are being spread over a larger base of operations, and both companies are benefiting from technology transfers and improvement in manufacturing techniques. The combined companies plan to take strategic advantage of MCII Holdings' replacement parts business to achieve greater replacement part sales in Mexico and to secure volume discounts from vendors. Grupo Dina believes that, given prevailing economic conditions in Mexico, it must increase the availability of financing to its customers in order to maintain its competitive position in the medium-duty and heavy-duty truck and intercity coach markets. To this end, AF Dina has created a number of financing options at competitive rates for the customers of Grupo Dina. See "--Sales Financing." Because of the Mexican recession, Grupo Dina is directing its efforts at developing markets in Central and South America as well as in Europe and Asia. These efforts have resulted in an export volume of 754 trucks and 131 coaches in 1995, compared with 521 trucks and no coaches during the same period in 1994. Truck exports sales have been made to Chile, Colombia, Ecuador, Bolivia, Venezuela and El Salvador, and Grupo Dina was recently authorized by the Argentinean government to begin sales in Argentina and expand its sales from there to the other Mercosur countries. In the case of coaches, export sales have been made to the United States through MCII's sales force. Trucks There is a high correlation between truck sales and the state of the economy. The 1995 recession significantly reduced the demand for trucks in Mexico. Grupo Dina expects a slight economic recovery in 1996 and growth in the demand for medium-duty and heavy-duty trucks in Mexico beginning in 1997, given the need to replace aging fleets and to comply with government regulations. Since 1993 Grupo Dina has spent over Ps 117.4 million (US$15.5 million) to improve truck production efficiency and to reduce costs. Grupo Dina has expanded manufacturing capacity to enable consolidation of all production on a more efficient single shift configuration. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Grupo Dina--Liquidity and Capital Resources." Given the current economic situation in Mexico, Grupo Dina only produced 1,599 medium-duty and heavy-duty truck units in 1995, compared to 10,761 units in 1994 and 10,029 units in 1993. The estimated plant capacity is 30,000 units per year using two full shifts per day. Under normal circumstances, and for the foreseeable future, Grupo Dina will only run one full shift per day. In recent years, Grupo Dina has increased its production efficiency through modification of its production line configuration and inventory management systems as well as through major changes in its union contracts, such as the removal of provisions linking production levels to the number of workers. Grupo Dina has also implemented a number of steps to increase its manufacturing efficiency so as to lower unit costs. These steps include the adoption of an advanced inventory system, enhanced automation of the manufacturing process and new training programs for manufacturing employees. In response to Mexico's current economic situation, Grupo Dina has cut its truck plant headcount by approximately 23%. See "--Grupo Dina's Truck Business--Manufacturing Operations." Grupo Dina has been seeking to increase its market penetration in the Mexican truck market using various strategies, which include expanding its product lines (including chassis for urban buses) by offering premium products and a variety of options, customizing its Class 8 trucks for large fleet operations, strengthening its distribution network through the establishment and training of new dealerships, and otherwise improving its marketing capabilities through an increase in its internal sales force and, in conjunction with AF Dina and other financial institutions, through an increase in the availability of financing for its customers, including certain operating lease programs. To date, only Mexican manufacturers have imported medium-duty and heavy-duty trucks into Mexico. Imports of used trucks are generally not permitted. In addition, Grupo Dina presently enjoys the benefit of a 10% tariff for the NAFTA countries (20% tariff for non-NAFTA countries) that is imposed by Mexico on truck imports. Grupo Dina has benefitted from protection from competition to the extent these restrictions have limited imports of trucks into Mexico. Grupo Dina anticipates that, as a result of NAFTA, it will gradually face increased competition from U.S. and Canadian truck suppliers, as tariff restrictions on new truck imports are eliminated over a ten-year period and non-tariff restrictions are eliminated over a five-year period. Grupo Dina also expects that, over time, NAFTA will result in gradual reductions in costs for parts and components used in the manufacture of its products, a substantial portion of which are imported from the United States. There is currently no program, nor is the Company's management aware of any negotiations, which would have the effect of reducing import tariffs relating to non-NAFTA countries. Over the long term, Grupo Dina expects the Mexican truck market to expand as a result of increased trade due to the implementation of NAFTA. Grupo Dina believes its strategy of increasing domestic production capacity, lowering unit costs, improving product quality and continuing technological and product innovation will position it to compete effectively with both existing competitors and potential new competitors in the medium-duty and heavy-duty truck markets. See "Risk Factors--Government Regulations and Environmental Matters" and "--North American Free Trade Agreement and Potential Competition" and "-- Regulation." Camiones has agreements with Navistar that allow Camiones to use Navistar technology and parts. Camiones has notified its distributors of its decision not to continue its relationship with Navistar. Camiones is in the process of obtaining alternative sources of parts and technology and/or developing its own technology as an alternative solution. See "Truck Segment--Production" and "Risk Factors--Termination of Navistar Contract." Truck Segment In 1993, Grupo Dina began exporting trucks to certain Latin American countries. Grupo Dina has increased exports to these countries from approximately 429 units in 1993, to 521 units in 1994 and 754 units for 1995. Grupo Dina believes that there are important export opportunities for certain of its truck models in Central and South America and the Caribbean and that there may be further export opportunities in Asia, Africa and elsewhere. Therefore, Grupo Dina its continuing its efforts to establish a dealer presence in these areas. An international sales group is responsible for developing Grupo Dina's truck export business. Sales of replacement parts for Grupo Dina trucks have increased from Ps 105.6 million in 1993, to Ps 205.8 in 1994, Ps 169.2 in 1995, and Ps 88.5 for the six months ended June 30, 1996. Grupo Dina believes that opportunities exist for further increases in truck replacement parts sales. Coaches Grupo Dina's business strategy for increasing unit sales and market share in Mexico has been based on marketing two distinct lines of coaches: the more expensive European-style Paradiso and Viaggio model coaches for the executive and first class segments of the intercity coach market, and the less expensive U.S.-style Avante Plus and Dorado model coaches concentrated in the first-class segment of the intercity coach market. Grupo Dina broadened this strategy in April 1994 by introducing a new European-style coach, the Viaggio 850, for its entry into the economy class segment of the intercity coach market. In 1993, the economy class segment of the Mexican intercity coach market represented approximately 26% of the total Mexican intercity coach market. With the introduction of the Viaggio 850, Grupo Dina offers a complete line of coaches for all segments of the Mexican intercity coach market. Grupo Dina is also seeking to improve its market penetration through the launching of a sales effort designed to encourage new coach purchases by the smaller fleet operators and/or other independent coach operators which historically have purchased used coaches from the larger fleet operators. Grupo Dina invested a total of Ps 94.8 million (US$12.5 million) in 1993 and 1994 to increase coach production capacity, improve manufacturing efficiency and improve product quality. Grupo Dina now has the ability to accommodate the assembly of the Viaggio 850 model in its Mexican plant facilities and, consistent with its obligations under the Indenture, has the option to relocate to Mexico some of the coach assembly operations currently undertaken in the U.S. by MCII. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Grupo Dina-Liquidity and Capital Resources." Advanced technology used in Grupo Dina's coaches includes a Grupo Dina-built chassis, its own "torsilastic" advanced suspension system, which was co-designed with The B.F. Goodrich Company ("B.F. Goodrich"), and engines that meet current emission standards of the Mexican and U.S. governments. Grupo Dina believes that its coaches are competitive on a cost basis as compared to similar products produced by North American and other manufacturers. Accordingly, Grupo Dina anticipates that recent and planned reductions in restrictions on coach exports to NAFTA countries will create export opportunities. Together with MCII, Grupo Dina is the largest coach manufacturer in North America, with products that comply with Mexican, Canadian and United States legal requirements established under NAFTA. Because of the economic recession affecting the Mexican coach market, Grupo Dina has started an export program to penetrate the United States market with its Viaggio model, which meets all DOT standards and is very cost-competitive. Grupo Dina plans to base its United States market export program on MCII's sales network. Grupo Dina believes that there is a significant opportunity for export sales of its coaches in Central and South America, Asia and elsewhere. Development of an export business will require, among other things, establishment of a dealer and servicing presence in these new markets. Since 1994, the Mexican intercity coach industry has shrunk significantly due to the national economic crisis and the consolidation of the industry brought about by an aggressive acquisition strategy being pursued by the largest intercity coach operators. Grupo Dina expects that this market trend will continue during 1996 with a gradual recovery after 1997, due to the need to replace an aging fleet, increased use of such coaches by charter, sightseeing tour and shuttle operators, major corporations and other specialized users and the implementation in late 1994 of new Mexican emissions, length and weight regulations for coaches. Even assuming such a recovery, as outlined above, Grupo Dina will continue to expand its export efforts to the U.S. and other markets. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Grupo Dina." Sales Financing Grupo Dina believes that its competitive position in the medium-duty and heavy-duty truck and intercity coach markets will be enhanced by increasing the availability of financing to its customers. To this end, Grupo Dina has been working with several United States investment banking firms and Mexican development banks, as well as with AF Dina, to provide specialized financing for Grupo Dina's truck and coach sales. The financing of Grupo Dina trucks and coaches by AF Dina has been, and is expected to continue to be, on customary "arms' length" commercial terms comparable to those offered by other financial institutions. See "Certain Transactions." For the years ended December 31, 1993 and 1994, AF Dina provided US$44.3 million and US$72.3 million, respectively, in financing for the sales of Grupo Dina trucks, and US$45.8 million and US$33.2 million, respectively, for the sales of Grupo Dina coaches. In 1995, AF Dina did not provide any financing for either the sales of Grupo Dina trucks or for the sales of Grupo Dina coaches. As AF Dina developed its business in 1993, Grupo Dina guaranteed certain AF Dina borrowings. For this support, AF Dina pays Grupo Dina an annual fee ranging from 1.25% to 1.75% of the borrowings guaranteed, depending upon the amount so guaranteed. At June 30, 1996, Grupo Dina has extended loan guarantees for funding provided to AF Dina by one Mexican bank of approximately Ps 20 million. As of July 31, 1996, Grupo Dina owned 92.89% of the equity of AF Dina. Although the maximum ownership in finance companies by non-financial companies permitted under Mexican law is 10%, Grupo Dina has obtained authorization from the corresponding Mexican authorities to maintain equity ownership levels in excess of the legal limit for six months from July 31, 1996. During such interim period, Grupo Dina will endeavor to complete a transaction whereby MCI Acceptance Corporation, an indirect subsidiary of MCII Holdings, will acquire the shares of AF Dina owned by Grupo Dina. In the event that such transaction is not completed in such time period, Grupo Dina will be required to reduce its equity ownership level in AF Dina to no more than 10%. "See Management's Discussion and Analysis of Financial Condition and Results of Operations of Grupo Dina -- Liquidity and Capital Resources" and "Certain Transactions." BUSINESS SEGMENTS The following table provides the total unit sales of trucks and coaches in Mexico and the Company's share of those sales for the periods indicated:
Six Months Ended Year Ended December 31, June 30, 1993 1994 1995 1996 TRUCKS (CLASSES 5 THROUGH 8) Company......................... 10,936 9,942(6) 1,766(6) 604(6) Total Mexican industry.......... 28,277(1) 28,341(2) 5,219 2,968 Company market share............ 39% 35% 34% 20% INTERCITY COACHES Company(3)...................... 1,818 297(4) 21(7) 16(7) Total Mexican industry(5)....... 4,318 2,040(8) 174 171 Company market share............ % 15% 12% 11% TRANSIT BUSES Company......................... -- 77 34 -- Total Mexican industry.......... -- 258 59 32 Company market share............ -- 30% 58% 0% (1) Includes 1,788 gasoline powered Class 7 trucks produced by Chrysler Corporation ("Chrysler"). The Company's share of the diesel powered segment of the truck market in 1993 was 42%. (2) Includes 1,413 gasoline powered Class 7 trucks produced by Chrysler. The Company's share of the diesel powered segment of the truck market in 1994 was 37%. (3) Dina introduced its chassis-based Paradiso model in June 1992, its chassis-based Viaggio 1000 model in June 1993 and its chassis-based Viaggio 850 in April 1994. (4) This figure does not include sales of 77 transit buses first introduced in November 1994. (5) Includes executive, first-class and economy service coaches. (6) This figure does not include export sales of 521 trucks in 1994 and 754 in 1995 and 51 in 1996. (7) This figure does not include export sales of 2 coaches and intercompany sales to MCII of 129 coaches in 1995. (8) This figure does not include sales of 77 transit buses of Dina and 181 Masa coaches. Source: Asociacion Mexicana de la Industria Automotriz (Mexican Automotive Industry Association or "AMIA") for 1992 and Asociacion Nacional de Productores de Autobuses, Camiones y Tractocamiones (National Association of Coach, Truck and Tractortrailer Producers or "APsACT") for 1993 and 1994.
Although exact market statistics are not available, based on the data that is available, management believes that, with the acquisition of MCII, the Company leads the intercity coach market in the United States and Canada with a market share in excess of 50% and that it is the largest distributor of replacement parts to the intercity coach and transit bus industries in the United States and Canada. Truck Segment MARKET. Trucks are the principal method of transporting freight in Mexico. Truck transport is more important in Mexico than in some other countries due to the lack of a well-developed, modern rail system or significant domestic seaborne shipping. In addition, a substantial number of medium-duty truck chassis are fitted with bus-type bodies and used in urban transit systems. In the industry, trucks are classified according to established weight categories. There are eight principal classifications, Class 1 to Class 8, with each classification indicating an increased gross vehicle weight. Of the truck classifications which Camiones sells, classes 5, 6 and 7 trucks are considered medium-duty trucks, while Class 8 trucks are considered heavy-duty. Camiones' truck sales are predominantly in Mexico. However, in 1993, Camiones started exporting trucks to other Latin American countries where management believes important opportunities exist for certain of its truck models. Due to the economic crisis in Mexico, there has been a significant decline in the demand for medium-duty and heavy-duty trucks. In response to this crisis, the Company's strategy has been to focus its efforts on exporting trucks outside of the Mexican market. Export sales have largely been made to Central and South America. Additional efforts have been made to export to Africa, Asia and Europe. Even if the Mexican economy were to improve, Grupo Dina expects to continue its strategy of developing export opportunities throughout the world, as management foresees this as a basic necessity for the future growth and development of the Company's financial position. An example of Grupo Dina's progress with respect to this strategy is the authorization granted to the Company by the Argentinean government, by which the Company can start operations in that country with the ability to expand its operations from there to the rest of the Mercosur countries. In addition, a distribution contract with Saudi Arabia has been executed as part of this growth strategy with similar efforts being made in other European and Asian countries. Another market segment is that of truck replacement parts. Since trucks in Mexico generally are driven to the end of their useful life, management believes there is a significant market for truck replacement parts in Mexico. PRODUCTS. Camiones manufactures trucks in classes 5 through 8 of the medium and heavy-duty truck market under the brand names "DINA" in Mexico and "DIMEX" outside of Mexico. The names "DINA" and "DIMEX" are registered trademarks of Camiones. Approximately 70% of the trucks sold in 1995 and the first half of the 1996 were built using Navistar design and technology and the remaining 30% of the trucks were built using proprietary technology and design. In 1994, approximately 80% of the trucks sold were built using Navistar design and technology, with the remaining 20% of trucks built using proprietary technology and design. See "-- Production." Camiones' trucks are assembled using a range of components and specialized bodies and are thus capable of being highly customized. Engines, transmissions, axles, and a substantial percentage of other components are selected according to customer specifications, with United States-designated components being the clear preference of Mexican truck operators in the Class 5, 6, 7 and 8 markets. Camiones provides a limited use warranty for all of its trucks and currently provides the longest warranty available in the Mexican market. Warranties on engines are provided by suppliers. CUSTOMERS. The customer base for medium and heavy-duty trucks in Mexico is composed of private fleet owners, common carriers (which provide freight services to the public), urban transit operators (which use trucks with passenger bodies for urban bus services), governmental entities and others. Of class 8 trucks, over 60% are sold to common carriers who are typically members of the Camara Nacional de Carga, the national association of common carriers ("Canacar"). Canacar negotiates purchases on behalf of its members to achieve the most favorable terms. Camiones' base of truck customers is reflected in 1995 truck sales of approximately 50% to private fleet companies and 50% to common carriers, urban transit operators, governmental entities and others. COMPETITION. During 1995, Camiones primarily competed against four other major companies in Mexico --the Mexican subsidiary of Daimler Benz A.G. of Germany ("Mercedes Benz"), Chrysler Corporation, Ford Motor Company and Kenworth which markets class 8 trucks. Camiones' 1994 market share of 35% represents a slight decline from 39% for 1993 and 1992. As of December 31, 1995, Camiones' market share stood at 34%. Grupo Dina believes that this market share statistic is not an accurate reflection of the market given the low level of total truck sales as well as the lack of consistency in sales in 1995. The bases for competition in the medium-duty truck market are principally sale price and parts availability. As a result of the implementation of the North American Free Trade Agreement ("NAFTA") on January 1, 1994, the Company expects that it will gradually face increased competition from United States and Canadian truck suppliers as restrictions on new truck imports are eliminated over a five-year period, which commenced in 1994, and restrictions on used truck imports are eliminated over a ten-year period, which will commence in 2009. Through 1994, independent parties could import up to 15% of the Mexican truck production by class. However, such percentage increased to 20% in 1996 and is scheduled to increase to 30% in 1997. Commencing in 1999, such import limitation is scheduled to be eliminated. Management expects that, over time, NAFTA will generally result in gradual reductions in costs for parts and components used in the manufacture of its products. In addition, management expects the Mexican truck market to expand as a result of increased trade subsequent to the implementation of NAFTA. Management believes its strategy of increasing domestic production capacity, lowering unit costs, improving product quality and continuing technological and product innovation will position it to compete effectively with existing competitors and potential new entrants in the medium and heavy-duty truck markets. DISTRIBUTION. Trucks are currently sold primarily through independent distributors. As of June 30, 1996, the 28 largest distributors accounted for approximately 95.8% of net sales of trucks. As of June 30, 1996, Camiones' distributor network was composed of 39 independent distributors and branches who, under agreement, are dedicated exclusively to Dina truck sales, and who also sell replacement parts and provide maintenance and repair service. While fleet sales are negotiated directly by Camiones, such sales are booked through the distributors in order to register warranties and provide better aftermarket service. For more details about relationships with dealers, see "Production." While the Company has entered into preliminary discussions with certain distributors and will begin in the near future to consider revising its exclusivity agreements with such distributors, Camiones maintains good relations with its distributors and actively supports their marketing, training, service and sales efforts. The Company owns minority interests in certain of its distributors. PRODUCTION. Upon the purchase of the truck operations from the government in 1989, the management of Grupo Dina decided to exit the major component manufacturing business, which included capital-intensive machining operations, and focus instead on developing efficient assembly capabilities. Camiones assembles the trucks at its plant in Ciudad Sahagun, Mexico, using parts and components purchased from various suppliers. Of the eight principal classifications for trucks, Camiones manufactures trucks in Class 5 (16,001-19,500 lbs. GVW), Class 6 (19,501-26,000 lbs. GVW), Class 7 (26,001-33,000 lbs. GVW) and Class 8 (over 33,000 lbs. GVW). Class 5, 6 and 7 trucks are considered to be medium-duty trucks, while Class 8 trucks, which are characterized primarily by "cabs" consisting of a separate engine and drive compartment section to which trailers are attached, are considered heavy-duty trucks. Camiones assembles trucks of its own design, which currently represent 20% of its product line and also has agreements with Navistar that allow Camiones to assemble and sell trucks in Mexico using Navistar technology and parts. Pursuant to several agreements with Navistar, Camiones has the right to assemble and sell current year models of the 9400 tractor truck and the QSP Series of medium-duty trucks, as well as to install Navistar medium-duty diesel engines, using technical information supplied by Navistar. Camiones must pay fees to Navistar under these agreements based on a percentage of net sales, by Camiones, of the corresponding product, net of purchases of components by Camiones from Navistar. With the exception of the spare parts supply contract for the truck division which will continue for ten more years, the components and technology supply contracts with Navistar will expire as of March 1998. Accordingly, Grupo Dina is in the process of negotiating an agreement with a manufacturer of standard engines to replace its current product offerings. In addition, Grupo Dina is in the process of exploring development of its own technology in the area of cabin assembly or, alternatively, of establishing a relationship with a cabin manufacturer. Management estimates that development of its own cabin assembly technology will cost approximately US$30 million and that establishment of new relationships with engine and cabin manufacturers will cost approximately US$15 million. Camiones has notified its distributors of its decision not to continue its relationship with Navistar. Grupo Dina expects to reach a decision concerning the alternative to be pursued by it by the end of 1996. The transition to alternate technology, whether obtained from a new supplier or developed internally, will entail additional capital expenditures and may result in production disruption. See "Risk Factors -- Expiration of Navistar Contract." Following the decision to not continue the relationship with Navistar, two former employees of Grupo Dina became employed by Navistar's Mexican subsidiary in strategic positions. Grupo Dina has brought legal action against these individuals asserting various claims, including infringement of intellectual property rights. In addition, Navistar is a minority shareholder in Camiones and currently holds approximately 7.4% of the capital stock of Camiones. Pursuant to a shareholders' agreement (the "Camiones Shareholders' Agreement") between Navistar and Camiones, Navistar has the right to appoint a member of the board of directors of Camiones and one member of the executive committee of the board of directors. The Camiones Shareholders' Agreement imposes restrictions on the transfer of the common shares of Camiones, and Navistar and Camiones each hold a right of first refusal with respect to any transfers of such shares by the other party. Although Grupo Dina and Navistar have in the past held discussions concerning possible transactions involving Camiones, including a possible purchase of Camiones by Navistar, no such discussions are being pursued at this time. Dina trucks are assembled using a wide range of components and bodies. Engines, transmissions and axles, as well as a substantial percentage of other components, are supplied by, or by Mexican affiliates of, United States manufacturers such as Detroit Diesel Corporation, Cummins Engine Company, Fuller Manufacturing Co., Dana Corp., Eaton Corp. and Rockwell International Corporation. United States-designed components are the clear preference of Mexican truck operators in the Class 5, 6, 7 and 8 markets. Other than Navistar, Camiones is not materially dependent on any single supplier. Management does not foresee any material shortages of raw materials or energy sources. Notwithstanding the expiration of the Navistar contract, as of June 30, 1996, Grupo Dina had strengthened its relationship with 46 concessionaries to sell new units, replacement parts and provide maintenance services through 54 distribution centers pursuant to exclusivity contracts that run through the year 2000. Coach Segment The coach industry is comprised of coaches designed for passenger travel between cities, "intercity coaches," and for passenger transportation within urban areas, "transit buses." Due to the distinct nature of the two geographic markets in which the Company operates, namely, Mexico and the United States/Canada, the operations of Autobuses are discussed below and the operations of MCII Holdings are discussed in "Business of MCII Holdings," below. The Company's Mexican coach subsidiary, Autobuses, is a leading producer of intercity coaches in Mexico and, in October 1994, entered the transit bus market. MARKET. Over 90% of passenger travel from city to city in Mexico is by intercity coach. Coaches are an integral part of the transportation system in Mexico given the nation's under-developed railway system and the high cost of air travel. Intercity coaches sold in the Mexican market in 1992, 1993, 1994 and 1995 were 3,809, 4,318, 2,040 and 174, respectively, of which Autobuses sold 31%, 42%, 15% and 12%, respectively. As of June 30, 1996, 171 intercity coaches were sold in the Mexican market of which Autobuses sold 16, or 9% of the total Mexican market. In addition, in 1995, Grupo Dina exported to MCII in the United States 129 coaches as well as 2 coaches to buyers in South America. Autobuses exported 128 coaches during the first half of 1996. Prior to 1990, bus fares in the Mexican intercity coach market were controlled by the government which resulted in mostly economy-class service, which has more stops and fewer coach amenities. In 1990, the Mexican government discontinued the regulation of bus fares, resulting in the development of two new classes of service, executive and first class, which have more direct routes and greater amenities. Autobuses provides coaches for all three classes of service. The intercity coach industry in Mexico has been subject to significant cyclical volatility. Industry cycles are influenced by overall levels of economic activity, by interest rates and by government actions which may have both short-term and long-term effects on demand. PRODUCTS. Autobuses produces for the Mexican coach market coaches under the brand names Avante Plus, Dorado, Paradiso and Viaggio. The Avante Plus and Dorado, which names are trademarks of Autobuses, are integral-frame models and are produced primarily to meet the demands of the first-class coach market. The Paradiso and Viaggio, which names are trademarks of Marcopolo S.A. -- Carrocerias e Omnibus ("Marcopolo") of Brazil used under license by Autobuses, are chassis-construction models and serve primarily the needs of the executive and first class markets. In April 1994, Autobuses introduced a new model, the Viaggio (Viaggio 850), targeted at the economy coach market. In 1994 and 1995, sales of units designed by Autobuses (Avante Plus and Dorado models) comprised approximately 10% and 0% of Autobuses' Mexican coach sales, respectively, with a unit sales price exceeding Ps 830,076. During the same periods, sales of units using Marcopolo technology (the Paradiso and Viaggio models) comprised approximately 90% and 100% of Mexican coach sales, respectively, with a unit sales price exceeding Ps 1,064,200. In November 1994, approval was received from the U.S. Department of Transportation (the "DOT") for the export of the Viaggio 1000 model intercity coach to the United States. During 1995 and for the first half of 1996, exports of these units were 129 and 128, respectively. Autobuses' coaches can be tailored to directly meet the needs of the customer through a wide array of seating options and amenities. The coaches have a reputation for high quality and durability in the industry. The limited use warranty provided for all of its coaches is currently for one year or 200,000 kilometers, whichever occurs first. Warranties on engines are provided by suppliers. In October 1994, Autobuses entered into the transit bus market segment with the introduction of its new line of integral-frame transit buses, the Citus and Quadro. As of December 31, 1995, sales of the Citus and Quadro comprised approximately 34 units with a unit sales price exceeding Ps 308,618. As a result, Autobuses now has a presence in all the segments of the coach and bus markets in Mexico. However, due to the economic crises, management has decided to suspend temporarily the production of the integral urban buses because of its high production cost. In the meantime, Autobuses is looking for alternatives to produce these integral buses with a less expensive production cost. To satisfy the urban bus market, Grupo Dina, through Camiones, will continue manufacturing its chassis for the urban transportation market in which Camiones is a leader. CUSTOMERS. The customer base for intercity coaches is centralized in a handful of dominant fleet operators. Principal operators include Estrella Blanca, Tres Estrellas, Mexico Pachuca and to a much lesser extent Grupo Toluca, Flecha Amarilla and Autobuses de Oriente. These seven groups are the largest intercity coach operators in Mexico and currently represent approximately 60% of the Mexican coach fleet. The remaining customer base is represented by several smaller operating groups and many individual customers. Autobuses' customer base is equally concentrated. For 1992 and 1993, Tres Estrellas, a related party to Autobuses during 1992 and Estrella Blanca, which acquired Tres Estrellas in 1993, accounted for approximately 74% of consolidated net coach sales in 1992 and 70% in 1993. In 1994, these two entities accounted for approximately 10% of consolidated net coach sales. No sales were made to these companies in 1995 due to the reduction in demand for intercity coach transportation, the consolidation of the fleets of Tres Estrellas and Estrella Blanca and because Tres Estrellas was on strike for almost all of 1995. In 1996, Estrella Blanca and Tres Estrellas entered into agreements with Grupo Dina whereby certain accounts receivable were restructured. See "Management's Discussion and Analysis of the Financial Condition and Results of Operations of Grupo Dina -- Liquidity and Capital Resources." COMPETITION. During 1995, Autobuses competed against four other major companies --Mercedes Benz, Mexicana de Autobuses (MASA), Trailers de Monterrey (TRAMOSA), and Omnibus Integrales. Autobuses' market share of 12% in 1995 represents a decline from the 15%, 42% and 31% for 1994, 1993 and 1992, respectively. This decline reflects a decrease in orders received from Estrella Blanca and Tres Estrellas, as well as a general contraction in the coach operator market due to the economic downturn which began in 1994. During the 1988-1990 period, Autobuses' market share in the intercity coach market averaged 71.8%. In 1991 and 1992, market share decreased to 39% and 31%, respectively, as competitors entered the market for the first time and as Autobuses shut down coach operations for three months to install a new production line. The bases for competition in the intercity coach market are original sales price, parts availability, and United States-manufactured componentry. Autobuses believes it enjoys a competitive position due to its domestic production facilities, its United States-designed components, the ability to tailor bodies to customer specifications by offering a wide array of seating options and other amenities, the well-established Dina brand names and nationwide replacement parts availability. As a result of the implementation of NAFTA on January 1, 1994, tariff restrictions on new coach imports will be eliminated over a ten-year period and non-tariff restrictions on new chassis-based coach imports will be eliminated over a five-year period, such periods having begun in 1994. Restrictions on used coach imports are scheduled to be eliminated over a ten-year period starting in 2009. Management expects that, over time, NAFTA will generally result in greater competition, but it may also have the effect of gradually reducing costs for United States parts and components used in the manufacture of Grupo Dina products. DISTRIBUTION. Coaches and transit buses are currently sold by Autobuses without the use of distributors. PRODUCTION. Autobuses uses two basic types of coach construction, integral frame and chassis-based. Integral-frame coaches combine both the powertrain and the body as a single unit. Chassis-based coaches contain a separate platform (i.e., frame, engine, transmission, axles, suspension and wheels) to which a customized body is added. The body of a chassis-based coach can be tailored to customer length, width and height specifications. The technology used in the chassis and suspension system of Autobuses' chassis and integral-frame models has been designed or co-designed by Autobuses. However, strategic alliances and purchased technology have become increasingly important in the Mexican coach operation. During 1992, Autobuses contracted with Marcopolo for technology with respect to the assembly and mounting of Marcopolo's European-style coach bodies, for technical training and access to all future Marcopolo models. Under the agreement with Marcopolo, Autobuses has the exclusive right in Mexico to assemble and sell coaches with Marcopolo bodies, while Autobuses has granted Marcopolo an exclusive right in Brazil to sell coaches using the Dina chassis. Also, under the agreement with Marcopolo, Autobuses purchases the components for Marcopolo bodies necessary to assemble and mount the bodies on chassis. Further, Autobuses has the non-exclusive right to sell the Marcopolo bodies in other North, Central and South American countries other than Mexico. Autobuses must pay Marcopolo royalties based on the value of the parts and components of the bodies it imports. Such agreement will expire by its terms in 2001, but may be extended upon mutual agreement of the parties. In addition to the Marcopolo bodies, Autobuses uses several suppliers, primarily in the United States, for materials, components and other parts. Purchases from these suppliers provide substantially all of Autobuses' requirements for diesel engines, transmissions, suspensions, axles, brakes, electronic components, glass parts and most components for bodies. In addition, in 1994, Autobuses entered into a contract with Navistar to purchase its Navistar New Generation Diesel, EPA '94 engine for urban transportation for use with the Company's new line of transit buses. This contract expires March 1997 and can be extended for an additional three years by the parties. Based on this contract, management believes Autobuses complies with the standards set by both the Ministry of the Environment, Natural Resources and Fisheries (the "Ministry of the Environment") in Mexico and the Environmental Protection Agency in the United States. By focusing the business on assembling from purchased parts, Autobuses does not have the large investment in plant and equipment required of a heavy manufacturing operation. The level of manufacturing integration has been managed to improve access to the lowest cost sources of material, parts and components and to reduce inventory carrying requirements. Autobuses is not materially dependent on any single supplier other than Marcopolo. Management does not foresee any material shortages of raw materials or energy sources. RESEARCH AND DEVELOPMENT The Company maintains in-house research and development capabilities to develop technology on its own and in conjunction with others and also obtains technology from third parties. Grupo Dina has a trust arrangement with Banca Cremi, S.A., as trustee, to earmark deductible funds for research and development of technology. Grupo Dina is authorized to make use of these funds for specific purposes, and the fund may be increased by future contributions in accordance with the provisions of the contract, or by interest, dividends and capital gains earned by the fund. The fund was established in 1990 and no subsequent cash contributions were made. During 1993, Ps 20.6 million was used for research and development and is included in expenses. There were no expenditures for research and development in 1992, 1994 and 1995. However, these funds will be used for developing new technology alternatives. TRADEMARKS AND PATENTS Grupo Dina has registered certain trademarks, including the names DINA, DIMEX, Citus, Quadro and the names of its Avante, Avante Plus and Dorado coach models. The names of its Paradiso and Viaggio coach models are registered trademarks of Marcopolo which are used under license from Marcopolo. The Company has received approval for patents covering its "torsilastic" advanced suspension system for coaches, its MTC brand of truck suspensions and various components used in trucks and coaches. The Company operates under licenses for numerous patents relating to its products and their manufacture held by third parties and pays royalties under these licenses. While many of these patents are considered to be important to particular products, no particular patent or group of related patents is considered by the Company to be essential to its business as a whole. EMPLOYEES As of December 31, 1994 and 1995, the Company had 6,307 and 5,388 employees, respectively. As of June 30, 1996, the Company had 5,237 employees, the change from year end 1995 is mainly due to a decrease in Grupo Dina employees during the first half of 1996. The decrease in employees during 1995 reflects one of the measures taken by the Company in response to the economic downturn in Mexico, as the Company announced in December 1994 a reduction in office and plant personnel in Mexico of approximately 38%. In January 1996, the Company laid off 150 employees from Camiones. On May 27, 1996, Grupo Dina filed for an arbitration procedure before the labor authorities requesting, after completion of the arbitration procedure, to lay-off 250 union workers from Camiones. Approximately 1,500 Mexican employees are represented by the Independent Union of Workers in the Automotive and Related Industries (the "Automotive Workers Union"), which entered into new, more flexible collective bargaining agreements with each of the Company's Mexican operating subsidiaries in February 1992. In accordance with Mexican law, the salary provisions of these agreements are renegotiated every year and the benefits provisions every two years. The salary and benefits provisions were renegotiated in February 1994. The Company experienced a labor strike in Mexico in early 1992 and in February 1994 which resulted in a loss of one day's production in each case. These strikes were resolved when the Company entered into collective bargaining agreements with the Automotive Workers Union. Supervisory personnel at the Company's manufacturing plants are no longer covered by the union agreements. During February 1995, the Company entered into negotiations with its unions in Mexico to review the wage component of the contract. On February 6, 1995, the Company announced it had reached an agreement with the labor union. The negotiations included a general increase in union salaries of 7% plus 3% for productivity. In addition, both parties agreed to a temporary shut-down of the plants for an initial duration of 60 working days, which was extended until December 14, 1995, based on consumption of existing inventories and the improvement of the economic situation in Mexico. Grupo Dina, following its cost reduction strategy, has filed for new collective bargaining agreements for both Autobuses and Camiones in order to do so before the Automotive Workers Union files for new salary increases and because of various other considerations. As a result of these efforts, the prior collective bargaining agreement, which was to expire on February 7, 1996, was extended for two additional years. This cost reduction strategy basically seeks the reduction of operation costs by increasing manpower and energy efficiency and thereby improve the manufacturing process. ENVIRONMENTAL MATTERS The operations and products of the Company are subject to Mexican federal and state laws and regulations relating to the protection of the environment. The fundamental environmental law in the Mexican federal system is the Ley General de Equilibrio Ecologico y Proteccion al Ambiente (the General Law of Ecological Balance and Environmental Protection, or the "Ecological Law"). Under the Ecological Law, rules have been promulgated concerning water pollution, air pollution, noise pollution and hazardous substances. Additionally, the Mexican federal government has enacted regulations concerning the importation and exportation of hazardous materials and hazardous wastes. The Ministry of the Environment, in conjunction with other governmental entities, state and municipal governments and with the participation of the social and private sectors, is the Mexican federal agency in charge of overseeing compliance with the federal environmental laws. The Ministry of the Environment has the authority to enforce the Mexican federal environmental laws. As part of its enforcement powers, the Ministry of the Environment can bring administrative and criminal proceedings against companies that violate environmental laws, and it also has the power to close noncomplying facilities. It is possible that changes in Mexican federal and state environmental laws, or their interpretation or enforcement, could result in material costs to the Company. At this time, management of the Company is not aware of any pending legislation which might, if passed, result in material costs to the Company. Although not required to do so under current environmental laws, in 1993 the Company installed an industrial and sanitary water treatment facility at its plants. Because of environmental concerns in Mexico City, gasoline and diesel powered trucks currently may operate only four days per week. Trucks utilizing natural gas or liquid propane gas may operate five days per week, giving them a slight advantage over gasoline and diesel powered trucks. It is possible to convert a gasoline engine to utilize natural gas. The Company has entered into a contract with Hercules Engines, Inc. to provide gas engines for certain of its trucks. All of the engines used on the Company's trucks and coaches comply with current Mexican and U.S. government emissions standards. GOVERNMENT REGULATION After the implementation of NAFTA in 1994, the Mexican Auto-Transportation Decree was eliminated, and replaced with a transitional system of quotas which will be phased out over five years. Commencing in 1994, NAFTA permits Mexican manufacturers to import up to 50% of their Mexican production, while non-Mexican manufacturers will be permitted to import a specified percentage of total Mexican production--15% in 1994 and 1995, 20% in 1996 and 30% in 1997 and 1998, on the basis of an auction system. Commencing in 1999, such import limitation is scheduled to be eliminated. NAFTA permits Mexico to maintain quotas on parts and components for a ten-year period. Under NAFTA, Mexican import tariffs for 1994 were 18% for trucks, 9% for components and 8% for engines. These tariffs will be phased out over a ten-year period with respect to new United States and Canadian trucks and coaches that satisfy NAFTA's U.S., Canadian and Mexican regional content requirements (50% regional content required to qualify for reduced tariffs in 1994 to 1998, 55% in 1999 to 2002 and 60% thereafter). In addition, under NAFTA, Mexican import tariffs on truck and coach parts and components will be phased out over a ten-year period. The present prohibition on importing used trucks and coaches into Mexico will be maintained under NAFTA for fifteen years and then will be eliminated over a ten-year transition period, permitting the importation of used trucks and coaches into Mexico with model ages not exceeding 10 years. Grupo Dina products imported by MCII for sale in the U.S. and Canada are subject to various U.S. and Canadian laws and regulations. PROPERTIES The Company owns four manufacturing and assembly plants in Mexico, one in Canada and one in the U.S. Additionally, the Company owns or leases various replacement parts and repair facilities in the U.S. and Canada. The following table is a summary of the approximate square footage of the Company's facilities as of June 30, 1996. Mexico U.S. Canada Total Facility Type Manufacturing 7,600,000 186,000 767,000 8,553,000 Replacement Parts --- 486,000 104,000 590,000 Modification or repair --- 174,000 --- 174,000 --------- ------- -------- ---------- Total square feet 7,600,000 846,000 871,000 9,317,000 ========= ======= ======= ========= Ownership Owned property 7,600,000 426,000 811,000 8,837,000 Leased property --- 420,000 60,000 480,000 --------- ------- - ------ ---------- Total square feet 7,600,000 846,000 871,000 9,317,000 ========= ======== ======= ========== The Company also owns or leases other properties in Mexico, including a vehicle and parts distribution center in Vallejo. LEGAL PROCEEDINGS In the ordinary course of its business, the Company is party to various employment and other legal actions, as plaintiff or defendant. The Company is not involved in any litigation or arbitration proceedings which, if determined adversely to the Company, individually or in the aggregate would, in management's opinion, have a material adverse effect on the Company or its operations, nor, so far as it is aware, are any such proceedings threatened. Manufacturers and sellers of defective products in Mexico may be subject to liability for loss and injury caused by such products under Mexican law. The Company does not carry product liability insurance for product sales in Mexico, but does carry such insurance for U.S. and Canadian sales. Although the Company has never had a product liability claim brought against its Mexican operations and the Mexican laws providing for such liability appear to have been seldom utilized, no assurance can be given that the Company may not be exposed to future product liability claims in Mexico and, if such claims are successful, that the Company will have sufficient resources to pay such claims. BUSINESS OF MCII HOLDINGS GENERAL Grupo Dina acquired ownership of MCII in August 1994. In connection with the issuance of the Notes, MCII became a wholly owned subsidiary of MCII Holdings and MCII Holdings became a wholly owned subsidiary of Grupo Dina. MCII Holdings will not engage in any activities, for so long as the Notes are outstanding, other than its participation in the exchange of Old Notes for Eurobonds and Exchange Offer, acquiring, owning, holding, pledging, and otherwise dealing with the MCII Shares (as defined below); acquiring, owning and holding the capital stock of Autobuses, should Autobuses become a subsidiary of MCII Holdings, and any other transactions provided for in the Indenture. Article III of MCII Holdings' Restated Certificate of Incorporation (the "MCII Holdings Certificate of Incorporation") limits MCII Holdings' activities to the above activities and to any activities incidental to and necessary or convenient for the accomplishment of such purposes. Article V of the MCII Holdings Certificate of Incorporation requires that at least one of MCII Holdings' directors not be a stockholder, director, officer, employee, associate customer, supplier, or relative of any stockholder, director, officer or employee of Grupo Dina, MCII or any affiliate of Grupo Dina or MCII. Article V also provides that the board of directors of MCII Holdings (the "MCII Holdings Board of Directors") shall consist of no more than five members. Article VI of MCII Holdings' Certificate of Incorporation prohibits MCII Holdings, without the unanimous affirmative vote of the MCII Holdings Board of Directors, including the affirmative vote of its independent director, from (1) dissolving or liquidating or (2) merging or consolidating with any corporation unless that corporation has a certificate of incorporation containing provisions identical to Articles III, V, VI, VII, VIII and XI(c) of the MCII Holdings Certificate of Incorporation. Article VII requires MCII Holdings to maintain corporate records separate from Grupo Dina, MCII and any other company. Article XI(c) provides that the right of any director or officer of MCII Holdings, other than any independent director, to be indemnified by MCII Holdings shall be subordinated in all respects to the obligations of MCII Holdings under the Indenture. Article VIII of the MCII Holdings Certificate of Incorporation prohibits MCII Holdings, without the unanimous affirmative vote of the MCII Holdings Board of Directors, from amending or repealing Articles III, V, VI, VII, VIII and XI(c). MCII Holdings will enter into a management agreement with MCII pursuant to which MCII or an affiliate thereof will provide administrative, accounting and clerical serves and office space to MCII Holdings. MCII Holdings has not engaged in operations prior to the transaction described herein and does not anticipate having any other major assets other than its interest in the MCII Shares and the capital stock of Autobuses. Steps have been taken in order to assure holders of Notes that any voluntary or involuntary petition for relief under Title 11 of the United States Code or any other Federal, state or foreign bankruptcy, insolvency or similar law ("Insolvency Laws") with respect to Grupo Dina will not result in a similar voluntary petition with respect to MCII Holdings so long as MCII Holdings is solvent and does not reasonably foresee becoming insolvent, which determination shall be made after giving effect to the subrogation rights of MCII Holdings in respect of the Notes. These steps include (1) the creation of MCII Holdings as a separate, special purpose subsidiary, pursuant to the MCII Holdings Certificate of Incorporation, (2) obtaining an agreement from each of Grupo Dina and MCII Holdings to do all things within its power to satisfy the legal requirements applicable for the recognition of MCII Holdings as a corporate entity separate and apart from Grupo Dina and (3) obtaining an agreement from Grupo Dina to cause at least one of MCII Holdings' directors to be an independent director as required by the MCII Holdings Certificate of Incorporation and not to interfere with or prevent MCII Holdings from maintaining its separate corporate identity. MCII Holdings has no intent to file, and Grupo Dina has advised MCII Holdings that it has no intent to cause the filing of, a voluntary petition under the Insolvency Laws with respect to MCII Holdings so long as MCII Holdings is solvent and does not reasonably foresee becoming insolvent, which determination shall be made after giving effect to the subrogation rights of MCII Holdings in respect of the Notes. MCII Holdings, through its wholly owned subsidiary, MCII, designs, manufactures, assembles and markets intercity coaches and replacement parts for intercity coaches and transit buses. MCII is the leading manufacturer of intercity coaches in the United States, with a market share consistently in excess of 50%. Management believes that MCII is the largest distributor of replacement parts to the combined intercity coach and transit bus industries in the United States and Canada. Revenues and operating income from continuing operations for each of the segments for the last three years are as follows: Year Ended December 31 1995 1994 1993 ---- ---- ---- (in millions) Revenues: Coach manufacturing and support............ US$ 375.8 US$ 332.8 US$ 272.8 Replacement parts........ 140.5 134.6 126.2 516.3 467.4 399.0 Operating income: Coach manufacturing and support........... 23.3 26.8 25.2 Replacement parts........ 15.0 19.2 20.2 Non recurring merger expenses.............. (11.3) ---------- --------- ------- 38.3 34.7 45.4 COACH MCII Holdings is the industry leader in the design, manufacture, assembly and marketing of intercity coaches and their replacement parts in the United States and Canada. MCII Holdings, through its indirect subsidiary, Motor Coach Industries Limited, a Canadian corporation ("MCIL"), began manufacturing intercity coaches and providing replacement parts in Canada in 1932, and began manufacturing these products in the United States with the incorporation of Motor Coach Industries, Inc. ("MCI") in 1963. In 1995, MCII began marketing in the United States an intercity coach manufactured by Grupo Dina. This coach, the Viaggio, is used primarily for tour and charter service and intercity regularly scheduled passenger service. MCII's coaches are used primarily for intercity regularly scheduled passenger service, tour and charter service and suburban commuting. Management believes that MCII's coaches have a reputation for solid construction, durability, ease of maintenance and comfort. MARKET. MCII Holdings' management believes that there is currently an industry-wide fleet of over 30,000 intercity coaches in operation in the United States and Canada, having an average age of approximately nine years. Coaches are used primarily to transport passengers between cities at regularly scheduled intervals ("line-haul operations") or on special tour or charter trips. Certain state and municipal transportation agencies, such as New Jersey Transit, utilize intercity coaches to transport passengers who have a relatively long daily commute. The coach business in the United States and Canada is highly cyclical. During times of general economic weakness, many coach operators postpone fleet replacement programs and may even reduce the size of their fleets. As economic recovery occurs, they tend to accelerate fleet replacement and may increase fleet size. BACKLOG. MCII Holdings' coach backlog was 450 units at June 30, 1996 which included 96 units for GLI, compared to 280 units at June 30, 1995, which included 50 units for GLI. No material part of MCII Holdings' backlog at June 30, 1996 is attributable to government orders. PRODUCTS. MCII Holdings currently produces, under the trademark of MCI, three integral-frame models. Two of MCII Holdings' models are standard 40-foot long vehicles and the third is a 45-foot long vehicle. The Model 102D3 is a 40-foot long, 102-inch wide European-styled vehicle. The Model 102DL3 is a 45-foot long, 102-inch wide model with increased passenger and baggage capacity, with a standard configuration of 55 seats, giving it an increased passenger capacity of 17% over the 40-foot models which generally enables operators to reduce their operating cost per passenger mile. The MC-12 model is a lower-priced, line-haul coach, 40-feet long and 96 inches wide, produced principally for GLI. The two 40-foot coach models generally sell in a price range of US$240,000 to US$325,000 and the 45-foot coach sells in a range of US$290,000 to US$350,000. These prices depend on width, options, special features and volume purchased. Substantially all of MCII's coaches are built to order with over 2,000 options available. The standard warranty period is 24 months. MCII Holdings also markets the Viaggio, a body-on-chassis constructed model manufactured by Grupo Dina. The Viaggio, which name is a trademark of Marcopolo S.A. -- Carrocerias e Omnibus of Brazil used under license by Grupo Dina, sells in a range of US$225,000 to US$270,000. The standard warranty period for the U.S. market is 24 months. MCII Holdings is currently in the process of developing two new coach models to replace its current product offerings. The first model, which management expects to introduce in early 1997, will consist of a 45-foot luxury tour and charter model. The second model will consist of a lower-priced, durable line-haul model, which management anticipates offering in 41-foot, 45 foot and 11 meter versions. The introduction of the 41-foot line-haul model is expected in late 1998. These development efforts will result in significant product development and capital expenditures being made over the next few years. MARKETING. In the United States and Canada MCII Holdings relies on its direct-sales force to market the MCI and Viaggio coaches, with 18 full-time new coach sales representatives who make regular visits to both current and potential customers and attend major industry trade shows. Management believes that the attentiveness and visibility of MCII Holdings' sales force among coach operators solidify MCII Holdings' reputation and enhance its sales position. MCII Holdings uses agents to market its coaches overseas. MCII Holdings does not use distributors in the United States or Canada. CUSTOMERS. The customer base in the intercity coach industry in the United States and Canada is highly diversified. The largest coach transportation company in the United States, GLI, currently has a fleet of over 2,000 coaches, or 7% of the 30,000 industry-wide fleet. Thus, the remaining 93% of the market is comprised of smaller to mid-size operators. The primary customers for intercity coaches are independent coach operators, national coach fleet operators, including GLI and Greyhound Lines of Canada, Ltd. ("GLOC"), government agencies that use coaches for public transit services, international customers and custom coach converters. While management estimates that in the past three years the average order size (excluding GLI orders) for any single operator has been approximately 2.7 units, order size has ranged from one coach up to approximately 100 coaches. INDEPENDENT OPERATORS. Management estimates that in the United States, independent regional operators (i.e., operators other than GLI and GLOC) of regular route or tour and charter operations account, on average, for approximately 75% of MCII Holdings' annual coach sales. Management believes that purchasing decisions by these buyers are based upon a number of factors, including service and parts availability, operating costs, resale value, financing terms, curbside appeal and interior amenities. In 1995, MCII Holdings sold coaches to 317 different independent operators of whom only 42 purchased five or more coaches. GLI AND GLOC. GLI is a nationwide regular route operator in the United States and GLOC is a regular route operator throughout most of Canada. GLI's fleet totaled over 2,000 coaches at June 30, 1996. Management believes that GLOC currently operates approximately 500 coaches. For the years ended 1995, 1994 and 1993, GLI and GLOC accounted for 11%, 17% and 23%, respectively, of consolidated revenue and less than 10% in the first half of 1996. Management believes that important purchase criteria for GLI and GLOC include life cycle costs, reliability, availability of replacement parts and support, passenger comfort, interior amenities and purchase price. MCII and GLI have an agreement, which extends through March 18, 1998, which provides that GLI will purchase from MCII at least 75% of its annual requirements for new coaches of the type produced (or planned, at the time ordered, to be produced) by MCII Holdings. MCII Holdings and GLOC have entered into a similar agreement which runs through 2002. Pursuant to those agreements, GLI purchased 111 coaches from MCII Holdings in 1995 and placed orders for 151 MCII Holdings coaches to be delivered in 1996 of which all were delivered under operating leases as of June 30, 1996. GLOC purchased 34 coaches in 1995 and 7 through June 30, 1996. No assurance can be given regarding GLI's and GLOC's future ability or need to purchase coaches from MCII. GOVERNMENT AGENCIES. Government-funded public transportation agencies utilize a variety of commuter, wheelchair-lift compatible and other specialty coaches. Management believes that the primary buying criterion for such customers is initial price for a given set of design specifications, with overall lifecycle costs as a secondary concern. The demand from such customers varies widely from year to year as government agencies periodically make large procurements, every three to six years on average, and in any given year, such customers may represent over 10% of MCII's sales of new coaches. MCII sold 700 coaches to the New Jersey Transit Authority ("NJTA") which were delivered in 1982 through 1984, and 415 coaches to NJTA which were delivered in 1987 and 1988. NJTA uses these coaches for public transport of passengers with relatively long daily commutes or in intercity service. MCII Holdings believes NJTA is preparing to replace the coaches purchased in 1982 through 1984. Because over 90% of NJTA's fleet consists of MCII Holdings coaches, management believes it will have a competitive advantage when NJTA's next purchase is made. However, there can be no assurance that NJTA will order new coaches, when such order will occur or that MCII Holdings will be awarded the contract. Government contracts generally contain provisions permitting the purchaser to terminate the contract at will. Such contracts provide that the purchaser must reimburse the manufacturer for completed product and pay the manufacturer's cost of termination. It is MCII Holdings' experience that this type of provision is rarely exercised. COACH CONVERTERS. The coach conversion market involves the customizing of a coach interior for personal or corporate use. MCII Holdings sells coach shells to coach conversion companies and, until 1996, customized coaches for sale to the final user. In June 1996, MCII Holdings exited the business of customizing coaches for sale to the final user by selling the units of Custom Coach Corporation ("Custom Coach"), MCII Holdings' former coach conversion subsidiary. Custom Coach served the high end of the coach conversion market, focusing on motor homes for commercial and personal applications, executive style coaches for business travel, specialized units for training and entertainer bunkhouse units. Over the past three years, MCII Holdings has averaged sales of 17 units, including sales to Custom Coach, to the conversion market. EXPORT. The majority of MCII Holdings' coaches are sold in the United States and Canada, however, MCII Holdings has sold units to other countries, principally Taiwan. In 1992, the last year in which MCII Holdings had a significant level of exports, 108 units were delivered to Taiwan. COMPETITION. MCII Holdings has two principal competitors in the United States and Canadian coach market: Prevost, a subsidiary of Volvo, which management believes to be the largest of its competitors, and Van Hool. MCII Holdings has maintained a strong market position in the new coach market in the face of lower prices by competitors, which management believes is primarily due to customer loyalty stemming from a quality product and strong aftermarket parts and service capability. An additional factor contributing to customer loyalty is the convenience and cost efficiencies which operators derive from managing and servicing a fleet of coaches manufactured and supported by a single supplier. These efficiencies may exist for both larger, multi-site operators as well as smaller, independent operators, which rely on MCII Holdings for a variety of support services. FINANCING. MCII Holdings primarily sells coaches for cash, occasionally offers terms (generally net 30 days) to its most creditworthy customers, and provides long-term financing as a necessary adjunct to its coach manufacturing business. Demand for new coach financing from MCII is primarily dependent upon the annual level of new coach sales as well as the availability of alternative sources of financing. MCII Holdings had US$42.3 million of contract receivables at June 30, 1996. MCII provides new and used coach financing to its intercity coach customers principally through its financing subsidiary, MCI Acceptance Corp. ("MCIAC"). MCIAC provides financing primarily at a floating rate of interest for three to five years, in the case of used coaches, and seven to 10 years in the case of new coaches. MCII, through its leasing subsidiary BusLease, Inc., also provides coaches to customers under operating leases. The leases require security deposits and usually have a duration of three to seven years. Periodically, MCIAC sells contract receivables to financial institutions and provides a limited guarantee to those institutions against losses related to such contracts with respect to debtor defaults. USED COACHES MCII Holdings provides used coach brokerage and dealership services through Hausman Bus Sales Inc. ("HBSI"), which was acquired in 1989. The used coach operations provided revenues for the six months ended June 30, 1996 and for the years 1995, 1994, and 1993 of US$28.2 million, US$47.2 million, US$46.8 million and US$31.2 million, respectively. During that period, the used coach operation accounted for US$15.0 million to US$25.0 million of MCII's inventories. The size of the used coach business is dependent upon several factors, including the size of the entire coach fleet, new coach orders which generate trade-ins and the level of changes in the fleet composition of coach operators. Management estimates that the existing industry-wide fleet of over 30,000 coaches changes ownership every 12 years, creating an average used coach volume of about 2,500 units per year. Due to MCII Holdings' installed base of coaches, its maintenance and repair capabilities, customer network and industry knowledge, HBSI is able to repurchase and resell a substantial volume of used coaches. Management believes that MCII Holdings' capacity to accept used coaches in support of new coach sales and resell them through its distribution system provides MCII Holdings with a competitive advantage. Management believes that HBSI's largest competitor in the dealership business is ABC Bus, Inc., which also serves as Van Hool's United States sales agent for new coaches. RESEARCH AND DEVELOPMENT. As part of MCII Holdings' new coach development project it received US$7.5 million in contributions from the Government of Canada and the Province of Manitoba. These contributions have been applied against research and development expenses. Contributions may be repayable should the project not be completed, or, for the first five years following project completion, should the ratio of Canadian employees to total employees of MCII be less then 40%. REPLACEMENT PARTS Management believes that MCII Holdings is a leading supplier of original equipment manufacturer ("OEM") quality replacement parts for the combined intercity coach and transit bus aftermarkets in the United States and Canada. MCII Holdings offers over 58,000 items necessary for coach and bus repair and regularly scheduled maintenance. MCII Holdings has six strategically located distribution outlets in the United States and Canada which allow MCII Holdings to promptly (if necessary, within 24 hours) deliver replacement parts nationwide. Management believes that MCII Holdings' breadth of product line and geographic scope are unmatched in the industry. In addition to the core intercity coach and transit bus parts business, MCII Holdings also distributes parts for school buses and diesel engines. In the replacement parts business, MCII Holdings has improved responsiveness to customer demands through the development of its information systems. MCII Holdings has installed remote order entry terminals in over 250 customer locations in order to minimize lead times and to accelerate the delivery process. Management believes that the installation of these electronic order entry terminals at customer locations expedites replacement parts orders and strengthens customer loyalty. MCII Holdings' competitive position in the parts business is further enhanced by the large installed base of its vehicles. The approximately 23,000 coaches and 33,000 transit buses in the United States and Canada produced by MCII Holdings create a core demand for MCII Holdings parts, approximately 20% of which are proprietary to MCII Holdings and may not be purchased elsewhere. Despite the fact that MCII Holdings no longer manufactures transit buses, MCII Holdings continues to supply replacement parts to the Canadian transit bus market, and until November 1999, will provide OEM replacement parts for transit buses previously manufactured in the United States by MCII Holdings. PRODUCT LINE. The replacement parts business is segmented into high quality parts supplied by an OEM which may fit coaches made by other manufacturers, and non-OEM parts, which are marketed primarily on a value basis. Management believes that MCII Holdings' current strength is in providing OEM parts that are either manufactured by MCII Holdings or acquired by MCII Holdings from the original equipment manufacturer. MCII Holdings' Universal Coach Parts ("UCP") subsidiary in the United States and MCIL in Canada offer a wide selection of replacement and repair parts to MCII Holdings' coach customers. In an effort to leverage further the competitive strength of its replacement parts business and distribution facilities, UCP has developed its own brand of alternate, non-OEM parts under the COACHGUARD name. More than sixty products have been introduced for this segment since its inception in 1993. MCII Holdings has also developed a line of remanufactured parts and components, which were introduced in the first six months of 1994. Management believes that the availability of remanufactured products will permit MCII Holdings to access new markets that are currently served by local and regional parts rebuilders. In 1994, MCII Holdings began marketing diesel engine parts under the name DIESEL GUARD and also began targeting the school bus parts market. As a result of its focus on the school bus market, MCII Holdings purchased the operations of a school bus parts distributor in April 1995 for US$2.9 million. MARKETING. For sales of replacement parts, MCII Holdings utilizes 13 full-time field representatives, as well as telemarketing salespersons. The sales force makes regular visits to both current and potential customers, attends major industry trade shows, responds to advertisements for bids to supply replacement parts and uses telemarketing techniques. In addition, customer orders are facilitated through the use, by the sales force and certain of MCII Holdings' larger customers, of remote order entry terminals to minimize lead time. Management believes that MCII Holdings' efficiency and responsiveness allow customers to minimize inventory holding costs and to increase fleet utilization ratios. COACH PARTS CUSTOMERS. Customers served by MCII Holdings include both purchasers of MCII Holdings coaches as well as purchasers of non-MCII coaches such as Grupo Dina's Viaggio coach model. Management believes that customers place considerable emphasis on the quality of parts purchased as well as the speed and efficiency provided by their parts suppliers. Under an agreement with GLI, which is terminable by either party upon 180 days notice but not before April 30, 1997, MCII Holdings supplies and manages most of GLI's inventory of replacement parts. TRANSIT PARTS CUSTOMERS. Management believes that the demand for transit parts is a function of the number of transit buses currently in operation, the average level of usage for each bus and the average age of the bus fleet. Management believes that purchasers of transit parts are more price-sensitive and less service sensitive than customers in the coach aftermarket, as the opportunity cost to the transit authority of a transit bus out of operation is less significant than the lost revenue of a line-haul coach operator. As a result, a large percentage of transit parts purchases are conducted on a public bid basis. Customers often choose to make a major purchase of parts inventory upon the procurement of additional new transit buses to ensure the availability of parts and to minimize cost through volume purchasing. COMPETITION. The replacement parts business is highly fragmented and competitive. Management believes that MCII Holdings' largest competitors are Prevost and Mohawk, for coach replacement parts, and the major transit manufacturers - Flxible, BIA and Neopart (the parts operation of Neoplan), for transit bus replacement parts. The remaining competitors include other coach manufacturers, diesel engine manufacturers, niche marketers and local vendors. Management believes that the factors influencing the choice of parts suppliers include a supplier's proximity to the customer, the number of replacement parts offered, level of technical knowledge and support and, to a lesser extent, minimum price. In addition, management believes that the installed base of vehicles manufactured by MCII Holdings, its predecessors and successors also provides MCII Holdings a distinct competitive advantage. Management estimates that MCII Holdings has consistently captured a significant share of the replacement parts business in its core intercity coach and transit bus parts segments (excluding engines, transmissions and related parts). As of the date of this Prospectus, MCII Holdings has negotiated the purchase for US$12.2 million of certain assets of The Flxible Corporation, its third largest competitor in the replacement parts industry. DISCONTINUED OPERATIONS In November 1993, the Board of Directors of MCII approved a plan of disposition of the transit manufacturing segment. This decision was based upon management's review of market activities, business prospects, competitive bidding, evaluation of backlogs, economic value analysis, and opportunities for cost reduction, which indicated that the transit manufacturing business may not achieve acceptable profitability in the foreseeable future. In November 1994, MCII sold the fixed assets and certain of the inventory of the transit manufacturing business, as well as the right to manufacture, remanufacture and distribute transit buses previously made by MCII. Additionally, the purchaser, for a period of five years from the sale date, has agreed not to distribute parts to transit buses previously made by MCII. MCII retained all other assets and all of the remaining liabilities of the transit manufacturing business. As of June 30, 1996, the remaining net assets of the transit manufacturing business totaled US$0.6 million and were comprised principally of receivables, warranty and product liability reserves. INTERNATIONAL MCII has pursued expansion opportunities in selected international markets, with both direct sales efforts and joint ventures. In 1995, MCII Holdings invested 10 used coaches in a joint venture with a Chinese company to provide bus transportation for long-distance passengers and tourists in China. RAW MATERIALS/COMPONENTS MCII Holdings' manufacturing operations utilize raw materials supplied by diverse sources and component parts provided by other original equipment manufacturers, which are assembled into intercity coaches. For axles, stainless steel tubing, transmissions and engines, MCII Holdings relies on limited sources of supply, although alternative sources of all such components are available. GOVERNMENT REGULATION The operations of, and the products manufactured by, MCII Holdings' subsidiaries are subject to various United States federal and state and Canadian federal and provincial laws and agency regulations. In the United States, these regulations include the Clean Air Act and other environmental acts which regulate coach engine emissions and plant operations; federal motor vehicle safety standards which establish minimum safety standards for various components of coaches; the Americans with Disabilities Act which specifies accessibility standards for the physically challenged; and Buy America legislation prohibiting the use of federal funds for coaches with less than 60% United States content. In Canada, regulations include various environmental acts which regulate coach plant operations and Canadian motor vehicle safety regulations which establish minimum safety standards for various coach components. Although the Canadian government has not adopted accessibility standards for the physically challenged, such standards are currently the subject of several official studies. MCII Holdings cannot accurately predict future expenses or liability which might be incurred as a result of such laws and regulations. The Americans with Disabilities Act requires, among other things, that the U.S. Department of Transportation (the "DOT") promulgate handicapped accessibility standards for coaches. Although the DOT has not issued proposed regulations for public comment, there are indications that the regulations (which are expected to be issued for comment in December 1996 and finalized in 1997) might require each coach in an operator's fleet to be handicapped accessible, rather than permitting the operation of a limited number of accessible coaches. Requiring complete fleet accessibility could have a material adverse effect on an operator's business and possibly on MCII Holdings' coach business. The final regulations will be applicable to operators with larger fleets 2 years after issuance of the final regulations and applicable to operators with smaller fleets 3 years after issuance of the final regulations. PATENTS AND TRADEMARKS MCII Holdings, through its wholly owned subsidiary, MCII, owns numerous trademarks representing goodwill in the businesses using the marks and own a number of patents which MCII believes give it a competitive advantage in the marketplace. United States trademark registrations are for a term of 10 years, renewable every 10 years so long as the trademarks are used in the regular course of trade. The trademarks owned and used by MCII Holdings include the well known MCI marks. The marks COACH GUARD and DIESEL GUARD are in use in the replacement parts operations and filings have been made to register these trademarks. MCII Holdings owns numerous patents protecting, among other things, various aspects of the MCI coaches. Patents are granted for a term of 17 years. MCII Holdings has the right to use the Greyhound name and the "Image of the Running Dog" for the manufacture and sale of intercity coaches, transit buses and replacement parts in all countries other than the United States, Canada and Mexico. EMPLOYEES MCII Holdings had approximately 3,200 employees, as of June 30, 1996, with approximately 1,300 in the United States and 1,900 employees in Canada. The hourly workers at most locations are organized and represented by unions. Approximately 2,000 employees of the total work force are represented by labor unions. The largest contracts are with the International Association of Machinists and Aerospace Workers (the "IAM") in Winnipeg, Manitoba and Pembina, North Dakota. The IAM contracts with Winnipeg/Pembina expire September 30, 1997. MCII's subsidiaries have historically enjoyed satisfactory relations with both union and nonunion employees. LEGAL MATTERS MCII and certain of its subsidiaries are parties either as plaintiffs or defendants to various actions, proceedings and pending claims, certain of which involve claims for compensatory, punitive or other damages. Litigation is subject to many uncertainties and it is possible that some of the legal actions, proceedings or claims referred to above could be decided against MCII. Although the ultimate amount for which MCII may be held liable with respect to matters where MCII is a defendant is not ascertainable, MCII Holdings believes that any resulting liability will not materially affect its financial condition or results of operations. MCII's Canadian income tax returns for 1982 through 1992 are currently under review by Revenue Canada, which is reviewing certain profit allocation procedures between MCIL and MCI and may seek to impute additional Canadian income to MCIL. MCII is of the opinion that Revenue Canada's arguments are without merit. See "Risk Factors -- MCII Canadian Tax Liability." PROPERTIES COACH. MCII Holdings conducts its coach manufacturing operations through subsidiaries located both in the United States and Canada. The operations in Winnipeg produce metal bus components, fiberglass parts, subassemblies for intercity coaches and complete intercity coach shells. Once assembled, outer shells of coaches are transported by truck-hauled flatbed trailers to its Pembina, North Dakota plant. In Pembina, the manufacturing process is completed by installing components such as engines, transmissions, axles, wheels, tires, electrical components, air conditioning systems and passenger seats, as well as completing final paint scheme requirements. Finished units are distributed from the Pembina facility to customers throughout the United States and are returned to Winnipeg for sale and delivery to Canadian customers. With the Winnipeg/Pembina complex in full production, MCII Holdings is capable of producing approximately 1,400 coach units per year. PARTS. MCII Holdings distributes products from six locations, strategically located across the United States and Canada, with sites in Dayton, New Jersey; Chicago, Illinois; Los Angeles, California; Huntsville, Texas; Winnipeg, Manitoba; and Newcastle, Ontario. OTHER PROPERTIES. MCII Holdings leases its headquarters in Phoenix and has other leases on warehouses and parking lots. MCII Holdings believes that its facilities are adequate for its present needs and that its properties are generally in good condition, well maintained and suitable for their intended use. The following table is a summary of MCII's primary facilities as of June 30, 1996.
LOCATION/ OWNERSHIP MANUFACTURING AND ASSEMBLY PLANTS: U.S. CANADA BUILDING SQ. FT. SEGMENT 1149 St. Matthews Ave.................. - Owned 128,000 Coach Winnipeg, Canada 841 & 850 Erin Street.................. - Owned 78,000 Coach Winnipeg, Canada 400 Archibald Street................... - Owned 36,000 Coach Winnipeg, Canada 1475 Clarence Ave...................... - Owned 381,000 Coach Winnipeg, Canada 552 W. Stutsman Ave.................... Owned - 186,000 Coach Pembina, ND 140 Otter Street....................... - Owned 144,000 Coach Winnipeg, Canada MODIFICATION OR REPAIR FACILITIES: 10 E. Golf Road........................ Owned - 60,000 Coach Support Des Plaines, IL 9846 Atlantic Ave...................... Leased - 16,000 Coach Support Southgate, CA 14 Harmon Dr........................... Leased - 28,000 Coach Support Blackwood, NJ 1250 Slocum Street..................... Leased - 30,000 Coach Support Dallas, TX REPLACEMENT PARTS FACILITIES: 1558 Wilson Place...................... - Leased 60,000 Parts Winnipeg, Canada 105 E. Oakton.......................... Owned - 180,000 Parts Des Plaines, IL 55 Howard Street....................... Leased - 75,000 Parts Des Plaines, IL 9 Nicholas Court....................... Leased - 106,000 Parts Dayton, NJ 7030 East Slauson...................... Leased - 50,000 Parts Los Angeles, CA Huntsville, TX......................... Leased - 75,000 Parts 260 Toronto Street..................... - Owned 44,000 Parts Newcastle, Ontario
MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS Grupo Dina Grupo Dina is managed by its board of directors (the "Grupo Dina Board of Directors"), which currently consists of twelve directors and five alternate directors. The directors (together with the alternate directors) are generally elected once a year at Grupo Dina's annual ordinary meeting of stockholders. Directors and alternate directors are generally elected by majority vote; however, Grupo Dina's corporate charter and by-laws (Estatutos Sociales) provide that any stockholder or group of stockholders who own ten percent of the outstanding common stock are entitled to appoint one director and one alternate director. Two of the directors and one alternate director are elected by the holders of shares of Grupo Dina Series L Stock (the "Grupo Dina Series L Stock"). Alternate directors participate and are entitled to vote at the Grupo Dina Board of Directors' meetings only when principal directors are absent. Each alternate director may substitute for any of the principal directors. Grupo Dina's executive officers are appointed by the Grupo Dina Board of Directors and hold office at the discretion of the Grupo Dina's Board of Directors. In accordance with Mexican law, Grupo Dina also has one or more statutory auditors. The primary role of a statutory auditor is to report to Grupo Dina's stockholders at the annual ordinary general meeting of stockholders regarding the accuracy of the financial information presented to the stockholders by the Grupo Dina Board of Directors. A statutory auditor is also authorized (i) to call ordinary or extraordinary general meetings, (ii) to place items on the agenda for meetings of stockholders or of the Grupo Dina Board of Directors, (iii) to attend meetings of stockholders and of the Grupo Dina Board of Directors and (iv) generally to monitor the affairs of Grupo Dina. Grupo Dina may have an executive committee, the members of which must be directors and appointed at the stockholders' meeting. Currently, no executive committee has been appointed. The members of the Grupo Dina Board of Directors and the alternate directors, as well as the statutory auditor, are as follows:
Current Position Name Position Held Since Alternate Rafael Gomez Flores.................. Chairman 1992(1) Jose Luis Olvera Caballero Alejandro Cumming Soliveras.......... Director 1992 Humberto Gonzalez Hernandez Wilfrido Gonzalez Balboa............. Director 1992 Gamaliel Garcia Cortes David Ibarra Munoz................... Director 1992 Hector Arangua Morales Luis German Carcova.................. Director 1995 Guillermo Gomez Flores............... Director 1994 Luis Huante Rodriguez................ Director 1994 Antonio Mijares Ricci................ Director 1994 Hector Larios Santillan.............. Director 1996 Juan Gargallo Costa.................. Director 1996 Francois Bouffard.................... Director 1996 Guillermo Kareh Aarun................ Secretary 1993 Francisco Javier Soni Ocampo......... Deputy Statutory 1996 Carlos Mendez Rodriguez Auditor Martin Josephi Wellman Series L Director 1995 James Bernacchi Series L Director 1996 Jerry Bost - ------------------- (1) Rafael Gomez Flores has been a Director of Grupo Dina since 1989. He succeeded O. Raymundo Gomez Flores as Chairman of the Board in 1992. Grupo Dina's executive officers are as follows:
Current Position Name Position Held Since ---- -------- ---------------- Rafael Gomez Flores Chief Executive Officer 1996 Gamaliel Garcia Cortes Commercial Director 1995 Jose Luis Olvera Caballero Director of Finance 1994 James P. Bernacchi Chief Operating Officer 1996 Alberto Halliuis Morfin General Manager - Spare Parts 1995 Valente Espinoza Director of Acquisitions 1995 Guillermo Kareh Aarun Director of Legal Affairs 1995 and Human Resources Mr. Gomez Flores became the Chief Executive Officer of Grupo Dina following the termination of the employment of George Aucott in March 1996, and Mr. Bernacchi became its Chief Operating Officer following the termination of the employment of his predecessor, John Nasi, in April 1996. Although officers of Grupo Dina do not generally have employment contracts, Mr. Olvera entered into an employment agreement in September 1996 in connection with the establishment by MCII of its new bank credit facility. Such agreement provides for employment terms and severance rights in accordance with Grupo Dina's general severance policy for executives. MCII Holdings The following table sets forth certain information (ages as of July 1, 1996) concerning the directors and executive officers of MCII Holdings. All directors serve until their resignation or removal. Name Age Position Rafael Gomez Flores............. 39 President and Director Jose Luis Olvera Caballero...... 42 Vice President, Chief Financial Officer and Director Guillermo Kareh Aarun........... 40 General Counsel, Secretary and Director Gamaliel Garcia................. 42 Vice President and Director Stephen P. Glennon.............. 52 Director James P. Bernacchi.............. 50 Chief Operating Officer of MCII Jeff W. Sanders................. 34 Controller Kristin Schloemer............... 46 Assistant Secretary Albert J. Abram................. 39 Treasurer Mr. Gomez Flores has been President and Director of MCII Holdings since May 1996, Director of Grupo Dina since 1991 and Chairman of the Board of Directors of Grupo Dina since 1992. Rafael Gomez Flores and Guillermo Gomez Flores, Director of Grupo Dina, are brothers. Mr. Olvera Caballero has been a Director of MCII Holdings since May 1996, and Director of Finance of Grupo Dina since 1994. Mr. Olvera Caballero was Managing Partner of Price Waterhouse Mexico from 1991 to 1994. Mr. Kareh Aarun has been General Counsel, Secretary and Director of MCII Holdings since May 1996 and General Counsel of Grupo Empresarial G, S.A. de C.V., an affiliate of Grupo Dina, since 1993. Mr. Kareh Aarun served as General Counsel of Procter & Gamble Mexico from 1981 to 1993. Mr. Garcia has been Vice President and Director of MCII Holdings since May 1996. Mr. Garcia was General Manager of Premium International from 1991 to 1995. Mr. Glennon has been Director of MCII Holdings since May 1996. Mr. Glennon was designated as an independent director of MCII Holdings by the holder of at least a majority of the Old Notes pursuant to the Indenture. Mr. Glennon has been CEO of Glennon Associates since 1991, Director of New Water Street Corp. since 1993 and Director of Arden Group, Inc. since 1994. Mr. Bernacchi has been Chief Operating Officer of MCII and Grupo Dina since February 1996. From August 1995 to February 1996, Mr. Bernacchi served as Executive Vice President - Operations for Grupo Dina. From December 1991 through August 1995, Mr. Bernacchi held the position of Vice President-Group Procurement for MCII. Mr. Bernacchi has been employed with the MCII organization in various capacities since March 1988. Mr. Sanders has been Controller of MCII Holdings since May 1996 and director of financial reporting and then controller of MCII since its formation in 1993. Prior to being employed by MCII, Mr. Sanders was employed by the accounting firm of Deloitte & Touche LLP from 1985 to 1993 in various positions, including senior manager in the audit department. Ms. Schloemer has been Assistant Secretary and in-house counsel of MCII Holdings since May 1996 and has served as in-house counsel to MCII since its formation in 1993. Prior to employment with MCII, Ms. Schloemer was employed in the law department of The Dial Corp from 1981 to 1993 in various positions, working primarily on matters relating to Dial's bus manufacturing and bus parts distribution businesses. Mr. Abram has been Treasurer of MCII Holdings since May 1996 and has served as assistant treasurer and then treasurer of MCII since its formation in 1993. Prior to being employed by MCII, Mr. Abram was employed by The Dial Corp or subsidiaries of The Dial Corp beginning in 1985 in various capacities in the treasury function. COMPENSATION OF DIRECTORS AND OFFICERS OF GRUPO DINA The aggregate amount of compensation paid by Grupo Dina to all individuals serving as executive officers of the registrant during 1995 was Ps 25.4 million. Grupo Dina did not accrue any pension or retirement benefits for its directors or executive officers in 1995. Currently, members of Grupo Dina's Board of Directors who are not employees of Grupo Dina or its subsidiaries receive as compensation an annual fee equivalent to US$10,000. COMPENSATION OF DIRECTORS OF MCII HOLDINGS Mr. Glennon, independent director of MCII Holdings designated by the holders of the Old Notes pursuant to the Indenture, receives annual compensation equal to US$10,000 for his services as an independent Director of MCII Holdings. The other directors of MCII Holdings, who are employees of MCII or any subsidiary thereof, do not receive additional compensation by reason of their membership on, or attendance at meetings of, the Board. MCII HOLDINGS EXECUTIVE COMPENSATION MCII Holdings is a holding company with no business operations of its own and, accordingly, engages in its business through MCII and its subsidiaries. The officers of MCII Holdings receive no compensation for their services to MCII Holdings. Accordingly, the following table sets forth certain compensation awarded to, earned by or paid to the Chief Executive Officer of MCII and the four most highly paid executive officers of MCII and its subsidiaries, other than the Chief Executive Officer, who served as executive officers of MCII at December 31, 1995 for services rendered in all capacities to MCII and its subsidiaries during 1995 and the two prior fiscal years.
SUMMARY COMPENSATION TABLE Annual Compensation Long-Term Compensation Award ----------------------------------- ------------------------------------------ Name and Principal Position Other Securities Annual Restricted Under- Compen- Stock lying LTIP All Other Salary Bonus sation Awards Options Payouts Compensation Year US$ US$ US$(1) US$(2) #(3) US$(4) US$(5) ---------- --------- ------ ---------- ------------ ----------- ---------- ------------ George W. Aucott(6)... 1995 420,000 794,000 1,213,910 0 0 0 1,455,663 Chief Executive Officer and 1994 377,865 571,367 19,106 0 0 209,887 6,354 Chairman of the Board, MCII 1993 161,763 285,400 237,691 175,183 55,000 0 740 John R. Nasi(7)........ 1995 346,667 571,300 506,682 0 0 0 2,596,390 President and Chief 1994 326,667 416,600 45,724 0 0 203,882 9,000 Operating Officer, MCII 1993 306,667 225,100 476,088 150,162 93,716 0 14,045 Truman W. Netherton(8).... 1995 237,900 229,600 11,759 0 0 0 7,137 Group Executive 1994 226,667 208,675 113,564 0 0 369,920 4,500 Vice President, North 1993 214,333 147,200 5,778 116,438 57,447 0 7,157 American Coach Group Jerry W. Bost............ 1995 210,093 199,000 3,845 0 0 0 6,320 President and Chief Executive1994 195,333 148,358 92,052 0 0 80,898 5,860 Officer, Universal Coach 1993 166,669 93,000 49,390 97,031 43,710 0 2,205 Parts, Inc. James P. Bernacchi....... 1995 136,800 147,000 6,124 0 0 0 3,155 Executive Vice President 1994 119,267 93,250 37,378 0 0 0 0 Procurement and Manufac- 1993 110,733 63,200 41,366 32,344 14,061 0 470 turing Transportation Manufacturing Operations, Inc.. (1) Perquisites are less than the lower of 10% salary and bonus or US$50,000, except that (i) the amount for Mr. Aucott in 1993 includes perquisites for moving expenses (US$49,940), financial counseling (US$5,886), country club dues (US$4,558) and personal use of company car (US$2,635), and (ii) the amount for Mr. Bernacchi in 1993 includes perquisites for moving expenses (US$27,161), personal use of company car (US$964) and country club dues (US$75). The amount for Mr. Aucott in 1995 represents a gross-up of the taxes due for reimbursed financial counseling expenses (US$5,840), reimbursed travel expenses (US$2,036) and supplemental pension plan funding (US$1,206,034). The amount for Mr. Nasi in 1995 represents a gross-up of the taxes due for reimbursed counseling expenses (US$8,494) and supplemental pension plan funding (US$498,188). The amount for Mr. Netherton in 1995 represents a gross-up of the taxes due for reimbursed financial counseling expenses (US$2,716) and travel expenses (US$9,043). The amount for Mr. Bost in 1995 represents a gross-up of the taxes due for reimbursed financial counseling expenses (US$2,716) and travel expenses (US$1,129). The amount for Mr. Bernacchi in 1995 represents a gross-up of the taxes due for reimbursed financial counseling expenses (US$1,816) and travel expenses (US$4,308). (2) There were no restricted stock holdings at December 31, 1995. (3) There were no stock options at December 31, 1995. (4) Represents pro rata payment of outstanding awards under the MCII's incentive plans for the 1992-1994, 1993-1995 and 1994-1996 cycles. (5) The amount for Mr. Aucott in 1995 represents payments by MCII under 401(k) plans (US$9,000), supplemental pension plan funding (US$1,442,451) and life insurance payments (US$4,212). The amount for Mr. Nasi in 1995 represents payments by MCII under 401(k) plans (US$9,000) and supplemental pension plan funding (US$595,848) and payment under the MCII executive severance plan (US$1,991,542). The amount for Mr. Netherton in 1995 represents payments by MCII under 401(k) plans (US$7,137). The amount for Mr. Bost in 1995 represents payments by MCII under 401(k) plans (US$6,320). The amount for Mr. Bernacchi in 1995 represents payments by MCII under 401(k) plans (US$3,155). (6) Mr. Aucott became empoyed by MCII in July 1993. His employment terminated on March 31, 1996. (7) Mr. Nasi served as Chief Executive Officer of MCII until August 1993. His employment terminated on April 1, 1996. (8) Mr. Netherton's employment terminated on June 30, 1996.
Years of Service ---------------------------------------------- Renumeration 10 15 20 25 - ----------------------- --------- ---------- ---------- -------- US$100,000 .......... US$15,350 US$ 23,025 US$ 30,700 US$ 38,375 US$200,000 .......... 32,850 49,275 65,700 82,125 US$300,000 .......... 50,350 75,525 100,700 125,875 US$400,000 .......... 67,850 101,775 135,700 169,625 US$500,000 .......... 85,350 128,025 170,700 213,375 US$600,000 .......... 102,850 154,275 205,700 257,125 US$700,000 .......... 120,350 180,525 240,700 300,875 US$800,000 .......... 137,850 206,775 275,700 344,625 US$900,000 .......... 155,350 233,025 310,700 388,375 The above table shows the estimated annual retirement benefit payable on a straight life annuity basis to participating employees, including officers, in the earnings and years of service classifications indicated, under MCII's retirement plans which cover most officers and other salaried employees on a non-contributory basis. MCII's plans provide for the payment of benefits to an employee's surviving spouse or other beneficiary. Covered compensation includes salary and bonus. The calculation of retirement benefits under the plans generally is based upon average annual earnings for the highest five consecutive years. The credited years of service for Messrs. Aucott, Nasi, Netherton, Bost and Bernacchi are 2, 14, 4, 3 and 7, respectively. Mr. Aucott's average annual earnings for the 29 months ended December 31, 1995 were US$838,462. Mr. Bost's average annual earnings for the 39 months ended December 31, 1995 were US$303,061. Mr. Netherton's average annual earnings for the 54 months ended December 31, 1995 were US$404,332. Mr. Nasi's average annual earnings for the five years ended December 31, 1995 were US$478,428 and Mr. Bernacchi's were US$145,909. Section 401(a)(17) and 415 of the Internal Revenue Code of 1986, as amended, limit the annual benefits which may be paid from a tax-qualified retirement plan. As permitted by the Employee Retirement Income Security Act of 1974 ("ERISA"), MCII has supplemental plans which authorize the payment out of the general funds of MCII of any benefits calculated under provisions of the applicable retirement plan which may be above the limits under these sections. The basis on which benefits under the plans are computed are: years of service, age at retirement and compensation. The benefits listed in the above Pension Plan Table are not subject to any deduction or other offset amounts. MCII Benefit Plans The following are descriptions of certain agreements and benefit plans provided to management employees of MCII and its subsidiaries. MCII Employment Agreements. In 1994, in connection with the Merger, MCII entered into a three year employment agreement with Mr. Aucott providing for a base salary of US$350,000 per year, an annual incentive award under the MCII annual management incentive plan with a target amount of 60% of base salary and a long-term incentive award with a target amount of 60% of base salary. Mr. Aucott terminated his employment on March 31, 1996. In September 1996 in connection with the establishment by MCII of its new bank credit facility, Messrs. Olvera, Bernacchi, Sanders, Abram and Bost entered into employment agreements. Such agreements provide for employment terms and severance rights in accordance with Grupo Dina's general severance policy for executives. Letter Agreements. In 1994 in connection with the Merger, Grupo Dina and MCII entered into letter agreements (the "New Letter Agreements"), with each of George Aucott, James Bernacchi, Jerry Bost and Truman Netherton (collectively, the "Executives"). The employment of Messrs. Aucott and Netherton terminated on March 31, 1996 and June 30, 1996, respectively. Accordingly, their New Letter Agreements terminated on such dates. Each of the New Letter Agreements, which are all substantially similar, provide, among other things, that, for 18 months following consummation of the Merger, as long as such Executive remains employed by Grupo Dina or any of its subsidiaries or affiliates, such Executive's compensation package will not be reduced and will remain competitive with compensation packages for executives (exclusive of bonus, stock options, restricted stock and other incentive or severance arrangements) in positions substantially similar to such Executive's position at the time of the Merger who are employed by similarly situated United States corporations. Such 18 month period expired on February 7, 1996. In addition, the New Letter Agreements provide that, for as long as an Executive remains employed by Grupo Dina or any of its subsidiaries or affiliates, such Executive will be entitled to participate in a management incentive plan substantially similar to MCII's existing management incentive plan and that, as long as such Executive remains employed by Grupo Dina or any of its subsidiaries or affiliates, such Executive will be entitled to an annual cash payment through the year 2000. The amount of the cash payment to be made to each Executive was established in such Executive's New Letter Agreement and determined based on a percentage of such Executive's total current compensation package. MCII Executive Severance Plan. MCII adopted an executive severance plan ("Executive Severance Plan") covering a number of employees, including Mr. Nasi, providing severance benefits in the event of termination of employment for reasons other than death, disability or normal retirement, within 18 months after a change in control of MCII. Under the plan, in the event of such termination, Mr. Nasi would receive three times salary, bonuses and other benefits and three years' credit for pension service. In addition, the Executive Severance Plan provided that if Mr. Nasi elected to terminate his employment during April 1996, Mr. Nasi would be entitled to receive two times salary, bonus and other benefits, and two years' credit for pension service, in each case net of any amounts paid under any other severance agreement or arrangement. Mr. Nasi's terminated his employment on April 1, 1996. GRUPO DINA MANAGEMENT STOCK SALES PLAN At an extraordinary general stockholders' meeting held on October 9, 1992, the stockholders of Grupo Dina approved the issuance of 8,234,360 shares of common stock with a current aggregate book value of approximately Ps 37.8 million (US$5.06 million, based on an exchange rate as of June 3, 1996 of Ps 7.4747=US$1.00) which have been subscribed for and fully paid by the trust (the Grupo Dina Management Trust") established to implement Grupo Dina's Management Stock Sales Plan. The Grupo Dina Management Trust purchased the shares of common stock on October 14, 1992 at a price of Ps 3.04 (US$0.98) per share of common stock. Executive officers of Grupo Dina were awarded options to purchase common stock from the Grupo Dina Management Trust which are exercisable over the course of the next ten years in accordance with guidelines established by a technical committee, which includes representatives of Grupo Dina's principal stockholder. The common stock will be purchased by officers at the same price the trust paid for the common stock. As of June 30, 1996, 6,111,156 shares of common stock remained in the Grupo Dina Management Trust. OWNERSHIP OF COMMON STOCK GRUPO DINA The capital stock of Grupo Dina consists of one series of voting stock, the common stock, and one class of limited voting stock, the Series L Stock. The following table sets forth, at June 30, 1996, information, known to Grupo Dina, with respect to beneficial owners of more than 5% of the outstanding shares and beneficial ownership of outstanding shares by all officers and directors as a group.
Percent of Title of Number of Shares Outstanding Class Name and Address of Owner Owned(1) Common Stock(1) Common Grupo Empresarial G, S.A. de C.V. 127,912,420 62.8% Boulevard Puerta de hierro No. 5200 3er. Piso Fraccionamiento Puerta de Hierro Zapopan, Julisco 45110, Mexico Common Rafael Gomez Flores 1,666,287 0.8% Boulevard Puerta de hierro No. 5200 3er. Piso Fraccionamiento Puerta de Hierro Zapopan, Julisco 45110, Mexico Common O. Raymundo Gomez Flores 1,666,309 0.8% Boulevard Puerta de hierro No. 5200 3er. Piso Fraccionamiento Puerta de Hierro Zapopan, Julisco 45110, Mexico Common Armando Gomez Flores 1,666,308 0.8% Boulevard Puerta de hierro No. 5200 3er. Piso Fraccionamiento Puerta de Hierro Zapopan, Julisco 45110, Mexico Common Alfonso Miguel Gomez Flores 1,666,309 0.8% Boulevard Puerta de hierro No. 5200 3er. Piso Fraccionamiento Puerta de Hierro Zapopan, Julisco 45110, Mexico Common Guillermo Gomez Flores 1,666,289 0.8% Boulevard Puerta de hierro No. 5200 3er. Piso Fraccionamiento Puerta de Hierro Zapopan, Julisco 45110, Mexico Common Grupo Dina Management Trust 6,111,156 0.8% Tlacoquemecatl 41 Colonia del Valle 03100, Mexico, D.F. Mexico Common All officers and directors as a group(2) 9,955,993 4.9% Series L Frost-Nevada, Limited Partnership (3) 1,933,803 14.6% 4400 Biscayne Boulevard Miami, Florida 33137 Series L Goldman, Sachs & Co. (4) 1,579,027 11.4% 85 Broad Street New York, New York 10004 Series L All officers and directors as a group(5) 516,944 1.0% - ------------- (1) Since each of the named members of the Gomez Flores family has voting power or shares voting power and/or investment power over the shares owned of record by Grupo Empresarial G, S.A. de C.V. ("Empresarial"), each such family member may be deemed to be the beneficial owner of such shares in addition to the shares owned of record by such family member. (2) Includes all shares held of record by officers and directors of Grupo Dina and all shares held in the Grupo Dina Management Trust which together total 5,082,656 shares. However, such shares do not include shares held of record by Empresarial which members of the Gomez Flores family may be deemed to beneficially own. (3) Based upon the information contained in Amendment No. 6 dated August 14, 1996 to a Schedule 13D filed by Frost-Nevada, Limited Partnership ("F-N LP"), Frost-Nevada Corporation ("F-N Corp."), F-N LP's general partner, and Phillip Frost, M.D., the sole stockholder of F-N Corp. Each of F-N Corp. and Dr. Frost may be deemed to be the beneficial owner of these shares. (4) Based upon the information contained in Amendment No. 4 dated September 10, 1996 to a Schedule 13G filed by Goldman, Sachs & Co. and Goldman Sachs Group, L.P. (5) Includes shares owned by certain individuals who as of the date of this Prospectus are no longer officers or directors.
Empresarial is a holding company owned by the members of the Gomez Flores family listed in the table above. Approximately 62.8% of the outstanding shares of common stock of Grupo Dina are owned by Empresarial and therefore may be deemed to be beneficially owned by members of the Gomez Flores family. Consequently, as of the date of this Prospectus, Empresarial and, through it, those family members have the power to elect all of Grupo Dina's directors other than the two directors entitled to be elected by the holders of Series L Stock and as otherwise discussed in "Management" and to determine the outcome of any actions requiring stockholder approval, including the declaration, amount and payment of dividends by Grupo Dina. Through Empresarial, the Gomez Flores family is engaged in a wide range of business activities in Mexico, including real estate development and residential and commercial real estate construction and food related businesses. There are no arrangements known to management, the operation of which may at a subsequent date result in a change in control of the Grupo Dina. MCII HOLDINGS All of the outstanding common stock of MCII Holdings is owned by Grupo Dina. CERTAIN TRANSACTIONS GRUPO DINA In the ordinary course of its business, Grupo Dina has from time to time engaged in a variety of transactions with Empresarial, other affiliates of the Gomez Flores family and certain of its subsidiaries. Empresarial and members of the Gomez Flores family, who in turn control Empresarial, are the controlling shareholders of Grupo Dina. The principal transactions with such related parties during the period from January 1, 1995 through the date of this Prospectus are as follows: (i) On July 31, 1996, Grupo Dina sold the accounts receivable under the Restructuring Agreements with Tres Estrellas, Estrella Blanca and their respective licensees, which had a total value of Ps 306.9 million, to AF Dina, a leasing company which provides financing in connection with sales of Grupo Dina products. In connection with the sale of the accounts receivable to AF Dina, Grupo Dina acquired new shares of AF Dina increasing its equity interest in AF Dina to 92.89%. Also in connection with this transaction, the Gomez Flores family's interest in AF Dina decreased from 80.0% to 4.68% of the outstanding capital stock of AF Dina. Grupo Dina may provide assistance to AF Dina in the form of guarantees of its borrowings. See "Business of Grupo Dina - Business Strategy of Grupo Dina -- Sales Financing." (ii) In 1993, MCII purchased a 10% ownership interest in Mexicana de Autobuses, S.A. de C.V. ("MASA"), a coach manufacturing company in Mexico, for US$6,000,000. In December 1994, MCII distributed the MASA shares to Grupo Dina as a dividend. In December 1995, MCII repurchased the MASA shares from Grupo Dina for US$1,200,000. MCII HOLDINGS In the ordinary course of its business, Grupo Dina has from time to time engaged in a variety of transactions with MCII and other subsidiaries. The principal transactions with MCII and such other subsidiaries during the period from January 1, 1995 through the date of this Prospectus are as follows: (i) Pursuant to an exchange offer completed in June 1996, Grupo Dina and MCII Holdings issued as joint obligations Senior Secured Discount Notes due 2002 with an aggregate principal amount of US$206,500,000 primarily in exchange for US$143,040,000 aggregate principal amount of 10.5% guaranteed notes issued by Grupo Dina on November 18, 1992. (ii) On August 1, 1995, Autobuses, a wholly-owned subsidiary of Grupo Dina, and Hausman Bus Sales, Inc. ("Hausman"), an indirect subsidiary of MCII Holdings, entered into a coach purchase agreement (the "Coach Purchase Agreement") whereby Hausman agreed to purchase motor coaches assembled by Autobuses. (iii) Grupo Dina is contemplating the contribution of Autobuses to MCII, although at this time there can be no assurance that such contribution will be completed. DESCRIPTION OF THE NOTES The New Notes offered hereby will be issued pursuant to the Indenture among Grupo Dina, MCII Holdings and IBJ Schroder Bank & Trust Company, as Trustee, a copy of which is filed as an exhibit to the Registration Statement of which this Prospectus constitutes a part. The following summary, which describes certain provisions of the Indenture and the Notes, does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the TIA and all of the provisions of the Indenture and the Notes, including the definitions therein of terms not defined in this Prospectus. Certain terms used in this section are defined below for purposes of this section under "-- Certain Definitions." New Notes are identical in all material respects to the Old Notes, except for certain transfer restrictions and registration rights relating to the Old Notes and except that, if the Exchange Offer is not consummated by December 30, 1996, the Old Notes will bear additional interest as described under "-- Registration Rights" below. GENERAL The Notes will be dated as of, and accrue interest from, November 18, 1995 and will bear interest initially at the rate of 12% per annum through maturity; provided, that, if the Notes are not rated either BB-or better by S&P or Ba3 or better by Moody's at November 15, 1999, the per annum interest rate shall be increased on such date to 15%, until maturity. Prior to and including the interest payment due on November 15, 1998, the Notes will accrue interest on a zero coupon basis and, accordingly, the principal value of each New Note will accrete from US$705.65 at November 18, 1995 for each US$1,000 in principal amount to US$1,000 at November 15, 1998. Thereafter, all interest will be payable in cash semiannually on May 15 and November 15 of each year (each a "Cash Interest Payment Date"), commencing May 15, 1999. Interest on the Notes will be paid to the Persons who are registered holders of Notes at the close of business on the first day of the month in which such interest payment date occurs. The Notes will be transferable and exchangeable initially at the office of the Trustee and will be issued only in fully registered form, without coupons, in denominations of US$1,000 and any integral multiple thereof. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Additional interest may be payable on the Notes under the circumstances described below under "--Registration Rights." Grupo Dina and MCII Holdings will be fully and unconditionally liable with respect to payments of principal and interest on the Notes. It is intended that all payments in respect of the Notes will be paid by Grupo Dina, and that payments will be made by MCII Holdings only in the event of failure to pay by Grupo Dina. MCII Holdings will have subrogation rights against Grupo Dina if MCII Holdings is required to make any payments under the Notes. Such subrogation rights will be subordinated to the prior payment in full of the Notes and the Eurobonds. Holders of the Notes, by their acceptance of the Notes, will agree to report the Notes as indebtedness of Grupo Dina which is guaranteed by MCII Holdings for all tax purposes. In addition, Grupo Dina and MCII Holdings intend to treat the Notes as debt of Grupo Dina guaranteed by MCII Holdings for all tax purposes. The principal amount of the Notes will be payable on November 15, 2002. The Notes will be general senior obligations of Grupo Dina and MCII Holdings. The obligation of MCII Holdings will be secured by (i) a pledge of the MCII Shares and (ii) a perfected first priority security interest in any cash deposited with the Trustee in accordance with the covenant described under "--Certain Covenants--Limitation on Restricted Payments by MCII Holdings" below. MCII Holdings may sell the MCII Shares and MCII may issue and sell additional MCII stock in accordance with the covenant described under "--Certain Covenants--Limitation on Issuance and Sale of Capital Stock of MCII" below. The obligation of Grupo Dina in respect of the New Notes will rank pari passu with the Old Notes and with all other outstanding unsecured and unsubordinated obligations of Grupo Dina, present or future, other than obligations which are mandatorily preferred by statute or operation of law. The obligation of MCII Holdings in respect of the New Notes will rank pari passu with the Old Notes and, by reason of the security interests referred to above, will effectively rank senior to any outstanding unsecured obligations of MCII Holdings. MCII Holdings will not incur indebtedness for borrowed money except for indebtedness subordinated to the Notes as described under "--Certain Covenants--Limitation on MCII Holdings Debt" below. At June 30, 1996, Grupo Dina had outstanding Ps 2,442.2 million in aggregate principal amount of indebtedness that, by reason of its being secured by collateral, ranks effectively senior to the Old Notes and the New Notes. At such date, MCII Holdings had no outstanding indebtedness ranking senior to the Old Notes or the New Notes. At such date, MCII and its subsidiaries had outstanding indebtedness in an aggregate principal amount of US$195.6 million that is structurally senior to the Old Notes and the New Notes. Under the terms of the Indenture, Grupo Dina or MCII Holdings, as the case may be, may be obligated or have the option to repurchase the Notes. Selection of Notes to be repurchased pursuant to the Indenture will be made by lot, pro rata or by such other method as the Trustee shall deem to be fair and appropriate. The Indenture provides that if any Note is to be redeemed in part only, the notice of redemption relating to such Note shall state the portion of the principal amount (in integral multiples of US$1,000) to be redeemed and that on and after the date fixed for redemption, upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion thereof may be issued in the name of the holder thereof, or the Trustee may note such partial redemption upon such security. Grupo Dina or MCII Holdings will comply with any tender offer rules under the Exchange Act which may then be applicable, including Rule 14e-1, in connection with any offer made by Grupo Dina or MCII Holdings to repurchase the Notes. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, Grupo Dina or MCII Holdings will comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this covenant by virtue thereof. For each Old Note accepted for exchange the holder of such Old Note will receive a New Note having a principal amount equal to that of the surrendered Old Note. All Old Notes and New Notes will be treated as a single class of securities under the Indenture. SECURITY FOR THE NOTES The Notes will be secured by (i) a pledge of the MCII Shares held by MCII Holdings and (ii) a perfected first priority security interest in any cash or Cash Equivalents deposited with the Trustee in accordance with the covenant described under "--Certain Covenants--Limitation on Restricted Payments by MCII Holdings" below. MCII Holdings may sell the MCII Shares and MCII may issue and sell additional MCII stock in accordance with the covenant described under "--Certain Covenants--Limitation on Issuance and Sale of Capital Stock of MCII" below. OPTIONAL REDEMPTION The Notes may be redeemed, in whole or in part, at the option of Grupo Dina, upon not less than 30 nor more than 60 days' notice mailed to each holder of Notes at its address at any time on or after November 15, 1998, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date. In addition, the Notes may be redeemed, in whole but not in part, at the option of Grupo Dina or MCII Holdings at any time at 100% of the principal amount thereof, plus accrued and unpaid interest, if any, through the redemption date in the event of certain changes affecting withholding taxes. See "--Tax Redemption" below. CHANGE OF CONTROL A Change of Control will constitute an Event of Default under the Indenture (i) if within 30 days after such Change of Control neither Grupo Dina nor MCII Holdings, as the case may be, has notified the Trustee in writing of such Change of Control and mailed a notice to holders of Notes stating (A) that Grupo Dina or MCII Holdings is making an offer to all holders of the New Notes to purchase all Notes properly tendered (a "Change of Control Offer") at a purchase price (the "Change of Control Purchase Price") equal to the aggregate Accreted Value thereof on the date of purchase, if on or prior to November 15, 1998, and equal to the aggregate principal amount thereof, plus accrued and unpaid interest, if any, thereafter, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant Cash Interest Payment Date); (B) the purchase date (which will be no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Change of Control Purchase Date"); and (C) the instructions, determined by Grupo Dina or MCII Holdings, consistent with the Indenture, that a holder must follow in order to tender its Notes; or (ii) neither Grupo Dina nor MCII Holdings, as the case may be, purchases all Notes properly tendered in accordance with the Change of Control Offer on such Change of Control Purchase Date. The failure of Grupo Dina or MCII Holdings, as the case may be, to make the Change of Control Offer or to pay the Change of Control Purchase Price on the Change of Control Purchase Date will result in the Trustee and the holders of the Notes having the rights described under "--Events of Default" below. Grupo Dina's or MCII Holdings' ability to pay cash to the holders of the Notes upon a repurchase may be limited by Grupo Dina's or MCII Holdings' then existing financial resources, and there can be no assurances that Grupo Dina or MCII Holdings will have the financial resources necessary to repurchase the Notes upon a Change of Control. The provisions under the Indenture relating to Grupo Dina's or MCII Holdings' obligation to make an offer to repurchase Notes as a result of a Change of Control may be waived or modified with the written consent of the holders of a majority in principal amount of the Notes. CERTAIN COVENANTS The Indenture contains covenants including, among others the following: Limitation on MCII Holdings Debt. Excluding the Notes, MCII Holdings may not, directly or indirectly, create, incur, issue, assume, suffer to exist, Guarantee or in any other manner become directly or indirectly liable with respect to or become responsible for (collectively, to "incur") any Debt. Notwithstanding the foregoing, MCII Holdings may incur Debt subordinated to the Notes provided that the Notes are rated BBB- or better by S&P and Baa3 or better by Moody's at the time of and immediately after the incurrence of such subordinated Debt. Limitation on Subsidiary Debt and Preferred Stock. MCII Holdings will not permit MCII or any other Subsidiary to, directly or indirectly, incur any Debt or issue Preferred Stock if it would result in the aggregate amount of Subsidiary Debt exceeding at any time the sum of (i) the Adjusted Subsidiary Debt Amount and (ii) the Debt, if any, of Autobuses, if Autobuses shall become a direct Subsidiary of MCII Holdings; provided, however, that if (x) the total principal amount of Notes outstanding on November 15, 1998 and (y) the aggregate amount of Subsidiary Debt exceeds the Maximum Permitted Debt Amount at November 15, 1998, then to the extent that Notes are not prepaid on such date, MCII Holdings shall cause its Subsidiaries to reduce Debt on and after November 15, 1998 for so long as and to the extent necessary to ensure that the aggregate amount of Notes outstanding and the aggregate amount of Subsidiary Debt does not at any time exceed the Maximum Permitted Debt Amount for so long as any Notes shall be outstanding. For purposes of the foregoing, the Maximum Permitted Debt Amount means US$420 million; provided, however, that upon contribution by Grupo Dina of 100% of the issued and outstanding Capital Stock of Autobuses to MCII Holdings or MCII, the Maximum Permitted Debt Amount shall mean US$440 million. For purposes of the foregoing, Debt shall exclude Permitted Debt, and for purposes of the preceding sentence, but not the first sentence, of this paragraph, Debt shall exclude additional Debt in an amount not to exceed 80% of MCII Receivables. Notwithstanding the foregoing, if Autobuses becomes a direct Subsidiary of MCII Holdings, no other Subsidiary of MCII Holdings shall Guarantee or otherwise be responsible for the Debt, if any, of Autobuses. Limitation on Restricted Payments by MCII Holdings. The Indenture prohibits any MCII Holdings Restricted Payments; provided, however, that MCII Holdings may declare and pay dividends, so long as at the time of such dividend and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing, as follows: (i) in the one year period following the Expiration Date, MCII Holdings may declare and pay one or more dividends on its Capital Stock aggregating not more than US$25 million and (ii) MCII Holdings may declare and pay dividends on its Capital Stock in an amount (excluding dividends under clause (i)) equal to the greater of (a) US$3 million per calendar year and (b) 50% of the Consolidated Net Income of MCII since January 1, 1996 (treated as one accounting period), provided that, in the event of a dividend permitted under clause (b) but not under clause (a), MCII Holdings has on deposit with the Trustee for the benefit of the holders an amount of cash and/or Cash Equivalents not less than the cash interest due on the Notes then outstanding within the six month period following the payment of such dividend and (iii) subject to compliance by MCII Holdings with the "Limitation on Issuance and Sale of Capital Stock of MCII" covenant, MCII Holdings may declare and pay any dividend in an amount not to exceed the amount of Required Proceeds from the sale of Capital Stock of MCII not required for the repurchase of Notes pursuant to such covenant. In addition, MCII Holdings may declare and pay any dividend not permitted under clauses (i) and (ii), provided that (1) it shall have first offered to apply up to the difference between the amount of such dividend and the maximum amount then permitted under clause (ii) (the "Extraordinary Dividend Amount") to the repurchase of Notes pursuant to a Qualifying Offer. To the extent that the aggregate Accreted Value or the principal amount (together with accrued interest, if any) of Notes tendered pursuant to such Qualifying Offer is less than the amount of the Extraordinary Dividend Amount, MCII Holdings may declare and pay as a dividend the portion of such Extraordinary Dividend Amount that is not required in order to purchase Notes so tendered. MCII Holdings may reduce the Extraordinary Dividend Amount offered to repurchase Notes by the amount, if any, it shall have paid in the 180 days preceding the commencement of the relevant Qualifying Offer to purchase or otherwise retire Notes other than in satisfaction of this or any other covenant under the Indenture. Limitation on MCII Holdings Liens. MCII Holdings will not, directly or indirectly, incur any Lien of any kind on or with respect to any property or assets now owned or hereafter acquired, or any interest herein or any income or profits therefrom, for the benefit of any Debt that is subordinated to the Notes. If MCII Holdings acquires the Capital Stock of Autobuses, MCII Holdings will not, directly or indirectly, incur any Lien of any kind on or with respect to the Capital Stock of Autobuses. Limitation on the Issuance and Sale of Capital Stock of MCII. MCII Holdings will not convey, sell, assign, transfer or otherwise dispose of, and will not permit MCII to issue and sell, Capital Stock of MCII (an "MCII Shares Sale"); provided, however, that MCII may issue and sell, or MCII Holdings may convey, sell, assign, transfer, or otherwise dispose of, MCII Capital Stock, other than Redeemable Stock or Preferred Stock, if immediately after giving effect to such an MCII Shares Sale (i) MCII Holdings shall continue to hold a Majority of the Voting Stock of MCII and (ii) MCII Holdings or MCII, as the case may be, makes a Qualifying Offer to apply 80% of the Net Proceeds of such MCII Shares Sale (such 80% the "Required Proceeds") to purchase Notes properly tendered pursuant to such Qualifying Offer. To the extent that the aggregate Accreted Value or the principal amount (together with accrued interest, if any) of the Notes tendered pursuant to such Qualifying Offer is less than the amount of the Required Proceeds, MCII Holdings and MCII may use such portion of the Required Proceeds that is not required in order to purchase Notes so tendered for any purpose whatsoever. Notwithstanding the foregoing, (i) no Capital Stock of MCII may be sold without the affirmative vote of the holders of at least 662/3% of the outstanding aggregate principal amount of the Notes unless the implied value of 100% of the Capital Stock of MCII (based upon the price per share to be realized in the proposed sale) would exceed the aggregate Accreted Value of the Notes then outstanding; (ii) MCII Holdings shall not permit MCII at any time to issue and sell Redeemable Stock or Preferred Stock; and (iii) in the event that the Capital Stock of Autobuses is contributed to MCII or any Subsidiary of MCII, no additional Capital Stock, Redeemable Stock or other securities shall be issued in respect of such contribution. The Trustee will execute any and all necessary documents to permit the release of the Lien on the Capital Stock of MCII to be sold pursuant to this covenant. Transactions with Affiliates. The Indenture provides that, subject to certain exceptions, including, without limitation, any agreement entered into on or before the date of the Indenture, MCII Holdings will not, and will not permit any Subsidiary to, directly or indirectly, conduct any business or enter into or suffer to exist any transaction or series of transactions (including, without limitation, the purchase, sale, transfer, lease or exchange of any assets or property or the rendering of any service) with, or for the benefit of, Grupo Dina or any Affiliate of Grupo Dina (other than MCII Holdings or a Subsidiary) on terms that are not in the best interest of MCII Holdings or such Subsidiary, as the case may be, or on terms that are less favorable to MCII Holdings or such Subsidiary, as the case may be, than those which might be obtained at the time of such transaction from a Person who is not such an Affiliate. Any business, transaction or series of related transactions involving aggregate payments in excess of US$5 million will require affirmative approval from the Board of Directors of MCII Holdings and a favorable written fairness opinion from an independent appraisal or investment banking firm, except that MCII may maintain up to US$30 million in inventory representing bus and bus parts purchases from Grupo Dina without affirmative approval from the Board of Directors of MCII Holdings or a favorable written fairness opinion from an independent appraisal firm. Notwithstanding the foregoing, MCII Holdings or any Subsidiary thereof may repurchase and cancel the New Notes at any time. Limitation on Mergers, Consolidations or Sales of Assets. The Indenture provides that, without the unanimous affirmative vote of all members of the Board of Directors of MCII Holdings, MCII Holdings will not, in any transaction or series of transactions, consolidate or merge with or into any Person, or sell, convey, assign, transfer, lease or otherwise dispose of all or substantially all of its assets, or acquire all or substantially all of the assets or Capital Stock or other ownership interest of, any other Person; provided, however, that the following shall not be subject to this covenant: (a) any MCII Shares Sale in accordance with the covenant described under "--Limitation on Issuance and Sale of Capital Stock of MCII" above and (b) any acquisition by MCII Holdings of the Capital Stock of Autobuses. In addition, any such transaction by MCII Holdings receiving the unanimous affirmative vote of all members of the Board of Directors of MCII Holdings may only be consummated if: (1) the entity formed by or surviving any such consolidation or merger (if MCII Holdings is not the surviving entity) or the Person to which such sale, conveyance, assignment, transfer, lease or other disposition of all or substantially all of MCII Holdings' Property is made (the "Surviving Person") shall be a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia; and (2) every such successor or assign shall, as a part of such consolidation, merger, conveyance, assignment, transfer, sale, lease or disposition and in consideration thereof enter into and execute an instrument supplemental to the Indenture whereby such successor or assign covenants: (i) to pay punctually when due the principal of and interest and Additional Amounts, if any, on the Notes; and (ii) to observe and perform each and every covenant and agreement of MCII Holdings contained in the Notes and the Indenture as fully and completely as if it had itself executed the Notes and the Indenture as MCII Holdings. MCII Holdings will not permit MCII, in any transaction or series of transactions, to consolidate with or merge with or into, or sell, convey, assign, transfer, lease or otherwise dispose of all or substantially all of its assets to, any Person unless: (i) MCII shall be the surviving Person (the "Surviving Person"), or the Surviving Person (if other than MCII) formed by such consolidation or into which MCII is merged or to which the assets of MCII are transferred shall be a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia; (ii) the Surviving Person (if other than MCII) shall expressly assume all of the obligations of MCII; and (iii) immediately before and immediately after giving effect to such transaction, no Event of Default shall have occurred and be continuing; provided, however, that no transaction or series of transactions which would otherwise constitute a disposition of substantially all the assets of MCII shall be treated as such for purposes of the Indenture, including this covenant, unless such disposition also constitutes a disposition of all or substantially all the assets used in the bus manufacturing business of Grupo Dina and its Subsidiaries. For the purposes of the preceding sentence, Grupo Dina and its Subsidiaries will be considered as a single entity. Limitation on Business of MCII Holdings. MCII Holdings may not engage in any business other than (i) holding the MCII Shares and, if MCII Holdings acquires the Capital Stock of Autobuses, holding the Capital Stock of Autobuses, (ii) pledging the MCII Shares as collateral under the Notes, (iii) satisfying its obligations under the Notes in the event of a failure to pay by Grupo Dina, (iv) making investments in Cash Equivalents and (v) any other transactions expressly provided for in the Indenture. Corporate Separateness of MCII Holdings. Pursuant to MCII Holdings' Certificate of Incorporation and the Indenture, for so long as any Notes shall be outstanding, (i) MCII Holdings' Board of Directors will consist of not more than three members, at least one of which will be selected by the holders of a Majority of the Notes and (ii) MCII Holdings will not be authorized, without the unanimous consent of the Board of Directors, to (A) dissolve or liquidate, in whole or in part, or institute proceedings to be adjudicated bankrupt or insolvent, (B) consent to the institution of bankruptcy or insolvency proceedings against it, (C) file a petition seeking or consent to reorganization or relief under any applicable federal, state or foreign law relating to bankruptcy, (D) consent to the appointment of a receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of MCII Holdings or a substantial part of its property, (E) make a general assignment for the benefit of creditors, (F) admit in writing its inability to pay its debts generally as they come due or (G) take any corporate action in furtherance of the actions set forth in clauses (A) through (F) of this paragraph. In addition, no director will be under any duty to nor may be required by Grupo Dina to consent to the institution of bankruptcy or insolvency proceedings against MCII Holdings so long as it is solvent and does not reasonably foresee becoming insolvent, which determination shall be made after giving effect to the subrogation rights of MCII Holdings in respect of the Notes. The Indenture provides that, for so long as any Notes are outstanding, (i) each of Grupo Dina and MCII Holdings shall do all things within its power to satisfy the legal requirements applicable from time to time for the recognition of MCII Holdings as a corporate entity separate and apart from Grupo Dina (or any Person subsequently controlling Grupo Dina) and (ii) each of Grupo Dina and MCII Holdings shall fulfill its obligations under, and shall not waive any of its rights provided by, the Corporate Separateness Agreement. Reports to Holders of the Notes. Each of Grupo Dina and MCII Holdings shall file with the Trustee and provide holders of the Notes, within 15 days after it files them with the Commission, copies of its annual report and the information, documents and other reports which Grupo Dina and MCII Holdings are required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. Notwithstanding that Grupo Dina and MCII Holdings may or may not be required to become or to remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, Grupo Dina and MCII Holdings shall continue to provide the holders of the Notes with the annual reports and the information, documents and other reports which are specified in Section 13 and 15(d) of the Exchange Act, including, in the case of MCII Holdings, quarterly reports and all other reports required of issuers that are not foreign private issuers as defined under Rule 3b-4 of the Exchange Act. Impairment of Security Interest. MCII Holdings shall not take or knowingly or negligently omit to take any action, which action or omission might or would have the result of materially impairing the security interest with respect to the Collateral for the benefit of the Trustee and the holders of the Notes, and MCII Holdings shall not, and shall not permit any of its Subsidiaries to, grant to any Person other than the Trustee and the holder of Notes, any interest whatsoever in any Collateral. Limitation on Restricted Payments By Grupo Dina. The Indenture prohibits any Grupo Dina Restricted Payments until such time as Grupo Dina or any of its Subsidiaries shall have made one or more Qualifying Offers to purchase New Notes representing at least 75% of the Original Principal Amount of the New Notes, such amount to be reduced by the principal amount of any Notes purchased or otherwise retired by Grupo Dina or any of its Subsidiaries other than pursuant to a Qualifying Offer. Limitation on Grupo Dina Liens. Grupo Dina will not, directly or indirectly, incur any Lien of any kind on or with respect to any property or assets now owned or hereafter acquired, or any interest therein or any income or profits therefrom, for the benefit of any Debt that is subordinated to the New Notes. Limitation on Asset Sales by Grupo Dina. The Indenture provides that the following covenant shall be in effect until such time as Grupo Dina or any of its Subsidiaries shall have made one or more Qualifying Offers to purchase Notes representing at least 75% of the Original Principal Amount of the Notes, such amount to be reduced by the principal amount of any Notes purchased or otherwise retired by Grupo Dina or any of its Subsidiaries other than pursuant to a Qualifying Offer. Grupo Dina shall not, and shall not permit any of its Subsidiaries (other than MCII Holdings or any Subsidiary of MCII Holdings) to, directly or indirectly, consummate any Asset Sale with Net Proceeds thereof exceeding US$10 million unless (i) Grupo Dina or such Subsidiary, as the case may be, receives consideration (the "Asset Sale Proceeds") at least equal to the fair market value of the property subject to such Asset Sale and (ii) at least 75% of the consideration therefor received by Grupo Dina or such Subsidiary consists of cash, Cash Equivalents and/or liquid securities which Grupo Dina or such Subsidiary, as the case may be, plans in good faith to convert into cash within the 180-day period following such Asset Sale. In addition, within 365 days of the receipt of any Asset Sale Proceeds, Grupo Dina or any Subsidiary may (i) reinvest such Asset Sale Proceeds (or any portion thereof) in additional assets used in the truck and bus manufacture and supply business (or in any other business directly related or incidental thereto) or (ii) purchase or otherwise retire Euronotes, Notes or the Debentures; provided that the amount applied to purchase Debentures does not exceed US$20 million, such amount to be reduced by the amounts applied by Grupo Dina or any of its Subsidiaries to repurchase or otherwise retire Debentures since the date of original issuance of Notes; and provided further that not more than 25% of any Asset Sale Proceeds of any Asset Sale or series of related Asset Sales may be applied to purchase Debentures. Any proceeds that are not so reinvested or applied to retire such Debt within such period shall constitute "Excess Asset Sale Proceeds." Each time the aggregate amount of Excess Asset Sale Proceeds equals or exceeds US$10 million, Grupo Dina shall make a Qualifying Offer to repurchase Notes with the Excess Asset Sale Proceeds. WAIVER OF CERTAIN COVENANTS Subject to certain exceptions, the Indenture provides that Grupo Dina and/or MCII Holdings may omit in any instance to comply with any covenant or condition set forth in the foregoing covenants if before the time for such compliance the holders of at least a majority of the outstanding aggregate principal amount of New Notes shall either waive such compliance in such instance or generally waive compliance with such covenants or condition, but no such waiver shall extend to or affect such covenants or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of Grupo Dina, MCII Holdings and the duties of the Trustee under the Indenture in respect of any such covenant or condition shall remain in full force and effect. EVENTS OF DEFAULT The following, in addition to the events described under "--Change of Control," constitute "Events of Default" with respect to the Notes pursuant to the Indenture: (1) failure to pay interest on any of the Notes when due if such failure continues for 30 days; (2) failure to pay principal or premium, if any, on any of the Notes when due at maturity, upon acceleration, optional redemption, required purchase or otherwise; (3) failure to comply with any of the covenants and agreements in the Indenture (other than the obligations specified in clauses (1) and (2) above) if such failure exists for more than 45 days following notice from the Trustee or holders of 331/3% of the outstanding principal amount of Notes; (4) Debt of MCII Holdings or any Subsidiary thereof is not paid when due within the applicable grace period or is accelerated by the holders thereof and, in either case, the total amount of such unpaid or accelerated Debt exceeds US$20 million; (5) certain events of bankruptcy, insolvency or reorganization; (6) any judgment or decree aggregating more than US$20 million entered against MCII Holdings or any Subsidiary thereof remains unsatisfied or unstayed for more than 60 days; (7) any unwaived and uncured Event of Default under the indentures relating to the Subordinated Debentures or any outstanding Euronotes; and (8) the Indenture or any of the security documents ceases to be in full force and effect or ceases to create in favor of the Trustee a valid and perfected first priority Lien on the Collateral. If an Event of Default specified in clause (4) or clause (7) above occurs under the Indenture, and if the relevant lender whose Debt was accelerated later rescinds such acceleration (or such acceleration is later cured), then any cross acceleration of the Debt under the Notes shall be automatically rescinded (or cured) as well. If an Event of Default (other than certain events of bankruptcy, insolvency or reorganization of MCII Holdings) occurs, the Trustee or the holders of at least 331/3% in principal amount of the outstanding Notes may declare the principal of and accrued but unpaid interest on all the Notes to be due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of MCII Holdings occurs and is continuing, the principal of and interest on the Notes will automatically become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holders of the Notes. Under certain circumstances, the holders of a majority in principal amount of the outstanding Notes may rescind any such acceleration with respect to the Notes and its consequences. Subject to the provisions of the Indenture relating to the duties of the Trustee, if an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the holders of the Notes unless such holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium (if any) or interest when due, no holder of a Note may pursue any remedy with respect to the Indenture or the Notes unless (i) such holder has previously given the Trustee notice that an Event of Default is continuing, (ii) holders of at least 25% in principal amount of the outstanding Notes have requested the Trustee to pursue the remedy, (iii) such holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense, (iv) the Trustee has not complied with such request within 60 days after the receipt thereof and the offer of security or indemnity and (v) the holders of a majority in principal amount of the outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period. Subject to certain restrictions, the holders of a majority in principal amount of the outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of any other holder of a Note or that would involve the Trustee in personal liability. The Indenture provides that if an Event of Default occurs and is continuing and is known to the Trustee, the Trustee must mail to each holder of the New Notes notice of the Event of Default within 90 days after it occurs. Except in the case of an Event of Default in the payment of principal of or interest on any Note, the Trustee may withhold notice if and so long as a committee of its trust officers determines that withholding notice is not opposed to the interest of the holders of the Notes. In addition, each of Grupo Dina and MCII Holdings is required to deliver to the Trustee, within 120 days after the end of each fiscal year, a certificate indicating whether the signers thereof know of any Event of Default that occurred during the previous year. Each of Grupo Dina and MCII Holdings also is required to deliver to the Trustee, within 30 days after the occurrence thereof, written notice of any event which would constitute an Event of Default, its status and what action Grupo Dina or MCII Holdings, as the case may be, is taking or proposes to take in respect thereof. MODIFICATION OF INDENTURE Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the holders of at least a majority of the outstanding aggregate principal amount of such Notes, and any past Event of Default or noncompliance with any provision thereof may be waived with the consent of the holders of at least a majority of the outstanding aggregate principal amount of such Notes. See "--Waiver of Certain Covenants" and "--Events of Default." Without the consent of any holder of Notes, Grupo Dina and MCII Holdings may amend or supplement the Indenture or the Notes to cure any ambiguity, defect or inconsistency or to make any change that does not adversely affect the rights of any holder of Notes. Without the consent of the holder of each Note affected, an amendment, supplement or waiver with respect to the Indenture may not: reduce the principal amount of Notes the holders of which must consent to an amendment, supplement or waiver; reduce the rate of or extend the time for payment of interest on any Note; reduce the principal amount of or extend the maturity date of any Note; reduce the amount payable upon the redemption of any Note or change the time at which any Note may or shall be redeemed; make any Note payable in money other than that stated in the Note; make any change in the provisions concerning waiver of Events of Default by holders of the Notes; adversely affect the ranking of the Notes; permit the creation of any Lien on the Collateral or any part thereof (other than the Lien of the Indenture and the other security documents) or terminate the Lien of the Indenture or the other security documents as to the Collateral or any part thereof or deprive the holders of the Notes of the security afforded by the Lien of the Indenture and the other security documents or any part thereof, in each case other than as contemplated by the Indenture. ADDITIONAL AMOUNTS All payments by Grupo Dina in respect to the Notes shall be made free and clear of and without withholding or deduction for or on account of any present or future taxes, duties, assessments, or other governmental charges of whatsoever nature imposed or levied by or on behalf of Mexico, or any political subdivision or authority thereof or therein having power to tax, unless Grupo Dina is compelled by law to deduct or withhold such taxes, duties, assessments, or governmental charges under relevant law or by the interpretation or administration thereof. In such event, Grupo Dina shall pay such additional amounts (including the Additional Amounts) ("Additional Amounts") as may be necessary to ensure that the net amounts receivable by the holders of Notes after such withholding or deduction shall equal the respective amounts of principal and interest which would have been received in respect of Notes in the absence of such withholding or deduction. No Additional Amounts shall be payable in respect of any Note presented for payment with respect to: (a) any tax, duty, assessment or other governmental charge which would not have been so imposed but for (i) the existence of any present or former connection between such holder (or between a fiduciary, settlor, beneficiary, member or shareholder of, or a person having a power over, such holder, if such holder is an estate, a trust, a partnership or a corporation) and Mexico, including, without limitation, such holder (or such fiduciary, settlor, beneficiary, member, shareholder or person having such a power) being or having been a citizen or resident or treated as a resident thereof or having been engaged in a trade or business therein or being or having been present therein or having had a permanent establishment therein, (ii) the failure of such holder to comply with any requirement under the income tax laws or regulations of Mexico to establish entitlement to exemption from such tax, assessment or other governmental charge or (iii) payment of principal or interest or the retirement, redemption, exchange or transfer being made in Mexico; (b) any tax, duty, assessment or other governmental charge which would not have been so imposed but for the presentation by the holder of such Note for payment on a date more than 10 days after the date on which such payment became due and payable or the date on which payment thereof is duly provided for, whichever occurs later; (c) any estate, inheritance, gifts, sales, transfer, personal property, interest equalization or any similar tax, assessment or governmental charge; (d) any tax, duty, assessment or other governmental charge which is payable otherwise than by withholding from payment of principal of or interest on such Note; (e) any tax, duty, assessment or other governmental charge which is payable by a holder that is not the beneficial owner of such Note or a portion thereof, or that is a fiduciary or partnership, but only to the extent that a beneficial owner or member of the partnership would not have been entitled to the payment of an Additional Amount had the beneficial owner or member received directly its beneficial or distributive share of the payment; or (f) any combination of items (a), (b), (c), (d) and (e). For the purposes of the foregoing, the holding of or the receipt of any payment with respect to a Note shall not constitute a connection between the holder (or between a fiduciary, settlor, beneficiary, member or shareholder of, or a person having a power over, such holder if such holder is an estate, a trust, a partnership or a corporation) and Mexico. In the event that Additional Amounts actually paid with respect to the Notes are based on rates of deduction or withholding of Mexican taxes in excess of the appropriate rate applicable to the holder or beneficial owner of such Notes, and, as a result thereof, such holder or beneficial owner is entitled to make a claim for a refund or credit of such excess, then such holder or beneficial owner will, by accepting the Notes, be deemed to have assigned and transferred all right, title and interest to any such claim for a refund or credit of such excess to Grupo Dina. However, by making such assignment, the holder or beneficial owner makes no representation or warranty that Grupo Dina will be entitled to receive such claim for a refund or credit and incurs no other obligation with respect thereto (including without limitation executing any other instrument of transfer or incurring any expense in connection with this transfer). Any reference herein or in the Notes to principal and/or interest shall be deemed also to refer to any Additional Amounts which may be payable under the covenant referred to in this provision. To the extent MCII Holdings becomes obligated to pay principal or interest on the Notes, it will pay such Additional Amounts as may be necessary to ensure that the net amounts receivable by the holders of Notes (including the Additional Amounts) after any withholding or deduction shall equal the respective amounts of principal and interest which would have been received in respect of Notes in the absence of such withholding or deduction. TAX REDEMPTION If, as a result of any amendment to, or change in, the laws (or any regulation or rulings thereunder) of Mexico or any political subdivision or taxing authority thereof or therein affecting taxation, or any amendment to or change in an official interpretation or application of such laws or regulations, which amendment or change of such laws or regulations becomes effective on or after the date of original issuance of Notes, Grupo Dina or MCII Holdings would be obligated, for reasons outside its control, to pay Additional Amounts in excess of those attributable to the maximum Mexican withholding tax applicable on the date of original issuance of Notes (15%) imposed on interest payments (See "Tax Considerations--Mexican Taxation"), then, at Grupo Dina's option, or at MCII Holdings' option if it becomes obligated to pay Additional Amounts on the Notes, the Notes may be redeemed in whole, but not in part, at any time, on giving not less than 30 nor more than 60 days' notice at 100% of the principal amount thereof, plus accrued and unpaid interest, if any, through the redemption date; provided, however, that (i) no such notice of redemption may be given earlier than 90 days prior to the earliest date on which Grupo Dina or MCII Holdings, as the case may be, would be obligated to pay such Additional Amounts, and (ii) at the time such notice of redemption is given, such obligation to pay such Additional Amounts remains in effect. Prior to the publication of any notice of redemption pursuant to this provision, Grupo Dina or MCII Holdings, as the case may be, will deliver to the Trustee (i) a certificate signed by a duly authorized representative stating that Grupo Dina or MCII Holdings, as the case may be, is entitled to effect such redemption and setting forth a statement of facts showing that the conditions precedent of the right of Grupo Dina or MCII Holdings, as the case may be, so to redeem have occurred, and (ii) an opinion of independent Mexican legal counsel of recognized standing to the effect that Grupo Dina or MCII Holdings, as the case may be, has or will become obligated to pay such Additional Amounts as a result of such change or amendment. Such notice, once delivered by Grupo Dina or MCII Holdings, as the case may be, to the Trustee, will be irrevocable. CERTAIN DEFINITIONS "Accreted Value" for any Note means as of any date prior to November 15, 1998, the sum of (a) US$705.65, which is the initial principal value as of November 18, 1995 of such Note, and (b) the portion of the excess of such Note over such initial principal value which shall have been accreted thereon through such date, such amount to be so accreted on a daily basis at the rate of 12% per annum of the initial principal value of the Notes, compounded semi-annually on each May 15 and November 15 from November 18, 1995 through the date of determination computed on the basis of a 360-day year of twelve 30-day months, and as of any date of determination on or after November 15, 1998, US$1,000. "Adjusted Subsidiary Debt Amount" means the maximum amount of consolidated Debt of MCII which in the aggregate would not cause the ratio of MCII's consolidated Debt to MCII's Consolidated Capitalization to exceed 0.5 to 1.00; provided, that for purposes of any such determination, Debt shall be deemed to exclude Contingent Liabilities. "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of Voting Stock, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Asset Sale" means, with respect to any Person, any sale, lease, conveyance, transfer or other disposition (or series of related sales, leases, conveyances, transfers or dispositions) of any securities (whether or not upon issuance but excluding securities issued by such Person), Property or other assets (each referred to for the purposes of this definition as a "disposition") by such Person or any of its Subsidiaries, whether for cash or other consideration, other than (i) a disposition by a Wholly-Owned Subsidiary of such Person to such Person or another Wholly-Owned Subsidiary of such Person, (ii) a disposition by such Person to a Wholly-Owned Subsidiary of such Person, (iii) an exchange of assets for like kind assets, provided the assets received are to be used in the lines of business engaged in by such Person or any of its consolidated Subsidiaries or reasonably related extensions of such lines of business, (iv) a disposition pursuant to a merger or consolidation of MCII Holdings permitted by the Indenture, (v) a disposition of inventory in the ordinary course of business, or (vi) a disposition of assets in one or a series of related transactions which in the reasonable opinion of such Person, are obsolete and no longer useful in the business of such Person or any Subsidiary. "Board of Directors" means the Board of Directors of Grupo Dina, MCII Holdings or MCII, as the case may be, or, if the context so requires, any committee thereof duly authorized to act on behalf of such Board. "Business Day" means each day which is not a legal holiday in the United States or Mexico. "Capital Lease Obligation" means an obligation that is required to be classified and accounted for as a capital lease for financial reporting purposes in accordance with GAAP, and the amount of Debt represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP; and the maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Capital Stock" of any Person means any and all shares, interests (including partnership interests), rights to purchase, warrants, options, participations or other equivalents of or interest in (however designated) equity of such Person, including any warrants, common shares or Preferred Stock, but excluding any debt securities convertible into such equity; provided, however, that Capital Stock shall not include Redeemable Stock. "Cash Equivalents" means (i) securities issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than six months from the date of acquisition, (ii) time deposits and certificates of deposit of any commercial bank having, or which is the principal banking subsidiary of a bank holding company having, a long-term unsecured debt rating of at least "A" or the equivalent thereof from S&P or "A2" or the equivalent thereof from Moody's with maturities of not more than six months from the date of acquisition by such Person, (iii) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (ii) above, (iv) commercial paper issued by any Person incorporated in the United States rated at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody's and in each case maturing not more than six months after the date of acquisition by such Person, and (v) investments in money market funds substantially all of whose assets are comprised of securities of the types described in clauses (i) through (iv) above. "Change of Control" means: (i) with respect to Grupo Dina (a) any Person (other than Permitted Holders) becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of a Majority of the Voting Stock of Grupo Dina; (b) Persons who constitute a majority of the Board of Directors of Grupo Dina are not nominated by the Permitted Holders; or (c) Grupo Dina consolidates with or merges into any Person, or conveys, transfers or leases all or substantially all of its Property, or any Person consolidates with or merges into Grupo Dina, in any such event pursuant to a transaction upon consummation of which none of the events described in clauses (a) or (b) of this clause (i) shall have occurred in respect of such surviving entity; and (ii) with respect to MCII Holdings (a) Grupo Dina or the Permitted Holders fail to be the beneficial owner, directly or indirectly, of at least a Majority of the Voting Stock of MCII Holdings; or (b) MCII Holdings consolidates with or merges into any Person, or conveys, transfers or leases all or substantially all of its Property, or any Person consolidates with or merges into MCII Holdings, in any such event pursuant to a transaction upon consummation of which the event described in clause (a) of this clause (ii) shall have occurred in respect of such surviving entity. "Collateral" means (i) the MCII Shares, (ii) all certificates representing any of the pledged MCII Shares and (iii) any cash or Cash Equivalents deposited with the Trustee in accordance with the covenant described under "--Certain Covenants--Limitation on Restricted Payments by MCII Holdings" below. "Consolidated Capitalization" means (without duplication) the sum of (i) the Consolidated Net Worth of MCII and its Subsidiaries determined in accordance with GAAP decreased by the amount of any intangible created or acquired after August 8, 1994 and included in such Consolidated Net Worth and (ii) the total amount of the consolidated long-term Debt (including the current portion thereof) of MCII and its Subsidiaries as determined in accordance with GAAP. "Consolidated Net Income" means for any period the gross revenues of a Person and its Subsidiaries for such period less all expenses and other proper charges (including taxes on income), determined on a consolidated basis in accordance with GAAP, but excluding (i) earnings of any Subsidiary for the periods preceding the date of acquisition of such Subsidiary by such Person, (ii) any gains or income resulting from the write-up of assets or changes in accounting principles, (iii) the net income (or loss) of any Person, the net income of which is not consolidated with the income of such Person and its Subsidiaries in accordance with GAAP except to the extent of the amount of dividends or other distributions actually paid to such Person or any of its Subsidiaries by such Person during such period, (iv) any gain or loss realized upon the sale or other disposition of any Property of such Person or its consolidated Subsidiaries (including pursuant to any sale/leaseback transaction) other than sales of inventory in the ordinary course of business, and (v) any extraordinary gain or loss. "Consolidated Net Worth" of any Person means the stockholders' equity of such Person and its Subsidiaries, as determined on a consolidated basis in accordance with GAAP, less (to the extent included in stockholders' equity) amounts attributable to Redeemable Stock of such Person or its Subsidiaries. "Contingent Liabilities" means, without duplication, any repurchase or reimbursement obligations in respect of (i) Residual Value Guarantees, Trade-in Value Guarantees and contracts entered into by MCII or any Subsidiary obligating it to repurchase motor coach finance contracts, and the related collateral, upon the occurrence of certain events, in each case in the ordinary course of business and consistent with past practice, (ii) surety bonds and other instruments that guarantee performance by MCII or its Subsidiaries of a contract entered into (other than in connection with borrowing money or obtaining credit) in the ordinary course of business consistent with past practice (collectively, "Surety Bonds"), (iii) letters of credit issued for purposes similar to Surety Bonds, and (iv) letters of credit issued for the account of MCII or any Subsidiary in the ordinary conduct of business of MCII and its Subsidiaries. At such time as any Contingent Liability, in the case of clause (i), becomes operative or (ii), in the case of clauses (ii) - (iv), is drawn upon by any beneficiary thereof and a reimbursement or similar obligation of MCII or such Subsidiary becomes effective, such Contingent Liability shall cease to be a Contingent Liability but shall continue to constitute Debt. Any (x) rate protection agreement (including any interest rate swap agreement) with respect to Debt then outstanding or anticipated to be incurred and (y) currency exchange agreement with respect to foreign currency-denominated revenues and expenses anticipated during the term of such currency exchange agreement or Debt which is denominated in foreign currency and otherwise permitted under the Indenture shall not constitute Contingent Liabilities. "Currency Exchange Protection Agreement" means in respect of a Person any foreign exchange contract, currency swap agreement or other similar agreement to which such Person is a party or a beneficiary. "Debt" means, with respect to any Person, (i) all (A) obligations of such Person for borrowed money (including obligations evidenced by notes, indentures, bonds or other similar instruments for the payment of which such Person is responsible or liable) or which have been incurred in connection with the acquisition of Property, (B) obligations under capitalized leases which in accordance with GAAP would be classified upon a balance sheet of such Person as liabilities of such Person, (C) Limited-recourse Amounts incurred after August 12, 1993, (D) obligations of such Person under Contingent Liabilities or under a conditional sale or title retention agreement, (E) obligations of such Person issued or assumed as a full or partial payment for Property whether or not secured by a purchase money mortgage or under notes payable or drafts accepted representing extensions of credit and (F) obligations secured by any Lien on any Property owned or held by such Person subject thereto, whether or not the obligations secured thereby shall have been assumed by such Person, (ii) any Debt (as described within clause (i)) of any partnership or joint venture of which such Person or any Subsidiary thereof is a general partner or joint venturer which is not expressly non-recourse to such Person or Subsidiary, (iii) all Debt (as described within clause (i)) of others with respect to which such Person has become liable by way of a Guarantee and (iv) all renewals, extensions and modifications of the foregoing. "GAAP" means (i) in the case of a United States Person, United States generally accepted accounting principles; and (ii) in the case of a Mexican Person, Mexican generally accepted accounting principles. "Grupo Dina Restricted Payment" means, whether directly or indirectly, (i) the declaration or payment of any dividend on or any distribution in respect of any Capital Stock or Redeemable Stock of Grupo Dina or to Grupo Dina's stockholders in their capacity as such (other than dividends or distributions payable solely in shares of Capital Stock), (ii) the purchase, redemption or other acquisition or retirement for value of any Capital Stock or Redeemable Stock of Grupo Dina or any Affiliate of Grupo Dina (except any such transfers to Grupo Dina or a Subsidiary of Grupo Dina) or (iii) the purchase, redemption or other acquisition or retirement for value prior to its stated maturity of any Debt of Grupo Dina which is subordinate to the New Notes. Notwithstanding the foregoing, the following shall not constitute Grupo Dina Restricted Payments: (1) the purchase or other retirement of the Debentures after the date of the original issuance of New Notes for cash and/or a principal amount of subordinated Debt not eligible for exchange pursuant to clause (2) below aggregating up to US$20 million (including repurchases pursuant to the covenant described under "--Certain Covenants--Limitation on Asset Sales by Grupo Dina"), (2) an exchange of Capital Stock or subordinated Debt of Grupo Dina for outstanding subordinated Debt of Grupo Dina provided such new subordinated Debt has an average life equal to or greater than the remaining average life and matures on or after the maturity of any subordinated Debt which is being refinanced, (3) any retirement of equity securities of Grupo Dina in connection with a reorganization, recapitalization, reclassification, merger or consolidation in which the stockholders of Grupo Dina receive in exchange for, or in substitution of the shares of Grupo Dina's Capital Stock held by them, Capital Stock, excluding Redeemable Stock and Preferred Stock, of a newly-formed corporation or partnership which, immediately following such reorganization, reclassification, merger or consolidation, is the parent entity of Grupo Dina, and (4) any dividend or distribution on, or any purchase, redemption or other acquisition or retirement for value of, any Capital Stock of Grupo Dina or securities convertible into or exercisable or exchangeable for such Capital Stock, in consideration of the consolidation or merger of Grupo Dina with or into any other Person if such consolidation or merger is otherwise permitted under the Indenture, provided that the only consideration issued by the surviving Person with respect to any such dividend, distribution, purchase, redemption or other acquisition or retirement shall be in the form of Capital Stock (excluding Redeemable Stock and Preferred Stock) of such surviving Person. "Guarantee" means, with respect to any Person, any direct or indirect liability, contingent or otherwise, of such Person with respect to any Debt, lease, dividend or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the ordinary course of business) or discounted or sold with recourse by such Person, or in respect of which such Person is otherwise directly or indirectly liable, including, without limitation, (i) any such obligation in effect guaranteed by such Person through any agreement, (contingent or otherwise) to purchase, repurchase or otherwise acquire such obligation or any security therefor, (ii) any obligation to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), (iii) any obligation to maintain the solvency or any balance sheet or other financial condition of the obligor of such obligation, or (iv) any obligation to make such payment for any products, materials or supplies or for any transportation or services regardless of the non-delivery or non-furnishing thereof, in any such case if the purpose or intent of such agreement is to provide assurance that such obligation will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected against loss in respect thereof. "Guarantee" shall include any other contract which, in economic effect, is substantially equivalent to the foregoing types of Guarantees. The amount of any Guarantee shall be equal to the outstanding principal amount of the obligation Guaranteed or such lesser amount to which the maximum exposure of the guarantor shall have been specifically limited. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Exchange Protection Agreement. "Interest Rate Agreement" means, with respect to any Person, any interest rate swap agreement, forward rate agreement, interest rate cap or collar agreement or other financial agreement or arrangement designed to protect such Person or its Subsidiaries against fluctuations in interest rates, as in effect from time to time. "Lien", with respect to any Property, means any mortgage, security interest, pledge, lien or other encumbrance other than (i) mechanics' and similar liens arising in the ordinary course of business in respect of obligations not due or being contested in good faith; (ii) Liens arising from deposits with or the giving of any form of security to any governmental authority required as a condition to the transaction of business or exercise of any privilege, franchise or license; (iii) Liens for taxes, assessments or governmental charges or levies not yet delinquent or which, if delinquent, are being contested in good faith; (iv) Liens (including judgment liens) arising from legal proceedings being contested in good faith and, in the case of judgment liens, so long as execution thereof is stayed or (v) any extension, renewal or replacement (or successive extensions, renewals or replacements), in whole or in part, of any Lien referred to in the foregoing clauses (i) through (iv), inclusive. "Limited-recourse Amount" means, with respect to any non-recourse or limited recourse sale of receivables (including sales with a first-loss guaranty), that portion of assets retained by MCII or any of its Subsidiaries and representing the amount of overcollateralization or the amount of recourse, first-loss or other credit reserves or obligations provided in such transaction. "Majority" means a majority of the class or group of classes of Voting Stock that can elect a majority of the Board of Directors of Grupo Dina or MCII Holdings, as the case may be. "MCII Holdings Restricted Payment" means, whether directly or indirectly, (i) the declaration or payment of any dividend on or any distribution in respect of any Capital Stock or Redeemable Stock of MCII Holdings or to MCII Holdings' stockholders in their capacity as such (other than dividends or distributions payable solely in shares of its Capital Stock); (ii) the purchase, redemption or other acquisition or retirement for value of any Capital Stock or Redeemable Stock of MCII Holdings or any Affiliate of MCII Holdings (except any such transfers to MCII Holdings or any Subsidiary of MCII Holdings); (iii) any investment (other than investments in Cash Equivalents and in Subsidiaries) in any Person or (iv) any principal payment on, or the redemption, repurchase, defeasance or other acquisition or retirement for value prior to any scheduled principal payment, scheduled sinking fund payment or stated maturity of, Debt of MCII Holdings which is subordinate to the New Notes other than from the proceeds of Debt which is equally subordinated to the New Notes and which has an average life equal to or greater than the remaining average life and matures on or after the maturity of the Debt which is refinanced. Notwithstanding the foregoing, the following shall not constitute MCII Holdings Restricted Payments: (1) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions hereof; (2) any retirement of equity securities of MCII Holdings in connection with a reorganization, recapitalization, reclassification, merger or consolidation in which the stockholders of MCII Holdings receive in exchange for, or in substitution of, the shares of MCII Holdings' Capital Stock held by them, Capital Stock, excluding Redeemable Stock and Preferred Stock, of a newly-formed corporation or partnership which, immediately following such reorganization, reclassification, merger or consolidation, is the parent entity of MCII Holdings and (3) any dividend or distribution on, or any purchase, redemption or other acquisition or retirement for value of, any Capital Stock of MCII Holdings or securities convertible into or exercisable or exchangeable for such Capital Stock, in consideration of the consolidation or merger of MCII Holdings with or into any other Person if such consolidation or merger is otherwise permitted under the Indenture. "MCII Receivables" means the recorded value of, or the book value of, any receivables of, or lease obligations due to, MCII or any of its Subsidiaries arising in the ordinary course of business from sales or leases of motor coaches to Persons other than Affiliates of Grupo Dina all as determined in accordance with GAAP. "Net Proceeds" means the aggregate cash proceeds received by any Person in respect of any transaction, net of the direct costs relating to such transaction (including, without limitation, legal, accounting and investment banking fees, and sales commission) and, in the case of an Asset Sale, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Debt secured by a Lien on the asset or assets that are the subject of such Asset Sale and any reserve for adjustments in respect of the sale price of such asset or assets. Net Proceeds shall exclude any non-cash proceeds received, but shall include such proceeds when and as converted to cash. Notwithstanding the foregoing, (i) for purposes of determining the Net Proceeds of any issuance or sale of any Capital Stock of MCII, and for purposes of determining the amount of Required Proceeds to be offered to purchase Notes in connection with any Qualifying Offer following such issuance or sale of any Capital Stock of MCII, the fair market value of all non-cash proceeds shall be deemed to be cash proceeds and (ii) such issuance or sale of any Capital Stock of MCII shall be deemed not to be an Asset Sale for purposes of this definition. "Original Principal Amount" means US$206,499,680. "Permitted Debt" means any and all of the following: (i) Debt owed to MCII or any Subsidiary, provided, however, that any subsequent issuance or transfer of any Capital Stock which results in any such Subsidiary ceasing to be a Subsidiary or any subsequent transfer of such Debt (other than to another Subsidiary) shall be deemed, in each case, to constitute the incurrence of such Debt by the obligor; (ii) Hedging Obligations consisting of Interest Rate Agreements and Currency Exchange Protection Agreements; and (iii) Contingent Liabilities. "Permitted Holders" means Grupo Empresarial G, S.A. de C.V. or any successor corporation controlled by other Permitted Holders, Rafael Gomez Flores, O. Raymundo Gomez Flores, Armando Gomez Flores, Alfonso Miguel Gomez Flores, Guillermo Gomez Flores, and the heirs thereof, and the Grupo Dina Management Trust. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock" of any Person means Capital Stock of such Person of any class or classes (however designated) that ranks prior, as to the payment of dividends and/or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Capital Stock of any other class of such Person; provided, however, that Preferred Stock shall not include Redeemable Stock. "Property" means, with respect to any Person, any interest of such Person in any kind of property or asset, whether real, personal or mixed, or tangible or intangible, including, without limitation, Capital Stock in any other Person (but excluding Capital Stock or other securities issued by such Person). "Qualifying Offer" means any offer made by Grupo Dina or a Subsidiary thereof to all holders of Notes to purchase for cash New Notes properly tendered at a purchase price equal to the Accreted Value thereof on the date of repurchase, if on or prior to November 15, 1998, and equal to the principal amount thereof, plus accrued and unpaid interest, if any, thereafter, to the date of repurchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant Cash Interest Payment Date) provided that the purchase date is no earlier than 30 nor later than 60 days from the date notice of the offer is mailed and the offeror purchases all New Notes properly tendered in accordance with such offer on such purchase date subject to proration in the event that the number of New Notes tendered exceeds the number of New Notes for which the offer is made. "Redeemable Stock" of any Person means any equity security of such Person that by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or otherwise (including on the happening of an event), is or could become required to be redeemed for cash or other Property or is or could become redeemable for cash or other Property at the option of the holder thereof, in whole or in part, on or prior to the first anniversary of the stated maturity of the New Notes; or is or could become exchangeable at the option of the holder thereof for Debt at any time, in whole or in part, on or prior to the first anniversary of the stated maturity of the New Notes; provided, however, that Redeemable Stock shall not include any security by virtue of the fact that it may be exchanged or converted at the option of the holder for Capital Stock of such Person having no preference as to dividends or liquidation over any other Capital Stock of such Person. "Residual Value Guarantees" means any agreement entered into by MCII or any of its Subsidiaries to promote the sale of any bus or coach, pursuant to which MCII or any of its Subsidiaries is guarantying at some future time any minimum value (which may be determined by a formula) of such bus or coach as specified in such agreement regardless of the actual fair market value of such bus or coach at such future time. "Subsidiary" means, in respect of any Person, any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such Person, (ii) such Person and one or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such Person. "Trade-In Value Guarantees" means any agreement entered into by MCII or any of its Subsidiaries to promote the sale of any bus or coach, pursuant to which MCII or any of its Subsidiaries is obligated to accept such bus or coach for trade-in in connection with the sale of such bus or coach at a value specified in such agreement (which may be determined by a formula) regardless of the actual fair market value of such bus or coach at the time of such trade-in. "Voting Stock" of a Person means all classes of Capital Stock of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof. "Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of which (other than directors' qualifying shares and shares held by other Persons to the extent such shares are required by applicable law to be held by such other Persons) is owned by a Person or one or more Wholly Owned Subsidiaries of such Person. REGISTRATION RIGHTS Holders of New Notes are not entitled to any registration rights with respect to the New Notes. Pursuant to the Registration Agreement, holders of Old Notes are entitled to certain registration rights. Under the Registration Agreement, the Issuers have agreed, for the benefit of the holders of the Old Notes, that they will, at their cost, (i) by October 1, 1996, file a registration statement with the SEC with respect to the Exchange Offer and (ii) by November 30, 1996, cause such registration statement to be declared effective under the Securities Act. The Registration Statement of which this Prospectus is a part constitutes the registration statement for the Exchange Offer. In the event that (i) any change in law or applicable interpretations of the staff of the SEC do not permit the Issuers to effect the Exchange Offer, (ii) for any other reason the registration statement with respect to the Exchange Offer is not declared effective by November 30, 1996, (iii) any holder of Notes so requests because it is not eligible to participate in the Exchange Offer, or (iv) any initial purchaser so requests with respect to Notes held by it following the consummation of the Exchange Offer because it does not receive freely tradeable New Notes in exchange for Old Notes, then, the Issuers will, at their cost, (a) as promptly as practicable, file a shelf registration statement covering resales of the Old Notes (the "Shelf Registration Statement"), (b) cause the Shelf Registration Statement to be declared effective under the Securities Act and (c) use its best efforts to keep effective the Shelf Registration Statement until three years after its effective date or until one year after such effective date if such Shelf Registration Statement is filed at the request of the holders of the Old Notes. The Issuers will, in the event the filing of the Shelf Registration Statement becomes necessary, provide to each holder of the Old Notes copies of the prospectus which is a part of the Shelf Registration Statement, notify each such holder when the Shelf Registration Statement for the Old Notes has become effective and take certain other actions as are required to permit unrestricted resales of the Notes. A holder of Old Notes who sells such Old Notes pursuant to the Shelf Registration Statement generally would be required to be named as a selling securityholder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Agreement which are applicable to such a holder (including certain indemnification obligations). In the event that the Exchange Offer is not consummated or the Shelf Registration Statement is not declared effective on or prior to December 30, 1996, interest will accrue (in addition to stated interest on the Notes) from and including the next day following December 30, 1996. In each case such additional interest (the "Special Interest") will be payable in cash semiannually in arrears each May 15 and November 15 at a rate per annum equal to 0.50% of the principal amount of the Notes. The aggregate amount of Special Interest payable pursuant to the above provisions will in no event exceed 1.50% per annum of the principal amount of the Notes. Upon the consummation of the Exchange Offer or the effectiveness of the Shelf Registration Statement, as the case may be, after December 30, 1996, the Special Interest payable on the Notes from the date of such effectiveness or consummation, as the case may be, will cease to accrue from the date of such consummation or effectiveness, as the case may be. In the event that the Shelf Registration Statement is declared effective pursuant to the paragraph preceding the immediately preceding paragraph, if Grupo Dina or MCII Holdings fails to keep such Registration Statement continuously effective for the period required by the Registration Agreement, then from such time as the Shelf Registration Statement is no longer effective until the earlier of (i) the date that the Shelf Registration Statement is again deemed effective, (ii) the date that is the third anniversary of the date of the original issuance of the Notes or (iii) the date as of which all of the Notes are sold pursuant to the Shelf Registration Statement, Special Interest shall accrue at a rate per annum equal to 0.50% of the principal amount of the Notes (1.00% thereof if the Shelf Registration Statement is no longer effective for 30 days or more) and shall be payable in cash semiannually in arrears each May 15 and November 15. The summary herein of certain provisions of the Registration Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Registration Agreement, a copy of which is filed as an exhibit to the Registration Statement of which this Prospectus constitutes a part. BOOK-ENTRY, DELIVERY AND FORM The New Notes may be issued in the form of one or more global securities (collectively, the "Global Note"). The Global Note will be deposited with, or on behalf of, the Depository and registered in the name of the Depository or its nominee. Except as set forth below, the Global Note may be transferred, in whole and not in part, only to the Depository or another nominee of the Depository. Investors may hold their beneficial interests in the Global Note directly through the Depository if they have an account with the Depository or indirectly through organizations which have accounts with the Depository. The Depository has advised the Issuers as follows: The Depository is a limited-purpose trust company and organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. The Depository was created to hold securities of institutions that have accounts with the Depository ("participants") and to facilitate the clearance and settlement of securities transactions among its participants in such securities through electronic book-entry changes in the accounts of the participants, thereby eliminating the need for physical movement of securities certificates. The Depository's participants include securities brokers and dealers (which may include the Initial Purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to the Depository's book-entry system is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, whether directly or indirectly. Upon the issuance of the Global Note, the Depository will credit, on its book-entry and transfer system, the principal amount of the Notes represented by the Global Note to the accounts of participants. Ownership of beneficial interests in the Global Note will be shown on, and the transfer of those ownership interests will be effected only through, records maintained by the Depository (with respect to participants' interests) and such participants (with respect to the owners of beneficial interests in the Global Note other than participants). The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and laws may impair the ability to transfer or pledge beneficial interests in the Global Note. So long as the Depository, or its nominee, is the registered holder and owner of the Global Note, the Depository or such nominee, as the case may be, will be considered the sole legal owner and holder of the related New Notes for all purposes of such New Notes and the Indenture. Except as set forth below, owners of beneficial interests in the Global Note will not be entitled to have the New Notes represented by the Global Note registered in their names, will not receive or be entitled to receive physical delivery of certificated New Notes in definitive form and will not be considered to be the owners or holders of any New Notes under the Global Note. Accordingly, each person owning a beneficial interest in the Global Note must rely on the procedures of the Depository and, if such person is not a participant, on the procedures of the participant through which such person owns its interests, to exercise any right of a holder of New Notes under the Global Note. The Issuers understand that under existing industry practice, in the event an owner of a beneficial interest in the Global Notes desires to take an action that the Depository, as the Holder of the Global Note, is entitled to take, the Depositary would authorize the participants to take such action, and that the participants would authorize beneficial owners owning through such participants to take such action or would otherwise act upon the instructions of beneficial owners owning through them. Payment of principal of and interest on New Notes represented by the Global Note registered in the name of and held by the Depository or its nominee will be made to the Depository or its nominee, as the case may be, as the registered owner and holder of the Global Note. The Issuers expect that the Depository or its nominee, upon receipt of any payment of principal of or interest on the Global Note, will credit participants' accounts with payment in amounts proportionate to their respective beneficial interests in the principal amount of the Global Note as shown on the records of the Depository or its nominee. The Issuers also expect that payments by participants to owners of beneficial interests in the Global Note held through such participants will be governed by standing instructions and customary practices and will be the responsibility, of such participants. The Issuers will not have any responsibility or liability for any aspect of the records relating to, or payments made on account of, beneficial ownership interests in the Global Note for any New Note or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests or for other aspects of the relationship between the Depositor and its participants or the relationship between such participants and the owners of beneficial interests in the Global Note owning through such participants. Unless and until it is exchanged in whole or in part for certificated New Notes in definitive form, the Global Note may not be transferred except as a whole by the Depository to a nominee of such Depository or by a nominee of such Depository to such Depository or another nominee of such Depository. Although the Depository has agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Note among participants of the Depository, it is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Trustee nor the Issuers will have any responsibility for the performance by the Depository or its participants or indirect participants of their respective obligation under the rules and procedures governing their operations. CERTIFICATED NOTES The New Notes represented by the Global Note are exchangeable for certificated New Notes in definitive form of like tenor as such New Notes in denominations of US$1,000 and integral multiples thereof if (i) the Depository notifies the Issuers that it is unwilling or unable to continue as Depository for the Global Note or if at any time the Depository ceases to be a clearing agency registered under the Exchange Act, (ii) the Issuers in their discretion at any time determines not to have any of the New Notes represented by the Global Note, (iii) a default entitling the holders of the New Notes to accelerate the maturity thereof has occurred and is continuing or (iv) the holder of the New Notes so requests. Any New Note that is exchangeable pursuant to the preceding sentence is exchangeable for certificated New Notes issuable in authorized denominations and registered in such names as the Depository will direct. TAX CONSIDERATIONS GENERAL The following is a general summary of certain anticipated Mexican and U.S. federal income tax consequences of the exchange of Old Notes for New Notes pursuant to the Exchange Offer and the ownership and disposition of the New Notes by holders who acquire the New Notes pursuant to the Exchange Offer. Holders of the New Notes, by their acceptance of the New Notes, will agree to report the New Notes as indebtedness of Grupo Dina which is guaranteed by MCII Holdings. In addition, Grupo Dina and MCII Holdings intend to treat the New Notes as debt of Grupo Dina guaranteed by MCII Holdings for all tax purposes. This summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to the Exchange Offer and the New Notes and is based on present law. No tax consequences are described other than those arising under the laws of Mexico and the United States. EACH PROSPECTIVE HOLDER OF NEW NOTES SHOULD CONSULT ITS TAX ADVISOR AS TO THE MEXICAN, UNITED STATES, OR OTHER TAX CONSEQUENCES OF THE EXCHANGE OFFER AND THE OWNERSHIP AND DISPOSITION OF THE NEW NOTES, INCLUDING THE EFFECT OF ANY FOREIGN, STATE OR LOCAL TAX LAWS. MEXICAN TAXATION This summary of certain Mexican tax considerations deals only with holders of Old Notes that are not residents of Mexico for Mexican tax purposes and that do not conduct a trade or business through a permanent establishment in Mexico (a "Foreign Holder"). For purposes of Mexican taxation, an individual is a resident of Mexico if he has established his home in Mexico, unless he has resided in another country for more than 183 days, whether consecutive or not, in any one calendar year and can demonstrate that he is a resident of that country for tax purposes. A legal entity is a resident of Mexico if its principal administrative office is located in Mexico. A Mexican citizen or a legal entity with its corporate domicile in Mexico and established under Mexican law is presumed to be a resident of Mexico unless such person or entity can demonstrate the contrary. THE EXCHANGE OFFER The disposition of the Old Notes in exchange for New Notes by Foreign Holders pursuant to the Exchange Offer will not be subject to Mexican income tax including, without limitation, Mexican withholding tax. NEW NOTES Interest and Additional Amounts. Payments of interest and Additional Amounts made by the Grupo Dina in respect of the New Notes to a Foreign Holder will generally be subject to a Mexican withholding tax at a rate of 15% if, as expected, certain conditions are satisfied. Pursuant to recently enacted legislation, such rate has been reduced to 4.9% (the "Special Rate") if the effective beneficiary of such payments of interest resides in a country that has an income tax treaty with Mexico and certain other conditions are satisfied. Grupo Dina anticipates that these conditions will be satisfied by the registration of the New Notes with the SEC. Payments of interest made with respect to the New Notes by Grupo Dina to non-Mexican pension or retirement funds will be exempt from Mexican withholding taxes, provided that any such fund (i) is duly incorporated pursuant to the laws of its country of origin, (ii) is exempt from income tax in such country, and (ii) is registered with the Mexican Ministry of Finance (Secretaria de Hacienda y Credito Publico) for that purpose. Apart from the Special Rate, other reduced rates of Mexican withholding tax may apply with respect to payments of interest and Additional Amounts. The United States and Mexico have signed a Convention for the Avoidance of Double Taxation (the "Tax Treaty"). The Tax Treaty entered into force as of January 1, 1994. Pursuant to the Tax Treaty, the Mexican withholding tax rate has been reduced to no more than 10% (4.9% effective January 1, 1999) (the "Treaty Rate") for certain holders who are residents of the United States (within the meaning of the Tax Treaty) under certain circumstances therein. Generally, if the New Notes are listed and regularly and substantially traded on a "recognized securities exchange" for the purposes of the Tax Treaty, then the withholding tax rate will be reduced to no more than 10% (4.9% effective January 1, 1999) for holders who are residents of the United States (within the meaning of the Tax Treaty). It is not currently contemplated that the New Notes will initially be listed on a "recognized securities exchange"; the New Notes may later be listed on such an exchange. The United States and Mexico have also entered into an agreement that covers the exchange of information with respect to tax matters. In addition to the Tax Treaty, Mexico has entered into and is negotiating other tax treaties that may reduce the amount of Mexican withholding tax to which the New Notes may be subject. Prospective holders of the New Notes should consult their tax advisors to the applicability of such treaties. Grupo Dina has agreed, subject to specified exceptions and limitations, to pay Additional Amounts in respect of the above-mentioned Mexican withholding taxes to the holders of the New Notes. If Additional Amounts are paid in respect of such Mexican withholding taxes, any refunds of such Additional Amounts will be for the account of Grupo Dina. See "Description of the Notes--Additional Amounts." There are certain regulations or administrative pronouncements specifying procedures which must be carried out by the Grupo Dina or holders of New Notes to establish that a rate of Mexican withholding tax lower than the statutory rate of 15% should apply to payments of interest and Additional Amounts in respect of the New Notes. Grupo Dina may request certain information or documentation from Foreign Holders or take such other actions as it considers necessary to enable Grupo Dina to establish the appropriate Mexican withholding tax rate (including the Special Rate or the Treaty Rate) applicable to such holders or beneficial owners. In the event that the specified information or documentation concerning the residence of any holder or beneficial owner, if requested, is not provided, Grupo Dina will remain obligated to any Additional Amounts with respect to Mexican withholding taxes as set forth under "Description of the Notes -- Additional Amounts." Payments of Principal; Sale or Disposition. Payments of principal (except for original issue discount) with respect to the New Notes made by Grupo Dina to Foreign Holders will not be subject to Mexican income or other taxes (whether in the form of withholding or otherwise). Other Mexican Taxes. Other than the withholding tax described above, no Mexican taxes will be imposed on the ownership, transfer or disposition of New Notes by Foreign Holders. There are no Mexican stamp, issue, registration or similar taxes or duties payable by Foreign Holders of New Notes, and Foreign Holders of New Notes will not be liable for Mexican estate, gift inheritance or similar tax with respect to the New Notes, although gratuitous transfers of New Notes to residents of Mexican may, in certain circumstances, result in a Mexican tax imposed upon the transferee. UNITED STATES TAXATION The following summary of U.S. federal income tax consequences is limited to U.S. Holders (as defined below) who hold the Old Notes and will hold the New Notes as "capital assets" within the meaning of Section 1221 of the Internal Revenue Code of 1986 (the "Code") and whose "functional currency" within the meaning of Section 985 of the Code is the U.S. Dollar. This summary does not address all U.S. federal tax considerations that may be relevant to a U.S. Holder. Certain holders (including, but not limited to, insurance companies, tax-exempt organizations, financial institutions, persons subject to the alternative minimum tax) may be subject to special rules not discussed herein. In addition, the discussion below also does not address the effect of any state or local tax laws. The term "U.S. Holder" means any holder who is a citizen or resident of the United States, a corporation organized under the laws of the United States or any state thereof, or any person that is subject to United States federal income taxation on a net income basis in respect of the Old Notes and the New Notes. THE EXCHANGE OFFER The exchange of Old Notes pursuant to the Exchange Offer will not be treated as a taxable event for U.S. federal income tax purposes because the New Notes do not differ materially from the Old Notes. Rather, the New Notes received by a holder will be treated as a continuation of the Old Notes in the hands of such holder. As a result, there will be no U.S. federal income tax consequences to holders who exchange Old Notes for New Notes pursuant to the Exchange Offer and any such holder will have the same tax basis and holding period in the New Notes as it had in the Old Notes immediately before the exchange. THE NEW NOTES Original Issue Discount. The Old Notes were issued with OID for federal income tax purposes. Each U.S. Holder of the Old Notes generally will be required to include OID in income as it accrues under a constant yield method in advance of cash payments attributable to such income (regardless of whether the U.S. Holder is a cash or accrual basis taxpayer). Inasmuch as the New Notes are a continuation of the Old Notes, the exchange of Old Notes for New Notes pursuant to the Exchange Offer will not affect the amount of OID includible in income by a U.S. Holder and the amount of OID with respect to the New Notes will be the same as the amount of OID with respect to the Old Notes, as described below. The amount of OID with respect to the New Notes will be the same as the amount of OID with respect to the Old Notes, i.e., the excess of the "stated redemption price at maturity" of the Old Notes over the "issue price" of the Old Notes. The "stated redemption price at maturity" will include all cash payments required to be made on the New Note and the Old Note with respect to which New Note is a continuation, whether denominated as principal or interest. The issue price of the New Notes will equal the issue price of the Old Notes. Due to the fact that Old Notes were publicly traded, the issue price of the Old Notes would be fair market value. Each U.S. Holder of a New Note will be required to include in gross income an amount equal to the sum of the daily potions of OID for each day during the taxable year in which the New Note is held. The daily portions of OID are determined by allocating to each day in an accrual period (e.g., each six-month period ending each November 15 and May 15 or the short initial period ending May 15, 1996) the pro rata portion of the OID that is allocable to the accrual period. Subject to the rules, described below regarding acquisition premium, the amount of OID that is allocable to an accrual period will be determined by multiplying the adjusted issue price of the Old Note at the beginning of an accrual period by a fraction of the yield to maturity of such Old Note based on the length of the accrual period. The adjusted issue price of a Old Note at the beginning of an accrual period will be equal to its original issue price increased by all previously accrued OID and reduced by the amount of all previous payments. Interest payments will not be taxable, but will be treated as a payment of previously accrued OID. The amount of OID allocable to an accrual period will be reduced if the Old Notes are considered to have been issued with "acquisition premium", which will result if a holder held Old Notes with an adjusted tax basis in excess of the issue price of such Old Notes immediately after the issuance over the issue price of the Old Notes and the denominator is the stated redemption price at maturity of the Old Notes. Alternatively, a holder of Old Notes may elect to compute OID accruals by treating its adjusted tax basis in the Old Notes as the issue price of the Old Notes. The Trustee will report annually to the IRS and the U.S. Holders of New Notes the amount of OID accrued with respect to a New Note. Effect of Mexican Withholding Taxes. As discussed, above, cash interest payments with respect to the New Notes will be subject to Mexican withholding taxes and Grupo Dina will pay additional Amounts so that U.S. Holders of New Notes will receive the same amounts that would have been payable had such withholding taxes not been imposed. U.S. Holders of New Notes should be treated as actually receiving any amount withheld by Grupo Dina from payments of cash interest with respect to a New Note and then as having paid over such amount to the Mexican taxing authorities. As a result, the amount of the interest payment includible in income by a U.S. Holder will be greater than the amount of cash actually received (or receivable) by such U.S. Holder from Grupo Dina with respect to such payment. Pursuant to the characterization of the New Notes as indebtedness of Grupo Dina which is guaranteed by MCII Holdings, payments of interest and Additional Amounts by Grupo Dina will be foreign source interest income for foreign tax credit purposes. Such income generally will constitute "high withholding tax interest" for foreign tax credit purposes unless and until the Mexican withholding tax rate applicable to the U.S. Holder is imposed at a rate below 5% (such as during any period in which the Special Rate is in effect) in which case such income generally will constitute "passive income" or, in the case of certain U.S. Holders, "financial services income". Mexican withholding taxes paid should be treated as foreign income taxes eligible as a credit against such U.S. Holder's United States federal income tax liability, subject to generally applicable limitations and conditions, or, at the election of such U.S. Holder, as a deduction in computing such U.S. Holder's taxable income. A U.S. Holder should consult its tax advisor regarding the availability of foreign tax credits. If the New Notes are characterized as indebtedness of MCII Holdings, as opposed to indebtedness of Grupo Dina which is guaranteed by MCII Holdings, interest payments will be U.S. source income, thus possibly adversely affecting a U.S. Holder's ability to utilize any foreign tax credits with respect to Mexican withholding taxes. Sale or Disposition. A U.S. Holder of a New Note generally will recognize gain or loss upon the sale, exchange, retirement or other taxable disposition of a New Note equal to the difference between the amount realized on such sale, exchange, retirement or other taxable disposition and the U.S. Holder's adjusted tax basis in the New Note. Such gain or loss generally will be capital gain or loss, and will be long-term if the New Note is held for more than one year. A U.S. Holder's holding period for the New Notes will include its holding period for the Old Notes. The foregoing does not discuss special rules that may affect the treatment of purchasers that acquire New Notes other than at the time of original issuance at the issue price, including (but limited to) those provisions of the Code relating to the treatment of "market discount," and "amortizable bond premium." PLAN OF DISTRIBUTION Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired as a result of market-making activities or other trading activities. The Issuers have agreed that, starting on the Expiration Date and ending on the close of business on the first anniversary of the Expiration Date, they will make this Prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until ___________, 1996, all dealers effecting transactions in the New Notes may be required to deliver a prospectus. The Issuer will not receive any proceeds from any sale of New Notes by broker-dealers. New Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the New Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer that resells New Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such New Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of New Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of one year after the Expiration Date, the Issuers will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such document in the Letter of Transmittal. The Issuers have agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the holders of the Notes) other than commissions or concessions of any brokers or dealers and will indemnify the holders of the Notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. LEGAL MATTERS Certain legal matters with respect to the validity of the issuance of the New Notes will be passed upon for the Issuers by Skadden, Arps, Slate, Meagher & Flom, New York, U.S. counsel to the Issuers. The validity of the New Notes and certain other matters of Mexican law relating to the New Notes will be passed upon for the Issuers by Ritch, Heather y Mueller, S.C., Mexico City, Mexico, Mexican counsel to the Issuers. Skadden, Arps, Slate, Meagher & Flom may rely, as to matters of Mexican law, on the opinions of Ritch, Heather y Mueller, S.C. EXPERTS The consolidated financial statements of Grupo Dina as of December 31, 1995 and 1994 and for each of the years in the three-year period ended December 31, 1995 and of MCII Holdings as of December 31, 1995 and for the year then ended, included in this Prospectus and elsewhere in the Registration Statement have been audited by Arthur Andersen, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing. The financial statements of MCII as of December 31, 1994 and for the five month period ended December 31, 1994, the seven month period ended July 31, 1994 and the year ended December 31, 1993 included in this prospectus and in the registration statement have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein and in the registration statements and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. INDEX TO FINANCIAL STATEMENTS CONSORCIO G GRUPO DINA, S.A. DE C.V. AND SUBSIDIARIES Page Audited Financial Statements: Report of Independent Public Accountants F-3 Consolidated Balance Sheets as of December 31, 1994 and 1995 F-4 Consolidated Statements of Income (Loss) for the years ended December 31, 1993, 1994 and 1995 F-5 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1993, 1994 and 1995 F-6 Consolidated Statements of Changes in Financial Position for the years ended December 31, 1993, 1994 and 1995 F-7 Notes to Consolidated Financial Statements as of December 31, 1993, 1994 and 1995 F-9 Unaudited Financial Statements: Consolidated Balance Sheets (unaudited) and related financial information (unaudited) as of December 31, 1995 and June 30, 1996 F-40 Consolidated Statements of Income (Loss) (unaudited) and related financial information (unaudited) for the six months ended June 30, 1995 and 1996 F-41 Consolidated Statements of Changes in Financial Position (unaudited) for the six months ended June 30, 1995 and 1996 F-42 Notes to Consolidated Financial Statements (unaudited) F-43 CONSORCIO G GRUPO DINA, S.A. DE C.V. Audited Financial Statements: Report of Independent Public Accountants F-49 Balance Sheets as of December 31, 1995 and 1994 F-51 Statements of Income (Loss) for the years ended December 31, 1995 and 1994 F-52 Statements of Stockholders' Equity for the years ended December 31, 1995 and 1994 F-53 Statements of Changes in Financial Position for the years ended December 31, 1995 and 1994 F-54 Notes to Financial Statements as of December 31, 1995 and 1994 F-55 MCII HOLDINGS (USA), INC. Audited Financial Statements: Reports of Independent Public Accountants F-67 Consolidated Balance Sheet as of December 31, 1995 and 1994 F-70 Statement of Consolidated Income for the year ended December 31, 1995, the five month period ended December 31, 1994, the seven month period ended July 31, 1994 and the year ended December 31, 1993 F-71 Statement of Consolidated Changes in Stockholder's Equity for the year ended December 31, 1995, the five month period ended December 31, 1994, the seven month period ended July 31, 1994 and the year ended December 31, 1993 F-72 Statement of Consolidated Cash Flows for the year ended December 31, 1995, the five month period ended December 31, 1994, the seven month period ended July 31, 1994 and the year ended December 31, 1993 F-73 Notes to Consolidated Financial Statements F-74 Unaudited Financial Statements: Consolidated Balance Sheet (unaudited) as of June 30, 1996 and December 31, 1995 F-96 Statement of Consolidated Income (unaudited) for the six months ended June 30, 1996 and 1995 F-97 Statement of Consolidated Income (unaudited) for the three months ended June 30, 1996 and 1995 F-98 Statement of Consolidated Changes in Stockholder's Equity (unaudited) for the six months ended June 30, 1996 and 1995 F-99 Statement of Consolidated Cash Flows (unaudited) for the six months ended June 30, 1996 and 1995 F-100 Notes to Consolidated Financial Statements (unaudited) F-101 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Consorcio G Grupo Dina, S.A. de C.V.: We have audited the consolidated balance sheets of CONSORCIO G GRUPO DINA, S.A. DE C.V. (incorporated in Mexico) and subsidiaries (collectively referred to as the "Company") as of December 31, 1994 and 1995 and the related consolidated statements of income (loss), stockholders' equity and changes in financial position for each of the three years in the period ended December 31, 1995. These financial statements have been prepared in accordance with generally accepted accounting principles in Mexico, and therefore have been expressed in Mexican pesos with purchasing power as of June 30, 1996. 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 did not audit the financial statements of Motor Coach Industries International, Inc. (MCII) as of December 31, 1994 and for the five month period then ended, a subsidiary acquired by the Company on August 8, 1994, which statements reflect assets and revenues of 38.5% and 27.9%, respectively of the consolidated totals as of December 31, 1994 and for the year then ended. Those statements were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to the amounts included for Motor Coach Industries International, Inc., is based solely on the report of the other auditors. We have conducted our audits in accordance with generally accepted auditing standards in Mexico, which are substantially the same as those followed in the United States. 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. As explained in Note 3 to the accompanying consolidated financial statements, during 1995 the Company changed its accounting to reflect the goodwill related to the acquisition of its subsidiary, MCII, under "pushdown" accounting rules. Accordingly, the goodwill is now considered an asset of the subsidiary. This change resulted in an increase in goodwill of Ps.1,045,434,014 and a corresponding increase in "cumulative translation adjustment", an increase in amortization expense of Ps.59,296,147, a decrease in exchange loss charged to operations of Ps.292,629,510 and a decrease in the gain on monetary position of Ps.586,443,213. The devaluation of the Mexican peso in December 1994 and the resulting financial crisis in Mexico has had an unfavorable impact on the Company's operations. During 1994 and 1995 the demand for inter-city passenger buses suffered a severe decline in Mexico and in 1995, there was also a significant decline in the demand for trucks. Notes 1, 2, 4, 14 and 28 b) and c) to the accompanying consolidated financial statements describe the actions taken by the Company to expand its operations in the United States and restructure its long-term financing, as well as other actions taken by management. Accounting practices used by the Company in preparing the accompanying financial statements conform with accounting principles generally accepted in Mexico, but do not conform with accounting principles generally accepted in the United States. A description of these differences and a partial reconciliation as permitted by Form 20-F of consolidated net income (loss) and stockholders' equity to U.S. generally accepted accounting principles is set forth in Notes 19, 20, 23 and 24. In our opinion, based on our audits and the report of other auditors for the financial statements of MCII as of December 31, 1994 and for the five month period then ended, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Consorcio G Grupo Dina, S.A. de C.V. and its subsidiaries as of December 31, 1994 and 1995 and the consolidated results of their operations and changes in their financial position for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles in Mexico. Also, in our opinion, the translated amounts in the accompanying financial statements translated into U.S. dollars have been computed on the basis set forth in Note 1. ARTHUR ANDERSEN Mexico, D.F., Mexico February 29, 1996 (except with respect to the matters discussed in Note 28 b) and c), as to which the date is April 22, 1996 and the restatement to constant pesos as of June 30, 1996, as discussed in Notes 1 and 3, as to which the date is September 20, 1996).
CONSORCIO G GRUPO DINA, S.A. DE C.V. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1994 AND 1995 EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30, 1996 (THOUSANDS OF MEXICAN PESOS AND THOUSANDS OF U.S. DOLLARS) 1994 1995 1995 ----------- ---------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents Ps. 467,606 Ps.302,588 $ 39,912 Notes and accounts receivable, net 1,010,130 783,016 103,281 Inventories, net 2,277,584 1,968,581 259,659 Prepaid expenses 56,190 43,557 5,745 Investment in and advances to discontinued operations 705,833 339,344 44,760 ----------- ---------- ----------- Total current assets 4,517,343 3,437,086 453,357 LONG-TERM NOTES AND ACCOUNTS RECEIVABLE, net 538,002 532,325 70,215 INVESTMENT IN EQUITY SECURITIES 83,863 29,237 3,856 PROPERTY, PLANT AND EQUIPMENT, net 1,455,611 1,641,217 216,479 OTHER ASSETS 206,416 249,611 32,924 DEFERRED INCOME TAXES 276,029 260,668 34,383 GOODWILL 1,154,182 1,686,027 222,390 ----------- ---------- ----------- 8,231,446 7,836,171 1,033,604 =========== ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Bank loans and current portion of long-term debt 150,371 15,779 2,081 Notes and accounts payable to suppliers 523,726 376,478 49,658 Other payables and accrued expenses 614,635 491,261 64,798 Investment in and advances to discontinued operations 288,729 130,124 17,164 Dividends payable 54,257 0 0 Income taxes, asset tax and employee profit sharing 13,697 89,529 11,809 ------- ---------- ----------- Total current liabilities 1,645,415 1,103,171 145,510 LONG-TERM DEBT 4,370,950 4,621,389 609,569 RESERVE FOR EMPLOYEES' SEVERANCE BENEFITS 98,570 84,586 11,157 OTHER DEFERRED ITEMS AND INSURANCE RESERVES 74,084 124,600 16,435 STOCKHOLDERS' EQUITY: Majority interest- Capital stock 196,545 196,545 25,925 Capital stock-unsubscribed (35,754) (35,754) (4,716) Restatement of capital stock 204,627 204,627 26,990 Additional paid-in capital 1,626,020 1,626,020 214,475 Reserve for repurchase of shares 122,857 122,857 16,205 Accumulated earnings (losses) 276,492 (206,038) (27,177) Cumulative effect of restatement (442,604) (822,103) (108,437) Cumulative translation adjustment 14,387 767,191 101,194 ----------- ---------- ----------- Total majority stockholders' equity 1,962,570 1,853,345 244,459 Minority interest 79,857 49,080 6,474 ----------- ---------- ----------- Total stockholders' equity 2,042,427 1,902,425 250,933 ----------- ---------- ----------- 8,231,446 7,836,171 1,033,604 =========== ========== =========== The accompanying notes are an integral part of these consolidated balance sheets.
CONSORCIO G GRUPO DINA, S.A. DE C.V. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30, 1996 (THOUSANDS OF MEXICAN PESOS AND THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA) 1993 1994 1995 1995 ----------- ----------- ---------- -------- NET SALES Ps.5,236,538 Ps.4,327,466 Ps.4,742,895 $ 625,596 COST OF GOODS SOLD 4,129,637 3,531,290 3,724,905 491,322 ---------- ----------- ---------- ----------- Gross profit 1,106,901 796,176 1,017,990 134,274 OPERATING EXPENSES: Selling 178,138 281,482 246,440 32,506 Administrative 381,491 483,538 739,308 97,516 ---------- ----------- ---------- ----------- 559,629 765,020 985,748 130,022 OTHER CHARGES 0 323,335 101,303 13,362 ---------- ----------- ---------- ----------- Operating income (loss) 547,272 (292,179) (69,061) (9,110) COMPREHENSIVE RESULT OF FINANCING: Interest income 116,595 141,020 219,608 28,967 Interest expense (133,413) (247,161) (548,116) (72,297) Exchange gain (loss), net 4,687 (630,176) (363,066) (47,889) Gain on net monetary position 45,552 53,939 399,355 52,676 ---------- ----------- ---------- ----------- 33,421 (682,378) (292,219) (38,543) OTHER INCOME, net 34,194 39,239 84,794 11,185 COST OF IDLE PLANT 0 0 (81,329) (10,727) ---------- ----------- ---------- ----------- Income (loss) before the following provisions (credits), and results of affiliated companies 614,887 (935,318) (357,815) (47,195) PROVISIONS (CREDITS) FOR: Income tax 109,640 167,563 146,524 19,327 Asset tax 17,721 42,134 20,267 2,674 Employee profit sharing 39,889 13,610 0 0 Tax arising from temporary differences (5,940) 6,948 18,994 2,505 Utilization of tax loss carryforwards (1,552) (134,749) (303) (39) Refundable asset tax (25,181) (1,962) 0 0 ---------- ----------- ---------- ----------- 134,577 93,544 185,482 24,467 Income (loss) before participation in results of affiliated companies 480,310 (1,028,862) (543,297) (71,662) EQUITY IN RESULTS OF AFFILIATED COMPANIES 0 4,770 (2,643 (349) ---------- ----------- ---------- ----------- Net income (loss) 480,310 (1,024,092) (545,940) (72,011) ========== =========== ========== ========== NET INCOME (LOSS) APPLICABLE TO: Majority interest 465,736 (1,015,226) (529,900) (69,895) Minority interest 14,574 (8,866) (16,040) (2,116) ---------- ----------- ---------- ---------- Net income (loss) 480,310 (1,024,092) (545,940) (72,011) ========== =========== ========== ========= INCOME (LOSS) PER SHARE: Majority interest 2.39 (4.50) (2.05) (0.27) Minority interest 0.07 (0.04) (0.06) (0.01) ---------- ----------- ---------- --------- Net income (loss) per share 2.46 (4.54) (2.11) (0.28) ========== =========== ========== ========= Weighted average shares out- standing (000's) 194,867 225,491 258,026 258,026 The accompanying notes are an integral part of these consolidated statements.
CONSORCIO G GRUPO DINA, S.A. DE C.V. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30, 1996 (Thousands of Mexican pesos) Capital Stock ------------------------------------------------------ Additional Reserve for Number Paid-in Repurchase of Shares Authorized Unsubscribed Restatement Capital of Shares BALANCE AS OF DECEMBER 31, 1992 169,833,640 Ps.105,832 Ps.- Ps.157,263 Ps. - Ps.- Increase in capital stock 33,966,810 21,167 -- 20,361 714,977 -- Transfer to reserve for repurchase of shares -- -- -- -- -- 122,857 Dividends declared -- -- -- -- -- -- Changes in equity in real terms -- -- -- -- -- -- Net income for the year -- -- -- -- -- -- Minority interest in net income and cumulative effect of restatement -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE AS OF DECEMBER 31, 1993 203,800,450 126,999 -- 177,624 714,977 122,857 Increase in capital stock 54,225,686 69,546 (35,754) 27,003 911,043 -- Dividends declared -- -- -- -- -- -- Changes in equity in real terms -- -- -- -- -- -- Net loss for the year -- -- -- -- -- -- Minority interest in loss for the year and cumulative effect of restatement -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE AS OF DECEMBER 31, 1994 258,026,136 196,545 (35,754) 204,627 1,626,020 122,857 Change in accounting policy -- -- -- -- -- -- Cancellation of dividends declared -- -- -- -- -- -- Changes in equity in real terms -- -- -- -- -- -- Net loss for the year -- -- -- -- -- -- Minority interest in net loss and cumulative effect of restatement -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE AS OF DECEMBER 31, 1995 258,026,136 Ps.196,545 Ps.(35,754) Ps.204,627 s.1,626,020 Ps.122,857
Accumulated Cumulative Cumulative Earnings Effect of Translation Minority (Losses) Restatement Adjustment Interest Total BALANCE AS OF DECEMBER 31, 1992 Ps. 1,111,678 Ps. (336,748) Ps. - Ps.92,737 Ps.1,130,762 Increase in capital stock -- -- -- -- 756,505 Transfer to reserve for repurchase of shares (122,857) -- -- -- -- Dividends declared (81,452) -- -- (7,680) (89,132) Changes in equity in real terms -- (71,658) -- -- (71,658) Net income for the year 465,736 -- -- -- 465,736 Minority interest in net income and cumulative effect of restatement -- -- -- 12,024 12,024 ---------- ---------- ---------- ---------- ---------- BALANCE AS OF DECEMBER 31, 1993 1,373,105 (408,406) -- 97,081 2,204,237 Increase in capital stock -- -- -- -- 971,838 Dividends declared (81,387) -- -- (8,439) (89,826) Changes in equity in real terms -- (34,198) 14,387 -- (19,811) Net loss for the year (1,015,226) -- -- -- (1,015,226) Minority interest in loss for the year and cumulative effect of restatement -- -- -- (8,785) (8,785) ---------- ---------- ---------- ---------- ---------- BALANCE AS OF DECEMBER 31, 1994 276,492 (442,604) 14,387 79,857 2,042,427 Change in accounting policy -- -- 1,045,434 -- 1,045,434 Cancellation of dividends declared 47,370 -- -- -- 47,370 Changes in equity in real terms -- (379,499) (292,630) -- (672,129) Net loss for the year (529,900) -- -- -- (529,900) Minority interest in net loss and cumulative effect of restatement -- -- -- (30,777) (30,777) ---------- ---------- ---------- ---------- ---------- BALANCE AS OF DECEMBER 31, 1995 Ps.(206,038) Ps.(822,103) Ps.767,191 Ps.49,080 Ps.1,902,425 The accompanying notes are an integral part of these consolidated statements.
CONSORCIO G GRUPO DINA, S.A. DE C.V. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30, 1996 (THOUSANDS OF MEXICAN PESOS AND THOUSANDS OF U.S. DOLLARS) 1993 1994 1995 1995 ---------- ----------- ---------- -------- OPERATIONS: Income (loss) net Ps.480,310 Ps.(1,024,092) Ps.(545,940) $(72,011) Add (deduct)- Non-cash items- Depreciation 56,733 86,573 110,024 14,512 Tax arising from timing differences (5,940) 6,948 18,994 2,505 Deferred income taxes - 14,321 (3,633) (479) Other deferred items and insurance reserves - - 50,515 6,663 Provision for doubtful accounts receivable 4,339 20,518 46,470 6,129 Provision for slow-moving inventories 5,556 18,626 72,584 9,574 Provision for employees' severance benefits 8,456 13,758 15,692 2,070 Participation in results of associated companies - (4,770) 2,643 349 Restructuring charges - 274,379 98,230 12,957 Amortization of goodwill - 20,965 115,616 15,250 Change in operating assets and liabilities- Decrease (increase) in- Notes and accounts receivable (658,499) 72,955 122,167 16,114 Inventories 140,595 (89,750) (69,952) (9,227) Prepaid expenses (26,321) (971) 12,633 1,666 Investment in and advances to discontinued operations - 216,902 207,884 27,420 Income taxes and employee profit sharing 21,104 (44,694) 5,832 10,002 Other assets 28,663 50,475 (43,195) (5,697) Increase (decrease) in- Notes and accounts payable to suppliers 342,666 (402,210) (147,248) (19,422) Other payables and accrued expenses (39,057) 17,729 (123,374) (16,273) Dividends payable - 54,257 (54,257) (7,157) Pension plan funding and payments of severance benefits (9,282) (4,888) (29,676) (3,913) Resources generated by (applied to) operations 349,323 (702,969) (67,991) (8,968) INVESTMENTS: Notes and accounts receivable (long-term) - (397,180) (21,459) (2,830) Additions to property, plant and equipment (333,683) (113,466) (534,821) (70,544) Net book value of retirements 13,248 48,537 265,426 35,010 Investment in shares - (79,093) 31,745 4,187 Goodwill - (1,167,702) - - Net assets from acquisition of subsidiary - (859,922) - - Long-term portion of receivable from the trust for stock sales plan 11,743 (2,765) (1,133) (149) ---------- ----------- ---------- -------- Net cash applied to investment activities (308,692) (2,571,591) (260,242) (34,326) FINANCING: Increase (decrease) in short-term bank loans (293,350) 142,906 (83,170) (10,970) Increase (reduction) in current and long-term debt due to restatement in constant pesos (97,789) (57,648) (1,546,180) (203,944) Increase in peso terms of US dollar debt due to exchange rate changes - 868,036 1,549,485 204,380 Proceeds from long-term debt - 1,068,067 195,710 25,815 Payments on principal of long-term debt (253) (312) - - Dividends (declared) canceled (81,452) (81,387) 47,370 6,247 Dividends declared by subsidiaries to minority shareholders (7,680) (8,439) - - Increase in capital stock 41,528 60,795 - - Additional paid-in capital 714,977 911,043 - - ---------- ----------- ---------- ---------- Net cash generated by financing activities 275,981 2,903,061 163,215 21,528 Cash balance from acquisition of subsidiary - 114,611 - - Cash and cash equivalents at beginning of year 407,882 724,494 467,606 61,678 Cash and cash equivalents at end of year Ps.724,494 Ps. 467,606 Ps.302,588 $ 39,912 SUPPLEMENTAL CASH FLOW DISCLOSURES: Income and asset taxes paid Ps. 73,420 Ps. 135,710 Ps. 65,445 $ 8,632 ========== =========== ========== ========= Employee profit sharing paid Ps. 19,866 Ps. 35,410 Ps. 8,741 $ 1,153 ========== =========== ========== =========== Interest paid Ps.138,124 Ps. 169,937 Ps.357,217 $ 47,118 ========== =========== ========== =========== The accompanying notes are an integral part of these consolidated statements.
CONSORCIO G GRUPO DINA, S.A. DE C.V. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1993, 1994 AND 1995 EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30, 1996 (STATED IN THOUSANDS OF MEXICAN PESOS AND THOUSANDS OF U.S. DOLLARS) 1. ACTIVITIES, BASIS OF CONSOLIDATION AND PRESENTATION The financial statements of Consorcio G Grupo Dina, S.A. de C.V. and the subsidiaries of which it is the controlling stockholder (collectively, "the Company") are presented on the basis of generally accepted accounting principles in Mexico ("Mexican GAAP"). Certain accounting practices applied by the Company that conform with Mexican GAAP, do not conform with generally accepted accounting principles in the United States ("U.S. GAAP"). See Notes 23 and 24 for explanation of differences and reconciliation of net income and stockholders' equity to U.S. GAAP. Consorcio G Grupo Dina, S.A. de C.V. is a subsidiary of Grupo Empresarial G, S.A. de C.V. and is the controlling stockholder of a group of companies engaged in the manufacture and sale of trucks and buses. As discussed in Note 2, during 1994 Motor Coach Industries International, Inc. ("MCII"), a U.S. corporation, was acquired. MCII manufactures and sells coaches and coach parts in the United States (U.S.) and Canada. Because of the severe decline in demand for buses during 1994 and 1995, and the reduction in demand for trucks in 1995, DINA (as herein defined) laid off plant workers and employees. The utilization of plant capacity also decreased and the bus and truck plants were closed for significant periods of time. The depreciation of the plants during the shut-down period is presented as "cost of idle plant" and the severance expense related to the layoffs are included in "restructuring charges" (see Note 26), in the accompanying consolidated statements of income (loss). Consolidated financial statements include the financial statements of Consorcio G Grupo Dina, S.A. de C.V. and its subsidiaries. The major subsidiaries are Dina Camiones, S.A. de C.V., Dina Autobuses, S.A. de C.V., Plasticos Automotrices Dina, S.A. de C.V., Dina Comercializadora, S.A. de C.V. (collectively DINA or the Mexican subsidiaries) and Motor Coach Industries International, Inc. and its subsidiaries (MCII or the U.S. subsidiary). The consolidated statements of income (loss) and changes in financial position include the transactions of MCII as of the date of acquisition. All significant intercompany transactions and balances have been eliminated in the accompanying consolidated financial statements. U.S. dollar amounts shown in the financial statements have been included solely for the convenience of the reader and are translated from Mexican pesos, as a matter of arithmetic computation only, at the rate quoted by Banco de Mexico for June 30, 1996 of 7.5814 Mexican pesos per U.S. dollar. Such translation should not be construed as a representation that the peso amounts have been or could be converted into U.S. dollars at this or any other rate. Certain amounts in the financial statements at December 31, 1994 and 1993 have been reclassified in order to conform with the presentation of the financial statements at December 31, 1995. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of management's estimates. 2. ACQUISITION OF MCII On August 8, 1994, Consorcio G Grupo Dina, S.A. de C.V. acquired all of the outstanding shares of MCII for an aggregate consideration of $311,627. The transaction was made through the exchange of 54,225,462 Series "L" shares of Consorcio G Grupo Dina, S.A. de C.V. for 51% of the outstanding shares of MCII, with the remaining 49% of the outstanding shares exchanged for a face amount of $163,993 of 8% convertible subordinated debentures. To guarantee the convertibility of this debt, 24,624,278 Series "L" shares and 32,749,940 common shares were placed in treasury. The acquisition was accounted for as a purchase which resulted in a preliminary adjustment of all outstanding assets and liabilities of MCII to their estimated fair value on the date of the acquisition. MCII is also in the process of obtaining additional information to quantify the potential liability related to certain U.S. and Canadian tax contingencies. MCII does not expect a significant liability. Once those amounts have been quantified, the contingencies may be recorded as an additional purchase accounting adjustment. The excess of the consideration exchanged by Consorcio G Grupo Dina, S.A. de C.V. over the estimated fair value of the net assets acquired, based upon the preliminary purchase accounting adjustment, was $234,064 and is being amortized for Mexican GAAP over 20 years using the straight-line method. The amount amortized from the acquisition date to December 31, 1994 and for 1995 was Ps.20,965 and Ps.115,616, respectively, and is included in administration expenses. 3. SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements are presented in "Mexican pesos" (Ps.), which is the name of the "new Mexican pesos" (NPs.) as of January 1, 1996. The significant accounting policies followed by the Company, which are in accordance with Mexican GAAP, are summarized below: Change in Accounting Policy- Beginning in 1995, Bulletin A-8 issued by the Mexican Institute of Public Accountants became effective. This bulletin requires that if there are no accounting principles in Mexico which specifically address a transaction, international accounting standards, or the accounting principles of the country most closely related to the Company's operations, must be used. Therefore, as of 1995, the Company began using "pushdown" accounting to reflect the acquisition of MCII. The goodwill related to the purchase is now considered an asset of MCII, and is converted to pesos using the method explained below. This change resulted in an increase in the peso amount of goodwill of Ps.1,045,434 and a corresponding increase in "cumulative translation adjust- ment" in stockholders' equity of which Ps.387,792 relate to 1994 and Ps.657,642 relate to 1995. In addition, amortization of goodwill increased by Ps.59,296 for 1995, which was recorded in the fourth quarter of 1995. The increase in goodwill in pesos in the consolidated financial statements also resulted in an increase in the amount of exchange loss which can be included in the "cumulative translation adjustment" rather than results of operations. This change resulted in a reduction of exchange loss of Ps.292,630 compared to the amount computed without using "pushdown" accounting. The gain on monetary position decreased by Ps.586,443 because the debt is now included on MCII's financial statements and the U.S.inflation index was applied. Basis of Conversion of Financial Statements of U.S. Subsidiary- The accounts of MCII are prepared in U.S. dollars as the functional currency and have been converted to Mexican pesos in conformity with International Accounting Standards No. 21 (now incorporated as a supple- ment to Mexican GAAP) "The Effects of Changes in Foreign Exchange Rates and Translation of Financial Statements in Foreign Currency," which, as applied to MCII, does not differ significantly from U.S. Statement of Financial Accounting Standards N(degree) 52 "Foreign Currency Translation." The conversion to Mexican pesos was as follows: - - The effects of inflation on the financial information as described below have been recognized using the consumer price index for the U.S. - - All of the balance sheet accounts, except for capital stock, have been converted using the exchange rate in effect at the balance sheet date. - - The capital stock was converted at the exchange rate in effect at the date of the acquisition of MCII. - - The statement of income was converted at the average exchange rate for the applicable month, and then restated using the U.S. inflation rate. The prior periods have been restated using the Mexican inflation rate applied to the consolidated peso amounts reported in prior periods. The accounts of MCII were also converted to Mexican GAAP for inclusion in the consolidated financial statements of the Company presented in Mexican GAAP. See Note 23 for differences between U.S. and Mexican GAAP. Recognition of the Effects of Inflation on the Financial Statements- The consolidated financial statements of the Company have been prepared in accordance with Bulletin B-10, "Recognition of the Effects of Inflation on Financial Information," as amended, issued by the Mexican Institute of Public Accountants, which recognizes the effects of inflation. Accordingly, the financial statements have been restated to the purchasing power of the Mexican peso as of June 30, 1996, using the Mexican National Consumer Price Index (the "NCPI"), published by Banco de Mexico. In this manner, the financial statements are comparable with those of previous years, as all are stated in currency of the same purchasing power. To recognize the effects of inflation in terms of Mexican pesos with purchasing power as of year end, the procedures were as follows: - - Balance sheet: Inventory costs include labor, material and factory overhead. Inventories are stated at the lower of replacement cost or realizable value. Cost of sales are stated utilizing the replacement cost at time of sale. Property, plant and equipment are restated to net replacement cost, as determined by independent appraisers or using inflation indices for the U.S. subsidiary. Depreciation is calculated based on those values and the useful lives as determined by the appraisers. Goodwill amortization is computed using the straight-line method over 20 years. Capital stock and retained earnings are restated applying the NCPI. The restatement represents the amount necessary to maintain stockholders' equity in terms of the purchasing power of the amount originally invested or retained. The cumulative effect of restatement primarily represents the gain or loss from holding nonmonetary assets, and is determined by comparing the replacement values versus the value obtained from applying factors derived from the NCPI in the restatement of nonmonetary assets (mainly inventories and property, plant and equipment). - - Statement of income: Revenues and expenses which are associated with a monetary item (cash, trade receivables, liabilities, etc.) are restated from the month in which they arise through year end, based on factors derived from the NCPI. Costs and expenses associated with nonmonetary items are restated through year end, as a function of the restatement of the nonmonetary asset which is being consumed or sold. The comprehensive result of financing represents the sum of interest earned and incurred, exchange gains and losses and the gain or loss from monetary position, which is the result of maintaining monetary assets and liabilities whose real purchasing power is affected by inflation. During each of the three years ended December 31, 1993, 1994 and 1995 monetary liabilities exceeded monetary assets; consequently, there was a gain from monetary position during each of those years. - - The statement of changes in financial position presents the changes in constant currency, based on the financial position as of the beginning of the year, restated to currency of the current year end. Cash Equivalents- Cash equivalents consist of unsecured short-term investments from banks at fixed rates plus accrued interest, with a maturity of less than 3 months. Investment in Equity Securities- The investment in equity securities, in which the Company has significant influence, is recorded under the equity method. Investments in which the Company holds 10% or less of the outstanding shares are recorded at cost (as restated). Goodwill- Management of the Company has assessed the recoverability of the goodwill related to the purchase of MCII using an undiscounted cash flow projection. Based on this assessment, in the opinion of the Company's management, there is no impairment in the value of this asset. Income Taxes and Employee Profit Sharing- The provisions for income taxes and employee profit sharing are calculated based on taxable income, which differs from book income due to certain permanent and temporary differences in the recognition of income and expenses for tax and book purposes. Deferred taxes and deferred employee profit sharing are not provided for recurring temporary differences which are expected to be replaced by temporary differences of a similar nature and amount. Transactions in Foreign Currency- Transactions in foreign currency are recorded at the rate of exchange in effect at the date of the transaction. Foreign currency assets and liabilities are adjusted to the rate of exchange at the end of the year. Any gain or loss resulting from the translation is included in the income statement. Warranty Expense- Most of DINA's warranty costs are paid by the suppliers of engines and other purchased parts. A warranty reserve has been established for the estimated amounts to be incurred which are not covered by DINA's suppliers. MCII establishes an accrual for warranty claims at the time of sale, based on management's estimate of future warranty liabilities. Actual warranty expenditures are charged to the accrual as incurred, and periodically the accrual is reviewed for adequacy in light of actual experience and adjustments are recorded if necessary. Earnings per Share- The Company issued 10,000 shares in 1989, 1,853,480 shares on January 18, 1990 and 6,216,484 shares on August 29, 1991. On March 31 and April 1 of 1993, 33,966,810 shares were issued in an initial public offering. On August 8, 1994, 54,225,686 shares were issued in connection with the acquisition of MCII. Except for 1,200,000 shares of the January 18, 1990 issuance and the shares exchanged for shares of MCII, all of the shares were issued in exchange for cash. The Company determined its earnings per share based on the weighted average number of shares outstanding during the years ended December 31, 1993, 1994 and 1995. Gains and Losses on Disposals of Fixed Assets- The gain or loss on disposal of fixed assets is recognized in the income statement by comparing the value of the fixed assets restated to constant pesos as of the date of the sale or abandonment to the sale price or realizable value. 4. FOREIGN CURRENCY POSITION Since the devaluation of the Mexican peso in December 1994, there has been significant instability in the financial and exchange rate markets. At December 31, 1995, the DINA's assets and liabilities denominated in foreign currency are represented principally by U.S. dollars and were converted at the exchange rate of 7.7396 Mexican pesos per U.S. dollar. The assets and liability of MCII are denominated in U.S. dollars and Canadian dollars. At December 31, 1995, the Company's foreign currency position expressed in thousands of U.S. dollars was as follows: DINA MCII Total (a) Assets- Current $ 21,758 $ 229,626 $ 251,384 Long-term (includes goodwill of MCII) 16,015 377,803 393,818 ---------- ---------- --------- 37,773 607,429 645,202 ---------- ---------- --------- Liabilities- Current 16,133 72,793 88,926 Long-term 300,847 239,828 540,675 ---------- ---------- --------- 316,980 312,621 629,601 ---------- ---------- --------- Net asset (liability) position in foreign currency $ (279,207) $ 294,808 $ 15,601 ========= ========= ======== - ----------------- (a) For the purpose of this information amounts are presented in accordance with U.S. GAAP. As explained in Note 22, MCII enters into foreign exchange forward contracts to hedge certain firm and anticipated purchase commitments which are settled in Canadian dollars, amounting to $52,902,000 Canadian dollars. At February 29, 1996, the unaudited foreign currency position was similar to that at December 31, 1995, and the exchange rate was 7.6296 Mexican pesos per U.S. dollar. Significant transactions in foreign currency undertaken by DINA during 1994 and 1995 were as follows: 1994 1995 ------------ --------- Export sales $ 23,498 $ 58,085 Purchases other than fixed assets (182,883) (26,513) Interest paid (26,252) (34,313) Technical support (3,505) (638) --------- -------- Net $(189,142) $ (3,379) ========= ======== 5. CASH AND CASH EQUIVALENTS Cash and cash equivalents include: 1994 1995 ------------ -------- Cash Ps.21,059 Ps.6,244 Unsecured short-term investments from banks at fixed rates of interest with maturities less than 3 months 446,547 296,344 ----------- ---------- Ps.467,606 Ps.302,588 6. NOTES AND ACCOUNTS RECEIVABLE Notes and accounts receivable include: 1994 1995 ------------ -------- Trade Ps.795,187 Ps.642,259 Current portion of long-term notes receivable 132,130 67,092 Less- Allowance for doubtful accounts (89,211) (62,303) 838,106 647,048 Short-term portion of receivable from trust for stock sales plan 4,388 2,886 Refundable income tax 53,492 16,847 Refundable asset tax 2,297 7,373 Refundable value added tax 31,903 17,153 Other 79,944 91,709 --------- -------- Ps.1,010,130 Ps.783,016 The changes in the allowance for doubtful accounts were as follows: 1993 1994 1995 ------------ ------------ ---------- Beginning balance Ps. 3,299 Ps. 7,190 Ps.159,661 Acquisition of MCII - 15,484 - Provision 4,339 137,740 133,217 Charge-offs (205) - (1,820) Recoveries - (280) (135) Effect of inflation (243) (473) (64,643) --------- --------- --------- Ending balance Ps. 7,190 Ps.159,661 Ps.226,280 ========= ========== ========== The balance of the allowance for doubtful accounts is as follows: 1993 1994 1995 ------------ ------------ -------- Current Ps. 7,190 Ps.89,211 Ps.62,303 Long-term - 70,450 163,977 --------- --------- --------- Total Ps. 7,190 Ps.159,661 Ps.226,280 ========= ========== ========== 7. INVENTORIES Inventories consist of the following: 1994 1995 ------------ ------------ Finished goods Ps.1,236,890 Ps.1,098,543 Work in process 324,779 375,162 Raw materials 894,306 709,394 Merchandise in transit and advances to suppliers 68,436 24,608 ------------ ----------- 2,524,411 2,207,707 Less- Allowance for obsolete and slow-moving items (246,827) (239,126) ---------- ----------- Ps.2,277,584 Ps.1,968,581 The changes in the allowance for obsolete and slow-moving items were as follows: 1993 1994 1995 ------------ ------------ -------- Beginning balance Ps.20,184 Ps.23,734 Ps.246,827 Acquisition of MCII - 103,397 - Provision 5,556 140,737 84,069 Sales of obsolete inventory (348) (15,494) (47,124) Effect of inflation (1,658) (5,547) (44,646) --------- ---------- ---------- Ending balance Ps.23,734 Ps.246,827 Ps.239,126 The provision for obsolete and slow-moving items is based on the restated value of the inventory as of the date the provision is recorded. All of the provision was changed to results of operations. 8. LONG-TERM NOTES AND ACCOUNTS RECEIVABLE Long-term notes and accounts receivable include: 1994 1995 ------------ -------- Notes receivable Ps.598,239 Ps.690,718 Less- Allowance for doubtful accounts (70,450) (163,977) ---------- ---------- 527,789 526,741 Receivable from trust for stock sales plan 10,213 5,584 ---------- ---------- Ps.538,002 Ps.532,325 The maturity of notes receivable, net of reserves, is as follows: Year ------------- 1996 Ps 67,092 1997 54,281 1998 87,355 1999 88,712 2000 and thereafter 296,393 ---------- Total 593,833 Less-current portion (67,092) ---------- Long-term notes receivable Ps.526,741 ========== Notes Receivable- DINA- In January 1996, DINA restructured all its accounts receivable from Autobuses Estrella Blanca, S.A. de C.V. (EB), Autotransportes Tres Estrellas de Oro, S.A. de C.V. (TEO) and both companies' licensees, though a global restructuring agreement. These companies are related and all are involved in intercity transport in Mexico, which has been negatively affected by the peso devaluation and the economic crisis. As a result of this global restructuring, all balances payable to DINA were renegotiated using as a reference "Units of Investment" (UDIS) which value changes based on the Mexican inflation rate. The principal balance, increased for inflation, will be payable in equal monthly installments over six years beginning July 1, 1997. These balances will bear interest at a rate of 10% over the monthly reference value of UDIS payable beginning February 29, 1996. This agreement will be prepared individually for each specific company and/or licensee. At December 31, 1995, the account receivable from TEO and its licensees amounts to US$25 million and was translated to Mexican pesos at the exchange rate of $4.50 per US dollar, included in the above mentioned restructuring. The difference between the exchange rate at year end and $4.50 was recorded as expense and a reserve established at December 31, 1995. These accounts receivable are guaranteed with the buses acquired, as well as with the shares of EB and TEO, which will allow DINA to operate the related units to ensure the collection of its receivables. Should these companies fail to perform in accordance with the contracts and the collateral prove to be of no value, the accounting loss would be Ps. 229,632. The accompanying financial statements include the effect of this restructuring at December 31, 1995 and the related accounts receivable have been classified as long-term. In addition to the restructuring, DINA initiated procedures with Fondo Bancario de Proteccion al Ahorro (Banking Fund for the Protection of Savings (FOBAPROA)), to transfer its balances receivable from EB and TEO to FOBAPROA, and use the resources obtained from this transfer in the capitalization of Arrendadora Financiera Dina, S.A. de C.V. (related party), so that this company may obtain additional financing to sell DINA products in the future. These transactions are in the process of being formalized and are expected to be concluded by the end of May 1996. FOBAPROA has verbally agreed to purchase the receivables at a discount of 20.5%, which is equivalent to $59,213. This discount is included in the provision for doubtful accounts for the year ended December 31, 1995. The accompanying financial statements include a reserve for this amount. The Company's management does not expect any changes in the percent of discount. The account receivable from Union de Credito para el Autotransporte, S.A. de C.V., which acted as an intermediary between DINA and EB and its licensees, was ceded to DINA together with the underlying rights, effective retroactively as of December 31, 1995 and is included in the above mentioned restructuring and has also been classified under long-term receivables at December 31, 1995. The notes receivable, net of reserves, due to DINA from its intercity bus customers, restructured as of December 31, 1995 are as follows: Autobuses Estrella Blanca, S.A. de C.V. Ps.139,681 Autotransportes Tres Estrellas de Oro, S.A. de C.V. (Tres Estrellas de Oro) 18,503 Licensees of Tres Estrellas de Oro 86,190 ---------- Total restructured Ps.244,374 ========== The total provision for uncollectible accounts for the restructured notes was Ps. 110,143 and Ps. 92,064 for 1994 and 1995, respectively. MCII- During the year ended December 31, 1995 and the five month period ended December 31, 1994, MCII sold $42,366 and $21,486 of its notes receivable for $44,126 and $22,386 respectively. MCII has agreed to repurchase, for the unpaid balance, any contract for which there has been a material breach of any warranty, representation, covenant or other obligation of MCII as specified in the contract. In the case of default by a debtor, the purchaser, after taking possession of the underlying collateral equipment, may permit MCII to remarket the equipment. MCII is required to reimburse the purchaser for any losses as a result of defaults up to an aggregate of $8,467 at December 31, 1995. On October 13, 1993, the Company advanced to Grupo Empresarial G $30,000 at a rate of 11%, which was paid on November 15, 1993. During 1994 and 1995, the Company advanced Ps. 11,508 and Ps. 3,634, respectively to Grupo Empresarial G, unsecured, which bears interest at 3% over the average bank cost of funds. Receivable from Trust for Stock Sales Plan- In 1992, the Company created a trust with Inverlat, to establish a stock sales plan for the executives of DINA. The trust is managed in accordance with instructions set forth by a Technical Committee, which consists of the principal stockholders and certain executives of the Company. The initial contribution was used to subscribe and pay for 8,234,360 common shares without par value, at a price of Ps.3.04 per share. At December 31, 1992, the trust completed the sale of the shares to the executives of DINA subject to the following conditions: - The sale will be in equal installments over ten years. The payment to the trust must be made within 365 days of the signing of the sales contract for each year. - The contract automatically expires should the executive cease to be employed at any of DINA's subsidiaries, and the employee will forego the right to receive any remaining shares under the contract. The consolidated financial statements of the Company reflect the account receivable from the trust at its present value which at December 31, 1995 was Ps.8,470, of which Ps.5,584 is long term. The account receivable from the trust is recorded as an asset. Furthermore, no compensation expense has been or will be recorded in connection with this program. 9. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following: 1994 1995 ------------ -------- Buildings and improvements Ps.1,035,386 Ps.1,164,828 Machinery and equipment 824,068 821,604 Transportation equipment 141,873 315,003 Furniture and fixtures 125,312 100,032 ------------ ------------ 2,126,639 2,401,467 Less- Accumulated depreciation (792,607) (868,933) ----------- ----------- 1,334,032 1,532,534 Land 121,579 108,683 ------------ ------------ Ps.1,455,611 Ps.1,641,217 ============ ============ The average annual depreciation rates are as follows: 1994 1995 --------- --------- Buildings and improvements 3% to 25% 3% to 25% Machinery and equipment 6% to 33% 8% to 33% Transportation equipment 9% to 20% 4% to 20% Furniture and fixtures 11% 8% 10. DISCONTINUED OPERATIONS OF MCII In November 1993, the Board of Directors of MCII approved a plan of disposition of the transit manufacturing segment of MCII. This decision was based upon management's review of market activities, business prospects, competitive bidding, evaluation of backlogs, economic value analysis, and opportunities for cost reduction, which indicated that the transit manufacturing business would not achieve acceptable profitability in the foreseeable future. As a result of this decision, this segment was classified as discontinued operations in 1993. In November 1994, MCII sold the fixed assets and certain of the inventory of the transit manufacturing business, as well as the right to manufacture, remanufacture and distribute transit buses previously made by MCII, for an aggregate consideration of $14,947, of which $4,877 was in the form of a note receivable and the remainder was in cash. Additionally, the purchaser, for a period of five years from the sale date, has agreed not to distribute parts for transit buses previously manufactured by MCII. MCII retained all other assets and all of the remaining liabilities of the transit manufacturing business. The summarized balance sheet of the transit manufacturing segment at December 31, 1994 and 1995 was as follows (stated in thousands of U.S. dollars): 1994 1995 ------------ -------- Assets- Accounts receivable $ 32,257 $ 18,247 Inventories 20,878 - Other current assets 3,997 2,548 Deferred taxes and other assets 23,509 17,230 ---------- ---------- $ 80,641 $ 38,025 ========== ========== Liabilities and investment and advances- Accounts payable $ 1,598 $ 378 Other current liabilities 28,460 12,858 Other liabilities 2,929 1,345 MCII's investment and advances 47,654 23,444 ---------- ---------- $ 80,641 $ 38,025 ========== ========== The following is a summary of the operating results of the transit manufacturing segment for the five month period ended December 31, 1994 and the year ended December 31, 1995: 1994 1995 ------------ ---------- Revenues $ 50,767 $ 24,278 Operating cost and expenses 51,283 24,881 ---------- ---------- (516) (603) Income tax benefit 199 232 ---------- ---------- Losses charged to discontinued operations reserve $ (317) $ (371) ========== ========== 11. RESEARCH AND DEVELOPMENT OF TECHNOLOGY Two subsidiaries of the Company have a trust arrangement to earmark deductible funds for research and development of technology for the companies. The companies will be authorized to make use of these funds for specific purposes, and the fund may be increased by future contributions in accordance with the provisions of the contract, or by interest, dividends and capital gains earned by the fund. The fund was established in 1990 and no subsequent cash contributions were made. During 1993, Ps.21,303 was used for research and development and is included in expenses. There were no expenditures for research and development in 1994 and 1995. The balance of the fund as of December 31, 1995 was Ps.20,748 and is included in other assets. MCII has undertaken a research and development project with the cooperation of the Government of Canada and the Province of Manitoba. Agreements were entered into between the parties for the research and development project which includes commitments for contributions. During the five month period ended December 31, 1994 and the year ended December 31, 1995 MCII recorded $698 and $3,305, respectively from the contribution programs, which has been applied against research and development expenses. Contributions may be repayable should the project not be completed. As of December 31, 1995, the amount of such contributions totaled $6,033. 12. BANK LOANS Short-term bank loans were as follows: Average Weighted Weighted Amount Average Balance at Average Outstanding Interest Rate End of the Interest During the During the Year Rate Year (a) Year (b) ---------- -------- ----------- ------------- 1994 Ps.150,371 23.63% Ps.188,131 19.99% ========== ===== ========== ===== 1995 Ps.15,779 60.03% Ps.37,547 61.06% ========= ===== ========= ===== (a) Average amounts outstanding were calculated by dividing the average monthly borrowings by the number of months during the year. (b) The weighted average interest rates were calculated by dividing the total interest expense during the year by the average amounts outstanding as calculated in (a) above. 13. OTHER PAYABLES AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of the following: 1994 1995 ------------ ----------- Taxes other than income tax Ps. 92,275 Ps.126,679 Commissions 3,057 10,732 Interest payable 64,151 95,332 Warranty reserve 45,990 48,021 Other 409,162 210,497 ---------- ---------- Ps.614,635 Ps.491,261 14. LONG-TERM DEBT An analysis of long-term debt is as follows: 1994 1995 ------------ ----------- Eurobonds Ps.1,312,915 Ps.1,338,634 Subordinated convertible debentures 1,435,384 1,463,502 Bank credit facility 612,694 821,029 Term notes payable 1,094,097 1,115,528 Other 2,419 15,779 Less- Discount on issuance of subordinated convertible debentures (85,084) (117,305) Current maturities of long-term debt (1,475) (15,778) ------------ ------------ Ps.4,370,950 Ps.4,621,389 ============ ============ As of December 31, 1995, MCII had available short-term lines of credit totaling Ps.359,905. Eurobonds- On November 18, 1992 Eurobonds through Guaranteed Notes with a principal amount of $150,000 were issued. The 10.5% Guaranteed Notes are due November 18, 1997 with interest payable semi-annually in arrears on May 18 and November 18. See Note 28 c) for an explanation of the Exchange Offer for these Eurobonds. The terms of the Eurobonds restrict the disposition of the stock of subsidiaries and fixed assets unless the proceeds are subsequently reinvested, and limit the pledging of assets or granting of guarantees on additional debt. The Eurobonds are guaranteed by each of Dina Camiones, S.A. de C.V., Dina Autobuses, S.A. de C.V. and Dina Comercializadora, S.A. de C.V., subsidiaries of the Company. As of the date of issuance of these financial statements, the Company is in compliance with these restrictions. Subordinated Convertible Debentures- On August 8, 1994, DINA issued subordinated convertible debentures for $163,993, with a discount of $14,759, due in August 2004, with interest payable semi-annually at 8%, net of certain taxes. DINA has the option of redeeming the debentures after three years and before 5 years with a prepayment penalty, if the market price of the American Depositary shares (ADS) of Series "L" stock of the Company exceeds $22.86 for a specified period of time. The debentures are convertible at the option of the holder to 56.88 ADSs per one thousand dollars of principal amount. The discount will be amortized through August 2004 on a straight-line basis. Bank Credit Facility- Long-term bank credits are available to MCII from participating banks under an agreement (the "Bank Credit Facility") which provides up to $125,000 for borrowing purposes, of which up to $35,000 is available for issuance of standby letters of credit. Borrowings were available at December 31, 1995 on a revolving basis until July 31, 1998. At December 31, 1995, there were borrowings of $92,000 outstanding under the Bank Credit Facility and $6,920 of standby letters of credit were issued. Canadian revolving credit loans are available to a subsidiary of MCII which provide for loans up to the Canadian equivalent of $7,329, of which no amounts were outstanding at December 31, 1995. Borrowings were available at December 31, 1995 on a revolving basis until January 31, 1996, with outstanding borrowings then converting into a term loan repayable in 36 equal monthly installments. The interest rates applicable to borrowings under these agreements are, at MCII's option, indexed to the bank prime rate or the London Inter-banking Offering Rate ("LIBOR"), plus appropriate spreads over such indices during the period of each borrowing agreement. The agreements also provide for commitment fees. Such spreads and fees can change based upon changes in MCII's financial ratios. Annually, with the participating banks' consent, the term of the agreements may be extended for one year. Term Notes Payable- MCII has $125,000 of term notes payable which are due in annual installments of $25,000 beginning in November 1998 and extending through November 2002. Interest on the notes is at a fixed rate of 9.02%, however, MCII has entered into an interest rate swap agreement which effectively changes the interest rate on the notes to LIBOR plus 1.14%. During 1995, MCII terminated $62,500 of the swap in exchange for $4,950 which will be amortized as a reduction of interest expense over the remaining life of the notes. As a result, the effective interest rate on $62,500 of the notes is at LIBOR plus 1.14% and $62,500 is at a fixed rate of 7.44%. MCII long-term debt agreements include various restrictive covenants and require the maintenance of certain defined financial ratios with which MCII is in compliance. At February 29, 1996, the Company has guaranteed revolving lines of credit on behalf of a related company in an amount of Ps.22,830. There are also other guarantees between affiliates for Ps.16,737. Long-term debt maturities are as follows: 1994 1995 ------------ ----------- 1996 Ps. 943 Ps. - 1997 1,925,609 1,338,634 1998 218,820 1,044,135 1999 218,820 223,105 2000 and thereafter 2,006,758 2,015,515 ---------- ---------- Ps.4,370,950 Ps.4,621,389 15. STOCKHOLDERS' EQUITY On March 23, 1995 the stockholders voted to cancel the dividends declared in August 1994, unpaid as of December 31, 1994, which totaled Ps.47,371. At December 31, 1994 and 1995, capital stock consisted of the following:
Number of Shares --------------------------- Common Series "L" Amount ------ ---------- ------. Nominative shares without par value, represented by fixed capital not subject to withdrawal and of free subscription 203,800,450 - Ps.126,999 Nominative shares with no par value, sub-series 2/94 and 1/94, represented by variable capital, freely subscribable, and which may not exceed 10 times fixed capital. Series L shares have limited voting rights and may not exceed 25% of capital 32,749,940 78,849,964 69,546 ---------- ---------- --------- 236,550,390 78,849,964 196,545 Less- Unissued shares (32,749,940) (24,624,278) (35,754) Capital stock outstanding 203,800,450 54,225,686 Ps.160,791
In accordance with the by-laws of the Company, foreign investors may purchase up to 49% of the shares of the Company. Dividends paid by the Mexican subsidiaries are not subject to income taxes, as long as they are paid from "net taxable income" ("UFIN"). For the minority stockholders, dividends not paid from UFIN must include a 34% income tax. The majority stockholders are not subject to income tax withholding because the Company is a tax controlled entity under the rules of consolidation for tax purposes. If capital is reduced, the excess of the reduction over price-level adjusted paid-in capital will be taxable as a dividend in accordance with the formula prescribed by Mexican tax law. The annual net income of each Mexican subsidiary is subject to a legal requirement that 5% thereof be transferred to a legal reserve each year until the reserve equals 20% of capital stock. This reserve is not available for distribution to stockholders during the existence of the Company, except in the form of a stock dividend. 16. TAX ENVIRONMENT DINA- Income and Asset Tax- DINA is subject to income and asset taxes. Income tax is computed by taking into consideration the taxable and deductible effects of inflation, such as depreciation calculated on restated asset values, the deduction of purchases in lieu of cost of sales, which permit the deduction of current costs, and taxable income is increased or reduced by the effects of inflation on certain monetary assets and liabilities through the inflationary component. Income taxes are calculated in terms of currency at the time the transaction occurred and not in terms of currency at the end of the period. The objective of the Mexican Income Tax Law is to tax or to allow the tax deduction of the interest in- come/expense and/or the foreign exchange gain/loss in real terms, that is, deducting from the nominal amount its inflationary component in a calculation similar to that used to determine the comprehensive financing result in the Statement of Income. The asset tax is computed at an annual rate of 1.8% (2% through 1994) of the average of the majority of restated assets less certain liabilities, and the tax is paid only to the extent that it exceeds the income tax of the period. Any required payment of asset tax can be offset against the excess of income tax over asset tax in the following ten years. The provisions for income taxes and employee profit sharing have been determined on the basis of the separate taxable income (loss) of each individual company. Grupo Empresarial G (the Company's parent) is permitted by the Mexican tax authorities to file a consolidated return. Employee Profit Sharing- Employee profit sharing is calculated based on taxable income, after certain adjustments, primarily depreciation, the tax gain or loss on monetary position and exchange gains or losses when realized. The difference between the statutory rate of 10% and the actual provision represents timing differences in the recording of employee profit sharing. Under Mexican GAAP, recording the effect of these timing differences is not required. Tax Loss Carryforwards and Recoverable Asset Tax- At December 31, 1995 DINA had the following tax loss carryforwards and recoverable asset tax, which will be indexed for inflation through the date used to offset future taxable income or income tax payable, respectively: Tax Loss Year of Expiration Carryforward Asset Tax 1999 Ps. - Ps.13,106 2000 - 10,182 2001 3,892 8,143 2002 21,735 13,633 2003 4,768 8,116 2004 908,852 14,814 2005 208,665 30,290 --------- --------- Ps.1,147,912 Ps.98,284 MCII- MCII's U.S. subsidiaries are included in MCII's consolidated U.S. federal and other applicable income tax returns. Taxable income of MCII's Canadian subsidiaries is included in separate tax returns filed in Canada. MCII is also subject to various state income taxes. The deferred tax asset of Ps.260,668 represents the future tax benefit to be received from deductions for U.S. tax purposes. At December 31, 1995 MCII had $34,713 of tax loss carryforwards which will expire as follows: Tax Loss Year of Expiration Carryforwards ------------------ ------------- 2007 $ 2,690 2008 6,261 2009 22,988 2010 2,774 ------- $34,713 17. PROVISION (BENEFIT) FOR INCOME TAX The following items represent the principal differences between Mexican income tax computed at the statutory tax rate and the Company's Mexican Subsidiaries' provision for income tax for 1993: Statutory tax rate 34.75% Permanent differences: Gain from monetary position (7.57) Inflationary component 5.98 Non-deductible items 1.35 Other 5.21 Temporary differences: Depreciation (11.99) Cost of sales vs. purchases, labor and overhead (1.00) Advance payments from customers (28.21) Reserves 1.63 Advance payments to suppliers 7.83 Subsidiaries with tax losses 9.85 ----- Effective tax rate 17.83% During 1994 and 1995, the Company's Mexican subsidiaries recorded a book loss but no net income tax benefit. The Company's U.S. subsidiary recorded income tax expense, which under Mexican GAAP does not include temporary differences. Therefore, these differences must be shown in the reconciliation of the statutory rate to the effective rate.
1994 1995 -------------------------------------- --------------------------------------- DINA MCII Total DINA MCII Total ---- ---- ----- ---- ---- ----- Tax (benefit) expense at statutory rate Ps.(339,924) Ps. 21,914 Ps. (318,010) Ps.(247,864) Ps. 109,769 Ps.(138,095) Permanent differences- Gain from monetary position (15,699) (7,765) (23,464) (69,282) 15,390 (53,892) Inflationary component 23,666 - 23,666 114,818 - 114,818 Non-deductible items 6,317 - 6,317 43,697 - 43,697 Intangible amortization - 9,553 9,553 - 12,470 12,470 State income taxes - 2,466 2,466 - 5,836 5,836 Canadian tax differences - 3,296 3,296 - 4,808 4,808 Temporary differences- Depreciation (17,395) - (17,395) (12,268) - (12,268) Cost of sales vs. pur- chases, labor and overhead 9,207 - 9,207 78,976 - 78,976 Reserves 59,295 - 59,295 45,863 - 45,863 Net operating losses of discontinued operations - 5,811 5,811 - - - Other (34,385) (2,461) (36,846) (1,272) (16,289) (17,561) Tax loss carryforwards which will be used in the future 316,002 - 316,002 52,987 - 52,987 Subsidiaries with taxable income 127,665 - 127,665 - - - Intercompany sales tax- able to Mexican sub- sidiary - - - 8,885 - 8,885 -------- ------- -------- ------- -------- ------- Income tax provision Utilization of tax loss carryforwards (134,749) - (134,749) (303) - (303) -------- ------- -------- ------- -------- ------- Ps. - Ps.32,814 Ps. 32,814 Ps. 14,237 Ps. 131,984 Ps.146,221 =========== ========= =========== ========== ============ ==========
United States and Canadian income before income taxes for the five month period ended December 31, 1994 and the year ended December 31, 1995 were as follows: 1994 1995 ---------- --------- United States $ 4,649 $ 12,979 Canada 2,195 22,916 ---------- ---------- $ 6,844 $ 35,895 ========== ========== MCII's U.S. federal income tax returns have been examined through 1990 and are currently being examined for 1991, 1992 and the seven month period ended July 1993. MCII's Canadian income tax returns for 1982 through 1992 are currently under review by Revenue Canada. Authorities have proposed imputing additional income relating to transactions with a U.S. based subsidiary of MCII. A formal reassessment has been issued by Revenue Canada on the 1985 return. A notice of objection has been filed by MCII for 1985. In the event of an adverse judgment, the additional income taxes for 1982 through 1992 could amount to up to $25,000 plus interest of approximately $25,000 and, in addition MCII may be subject to potential reassessments for years subsequent to 1992 on the same basis which could result in additional income taxes and interest, all before recoveries of U.S. Federal income taxes which may be available to offset a portion of any additional taxes paid to Canada. Although MCII is in the process of obtaining additional information, based upon its review of current relevant information, including the advice of outside counsel, MCII is of the opinion that Revenue Canada's arguments are without merit and that any liability from this matter will not be material to its financial condition or results of operations. 18. COMMITMENTS The Company leases certain property and equipment used in its operations under capital and operating leases with a net book value as of December 31, 1995 of Ps.94,570. Rental expense was Ps.4,899, Ps.11,418 and Ps.26,772 for the years ended December 31, 1993, 1994 and 1995, respectively. At December 31, 1995, the aggregate minimum rental commitments under non-cancelable leases were approximately as follows: Capital Operating Leases Leases -------- ------------ 1996 Ps.2,848 Ps.25,048 1997 2,293 19,117 1998 2,142 12,408 1999 2,142 10,361 2000 and thereafter 1,786 22,775 -------- -------- Total 11,211 Ps.89,709 ======== ========= Less- Interest 6,350 Present value of net minimum lease payments 4,861 Less- Current installments 4,861 Long-term obligation at December 31, 1995 Ps. - 19. PENSION PLAN COSTS DINA- Under Mexican Labor Law, companies are liable for severance payments to employees terminated under certain circumstances. Additionally, there is a liability under the union contracts for voluntary retirements by plant employees with 5 or more years of service. The Company provides retirement pensions, seniority premiums, incidental related death benefits and defined benefit pension plans that cover substantially all employees of DINA. Seniority premiums are paid to employees who leave the Company after fifteen years of service and are based on the number of years of service. For union employees, additional seniority premiums are a part of the union contracts. The union contracts also define the provision of the pension plans for union employees. The benefits are revised periodically for all covered employees mainly in conjunction with union negotiations. The largest subsidiaries established irrevocable trusts to cover the employees' accrued benefits. No contributions were made during 1993, 1994 or 1995. The Company follows the funding recommendations of its actuaries. At December 31, 1995, the balance of this fund amounts to Ps.46,755 and the assets of the trust consist of stock traded on the Mexican Stock Exchange (31%) and certain fixed-rate investments (69%). MCII- Trusted, non-contributory and contributory pension plans cover substantially all employees. Benefits for the non-contributory plans are based primarily on final average salary and years of service. Funding policies provide that payments to pension trusts shall be at least equal to the minimum funding required by applicable regulations. Contributions and cost for the contributory plans are determined as a percentage of each covered employee's regular wages. The following rates, which include inflation, were used in determining the actuarial present value of accumulated plan benefits for the Company's pension plans: December 31, ----------------------------------------------- 1994 1995 ---------------- ---------------- 1993 DINA MCII DINA MCII ---- ---- ---- ---- ---- Discount rate 9% 9% 8% 25% 8% Salary increase rate 8% 8% 5% 20% 5% Return on assets 11% 11% 9% 30% 9% The components of net periodic pension cost consist of the following:
December 31, ------------------------------------------------------------------------- 1994 1995 ------------------------ ----------------------------- 1993 DINA MCII Total DINA MCII Total Service cost Ps.6,112 Ps.7,223 Ps.3,289 Ps.10,512 Ps. 3,684 Ps. 8,684 Ps.12,368 Interest on projected benefit obligation 6,494 6,077 2,590 8,667 3,379 9,100 12,479 Actual return on plan assets (6,537) (6,262) (2,024) (8,286) (11,936) (15,458) (27,394) Amortization of unrecognized obligations 2,387 954 1,912 2,866 (881) 19,120 18,239 Net cost for the year Ps.8,456 Ps.7,992 Ps.5,767 Ps.13,759 Ps.(5,754) Ps.21,446 Ps.15,692
December 31, ------------------------------------------------------------- 1993 1994 ---------- ------------------------------------------------- MCII Assets Accumulated Exceed Benefits Accumulated Exceed DINA Benefits Assets Total Vested benefit obligation Ps. 1,618 Ps.14,046 Ps.62,775 Ps.25,060 Ps.101,881 Non-vested benefit obligation 16,677 15,281 11,300 954 27,535 --------- --------- --------- --------- --------- Accumulated benefit obligation 18,295 29,327 74,075 26,014 129,416 Additional benefits related to future compensation increases 53,857 44,981 22,556 1,426 68,963 --------- --------- --------- --------- --------- Projected benefit obligation 72,152 74,308 96,631 27,440 198,379 Fair value of plan assets (49,047) (58,410) (104,360) (884) (163,654) --------- --------- --------- --------- --------- Unfunded projected benefit obligation Ps.23,105 Ps.15,898 Ps.(7,729) Ps.26,556 Ps.34,725 ========= ========= ========= ========= =========
December 31, ----------------------------------------------- 1995 -------------------------- MCII Assets Accumulated Exceed Benefits Accumulated Exceed DINA Benefits Assets Total Vested benefit obligation Ps.20,799 Ps.78,052 Ps.12,940 Ps.111,791 Non-vested benefit obligation 4,597 12,396 1,090 18,083 --------- --------- --------- ---------- Accumulated benefit obligation 25,396 90,448 14,030 129,874 Additional benefits related to future compensation increases 20,700 24,157 2,115 46,972 --------- --------- --------- ---------- Projected benefit obligation 46,096 114,605 16,145 176,846 Fair value of plan assets (46,755) (124,627) (1,445) (172,827) --------- --------- --------- ---------- Unfunded projected benefit obligation Ps. (659) Ps.(10,022) Ps.14,700 Ps. 4,019 ========= ========== ========= ==========
20. POST-RETIREMENT BENEFITS OTHER THAN PENSIONS MCII has defined benefit post-retirement plans that provide medical and life insurance for eligible retirees and dependents. The net periodic post-retirement benefit cost for MCII is based upon the provisions of SFAS No. 106 "Employers' Accounting for Post-retirement Benefits Other than Pensions." The net periodic post-retirement benefit cost for the five month period ended December 31, 1994 and the year ended December 31, 1995 included the following components: 1994 1995 ---------- ------ Service cost benefits attributed to service during the period Ps.1,183 Ps.3,083 Interest cost on the accumulated post-retirement benefit obligation 1,019 2,971 Net amortization and deferral (32) (333) Net periodic post-retirement benefit cost Ps.2,170 Ps.5,721 The status of the plans at December 31, 1994 and 1995 was as follows: 1994 1995 ---------- ------ Accumulated post-retirement benefit obligation- Retirees Ps.9,988 Ps.10,467 Other fully eligible active plan participants 11,552 12,717 Other active plan participants 29,390 32,895 50,930 56,079 Unrecognized prior service cost 368 303 Unrecognized net gain 1,058 2,938 ------- ------- Accrued post-retirement benefit cost Ps.52,356 Ps.59,320 The assumed health care cost trend rate used in measuring the accumulated post-retirement benefit obligation ("APBO") was 12% in 1995, gradually declining to 5% by the year 2002 and remaining at that level thereafter for retirees below age 65, and 8.5% in 1995, gradually declining to 5% by the year 2002 and remaining at that level thereafter for retirees above age 65. A one percentage point increase in the assumed health care cost trend rate for each year would increase the APBO as of December 31, 1995 by approximately 21% and the net periodic post-retirement benefit cost would increase by approximately 25%. The assumed discount rate used in determining the APBO was 7.5% in 1994 and 1995. 21. LITIGATION AND CONTINGENCIES Certain U.S. entities are plaintiffs or defendants to various actions, proceedings and pending claims. Some of the foregoing involve or may involve claims for compensatory, punitive or other damages in material amounts. Litigation is subject to many uncertainties and it is possible that some of these legal actions, proceedings and pending claims could be decided against the Company. Although the amount of liability at December 31, 1995 with respect to these matters is not ascertainable, the Company's management and its outside counsel believe that any resulting liability would not materially affect the financial condition or results of operations of the Company. 22. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS Financial Instruments with Off-Balance Sheet Risk- MCII enters into foreign exchange forward contracts to hedge certain firm and anticipated purchase commitments which are settled in Canadian dollars. These contracts are purchased to reduce the impact of Canadian dollar currency fluctuations on operating results. MCII does not engage in Canadian dollar currency speculation and the contracts do not subject MCII to risk due to exchange rate movements as gains and losses on the contracts offset gains and losses on the materials being purchased. At December 31, 1995 and 1994, MCII had approximately $52,902,000 and $68,068,000 Canadian dollar exchange forward contracts outstanding. MCII's theoretical risk in these transactions is the cost of replacing, at current market rates, these contracts in the event of default by the other party. Management believes the risk of incurring such losses is remote as the contracts are entered into with major financial institutions. As a necessary adjunct to its new and used coach business, MCII has entered into repurchase and first loss agreements with certain companies which provide financing for coaches, pursuant to which MCII agrees to either repurchase coaches from such companies or guarantees the payment of certain obligations of coach owners or operators. The amount of such agreements as of December 31, 1994 and 1995 was approximately $4,787 and $3,462, respectively. Additionally, as a result of certain sales of notes receivables and leases during 1994 and 1995, MCII is required to reimburse the purchaser of such notes and leases for any losses as a result of defaults up to $5,936 as of December 31, 1994 and $9,536 as of December 31, 1995. MCII has experienced no material losses in respect to such agreements, and losses under existing agreements are not expected to exceed the amount reserved for such losses. On December 28, 1994, MCII sold $24,425 of accounts receivables to a major financial institution with recourse. At December 31, 1995, none of the receivables sold remained outstanding. As a result, MCII had no exposure under the recourse provisions. At December 31, 1994, MCII had an interest rate swap outstanding with a commercial bank which effectively changed the interest rate on MCII's $125,000 term notes payable to LIBOR plus 1.14%. In June 1995, MCII settled $62,500 notional principal amount of the swap, resulting in proceeds to the Company of $4,950 which are being amortized as an adjustment to interest expense of the term notes over the remaining life of the notes. Under the terms of the swap agreement, MCII receives interest of 7.88% and pays interest at LIBOR. At December 31, 1995, the notional amount on which the interest is calculated is $62,500 and matures ratably at the same time the related term notes mature. The counterparty to the agreement has the right to designate a cash settlement of the swap 10 days prior to the maturity date of MCII (180)s Bank Credit Facility. The maturity date of the Bank Credit Facility as of December 31, 1995, is July 31, 1998, but is expected to be extended annually by mutual agreement. In the event of a cash settlement designated by the counterparty, MCII intends to defer the proceeds received, or payments made, as a result of the settlement and immediately enter into a new swap agreement. The deferred settlement would then be amortized over the remaining life of the new swap, thus preserving the effective change in the interest rate on the term notes payable at LIBOR plus 1.14%. MCII is exposed to credit loss in the event of non-performance by the other party; however, MCII does not anticipate non-performance as the counter party is a major financial institution. Fair Value of Financial Instruments- The estimated fair value amounts have been determined by the Company using available market information and valuation methodologies described below. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein may not be indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions on valuation methodologies may have a material effect on the estimated fair value amounts. The carrying values of cash and cash equivalents, receivables, bank overdrafts and accounts payable approximate fair values due to the short-term maturities of these instruments. The carrying amounts and estimated fair values of the Company's other financial instruments at December 31, 1995 are as follows: 1994 1995 ------------------- --------------------- Carrying Fair Carrying Fair Amounts Value Amounts Value Notes receivable $37,312 $37,284 $ 35,631 $35,658 Investment in equity instrument - - 1,200 1,200 Debt (195,000) (194,337) (217,816) (229,678) Interest rate swap - (663) - 5,891 Subordinated convertible debentures (163,993) (121,354) (163,993) (59,857) Eurobonds (150,000) (135,000) (150,000) (109,500) Foreign exchange forward contracts - (4,486) - 84 The methods and assumptions used to estimate the fair values of the financial instruments are summarized as follows: Notes receivable-Estimated by discounting the future cash flows using rates currently used for notes of similar terms and maturities. Investment in equity instrument-Estimated at its carrying value as the investment was acquired December 28, 1995. Debt-Estimated by discounting the future cash flows, using rates currently available for debt of similar terms and maturity. The fair value of long-term debentures and Eurobonds, which are traded, is based on the market value at year end. Interest rate swap-Estimated by discounting future cash flows using rates currently available. Represents the unrealized gain or (loss) if the agreement had been settled at year-end. The swap agreement specifically hedges portions of the Company's term notes payable. As market interest rates fluctuate, the unrealized gain or loss on the swap moves to offset the change in fair value of that portion of the term notes payable. Foreign exchange forward contracts (used for hedging purposes)- Estimated using quoted exchange rates. 23. DIFFERENCES BETWEEN MEXICAN AND U.S. GAAP Note 24 presents a reconciliation of net income (loss) and stockholders' equity to U.S. GAAP. However, this reconciliation to U.S. GAAP does not include the reversal of the restatement of the financial statements to comprehensively recognize the effects of inflation, as required under Mexican GAAP Bulletin B-10, "Recognition of the Effects of Inflation on Financial Information," as amended. The application of Bulletin B-10 represents a comprehensive measure of the effects of price level changes in the inflationary Mexican economy and, as such, is considered a more meaningful presentation than historical cost-based financial reporting for both Mexican and U.S. accounting purposes. The principal differences between Mexican GAAP and U.S. GAAP are described below together with an explanation, where appropriate, of the method used in the determination of the adjustments that affect net income (loss) and total stockholders' equity. Cash Flow Information- Under Mexican GAAP, the Company presents consolidated statements of changes in financial position. Bulletin B-12 specifies the appropriate presentation of the statement of changes in financial position when the financial statements have been restated in constant pesos in accordance with the third amendment to Bulletin B-10 and prior years' presentations have been restated accordingly. Bulletin B-12 identifies the generation and application of resources representing differences between beginning and ending financial statement balances in constant pesos. The Bulletin also requires that monetary and foreign exchange gains and losses not be treated as nonmonetary items in the determination of resources provided by operations. The changes in the consolidated financial statement balances included in this statement constitute cash flow activity stated in constant pesos (including monetary and foreign exchange gains and losses, which are considered cash gains and losses in the constant peso financial statements). In accordance with Mexican GAAP, the reduction in current and long-term debt due to restatement in constant pesos is presented in the consolidated statements of changes in financial position as a resource used by financing activities and the gain from monetary position and exchange gains and losses are presented as components of operating activities. Under U.S. GAAP, Statement of Financial Accounting Standards No. 95, "Statement of Cash Flows," does not provide guidance with respect to inflation adjusted financial statements. Restatement and Translation of U.S. Dollar Account to Constant Pesos- Under Mexican GAAP, the Company converts the U.S. dollar amounts for MCII to pesos using the exchange rate at the time of the transaction for income statement amounts and the exchange rate at the close of the period for balance sheet amounts. The peso amounts are then restated using the U.S. inflation rate. Under US GAAP, the restatement would be required to be made using the Mexican inflation rate. The effect on net loss for 1995, had this method been applied, amounted to a decrease in net loss of approximately 48.7 million pesos. The effect on 1994 net loss was not significant since the inflation rate in Mexico was 7% and MCII was owned for only five months of that year. The balance sheet amounts reported would be the same under both methods. The Mexican Accounting Principles Board is also considering an alternative method. Although no standards have been issued in writing, this method would require that U.S. dollar amounts be restated for the U.S. inflation rate, then restated at the exchange rate at the close of the period for the most recent financial statements presented. If this method had been used, the Company would have reported approximately $52.5 million pesos less net loss in 1995 and $12 million pesos less net loss in 1994. This method is not acceptable under US GAAP. Deferred Income Taxes- Under Mexican GAAP, deferred taxes are provided only for non-recurring temporary differences, which are defined as items which will reverse and not be replaced by a similar item. Under U.S. GAAP, which requires the liability method of accounting, deferred income taxes are recognized for the tax consequenc- es of all temporary differences, both recurring and non-recurring, between the financial statement carrying amounts, which have been adjusted for inflation and appraised values, and the tax bases of assets and liabilities. The deferred taxes related to restatements of assets to appraised values or for the NCPI have been considered as a part of the provision. Deferred income taxes under U.S. GAAP arise principally due to the deduction of purchases and production costs remaining in inventory for book purposes which are charged to expense for tax purposes, differences due to indexation of depreciation, and the recording of tax loss carryforwards as deferred tax assets, which is prohibited under Mexican GAAP. Cost of Pension Plans and Other Employee Benefits- On January 1, 1989, Statement of Financial Accounting Standards No. 87 ("SFAS No. 87"), "Employers' Accounting for Pensions," became effective for pension plans outside the United States. The Company has prepared a study of pension costs under U.S. GAAP (see Note 19). Under Mexican GAAP, the requirement to record liabilities for employee benefits using actuarial computations was required beginning in 1994. The Company's Mexican subsidiaries have no post-retirement health care insurance or other benefit plans, other than the pension plan referred to in Note 19. Therefore, Statement of Financial Accounting Standards No. 106 "Employers' Accounting for Post-retirement Benefits Other Than Pensions" and Statement of Financial Accounting Standards No. 112 "Employers' Accounting for Post-employment Benefits" would have no effect on financial position of the Company's Mexican subsidiaries. See Note 20 for discussion of post-retirement benefits of U.S. subsidiaries. Stock Sales Plan- Under Mexican GAAP, the net present value of the receivable from the trust for the stock sales plan is recorded as an asset (see Note 8). Under U.S. GAAP, this receivable is deducted from stockholders' equity to reflect the reduction in the capitalization of the Company. As of December 31, 1993, the date of grant, the market value of the shares, based on the selling price of the shares in a public offering was significantly higher than the purchase price of the shares. For Mexican GAAP, no compensation expense has been or will be recorded by the Company for these share transactions. Under U.S. GAAP, compensation expense must be recognized to the extent of the difference between the selling price of the shares and their fair market value on the date of grant, accrued over the respective service periods specified in the grant. Minority Interest- Under Mexican GAAP, Bulletin B-8, minority interest in subsidiaries must be included as a component of stockholders' equity. Consequently, minority interest in the income of subsidiaries is not presented as an expense in the statement of income. Under U.S. GAAP, minority interest in subsidiaries is shown below liabilities on the balance sheet, and is not part of stockholders' equity. Amortization of Goodwill- Under Mexican GAAP, the amortization period for goodwill is limited to 20 years, whereas under U.S. GAAP, goodwill may be amortized over up to 40 years. Pushdown Accounting- Under U.S. GAAP, the purchase adjustments related to the acquisition of a business must be "pushed-down" to the financial statements of the business acquired. Prior to 1995, Mexican GAAP did not require pushdown accounting. Under Bulletin A-8 which became effective in 1995, if there are no Mexican accounting principles which specifically apply, international accounting standards, or the accounting principles of the Country most applicable to the Company's operations must be applied. Therefore, in 1995 the financial statements reflect the effects of "pushdown accounting" and there is no longer a reconciling item for U.S. GAAP other than for the difference in amortization periods. Under Mexican GAAP, since pushdown accounting was not used for 1994, the goodwill which arose from the purchase of MCII was recorded on DINA's balance sheet and is restated for Mexican inflation. Under U.S. GAAP, the goodwill is "pushed down" to MCII'S balance sheet. When the U.S. dollar amount of goodwill was translated to Mexican pesos at the year end exchange rate, it was significantly higher than at the acquisition date, due to the devaluation. A higher peso amount results for U.S. GAAP purposes. The segment data and geographic data under U.S. GAAP pushdown accounting for 1994 reflects the goodwill related to the acquisition of MCII as an identifiable asset of the buses segment rather than as corporate, and the goodwill was considered a U.S. asset rather than an asset of Mexico. Cumulative Translation Adjustment and Investment in MCII as a Designated Hedge- Under both U.S. and Mexican GAAP, an investment in a foreign company may be considered to be a "designated hedge" against debt denominated in the same foreign currency. DINA has designated the investment in MCII as a hedge against the U.S. dollar convertible debentures which were issued to partially finance the acquisition of MCII. Accordingly, the exchange losses on this debt up to the amount of the translation gain related to the investment is recorded as a part of the cumulative translation adjustment in stockholders' equity. Under U.S. GAAP, since the goodwill was considered to be part of the investment in 1994, the translation gain recorded as cumulative translation adjustment is higher than under Mexican GAAP. Therefore, the exchange loss on the related debt, which was considered to be hedged by the investment, was higher under U.S. GAAP in 1994. 24. RECONCILIATION OF MEXICAN GAAP TO U.S. GAAP Net income (loss) and stockholders' equity, adjusted to take into account the material differences between Mexican GAAP and U.S. GAAP, except for the comprehensive effects of price level changes, are as follows:
(Thousands of Mexican pesos and thousands of U.S. dollars, except for share data) Year Ended December 31, 1993 1994 1995 1995 --------------- --------------- --------------- ------------ NET INCOME (LOSS): Net income (loss) applicable to majority interest under Mexican GAAP Ps. 465,736 Ps. (1,015,226) Ps. (529,900) $ (69,895) --------------- --------------- --------------- ------------- Approximate U.S. GAAP adjustments: Deferred income tax (125,498) 255,285 128,792 16,988 Deferred employee profit sharing 38,453 27,604 37,538 4,951 Compensation expense for stock sales plan (13,709) (12,816) (8,801) (1,161) Effect of amortizing goodwill over 40 years - 13,685 63,586 8,387 Additional exchange loss recorded as cumulative translation adjustment under U.S. GAAP - 197,563 - - Effect of accounting for receivable from stock sales plan as a reduction in equity rather than as a receivable 27,856 (4,388) 17,361 2,290 Effects on minority interest of U.S. GAAP adjustments 8,423 2,990 6,965 919 --------------- --------------- --------------- ------------- (64,475) 479,923 245,441 32,374 --------------- --------------- --------------- ------------- Approximate net income (loss) under U.S. GAAP Ps. 401,261 Ps. (535,303) Ps. (284,459) $ (37,521) =============== =============== =============== ============= Weighted average common shares outstanding 194,866,714 225,490,658 258,026,136 258,026,136 =============== =============== =============== ============= Approximate net income (loss) per share under U.S. GAAP Ps. 2.06 Ps. (2.37) Ps. (1.10) $ (0.15) =============== =============== =============== =============
December 31, 1994 1995 1995 -------------------- ----------------- -------------- STOCKHOLDERS' EQUITY: Majority stockholders' equity under Mexican GAAP Ps. 1,962,570 Ps. 1,853,345 $ 244,459 --------------- ---------------- -------------- Approximate U.S. GAAP adjustments: Deferred income tax 83,324 212,114 27,978 Deferred employee profit sharing (106,605) (69,068) (9,110) Pension plan accumulated costs (26,903) (26,903) (3,549) Accumulated effects of amortizing goodwill over 40 years 13,685 77,271 10,192 Receivable from trust for stock sales plan (23,009) (14,449) (1,906) Goodwill under pushdown accounting 342,898 - - Effects on minority interest of U.S. GAAP adjustments 17,830 24,795 3,270 --------------- ---------------- -------------- 301,220 203,760 26,875 --------------- ---------------- -------------- Approximate stockholders' equity under U.S. GAAP Ps. 2,263,790 Ps. 2,057,105 $ 271,334 =============== ================ ==============
Deferred Income Taxes and Employee Profit Sharing- The effect of temporary differences that generated deferred tax and employee profit sharing liabilities under U.S. GAAP are as follows:
Deferred Income Taxes Deferred Employee Profit Sharing December 31, December 31, -------------------------------------- ------------------------------------ 1994 1995 1994 1995 --------------- --------------- --------------- ------------- Current- Reserves Ps. 48,453 Ps. 84,552 Ps. 14,252 Ps. 21,031 Inventories (285,400) (110,251) (83,941) (32,426) Long term- Property, plant and equipment (52,342) (83,313) (47,076) (59,372) Tax loss carryforwards 329,217 390,600 - - Asset taxes recoverable 91,756 135,708 - - Other 45,628 16,644 10,160 1,700 --------------- --------------- --------------- -------------- 177,312 433,940 (106,605) (69,067) Less- Valuation reserve for tax loss carryforwards (93,988) (221,825) - - ---------------- ---------------- --------------- -------------- Total net asset (liability) Ps. 83,324 Ps. 212,115 Ps. (106,605) Ps. (69,067) =============== =============== ================ ==============
The Company records all of deferred tax and employee profit sharing in results of operations. If the deferred effects related to the restatement of fixed assets and inventories had been recorded directly to equity in "Cumulative effect of restatement," the adjustment to net income (loss) under U.S. GAAP for deferred taxes would have been Ps.54,128, Ps.92,175 and Ps.136,437 and for employee profit sharing, Ps.15,466, Ps.26,525 and Ps.40,129 for 1993, 1994 and 1995, respectively. Cash Flow Information- As explained in Note 23, the Company presents consolidated statements of changes in financial position. The changes in the consolidated financial statement balances included in this statement constitute cash flow activity stated in constant pesos (including monetary and unrealized foreign exchange gains and losses, which are considered cash gains and losses in the constant peso financial statements), except that the acquisition of property and equipment under capital lease obligations, which is a non-cash investing and financing activity, is included as a resource used by investment activities. These amounts are not significant. In accordance with Mexican GAAP, the reduction in current and long-term debt due to restatement in constant pesos is presented in the statement of changes in financial position as a resource used by financing activities and the gain from monetary position is presented as a component of operating activities. Statement of Financial Accounting Standards No. 95 ("SFAS No. 95"), "Statement of Cash Flows," however, does not provide guidance with respect to inflation adjusted financial statements. If the gain from monetary position and the unrealized exchange loss on the long-term dollar denominated debt was treated as a component of financing activities, the statement of changes in financial position would have been as follows:
1993 1994 1995 -------------- ----------------- --------------- Resources generated by (applied to) operations Ps. 299,082 Ps. (343,636) Ps. (312,165) ============== ================= =============== Net cash applied to investment activities Ps. (308,691) Ps. (2,354,689) Ps. (52,359) =============== ================= =============== Net cash generated by financing activities Ps. 326,221 Ps. 2,326,824 Ps. 199,504 ============== ================ ===============
Realizability of Long-Lived Assets- The Company continually evaluates the carrying value and the economic useful lives of its long-term assets, including property plant and equipment, based on the Company's operating results and anticipated future cash flows. The estimated future cash flows of the Company's Mexican operations are highly sensitive to the future stability of the Mexican economy, including interest rates, exchange rates and availability of funds to purchasers of DINA's products. The Company will adjust the carrying value and related amortization period if and when appropriate. 25. SUMMARY FINANCIAL DATA BY BUSINESS SEGMENT AND GEOGRAPHIC DATA The presentation below sets forth certain financial information regarding the Company's Industry Segments: trucks, buses, engines and plastic parts. Inter-segment transactions have been eliminated. Operating income is total net sales less cost of goods sold and operating expenses. In computing operating income, none of the following items has been added or deducted: general corporate expense, comprehensive financing results, income taxes, asset tax or employee profit sharing. Identifiable assets are those assets that are used in the Company's operations in each industry segment. Corporate assets are principally cash and properties. Identifiable assets are those assets that are used in the Company's operations in each industry segment. Corporate assets are principally cash and properties.
Year Ended December 31, --------------------------------------------------------------- 1993 1994 1995 --------------- ---------------- -------------- Net sales- Trucks Ps. 2,967,760 Ps. 2,625,248 Ps. 809,167 Buses 2,243,181 1,670,673 3,898,747 Engines 18,364 8,282 - Plastic parts 7,011 8,910 17,273 Corporate services 222 14,353 17,708 --------------- ---------------- -------------- Ps. 5,236,538 Ps. 4,327,466 Ps. 4,742,895 =============== ================ ============== Operating income (loss)- Trucks Ps. 274,483 Ps. 1,500 Ps. (209,220) Buses 293,856 (234,793) 322,366 Engines (20,218) (7,822) - Plastic parts (3,325) (28,375) (21,123) Corporate services 2,476 (22,689) (161,084) --------------- ----------------- --------------- Ps. 547,272 Ps. (292,179) Ps. (69,061) =============== ================= =============== Depreciation- Trucks Ps. 24,664 Ps. 26,246 Ps. 25,472 Buses 13,984 43,412 71,549 Engines 7,428 3,898 - Plastic parts 4,348 3,769 5,448 Corporate services 6,309 9,248 7,555 --------------- ---------------- -------------- Ps. 56,733 Ps. 86,573 Ps. 110,024 =============== ================ ============== Capital expenditures- Trucks Ps. 30,919 Ps. 23,474 Ps. 40,266 Buses 78,150 47,353 464,031 Engines 3,645 565 - Plastic parts 10,355 19,142 23,774 Corporate services 210,614 22,932 6,750 --------------- ---------------- -------------- Ps. 333,683 Ps. 113,466 Ps. 534,821 =============== ================ ============== Identifiable assets- Trucks Ps. 2,001,703 Ps. 1,831,470 Ps. 1,113,719 Buses 1,107,388 4,228,958 4,679,924 Engines 107,232 109,391 - Plastic parts 108,142 107,572 148,378 Corporate services 715,126 1,954,055 1,894,150 --------------- ---------------- -------------- Ps. 4,039,591 Ps. 8,231,446 Ps. 7,836,171 =============== ================ ==============
Operating income (loss) by segments does not include a deduction for employee profit sharing, which, under U.S. GAAP is considered compensation expense and under U.S. GAAP, the cost of idle plant is an operating expense. The amounts of operating income (loss), less employee profit sharing by segment, are as follows:
Year Ended December 31, ---------------------------------------------------------------- 1993 1994 1995 --------------- ---------------- --------------- Trucks Ps. 244,585 Ps. (12,110) Ps. (225,780) Buses 283,859 (234,792) 260,774 Engines (20,218) (7,823) - Plastic parts (3,325) (28,375) (24,300) Corporate services 2,482 (22,689) (161,084) --------------- ----------------- --------------- Ps. 507,383 Ps. (305,789) Ps. (150,390) =============== ================= ===============
During 1993 DINA had sales of buses in excess of 10% of total consolidated net sales to the following customers, all of which are affiliated with each other, as follows: Grupo Estrella Blanca Ps. 1,312,051 Grupo Tres Estrellas de Oro 243,832 During 1994 and 1995, there were no sales in excess of 10% total consolidated net sales to any one customer. Geographic Data- Following the Company's August 1994 purchase of MCII, the Company operates in three principal geographic regions-Mexico, the United States and Canada. Net sales and operating income (loss) for the year ended December 31, 1994 and 1995 and assets at December 31, 1994 and 1995 by geographic region were as follows:
1994 --------------------------------------------------------------------------------- United Mexico States Canada Total ------ ------ ------ ----- Net sales Ps. 3,121,220 Ps. 1,119,999 Ps. 86,247 Ps. 4,327,466 =============== =============== =============== ============== Operating income (loss) Ps. (347,563) Ps. 46,982 Ps. 8,402 Ps. (292,179) =============== =============== =============== =============== Assets Ps. 5,159,636 Ps. 2,265,460 Ps. 806,350 Ps. 8,231,446 =============== =============== =============== ==============
1995 ---------------------------------------------------------------------------------- United Mexico States Canada Total ------ ------ ------ ----- Net sales Ps. 862,998 Ps. 3,349,515 Ps. 530,382 Ps. 4,742,895 =============== =============== =============== ============== Operating income (loss) Ps. (373,058) Ps. 249,732 Ps. 54,265 Ps. (69,061) ================ =============== =============== =============== Assets Ps. 4,075,917 Ps. 2,672,666 Ps. 1,087,588 Ps. 7,836,171 =============== =============== =============== ==============
26. OTHER CHARGES Other charges for DINA presented in the consolidated statements of income (loss) are as follows:
1994 1995 --------------- -------------- Provision for uncollectible accounts receivable primarily due to sale of Dina's buses with invoices denominated in U.S. dollars Ps. 117,223 Ps. 86,746 Provision for obsolete inventories and inventories outside the sales program principally for Dina Autobuses 122,112 11,485 Severance expense related to restructuring and lay-offs 84,000 3,072 -------------- -------------- Ps. 323,335 Ps. 101,303 ============== ==============
During 1994 Dina discontinued certain models of coaches and laid-off approximately 900 workers in response to a reduction in demand. The severance payments due the workers under Mexican law were expensed at the time they were made. 27. GAIN ON SALE OF MARKETABLE SECURITIES In January 1995, MCII purchased 6,004,144 shares of Greyhound Lines, Inc. (GLI) through a rights offering of GLI's Common Stock. In October 1995, the investment was sold, resulting in a pre-tax gain of $10,522 which is shown in the accompanying consolidated statements of income (loss) in "other income, net." 28. SUBSEQUENT EVENTS (a) Temporary Suspension of Plant Operations of Dina Camiones- Dina Camiones, due to the decrease in demand for its products, agreed to a flexible suspension of production of trucks with the labor union for the period from January 24, 1996 to July 23, 1996. During this period, the Company will be obligated to pay 60% of nominal salaries, including benefits, and the union will provide the number of personnel required based on the production and sales needs. (b) Restructuring of Dina's Accounts Receivable- In January 1996, DINA restructured all of its accounts and notes receivable from Autobuses Estrella Blanca, S.A. de C.V., Autotransportes Tres Estrellas de Oro, S.A. de C.V. and both companies' licensees, giving effect to the restructuring as of December 31, 1995 and classifying these accounts as long term. See Note 8 for an explanation of the restructuring and its effects. (c) Debt Exchange Offer- On April 22, 1996, the Company initiated an "Exchange Offer" with the holders of the Eurobonds in the amount of US$150 million (see Note 14), requesting the exchange of the Eurobonds currently outstanding for new Eurobonds, which would include the offering of new notes with a face value of 1.417 times the existing face value, an extension of the maturity date from November 18, 1997 to November 15, 2002 and an increase in the interest rate from 10.5% to 12%. In the event of certain changes in the ratings of the notes, the interest rate could increase to 15% after November 15, 1999. In addition, interest would not be paid during the first 3 years the new notes are effective and would be capitalized and due upon maturity using a "zero coupon" basis. The new notes will be issued jointly with Consorcio G Grupo Dina, S.A. de C.V. as primary obligor. In the event of non-payment, MCII Holdings (USA), Inc., a subsidiary 100% owned by Consorcio G Grupo Dina, S.A. de C.V., incorporated on April 19, 1996 with the sole purpose of holding the total number of shares of MCII, will guarantee the debt. The Exchange Offer includes certain changes in the existing terms of the Eurobonds, including guarantees and certain commitments and is subject to the exchange of a minimum amount of US$120 million. The Company has obtained verbal consent from the principal Eurobond holders, who hold approximately US$120 million. Therefore, the Company's management believes that at least this amount will be restructured under the conditions above. Whether the other note holders are interested in exchanging their notes will not be known until May 17, 1996. The issuance and exchange of the new notes is subject to the approval of the Mexican National Banking and Securities Commission. The Company's management believes that the possibility of completing the Exchange Offer is favorable. CONSORCIO G GRUPO DINA, S. A. DE C. V. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS AS OF DECEMBER 31, 1995 AND JUNE 30, 1996 (UNAUDITED) EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30, 1996 (THOUSANDS OF MEXICAN PESOS AND THOUSANDS OF U.S. DOLLARS)
DECEMBER 31, JUNE 30, ----------------- ----------------------------------- 1995 1996 1996 ---- ---- ---- ASSETS CURRENT ASSETS: Cash and cash equivalents ............................... Ps. 302,588 Ps. 84,729 $ 11,176 Notes and accounts receivable, net ...................... 783,016 851,787 112,352 Inventories, net ........................................ 1,968,581 1,649,841 217,617 Prepaid expenses ........................................ 43,557 41,377 5,458 Investment in and advances to discontinued operations ............................................ 339,344 224,190 29,571 ---------- ---------- ---------- Total current assets ................................ 3,437,086 2,851,924 376,174 LONG TERM NOTES AND ACCOUNTS RECEIVABLE, net ........................................ 532,325 537,940 70,955 INVESTMENT IN EQUITY SECURITIES ............................... 29,237 32,341 4,266 PROPERTY, PLANT AND EQUIPMENT, net ............................ 1,641,217 1,768,659 233,289 OTHER ASSETS .................................................. 249,611 203,661 26,864 DEFERRED INCOME TAXES ......................................... 260,668 208,140 27,454 GOODWILL ...................................................... 1,686,027 1,536,198 202,627 ---------- ---------- ---------- Ps.7,836,171 Ps.7,138,863 $ 941,629 ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Bank loans and current portion of long-term debt ........ Ps. 15,779 Ps. 62,329 $ 8,222 Notes and accounts payable to suppliers ................. 376,478 425,347 56,104 Other payables and accrued expenses ..................... 491,261 620,085 81,790 Investment in and advances to discontinued operations ............................................ 130,124 129,438 17,073 Income taxes, asset tax and employee profit sharing 89,529 6,901 910 ---------- ---------- ---------- Total current liabilities ........................... 1,103,171 1,244,100 164,099 LONG-TERM DEBT ................................................ 4,621,389 3,920,567 517,130 RESERVE FOR EMPLOYEES' SEVERANCE BENEFITS ..................... 84,586 81,931 10,807 OTHER DEFERRED ITEMS AND INSURANCE RESERVES ................................................ 124,600 117,216 15,461 STOCKHOLDERS' EQUITY: Majority interest-- Capital Stock ......................................... 196,545 196,545 25,925 Capital Stock Unsubscribed ............................ (35,754) (35,754) (4,716) Restatement of capital stock .......................... 204,627 205,745 27,138 Additional paid-in capital ............................ 1,626,020 1,630,861 215,113 Reserve for repurchase of shares ...................... 122,857 97,260 12,829 Accumulated earnings (losses) ......................... (206,038) (128,644) (16,968) Cumulative effect of restatement ...................... (822,103) (1,022,898) (134,922) Cumulative translation adjustment ..................... 767,191 789,492 104,135 ---------- ---------- ---------- Total majority stockholders' equity ................. 1,853,345 1,732,607 228,534 Minority interest ....................................... 49,080 42,442 5,598 ---------- ---------- ---------- Total stockholders' equity .......................... 1,902,425 1,775,049 234,132 ---------- ---------- ---------- Ps.7,836,171 Ps.7,138,863 $ 941,629 ============ ============ ==========
The accompanying notes are an integral part of these balance sheets.
CONSORCIO G GRUPO DINA, S. A. DE C. V. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS) FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED) EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30, 1996 (THOUSANDS OF MEXICAN PESOS AND THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA) SIX MONTHS ENDED JUNE 30, -------------------------------------------------------------- 1995 1996 1996 ---- ---- ---- NET SALES ............................................. Ps.2,695,809 Ps.2,796,686 $ 368,888 COST OF GOODS SOLD .................................... 2,207,740 2,306,345 304,211 ------------ ------------ ---------- Gross profit .................................. 488,069 490,341 64,677 OPERATING EXPENSES: Selling ......................................... 174,897 97,183 12,819 Administrative .................................. 301,500 308,027 40,629 ------------ ------------ ---------- 476,397 405,210 53,448 ------------ ------------ ---------- Operating income .............................. 11,672 85,131 11,229 COMPREHENSIVE FINANCING: Interest income ................................. 97,618 54,525 7,192 Interest expense ................................ (244,924) (204,042) (26,913) Exchange gain (loss), net ....................... (417,458) 62,857 8,291 Gain on net monetary position ................... 686,998 183,246 24,170 ------------ ------------ ---------- 122,234 96,586 12,740 OTHER INCOME (LOSS), net .............................. 101,123 (2,935) (387) ------------ ------------ ---------- Income (loss) before the following provisions, and results of affiliated companies.......................... 235,029 178,782 23,582 PROVISIONS FOR: Income tax ...................................... 109,254 71,243 9,397 Asset tax ....................................... 16,332 13,220 1,744 Employee profit sharing ......................... 6,068 83 11 Tax arising from temporary differences .......... 0 8,798 1,161 ------------ ------------ ---------- 131,654 93,344 12,313 ------------ ------------ ---------- Income before participation in results of affiliated companies ........................ 103,375 85,438 11,269 EQUITY IN RESULTS OF AFFILIATED COMPANIES ............. (28) 0 0 ------------ ------------ ---------- Net Income .................................... Ps. 103,347 Ps. 85,438 $ 11,269 ============ ============ ========== NET INCOME (LOSS) APPLICABLE TO: Majority interest ............................... Ps. 113,707 Ps. 89,743 $ 11,837 Minority interest ............................... (10,360) (4,305) (568) ------------ ------------ ---------- Net income (loss) ............................. Ps. 103,347 Ps. 85,438 $ 11,269 ============ ============ ========== INCOME (LOSS) PER SHARE: Majority interest ............................... Ps. 0.44 Ps. 0.35 $ 0.05 Minority interest ............................... (0.04) (0.02) 0.00 ------------ ------------ ---------- Net income (loss) per share ................... Ps. 0.40 Ps. 0.33 $ 0.05 ============ ============ ========== Weighted average shares outstanding (000's) ..... 258,026 258,026 258,026 ============ ============ ========== The accompanying notes are an integral part of these consolidated statements.
CONSORCIO G GRUPO DINA, S. A. DE C. V. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN FINANCIAL POSITION FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30, 1996 (UNAUDITED) (THOUSANDS OF MEXICAN PESOS AND THOUSANDS OF U.S. DOLLARS)
SIX MONTHS ENDED JUNE 30, -------------------------------------------------------- 1995 1996 1996 ---- ---- ---- OPERATIONS: Net income (loss) ............................................. Ps.103,356 Ps. 85,438 $ 11,269 Add (deduct) Non cash items-- Depreciation ................................................ 67,286 78,897 10,407 Deferred income tax ......................................... 130,388 45,143 5,954 Amortization Goodwill and others ............................ 31,089 58,281 7,687 Provision for doubtful accounts receivable .................. 48,268 11,449 1,510 Provision for slow-moving inventories ....................... 24,759 8,584 1,132 Change in operating assets and liabilities-- Decrease (increase) in-- Notes and accounts receivable ............................. 167,168 (80,220) (10,581) Inventories ............................................... (156,629) 233,366 30,781 Prepaid expenses .......................................... (7,912) 2,180 288 Income taxes and employee profit sharing .................. (24,424) (82,628) (10,899) Other assets .............................................. (241,328) 39,133 5,162 Increase (decrease) in-- Notes and accounts payable to suppliers ................... (80,022) 48,869 6,446 Other payables and accrued expenses ....................... (91,131) 128,824 16,992 Investment in and advances to discontinued operations ..... 271,123 114,468 15,099 Pension plan funding and payments of severance benefits (3,213) (11,228) (1,480) ---------- ---------- ---------- Resources generated by (applied) operations ............... 238,778 680,556 89,767 INVESTMENT: Notes and accounts receivables (long-term) .................... 114,518 (773) (102) Additions to property, plant and equipment .................... (196,467) (246,877) (32,563) Net book value of retirements ................................. 8,656 3,497 461 Long-term portion of receivable from the trust for stock sales plan ................................................ (1,296) 0 0 ---------- ---------- ---------- Net cash applied to investment activities ................. (74,589) (244,153) (32,204) FINANCING: (Decrease) increase in short-term bank loans .................. (79,527) 46,550 6,140 Reduction in current and long-term debt due to restatement in constant pesos ............................... (1,172,596) (511,723) (67,497) Proceeds from long-term debt .................................. (140,822) (105,086) (13,861) Increase in peso terms of US Dollar debt due to exchange rate changes ....................................... 849,357 (84,003) (11,080) ---------- ---------- ---------- Net cash (applied to) generated by financing ................ (543,588) (654,262) (86,298) Cash and cash equivalents at beginning of period .............. 469,540 302,588 39,911 ---------- ---------- ---------- Cash and cash equivalents at end of period .................... Ps. 90,141 Ps. 84,729 $ 11,176 ========== ========== ========== SUPPLEMENTAL CASH FLOW DISCLOSURES: Income and asset taxes paid ................................... Ps.125,596 Ps. 93,261 $ 12,301 ========== ========== ========== Interest paid ................................................. Ps.139,745 Ps.117,156 $ 15,453 ========== ========== ========== The accompanying notes are an integral part of these consolidated statements.
CONSORCIO G GRUPO DINA, S. A. DE C. V. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) AS OF DECEMBER 31, 1995 AND JUNE 30, 1996 EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30, 1996 (STATED IN THOUSANDS OF MEXICAN PESOS AND THOUSANDS OF U.S. DOLLARS) (1) BASIS OF PRESENTATION: a) The consolidated condensed financial statements of Consorcio G Grupo Dina, S. A. de C. V. and subsidiaries (the "Company") included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). In the opinion of management, these unaudited consolidated condensed financial statements contain all adjustments, which are of a normal recurring nature, necessary to present fairly the Company's financial position as of June 30, 1996, and the results of operations for the six months ended June 30, 1995 and 1996. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in Mexico and the U.S. have been condensed or omitted pursuant to the rules and regulations of the SEC. b) These unaudited financial statements should be read in conjunction with the audited financial statements and the notes thereto included elsewhere in this Prospectus. The Company has made no significant changes in accounting policies during the six months ended June 30, 1996, other than those discussed in Note 2 below. c) U.S. dollar amounts shown in the financial statements have been included solely for the convenience of the reader and are translated from Mexican pesos, as a matter of arithmetic computation only, at the interbank rate for June 30, 1996 of Ps. 7.5814 per U.S. dollar. Such translation should not be construed as a representation that the peso amounts have been or could have been converted into U.S. dollars at this or any other rate. (2) DIFFERENCES BETWEEN U.S. AND MEXICAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: During 1996, the Company has changed its method of accounting for deferred income taxes and employee profit-sharing under U.S. GAAP. Beginning on January 1, 1996, the Company allocates the portion of the change in the deferred liability (asset) related to restatement of non-monetary assets to its cumulative effect of restatement account included in equity. Statement of Accounting Standards No. 121, "Accounting for Impairment of Long-lived Assets," is effective for all fiscal years beginning after December 15, 1995. In the opinion of the Company's management, there has been no impairment in the value of its fixed assets or goodwill during the six months ended June 30, 1996. The amount of net income of the majority interest for the six months ended June 30, 1996, had the Mexican inflation rate been used to restate income statement accounts of MCII, would have been Ps 6,100 higher. Had the method for converting the U.S. dollar income statement amounts for MCII using the exchange rate at June 30, 1996 been used, net income reported would have been Ps 2,000 higher. (3) EARNINGS PER SHARE: There were no changes in the number of shares outstanding for the six months ended June 30, 1995 and 1996. (4) NOTES AND ACCOUNTS RECEIVABLE: Notes and accounts receivable include:
DECEMBER 31, JUNE 30, 1995 1996 ---- ---- Trade................................................. Ps. 642,259 Ps. 776,992 Current Portion of Long-Term Notes Receivable.......................................... 67,092 - Less-Allowance for doubtful accounts.................. (62,303) (63,249) -------- -------- 647,048 713,743 Short-term portion of receivable from trust........... for stock sales plan................................ 2,886 2,503 Refundable income tax................................. 16,847 7,365 Refundable asset tax.................................. 7,373 - Refundable value added tax............................ 17,153 2,424 Other................................................. 91,709 125,752 -------- ------- Ps. 783,016 Ps. 851,787 ============== ============
(5) INVENTORIES: Inventories consist of the following:
DECEMBER 31, JUNE 30, 1995 1996 ---- ---- Finished goods........................................ Ps. 1,098,543 Ps. 1,017,678 Work in process....................................... 375,162 300,511 Raw materials......................................... 709,394 466,249 Merchandise in transit and advances to suppliers 24,609 51,287 ---------- ---------- 2,207,708 1,835,725 Less-Allowance for obsolete and slow-moving items.................................. (239,127) (185,884) ---------- ---------- Ps. 1,968,581 Ps. 1,649,841 ============== =============
(6) LONG-TERM NOTES AND ACCOUNTS RECEIVABLE: Long-term notes and accounts receivable include:
DECEMBER 31, JUNE 30, 1995 1996 ---- ---- Notes receivable...................................... Ps. 690,720 Ps. 584,841 Less allowance for doubtful accounts.................. (163,978) (51,743) --------- -------- 526,742 533,098 Receivable from trust for stock sales plan......................................... 5,583 4,842 --------- --------- Ps. 532,325 Ps. 537,940 === ======= --- -------
In January 1996, Grupo Dina restructured all of its accounts receivable from Estrella Blanca, S.A. de C.V., Tres Estrellas de Oro, S.A. de C.V. and their respective licensees through global restructuring agreements (the "Restructuring Agreements"). Pursuant to the Restructuring Agreements, all balances payable to Grupo Dina were renegotiated using as a reference "Units of Investment" ("UDIS") which value changes based on the Mexican inflation rate. The principal balances, increased for inflation, will be payable in equal monthly installments over six years beginning July 1, 1997. These balances bear interest at a rate of 10% over the monthly reference value of UDIS payable beginning February 29, 1996. On July 31, 1996, Grupo Dina sold the accounts receivable under the Restructuring Agreements, which had a total value of Ps 306.9 million, to Arrendadora Financiera Dina, S.A de C.V. ("AF Dina"), a leasing company which provides financing in connection with sales of Grupo Dina products. The debt resulting from this sale was capitalized in AF Dina, which is currently negotiating the repayment of its debt with several Mexican banks using these accounts receivable . Grupo Dina has recorded a reserve in the amount of Ps 43.9 million for any loss that may result from these negotiations. As of July 31, 1996, Grupo Dina owned 92.89% of the equity of AF Dina. Although the maximum ownership in finance companies by non-financial companies permitted under Mexican law is 10%, Grupo Dina has obtained authorization from the corresponding Mexican authorities to maintain equity ownership levels in excess of the legal limit for six months from July 31, 1996. During such interim period, Grupo Dina will endeavor to complete a transaction whereby MCI Acceptance Corporation, an indirect subsidiary of MCII Holdings, will acquire the shares of AF Dina owned by Grupo Dina. In the event that such transaction is not completed in such time period, Grupo Dina will be required to reduce its equity ownership level in AF Dina to no more than 10%. (7) PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment include:
DECEMBER 31, JUNE 30, 1995 1996 ---- ---- Buildings and improvements............................ Ps. 1,164,827 Ps. 1,000,572 Machinery and equipment............................... 821,604 969,863 Transportation equipment.............................. 315,003 510,176 Furniture and fixtures................................ 100,033 79,071 ---------- ----------- 2,401,467 2,559,682 Less Accumulated depreciation......................... (868,933) (907,055) ---------- ----------- 1,532,534 1,652,627 Land.................................................. 108,683 116,032 ---------- ---------- Ps. 1,641,217 Ps. 1,768,659 ================ ================
(8) BANK LOANS AND LONG-TERM DEBT: An analysis of bank loans and long-term debt is as follows:
DECEMBER 31, JUNE 30, 1995 1996 ---- ---- Bank loans Banca Confia.......................................... Ps. - Ps. 12,260 Credit Commercial de France........................... - 50,037 Other................................................. 15,779 32 ------ -- Ps 15,779 Ps. 62,329 ============= ============= Long-term debt Eurobonds................................................... Ps 1,338,634 Ps 52,767 Senior Secured Discount Exchange Notes...................... 0 1,146,150 Subordinated Convertible Debentures......................... 1,463,502 1,243,289 Bank Credit Facility........................................ 821,029 530,698 Term Notes Payable.......................................... 1,115,528 947,675 Other ...................................................... 15,779 - Less - Discount on Issuance of Subordinated Convertible Debentures (117,304) - Current Maturities of Long-term debt (15,779) - Other - (12) ---------- --------- Ps. 4,621,389 Ps. 3,920,567 ============= =============
10.5% GUARANTEED NOTES (EUROBONDS) On November 18, 1992, the Company issued guaranteed notes with an aggregate principal amount of $150,000 (the "10.5% Guaranteed Notes" or "Eurobonds"). An aggregate principal amount of $143,040 of the 10.5% Guaranteed Notes was retired in June 1996 in exchange for the Senior Secured Discount Exchange Notes described below. The remaining $6,960 aggregate principal amount of 10.5% Guaranteed Notes is due November 18, 1997 with interest payable semi-annually in arrears. CONSORCIO G GRUPO DINA, S. A. DE C. V. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) AS OF DECEMBER 31, 1995 AND JUNE 30, 1996 EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30, 1996 (STATED IN THOUSANDS OF MEXICAN PESOS AND THOUSANDS OF U.S. DOLLARS) SENIOR SECURED DISCOUNT EXCHANGE NOTES Pursuant to an Exchange Offer completed in June 1996, the Company and its wholly-owned subsidiary, MCII Holdings (USA), Inc., issued as joint obligations Senior Secured Discount Exchange Notes due 2002 (the "Senior Secured Discount Exchange Notes") with an aggregate principal amount of $206,500, primarily in exchange for $143,040 aggregate principal amount of 10.5% Guaranteed Notes. Each New Note has an initial accreted value of US$705.65 as of November 18, 1995 for each US$1,000 in aggregate principal amount. The maturity date of the New Notes is November 15, 2002. The interest rate for the New Notes is initially 12% and interest will not be paid on the New Notes for three years after issuance. Such interest will be capitalized and due upon maturity of the New Notes using a "zero-coupon" basis. In the event of certain changes in the ratings of the New Notes, the interest rate could increase to 15% after November 15, 1999. SUBORDINATED CONVERTIBLE DEBENTURES On August 8, 1994, the Company issued subordinated convertible debentures (the "Debentures") with an aggregate principal amount of $163,993, with a discount of $14,759, due in August 2004, with interest payable semi-annually at 8%, net of certain taxes. The Company has the option of redeeming the Debentures after three years and before 5 years with a prepayment penalty, if the market price of the American Depositary shares (ADS) of Series "L" stock of the company exceeds $22.86 for a specified period of time. The Debentures are convertible at the option of the holder at a rate of 56.88 ADSs per $1000 of principal amount. The discount will be amortized through August 2004 on a straight-line basis. (9) DISCONTINUED OPERATIONS: Charges of $8,130 ($5,000 after tax) were recorded in the accompanying Statements of Consolidated Income of MCII to reflect the write off of accounts receivable, increased warranty costs and other charges related to MCII's discontinued transit manufacturing segment. (10) SUBSEQUENT EVENTS: In September 1996, MCII agreed to purchase certain assets of The Flxible Corporation that were being sold through bankruptcy proceedings. Flxible is a manufacturer of transit buses and distributor of related replacement parts. The assets are being purchased for $12.2 million, which will be funded from MCII's bank credit facility, and will be utilized for the purpose of becoming the OEM parts distributor for the installed fleet of Flxible transit buses. The transaction will close within five days of the bankruptcy court order becoming nonappealable. In October 1996, MCII refinanced its bank credit facility. The new credit facility provides up to $125,000 for borrowing purposes, of which up to $35,000 is available for issuance of standby letters of credit, and contains other terms which are substantially similar to the refinanced facility. Borrowings are available under the new facility on a revolving basis until September 1999. As a result of this refinancing, it is anticipated that MCII's fourth quarter results will reflect an $850 after-tax expense for the write off of debt issuance costs. TRANSLATION OF FINANCIAL STATEMENTS ORIGINALLY ISSUED IN SPANISH CONSORCIO G GRUPO DINA, S.A. DE C.V. INDIVIDUAL FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995 AND 1994 EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30,1996 TOGETHER WITH AUDITORS' REPORT Translation of a report originally issued in Spanish (See Note 1 to the financial statements) To the Stockholders of Consorcio G Grupo Dina, S.A. de C.V.: We have examined the balance sheets of CONSORCIO G GRUPO DINA, S.A. DE C.V. (incorporated in Mexico) as of December 31, 1995 and 1994 and the related statements of income (loss), stockholders' equity and changes in financial position for the years then ended. 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 did not audit the financial statements of Motor Coach Industries International, Inc. (MCII), as of December 31, 1994 and for the five month period then ended, a subsidiary acquired by the Company on August 8, 1994, which statements represent 25% of the investment in subsidiaries and 27.9% of the total revenues of the subsidiaries. Those statements were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to the amounts included for this subsidiary, is based solely on the report of the other auditors. We conducted our examinations in accordance with generally accepted auditing standards, which require that the audit be planned and performed to obtain reasonable assurance about whether the financial statements are free of material misstatement and that they are prepared in accordance with generally accepted accounting principles. 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 examinations provide a reasonable basis for our opinion. These individual financial statements were prepared to be used in the Company's stockholders meeting, and reflect the investment in subsidiaries under the equity method of accounting. These statements should be read in conjunction with the consolidated financial statements, which have been prepared separately and were examined by us and on which we issued an unqualified opinion. Note 2 to the accompanying financial statements presents condensed information from the consolidated financial statements. As explained in Note 4 to the accompanying financial statements, during 1995 the Company changed its accounting to reflect the goodwill related to the acquisition of its subsidiary, MCII, under "pushdown" accounting rules. This change resulted in an increase in goodwill of $1,045,434,014, an increase in amortization expense of $59,296,147, a decrease in exchange loss charged to operations of $292,629,510 and a decrease in the gain on monetary position of $586,443,213. The devaluation of the Mexican peso in December 1994 and the resulting financial crisis in Mexico has had an unfavorable impact on the Company's operations. During 1995 and 1994 the demand for inter-city passenger buses suffered a severe decline in Mexico and in 1995, there was also a significant decline in the demand for trucks. Notes 2, 3, 9, 11 and 14 b) and c) to the accompanying financial statements describe the actions taken by the Company to expand its operations in the United States and restructure its long-term financing, as well as other actions taken by management. In our opinion, based on our audits and the report of other auditors for the financial statements of MCII as of December 31, 1994 and for the five month period then ended, the financial statements referred to above present fairly, in all material respects, the financial position of Consorcio G Grupo Dina, S.A. de C.V. as of December 31, 1995 and 1994 and the results of its operations, the changes in stockholders' equity and the changes in its financial position for the years then ended, in conformity with generally accepted accounting principles in Mexico. MEXICO, D.F. Mexico February 29, 1996 (except with respect to the matters discussed in Note 14 b) and c), as to which the date is April 22, 1996 and the restatement to constant pesos as of June 30, 1996, as discussed in Note 4 as to which the date is September 20, 1996)
Translation of financial statements originally issued in Spanish CONSORCIO G GRUPO DINA, S.A. DE C.V. BALANCE SHEETS AS OF DECEMBER 31, 1995 AND 1994 EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30, 1996 (Thousands of Mexican pesos) ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994 1995 1994 ---------- ---------- --------- --------- CURRENT ASSETS: CURRENT LIABILITIES: Cash and cash equivalents $ 946 $ 163,874 Other accounts payable and accrued expenses 80,779 73,068 Parent and subsidiary companies 267,019 786,686 Dividends payable -- 54,257 --------- --------- Other accounts receivable 9,027 16,219 Prepaid expenses 1,025 -- Total current liabilities 80,779 127,325 ---------- ---------- Total current assets 278,017 966,779 RECEIVABLE FROM TRUST STOCK SALES 5,583 10,213 LONG-TERM DEBT 2,684,831 2,663,215 PLAN INVESTMENT IN SUBSIDIARY COMPANIES 2,616,382 2,523,116 STOCKHOLDERS' EQUITY: Capital stock 196,545 196,545 PROPERTY AND EQUIPMENT 8,191 7,617 Capital stock unsubscribed (35,754) (35,754) Restatement of capital stock 204,627 204,627 Additional paid-in capital 1,626,020 1,626,020 Reserve for repurchase of shares 122,857 122,857 OTHER ASSETS 24,755 91,202 Accumulated earnings (losses) (206,038) 276,492 Cumulative effect of restatement (822,103) (442,604) Cumulative translation adjustment 767,191 14,387 --------- --------- GOODWILL 1,686,027 1,154,183 Total stockholders' equity 1,853,345 1,962,570 ---------- ---------- --------- --------- $ 4,618,955 $ 4,753,110 $4,618,955 $4,753,110 ---------- ---------- --------- --------- ---------- ---------- --------- ---------
The accompanying notes are an integral part of these statements. Translation of financial statements originally issued in Spanish CONSORCIO G GRUPO DINA, S.A. DE C.V. STATEMENTS OF INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30, 1996 (Thousands of Mexican pesos) 1995 1994 ------------ ----------- REVENUES: Dividends declared by subsidiaries $ -- $ 105,461 28,513 83,483 Services and commissions ------------ ----------- 28,513 188,944 165,262 116,629 ADMINISTRATIVE EXPENSES ------------ ----------- (136,749) 72,315 COMPREHENSIVE RESULT OF FINANCING: Interest income 175,558 110,397 Interest expense (305,619) (158,048) Exchange loss, net (419,420) (590,761) 274,630 35,808 Gain on net monetary position ------------ ----------- (274,851) (602,604) (22,486) 14,749 OTHER INCOME (EXPENSE), net ------------ ----------- Loss before participation in results of subsidiary companies (434,086) (515,540) PARTICIPATION IN RESULTS OF SUBSIDIARY COMPANIES (net of dividends received) (95,814) (499,686) ------------ ----------- Net loss for the year $ (529,900) $(1,015,266) ------------ ----------- ------------ ----------- The accompanying notes are an integral part of these statements.
Translation of financial statements originally issued in Spanish CONSORCIO G GRUPO DINA, S.A. DE C.V. STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30, 1996 (Thousands of Mexican pesos) Capital Stock ---------------------------- Accumu- Cumu- Cumu- Additional Reserve for lated lative lative Autho- Unsub- Restate Paid-in Repurchase Earnings Effect of Translation rized scribed ment Capital of Shares (Losses) Restatement Adjustment Total ------- -------- ------- ---------- ----------- -------- ----------- ----------- ----- BALANCE AS OF DECEMBER 31, 1993 $126,999 $ -- $177,624 $ 714,977 $122,857 $ 1,373,105 $(408,406) $ -- $ 2,107,156 Increase in capital stock 69,546 (35,754) 27,003 911,043 -- -- -- -- 971,838 Dividends declared -- -- -- -- -- (81,387) -- -- (81,387) Changes in equity in real terms -- -- -- -- -- (1,015,226) (34,198) 14,387 (1,035,037) -------- --------- -------- --------- -------- ----------- ---------- --------- ----------- BALANCE AS OF DECEMBER 31, 1994 196,545 (35,754) 204,627 1,626,020 122,857 276,492 (442,604) 14,387 1,962,570 Integral recognition of the effects of restatement goodwill -- -- -- -- -- -- -- 1,045,434 1,045,434 Cancellation of divi- dends declared -- -- -- -- -- 47,370 -- -- 47,370 Changes in equity in real terms -- -- -- -- -- (529,900) (379,499) (292,630) (1,202,029) ------- -------- ------- -------- -------- ----------- ---------- --------- ----------- BALANCE AS OF DECEMBER 31, 1996 $196,545 $(35,754) $204,627 $1,626,020 $122,857 (206,038) (822,103) 767,191 1,853,345 -------- -------- -------- ---------- -------- ----------- ----------- --------- ----------- -------- -------- -------- ---------- -------- ----------- ----------- --------- -----------
The accompanying notes are an integral part of these statements. Translation of financial statements originally issued in Spanish CONSORCIO G GRUPO DINA, S.A. DE C.V. STATEMENTS OF CHANGES IN FINANCIAL POSITION FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30, 1996 (Thousands of Mexican pesos) 1995 1994 ------------- -------------- OPERATIONS: Net loss for the year $ (529,900) $(1,015,226) Add-Non-cash items- Depreciation 506 563 Amortization of goodwill 115,616 20,965 Participation in results of subsidiary companies 95,814 499,686 ------------- -------------- (317,964) (494,012) Net changes in working capital other than cash and cash equivalents 516,480 (425,875) Resources generated by (applied to) operations 198,516 (919,887) INVESTMENTS: Decrease in receivable from trust stock sales plan 1,324 2,765 Increase in investment in subsidiaries (498,201) (906,322) Additions to property and equipment -- (42) (Decrease) increase in other assets 66,447 (77,365) Goodwill -- (1,167,702) ------------- -------------- (430,430) (2,148,666) FINANCING: Increase in long-term debt 21,616 1,788,951 Dividends declared -- (81,387) Cancellation of dividends declared 47,370 -- Increase in capital stock -- 60,795 -- 911,043 Additional paid-in capital ------------- -------------- 68,986 2,679,402 ------------- -------------- Decrease in cash and cash equivalents (162,928) (389,151) Cash and cash equivalents at beginning of year 163,874 553,025 ------------- -------------- Cash and cash equivalents at end of year 946 163,874 ============= ============== The accompanying notes are an integral part of these statements. Translation of financial statements originally issued in Spanish CONSORCIO G GRUPO DINA, S.A. DE C.V. NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995 AND 1994 EXPRESSED IN CURRENCY WITH PURCHASING POWER AS OF JUNE 30, 1996 (Thousands of Mexican pesos) 1. EXPLANATION ADDED FOR TRANSLATION TO ENGLISH: These financial statements are presented on the basis of generally accepted accounting principles in Mexico. Certain accounting practices applied by the Company that conform with generally accepted accounting principles in Mexico have no equivalent with respect to generally accepted accounting principles in the United States of America (U.S.). 2. ACTIVITIES: Consorcio G Grupo Dina, S.A. de C.V. (DINA) is a subsidiary of Grupo Empresarial G, S.A. de C.V. and is the controlling stockholder of a group of companies engaged in the manufacture and sale of trucks and buses. The major subsidiaries are Dina Autobuses, S.A. de C.V., Dina Camiones, S.A. de C.V., Plasticos Automotrices Dina, S.A. de C.V. and Dina Comercializadora, S.A. de C.V. As discussed in Note 3, during 1994 Motor Coach Industries International, Inc. (MCII), a U.S. corporation, was acquired. MCII manufactures and sells coaches and coach parts in the U.S. and Canada. These financial statements were prepared to be used for the stockholders' meetings, and reflect the investment in subsidiaries under the equity method. Consolidated financial statements of Consorcio G Grupo Dina, S.A. de C.V. and subsidiaries have been prepared separately. Because of the severe decline in demand for buses during 1995 and 1994, and the reduction in demand for trucks in 1995, DINA laid off plant workers and employees. The utilization of plant capacity also decreased and the bus and truck plants were closed for significant periods of time. Certain amounts in the financial statements at December 31, 1994 have been reclassified in order to conform with the presentation of the financial statements at December 31, 1995. Following are the significant amounts of the consolidated financial statements for the years ended December 31, 1995 and 1994: 1995 1994 -------------- ------------- Total assets $ 7,836,171 $ 8,231,446 -------------- -------------- -------------- -------------- Total liabilities $ 5,933,746 $ 6,189,019 -------------- -------------- -------------- -------------- Net loss applicable to $ (529,900) $ (1,015,226) majority interest -------------- -------------- -------------- -------------- 3. ACQUISITION OF MCII: On August 8, 1994, DINA, acquired all of the outstanding shares of MCII for an aggregate consideration of U.S.$311,627,000. The transaction was made through the exchange of 54,225,462 Series "L" shares of DINA for 51% of the outstanding shares of MCII, with the remaining 49% of the outstanding shares exchanged for a face amount of U.S.$163,993,000 of 8% convertible subordinated debentures. To guarantee the convertibility of this debt, 24,624,278 Series "L" shares and 32,749,940 common shares were placed in treasury. Application of purchase accounting resulted in a preliminary adjustment of all outstanding assets and liabilities of MCII to their estimated fair value on the date of the acquisition. MCII is also in the process of obtaining additional information to quantify the potential liability related to certain U.S. and Canadian tax contingencies. The management of MCII and their legal counsel do not expect a significant liability. Once those amounts have been quantified, the contingencies may be recorded as an additional purchase accounting adjustment. The excess of the consideration exchanged by DINA over the estimated fair value of the net assets acquired, is being amortized over 20 years using the straight-line method. The amount amortized from the acquisition date to December 31, 1994 and for 1995 was $20,965 and $115,616, respectively, and is included in administrative expenses. 4. SIGNIFICANT ACCOUNTING POLICIES: The accompanying financial statements are presented in "Mexican pesos" ($), which is the name of the "new Mexican peso" (N$) as of January 1, 1996. The significant accounting policies followed by the Company, which are in accordance with generally accepted accounting principles in Mexico (Mexican GAAP), are summarized below: Change in accounting policy Beginning in 1995, Bulletin A-8 issued by the Mexican Institute of Public Accountants became effective. This bulletin requires that if there are no accounting principles in Mexico which specifically address a transaction, international accounting standards, or the accounting principles of the country most closely related to the Company's operations, must be used. Therefore, as of 1995, the Company began using "pushdown" accounting to reflect the acquisition of MCII. The goodwill related to the purchase is now considered an asset of MCII, and is converted to pesos using the method explained below. This change resulted in an increase in the peso amount of goodwill of $1,045,434 and a corresponding increase in "cumulative translation adjustment" in stockholders' equity. In addition, amortization of goodwill increased by $59,296 for 1995. The increase in goodwill in pesos in the consolidated financial statements also resulted in an increase in the amount of exchange loss which can be included in the "cumulative translation adjustment" rather than results of operations. This change resulted in a reduction of exchange loss of $292,630 compared to the amount computed without using "pushdown" accounting. The gain on monetary position decreased by $586,443 because the debt is now included on MCII's financial statements and the U.S. inflation index was applied. Basis of conversion of financial statements of U.S. subsidiary The accounts of MCII are prepared in U.S. dollars as the functional currency and have been converted to new Mexican pesos in conformity with International Accounting Standards N(degree)21 (now incorporated as a supplement to Mexican GAAP) "The Effects of Changes in Foreign Exchange Rates and Translation of Financial Statements in Foreign Currency". The accounts of MCII were also converted to Mexican GAAP for inclusion in the individual financial statements of the Company under the equity method. The effects of inflation on the financial information have been recognized using the consumer price index for the U.S. Recognition of the effects of inflation The Company recognizes the effects of inflation on financial information following the provisions contained in Bulletin B-10 and its amendments, issued by the Mexican Institute of Public Accountants and, accordingly, the financial statements of prior years have been restated to reflect the purchasing power of the currency as of June 30, 1996. In this manner the financial statements are comparable with those of previous years as all are stated in currency of the same purchasing power. To recognize the effects of inflation on currency with purchasing power as of the end of the most recent year, the following restatements were performed: - - Balance sheet: The investment in subsidiary companies has been recorded through the equity method, based on financial statements of the subsidiaries restated on the same basis as the Company. Property and equipment are restated to net replacement cost, as determined by independent appraisers. Depreciation is calculated on restated values in accordance with the estimated useful lives of the assets as determined by the appraisers. Goodwill is restated by applying the National Consumer Price Index (NCPI) and amortization is computed using the straight-line method over 20 years. Stockholders' equity and other nonmonetary items are restated by applying the NCPI from the date the amounts were originally contributed or generated. The cumulative effect of restatement represents the gain or loss from holding nonmonetary assets and is the difference between identified specific costs and the application of the NCPI in restating non-monetary assets. - - Statement of income (loss): Revenues and expenses which are associated with a monetary item (cash, trade receivables, liabilities, etc.) are restated from the month in which they arise through yearend, based on factors derived from the NCPI. Costs and expenses associated with nonmonetary items are restated through yearend, as a function of the restatement of the non-monetary asset which is being consumed or sold. The comprehensive financing result includes interest income and interest expense, exchange gains or losses, and the gain or loss from monetary position, which is the impact of inflation on the purchasing power of monetary assets and liabilities. - - The statement of changes in financial position presents the changes in constant currency, based on the financial position as of the beginning of the year, restated to currency of the current yearend. Cash equivalents- Cash equivalents consist of unsecured short-term investments from banks at fixed rates, plus accrued interest. Transactions in foreign currency- Transactions in foreign currency are recorded at the rate of exchange in effect at the date of the transaction. Foreign currency assets and liabilities are adjusted by the exchange rates in effect at the end of the year, and resulting gains or losses are recorded in the income (loss) statement. 5. HOLDING COMPANY AND SUBSIDIARIES: Holding company and subsidiaries balances are as follows: 1995 1994 ----------- ----------- Receivables- Grupo Empresarial G, S.A. de C.V. $ 12,581 $ 17,030 Dina Camiones, S.A. de C.V. 66,218 393,286 Dina Autobuses, S.A. de C.V. -- 147,200 Plasticos Automotrices Dina, S.A. de C.V. 38,102 30,618 Sistemas y Servicios G, S.A. de C.V. 32,999 29,161 Raices del Sur, S.A. de C.V. 8,107 5,602 Promotora de Negocios G, S.A. de C.V. 5,665 4,086 Desarrollo Integral de Nuevas Actividades y Servicios, S.A. de C.V. 12,317 58,361 Desarrollo en Servicios Administrativos y Profesionales G.S.A. de C.V. 68,329 53,600 Servicios Inmobiliarios G, S.A. de C.V. 3,494 43,770 Dina Composites, S.A. de C.V. 1,686 11,352 Dina Comercializadora, S.A. de C.V. 14,747 35 10,710 -- Motor Coach Industries International, Inc. ----------- ----------- 274,955 794,101 ----------- ----------- Payables- Dina Autobuses, S.A. de C.V. 1,694 -- Autopartes Hidalguenses, S.A. de C.V. 3,059 432 Dinautos, S.A. de C.V. 541 6,983 Servicios Corporativos de Occidente, S.A. de C.V. 645 -- Promotora Empresarial de Occidente, S.A. de C.V. 1,997 -- ----------- ----------- 7,936 7,415 ----------- ----------- Net receivable balance $ 267,019 $ 786,686 ----------- ----------- ----------- ----------- The Company had the following transactions with related parties: 1995 1994 ----------- ----------- Revenues- Services and commissions $ 28,513 $ 83,483 ----------- ----------- ----------- ----------- Interest $ 171,088 $ 72,574 ----------- ----------- ----------- ----------- Expenses- Services $ 9,441 $ 31,445 ----------- ----------- ----------- ----------- Interest $ 8,089 $ 888 ----------- ----------- ----------- ----------- 6. OTHER ACCOUNTS RECEIVABLE: Other accounts receivable include: 1995 1994 ----------- ----------- Short-term portion of receivable from trust for stock sales $ 2,886 $ 4,387 Refundable income tax 5,820 11,782 Refundable value added tax -- 50 321 -- Other -------- ----------- $ 9,027 $ 16,219 ----------- ----------- ----------- ----------- 7. RECEIVABLE FROM TRUST FOR STOCK SALES PLAN: In 1992, the Company created a trust to establish a stock sales plan for the executives of the Consorcio G Grupo Dina companies. The trust is managed in accordance with instructions set forth by a Technical Committee, which consists of the principal stockholders and certain executives of the Company. The account receivable from the trust is recorded at its present value which at December 31, 1995 was $8,469 of which $5,583 is long-term. 8. PROPERTY AND EQUIPMENT: Property and equipment consist of the following: 1995 1994 ----------- ---------- Buildings and improvements $ 15,445 $ 13,819 Transportation equipment 530 455 701 807 Furniture and fixtures ----------- ---------- 16,676 15,081 (9,261) ---------- Less- Accumulated depreciation ----------- (8,202) 7,415 6,879 776 738 Land ----------- ---------- $ 8,191 $ 7,617 ----------- ---------- ----------- ---------- The average annual depreciation rates are as follows: % ----------- Buildings and improvements 3 Transportation equipment 10 Furniture and fixtures 8 9. LONG-TERM DEBT: An analysis of long-term debt is as follows: 1995 1994 -------------- ------------- Eurobonds $ 1,338,634 $ 1,312,915 Subordinated convertible debentures 1,463,502 1,435,384 Less- Discount on issuance of subor- dinated convertible debentures (117,305) (85,084) -------------- ------------- $ 2,684,831 $ 2,663,215 -------------- ------------- -------------- ------------- Eurobonds- On November 18, 1992 Eurobonds with a principal amount of U.S.$150 million were issued. The 10.5% Guaranteed Notes are due November 18, 1997 with interest payable semi-annually in arrears on May 18 and November 18. See Note 14 c) for explanation of Exchange Offer for these Eurobonds. The Eurobond Notes are guaranteed by each of Dina Camiones, S.A. de C.V., Dina Autobuses, S.A. de C.V. and Dina Comercializadora, S.A. de C.V., subsidiaries of the Company. The terms of the Eurobonds restrict the disposition of the stock of subsidiaries and fixed assets unless the proceeds are subsequently reinvested, and limit the pledging of assets or granting of guarantees on additional debt. Subordinated convertible debentures- On August 8, 1994, DINA issued subordinated convertible debentures for U.S.$164 million, with a discount of U.S.$14.7 million, due in August 2004, with interest payable semi-annually at 8%, net of certain taxes. DINA has the option of redeeming the debentures after three years and before 5 years with a prepayment penalty, if the market price of the American Depositary shares (ADS) of Series "L" stock of the Company exceeds U.S.$22.86 for a specified period of time. The debentures are convertible at the option of the holder to 56.88 ADSs per one thousand dollars of principal amount. The discount will be amortized through August 2004 on a straight-line basis. 10. GUARANTEES: At February 29, 1996, the Company has guaranteed revolving lines of credit on behalf of a related company in an amount of $22,831. 11. FOREIGN CURRENCY POSITION: Since the devaluation of the Mexican peso in December 1994, there has been significant instability in the financial and exchange rate markets. At December 31, 1995, the assets and liabilities denominated in foreign currency are represented principally by U.S. dollars and were converted at the exchange rate of 7.5814 new Mexican pesos per U.S. dollar, as follows: Thousands of U.S. Dollars -------------- Current assets 3,250 Liabilities- Current (8,993) Long-term (300,847) -------------- Net liability position in foreign (306,590) currency -------------- -------------- Equivalent in thousands of new Mexican pesos $ (2,324,381) The assets and liabilities of MCII are denominated in U.S. dollars. Following is a summary of the combined foreign currency position, as shown in the notes to the consolidated financial statements: Thousands Equivalent in of U.S. Mexican Dollars Pesos -------------- ------------- Liability position in DINA (279,207) $ (2,116,780) Asset position in MCII (including goodwill of U.S. $242,333 thousand) 294,808 2,235,057 -------------- ------------- 15,601 $ 118,277 -------------- ------------- -------------- ------------- At February 29, 1996 the unaudited currency position was similar to that at December 31, 1995, and the exchange rate at that date was 7.6296 Mexican pesos per U.S. dollar. During 1995 the Company had interest expense, net, in the amount of U.S.$34 million, equivalent to $257,768. 12. STOCKHOLDERS' EQUITY: On March 23, 1995 the stockholders voted to cancel the dividends declared in August 1994, unpaid as of December 31, 1994, which totaled $47,370. At December 31, 1995, capital stock consisted of the following: Number of Shares -------------------------- Common Series "L" Amount ------------- ------------- ----------- Nominative shares without par value, represented by fixed capital not subject to with- drawal and of free subscrip- tion 203,800,450 -- $ 126,999 Nominative shares with no par value, sub-series 2/94 and 1/94, represented by variable capital, freely subscribable, and which may not exceed 10 times fixed capital 32,749,940 78,849,964 69,546 ----------- ----------- --------- 236,550,390 78,849,964 196,545 Less- Unissued shares (32,749,940) (24,624,278) (35,754) ----------- ----------- --------- Capital stock outstanding 203,800,450 54,225,686 $ 160,791 ----------- ----------- --------- ----------- ----------- --------- In accordance with the by-laws of the Company, foreign investors may purchase up to 49% of the shares of the Company. Dividends paid are not subject to income taxes, as long as they are paid from "net taxable income" ("UFIN"). For the minority stockholders, dividends not paid from UFIN must include a 34% income tax. The majority stockholders are not subject to income tax withholding because the Company is a tax controlled entity under the rules of consolidation for tax purposes. If capital is reduced, the excess of the reduction over price-level adjusted paid-in capital will be taxable as a dividend in accordance with the formula prescribed by Mexican tax law. The legal reserve is not available for distribution to stockholders during the existence of the Company, except in the form of a stock dividend. 13. TAX ENVIRONMENT: Income and asset tax- The Company is subject to income and asset taxes. Income tax is computed by taking into consideration the taxable and deductible effects of inflation, such as depreciation calculated on restated asset values, which permit the deduction of current costs, and taxable income is increased or reduced by the effects of inflation on certain monetary assets and liabilities through the inflationary component, which is similar to the gain or loss from monetary position. The asset tax is computed at an annual rate of 1.8% (2% through 1994) of the average of the majority of restated assets less certain liabilities, and the tax is paid only to the extent that it exceeds the income taxes of the period. Any required payment of asset tax can be offset against the excess of income tax over asset tax in the following ten years. Grupo Empresarial G, S.A. de C.V., parent company of Consorcio G Grupo Dina, S.A. de C.V., is permitted by the Mexican tax authorities to file a consolidated tax return. For that reason the income tax has been determined over the individual tax result of the Company. Reconciliation of accounting and taxable income- The principal items affecting the Company's taxable income were the effects of inflation, the result of monetary position, the equity in results of subsidiary companies, and the application of the third amendment of Bulletin B-10. Tax loss carryforwards- At December 31, 1995 the Company has inflation-adjusted tax loss carryforwards which will be indexed for inflation through the date used to offset future taxable income: Year of Tax Loss Expiration Carryforward - ----------------------- ----------------- 2004 $ 615,435 5,640 2005 ----------------- $ 621,075 ----------------- ----------------- 14. SUBSEQUENT EVENTS: a) Temporary suspension of plant operations of Dina Camiones- Dina Camiones, due to the decrease in demand for its products, agreed to a flexible suspension of production of trucks with the labor union for the period from January 24, 1996 to July 23, 1996. During this period, the Company will be obligated to pay 60% of nominal salaries, including benefits, and the union will provide the number of personnel required based on the production and sales needs. b) Restructuring of Dina Comercia- lizadora's accounts receivable- In January 1996, Dina Comercializadora restructured all of its accounts and notes receivable from Autobuses Estrella Blanca, S.A. de C.V., Autotransportes Tres Estrellas de Oro, S.A. de C.V. and both companies' licensees, giving effect to the restructuring as of December 31, 1995. c) Debt Exchange Offer- On April 22, 1996, the Company initiated an "Exchange Offer" with the holders of the Eurobonds in the amount of US$150 million (see Note 9), requesting the exchange of the Eurobonds currently outstanding for new Eurobonds, which would include the offering of new notes with a face value of 1.417 times the existing face value, an extension of the maturity date from November 18, 1997 to November 15, 2002 and an increase in the interest rate from 10.5% to 12%. In the event of certain changes in the ratings of the notes, the interest rate could increase to 15% after November 15, 1999. In addition, interest would not be paid during the first 3 years the new notes are effective and would be capitalized and due upon maturity using a "zero coupon" basis. The new notes will be issued jointly with Consorcio G Grupo Dina, S.A. de C.V. as primary obligor. In the event of non-payment, MCII Holdings (USA), Inc., a subsidiary 100% owned by Consorcio G Grupo Dina, S.A. de C.V., incorporated on April 19, 1996 with the sole purpose of holding the total number of shares of MCII, will guarantee the debt. The Exchange Offer includes certain changes in the existing terms of the Eurobonds, including guarantees and certain commitments and is subject to the exchange of a minimum amount of US$120 million. The Company has obtained verbal consent from the principal Eurobond holders, who hold approximately US$120 million. Therefore, the Company's management believes that at least this amount will be restructured under the conditions above. Whether the other note holders are interested in exchanging their notes will not be known until May 17, 1996. The issuance and exchange of the new notes is subject to the approval of the Mexican National Banking and Securities Commission. The Company's management believes that the possibility of completing the Exchange Offer are favorable. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of MCII Holdings (USA), Inc.: We have audited the accompanying consolidated balance sheet of MCII HOLDINGS (USA), INC. (a wholly owned subsidiary of Consorcio G Grupo Dina, S.A. de C.V.) and subsidiaries (the Company) as of December 31, 1995, and the related consolidated statements of income, changes in stockholder's equity and cash flows for the year then ended. 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 audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of MCII Holdings (USA), Inc. and subsidiaries as of December 31, 1995, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. Arthur Andersen LLP Phoenix, Arizona, February 19, 1996 INDEPENDENT AUDITORS' REPORT To the Stockholder of Motor Coach Industries International, Inc. We have audited the accompanying consolidated balance sheet of Motor Coach Industries International, Inc. and its subsidiaries (a wholly-owned subsidiary of Consorcio G Grupo Dina, S.A. de C.V.) (the "Company") as of December 31, 1994, and the related consolidated statements of income, changes in stockholder's equity and cash flows for the five month period ended December 31, 1994. 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 audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Motor Coach Industries International, Inc. and its subsidiaries at December 31, 1994, and the results of their operations and their cash flows for the five month period ended December 31, 1994, in conformity with generally accepted accounting principles. Deloitte & Touche LLP Phoenix, Arizona February 24, 1995 INDEPENDENT AUDITORS' REPORT To the Stockholder of Motor Coach Industries International, Inc. We have audited the accompanying consolidated statements of income, changes in stockholder's equity and cash flows for the seven month period ended July 31, 1994 and for the year ended December 31, 1993, of Motor Coach Industries International, Inc. and its subsidiaries (a wholly-owned subsidiary of Consorcio G Grupo Dina, S.A. de C.V.) (the "Predecessor"). 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 audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the results of operations and cash flows for the seven month period ended July 31, 1994 and the year ended December 31, 1993 of Motor Coach Industries International, Inc. and its subsidiaries in conformity with generally accepted accounting principles. Deloitte & Touche LLP Phoenix, Arizona February 24, 1995 MCII HOLDINGS (USA), INC. (A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.) CONSOLIDATED BALANCE SHEET December 31, December 31, (000 omitted, except share data) 1995 1994 - ------------------------------------------------------------------------------ ASSETS Current assets: Cash and cash equivalents $ 30,607 $ 6,941 Receivables, less allowance of $1,903 and $1,209 34,936 26,523 Current portion of notes receivable 4,722 4,791 Inventories 146,718 121,381 Deferred income taxes 8,570 5,173 Other current assets 4,073 4,590 ---------- ---------- Total current assets 229,626 169,399 Property, plant and equipment 75,021 55,582 Notes receivable 30,909 32,521 Investment in and advances to dis- continued operations 11,311 42,821 Deferred income taxes 14,350 10,663 Intangibles 242,923 242,333 Other assets 9,902 5,597 ------------ ------------ $ 614,042 $ 558,916 ============ ============ LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Bank overdrafts $ 504 $ 5,734 Accounts payable 24,722 25,314 Accrued compensation and other benefits 13,101 10,014 Accrued warranties 5,381 4,726 Accrued income taxes 11,924 2,878 Insurance reserves 5,337 5,586 Due to Grupo DINA 367 Other current liabilities 11,605 11,849 --------- ----------- Total current liabilities 72,941 66,101 Long-term debt 217,668 195,000 Pensions and other benefits 8,866 9,863 Other deferred items and insurance reserves 13,146 8,464 Deferred income taxes 6,613 6,676 Commitments and contingent liabilities (Notes G, I, L, M, N, O) Stockholder's equity: Common stock, $.01 par value, 1,000 shares authorized and issued Additional capital 317,465 317,465 Deficit (18,856) (37,114) Cumulative translation adjustments (3,801) (7,539) Total stockholder's equity 294,808 272,812 ---------- ---------- $ 614,042 $ 558,916 ========== ========== See notes to consolidated financial statements.
MCII HOLDINGS (USA), INC. (A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.) STATEMENT OF CONSOLIDATED INCOME Predecessor --------------------------- Five Months Seven Months Year Ended Ended Ended Year Ended December December 31, July 31, December (000 omitted) 31, 1995 1994 1994 31, 1993 - --------------------------------------------------------------------------------------------------- Revenues: Sales $ 509,925 $ 191,789 $ 271,797 $ 394,112 Finance income 6,412 2,584 1,297 4,908 ---------- ----------- ----------- ---------- 516,337 194,373 273,094 399,020 ---------- ----------- ----------- ---------- Operating costs and expenses: Cost of sales (exclusive of items shown separately below) 397,395 151,614 203,538 303,075 Depreciation and amortization 14,618 5,841 3,279 4,547 Interest expense, finance operations 2,658 693 291 775 Research and development expenses 2,915 492 1,238 1,420 Selling, general and administrative expenses 60,412 26,614 27,825 43,850 Merger related expenses (Note B) 11,294 ---------- ---------- ----------- ---------- 477,998 185,254 247,465 353,667 ---------- ---------- ----------- ---------- Operating income 38,339 9,119 25,629 45,353 ---------- ---------- ----------- ---------- Other (income) and expense: Interest expense 13,435 2,464 1,812 1,508 Other (income) (469) (189) (225) (1,423) Gain from sale of marketable securities (Note Q) (10,522) Minority interests 378 2,021 ----------- ---------- ----------- ----------- 2,444 2,275 1,965 2,106 ---------- ---------- ------------ ------------ Income before income taxes 35,895 6,844 23,664 43,247 Income taxes 17,637 3,958 11,522 16,606 ---------- ---------- ------------ ------------ Income from continuing operations 18,258 2,886 12,142 26,641 ----------- ---------- ------------ ------------ Discontinued operations: Loss of transit manufacturing operations, net of tax benefit of $2,934 (6,793) Loss on disposal of transit manufacturing, net of tax benefit of $1,885 and $33,573 (3,500) (53,629) ----------- ---------- ------------ ------------ 0 0 (3,500) (60,422) ----------- ---------- ------------ ------------ Net income (loss) $ 18,258 $ 2,886 $ 8,642 $ (33,781) =========== ========== ========== ============ See notes to consolidated financial statements.
MCII HOLDINGS (USA), INC. (A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.) STATEMENT OF CONSOLIDATED CHANGES IN STOCKHOLDER'S EQUITY Dial Investment Cumulative and Common Additional Translation (000 omitted) Advances Stock Capital Deficit Adjustment Total - ------------------------------------------------------------------------------------------------------- BALANCE, JANUARY 1, 1993 (PREDECESSOR) $ 235,863 $ $ $ $ $ 235,863 Net Income 12,090 12,090 Dial investment and advances, net (88,730) (88,730) Unrealized translation loss (957) (957) Conversion of a portion of advances from Dial to (42,000) (42,000) MCII's acquisition of Trans- portation Operations, Inc. (116,266) 201 118,354 (2,289) 0 Increase in deferred tax assets as a result of step-up in income tax basis of net assets 28,627 28,627 Net loss (45,871) (45,871) Unrealized translation loss (65) (65) Dividends on common stock (1,008) (1,008) Common stock issued in connection with employee benefit plan 1 419 420 ---------- -------- -------- -------- --------- --------- BALANCE, DECEMBER 31, 1993 (PREDECESSOR) 0 202 147,400 (46,879) (2,354) (98,369) Net income 8,642 8,642 Common stock issued in connection with employee benefit plan 1,140 1,140 Unrealized translation loss (2,733) (2,733) Dividends on common stock (2,017) (2,017) --------- -------- -------- -------- -------- -------- BALANCE, JULY 31, 1994 (PREDECESSOR) 0 202 148,540 40,254 (5,087) 103,401 Effect of push-down purchase accounting adjustments due to Dina's acquisition of MCII (202) 168,925 40,254 (751) 208,226 Net income 2,886 2,886 Unrealized translation loss (1,701) (1,701) Dividends on common stock (40,000) (40,000) ---------- -------- -------- -------- --------- -------- BALANCE, DECEMBER 31, 1994 0 0 317,465 (37,114) (7,539) 272,812 Net income 18,258 18,258 Unrealized translation gain 3,738 3,738 ---------- -------- -------- -------- --------- -------- BALANCE, DECEMBER 31, 1995 $ 0 $ 0 $317,465 $(18,856) $ (3,801) $ 294,508 ========== ======== ======== ======== ========= ========
See notes to consolidated financial statements.
MCII HOLDINGS (USA), INC. (A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.) STATEMENT OF CONSOLIDATED CASH FLOWS Predecessor Five Months ---------------------------- Year Ended Ended Seven Months Year Ended December 31, December 31, Ended July December (000 omitted) 1995 1994 31, 1994 31, 1993 - ------------------------------------------------------------------------------------------------------- CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES: Net income $ 18,258 $ 2,886 $ 8,642 $ (33,781) Adjustments to reconcile net income to net cash used by operations: Depreciation and amortization 14,618 5,841 3,279 4,547 Deferred income taxes 1,019 (1,760) 1,187 (3,595) Discontinued operations 3,500 60,422 Loss (gain) on sale of property and notes receivable (1,945) 180 (69) (1,979) Gain on sale of marketable securities (10,522) Other noncash items, net 4,335 (1,524) (1,145) (1,453) Change in operating assets and liabilities: Receivables (8,649) (2,536) 3,280 393 Inventories (24,384) (11,662) (16,706) (2,914) Due to Grupo DINA 367 Accounts payable (770) 4,780 (10,825) 10,261 Accrued income taxes 6,064 (4,788) (3,567) 4,292 Other current liabilities 1,868 1,022 9,031 4,888 Other assets and liabilities, net (534) (3,211) 1,566 (6,343) --------- ---------- --------- ----------- Net cash provided (used) by operating activities (275) (10,772) (1,827) 34,738 --------- ---------- ---------- ---------- CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES: Capital expenditures (12,559) (4,915) (1,936) (5,472) Investment in assets held for lease (45,667) (689) (6,846) Investments in, or purchases of, businesses or marketable securities (17,742) (34,616) (6,000) Proceeds from sale of marketable securities 23,716 Proceeds from sale of property and notes receivable 40,675 3,559 1,452 77,150 Investment in notes receivable (26,483) (18,090) (19,739) (31,496) Collections of notes receivable 21,095 2,029 1,050 27,642 Investment in discontinued operations, net 24,210 23,671 489 (43,933) ---------- --------- --------- ----------- Net cash provided (used) by investing activities 7,245 5,565 (60,146) 17,891 --------- --------- --------- ----------- CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES: Net change in bank overdrafts (5,230) (680) (730) (8,077) Additional long-term borrowings 125,000 Payments of long-term borrowings (74) (42,000) (766) Net change in bank credit facilities 22,000 (49,000) 70,533 48,467 Dividends on common stock (34,000) (2,017) (1,008) Common stock issued 1,140 420 Dial investment and advances, net (88,730) --------- --------- --------- ----------- Net cash provided (used) by financing activities 16,696 (680) 68,926 (49,694) --------- --------- --------- ----------- Net increase (decrease) in cash and equivalents 23,666 (5,887) 6,953 2,935 Cash and cash equivalents, beginning of period 6,941 12,828 5,875 2,940 --------- --------- --------- ----------- Cash and cash equivalents, end of period $ 30,607 $ 6,941 $ 12,828 $ 5,875 =========== ========== ========= ===========
See notes to consolidated financial statements. MCII HOLDINGS (USA), INC. (A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements include the accounts of MCII Holdings (USA), Inc. and subsidiaries ("Holdings" or the "Company"). Financial statements of the Company as of and for any period prior to the August 8, 1994 acquisition described below are designated as "Predecessor." Holdings was formed for the purpose of holding Motor Coach Industries International, Inc. ("MCII") as its wholly owned subsidiary. On May 28, 1996, Dina transferred to Holdings all 100 shares of MCII $.01 par value common stock, in exchange for which Holdings issued to Dina all 1,000 shares of its $.01 par value common stock. As a result of this exchange between entities under common control, the transaction was accounted for at historical cost in a manner similar to that in a pooling of interests and, therefore, all prior financial statements presented have been restated as if the exchange took place at the beginning of such periods. On August 8, 1994, Consorcio G Grupo Dina, S.A. de C. V. ("Dina") acquired all of the issued and outstanding common stock of Motor Coach Industries International, Inc. ("MCII"). As a result of this transaction, the assets and liabilities of MCII were stated at estimated fair value as of the acquisition date, and the excess of the consideration paid by Dina over the estimated fair value of the net assets acquired was recorded as goodwill. For financial reporting purposes, the Company accounted for the transaction effective August 1, 1994. See Note B for further discussion. On August 12, 1993, The Dial Corp ("Dial") sold, through an initial public offering, 20 million shares of MCII pursuant to an underwriting agreement dated August 4, 1993 (the "Distribution"). Dial's transportation manufacturing and service parts subsidiaries, which now comprise MCII's wholly owned subsidiary, Transportation Manufacturing Operations, Inc. ("TMO"), were transferred to MCII immediately after and in connection with the public offering of MCII shares. As a result, the financial statements of the Company reflect the consolidated results of operations and financial condition of MCII and subsidiaries subsequent to August 12, 1993 and the combined results of operations and financial condition of the companies which formerly comprised TMO prior to August 12, 1993. The Company is a manufacturer of coaches, and a manufacturer and distributor of coach and transit bus replacement parts, with manufacturing facilities in the United States and Canada. Sales are made predominately in the United States and Canada to a diversified customer base, including independent coach operators, national coach fleet operators, government agencies and others. The financial statements have been prepared in accordance with generally accepted accounting principles. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as contingent assets and liabilities disclosed in the financial statements. Actual results could differ from those amounts reported or disclosed. However, management does not believe that such differences, if any, would be material to the Company's financial condition or results of operations. Intercompany accounts and transactions between Holdings and its subsidiaries have been eliminated. Certain reclassifications have been made to the financial statements of prior periods to conform to 1995 classifications. Described below are those accounting policies that are particularly significant to the Company, including those selected from acceptable alternatives. CASH EQUIVALENTS The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. INVENTORIES Inventories are stated at the lower of cost or market. Cost is generally determined on a first-in, first-out basis. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation is provided principally by use of the straight-line method at annual rates as follows: Buildings and leasehold improvements................ 3% to 25% Assets held for lease................................9% to 20% Machinery and equipment............................. 8% to 33% NOTES RECEIVABLE Notes receivable are collateralized by coaches. Substantially all contracts carry floating rates of interest based on the creditworthiness of each individual purchaser. The allowance for uncollectible contracts is adjusted periodically based on an evaluation of individual contract collectibility. INTANGIBLES Intangibles (primarily goodwill) are carried at cost less applicable amortization of $6,381,000 at December 31, 1995 and $2,824,000 at December 31, 1994. Intangibles are primarily amortized on the straight-line method over the periods of expected benefit, but not in excess of 40 years. WARRANTY At the time of sale, an accrual for warranty claims, which is based upon management's estimate of future warranty liabilities, is recorded and charged to operations. Actual warranty expenditures are charged to the accrual as incurred, and periodically the accrual is reviewed for adequacy in light of actual experience and adjustments are recorded if necessary. RESEARCH AND DEVELOPMENT Research and development expenses, net of contributions, are charged to income as incurred. FOREIGN CURRENCY EXCHANGE The Company enters into foreign exchange forward contracts to hedge certain firm and anticipated purchase commitments settled in foreign currencies as a means of reducing exposure to fluctuations in foreign exchange rates. The Company does not engage in foreign currency speculation. The contracts do not subject the Company to risk due to exchange rate movements as gains and losses on the contracts offset gains and losses on the transactions being hedged. Foreign currency transactions which are not hedged are converted at the exchange rate in effect at the date of the transaction. Any gain or loss resulting from the translation is included in the income statement. PENSIONS AND OTHER BENEFITS Trusteed, noncontributory and contributory pension plans cover substantially all employees. Benefits for the noncontributory plans are based primarily on final average salary and years of service. Net periodic pension cost for the Company is based on the provisions of Statement of Financial Accounting Standards ("SFAS") No. 87, "Employers' Accounting for Pensions." Funding policies provide that payments to pension trusts shall be at least equal to the minimum funding required by applicable regulations. Contributions and cost for the contributory pension plans are determined as a percentage of each covered employee's regular wages. The Company has defined benefit post retirement plans that provide medical and life insurance for eligible retirees and dependents. The net periodic postretirement benefit cost for the Company is based upon the provisions of SFAS No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions." RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which the Company is required to adopt in 1996. SFAS No. 121 requires that long-lived assets be reviewed for impairment whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable. If the sum of the expected future cash flows (undiscounted and without interest charges) from an asset to be held and used in operations is less than the carrying value of the assets, an impairment loss must be recognized in the amount of the difference between the carrying value and the fair value. Assets to be disposed of must be valued at the lower of carrying value or fair value less cost to sell. In management's opinion, adoption of SFAS No. 121 will not have a material impact on the Company's financial position. B. ACQUISITION BY DINA PURCHASE ACCOUNTING ADJUSTMENTS On August 8, 1994, Dina acquired all of the issued and outstanding common stock of MCII. The acquisition was accounted for as a purchase and "push down accounting" was applied, with the result that purchase accounting adjustments were reflected in the accounting of MCII and its subsidiaries. Application of push down purchase accounting resulted in a preliminary adjustment of all outstanding assets and liabilities of the Company to their estimated fair value on the date of the acquisition. The Company is also in the process of obtaining additional information to quantify the potential liability related to certain preacquisition U.S. and Canadian tax contingencies. Once those amounts have been quantified, the contingencies may be recorded as an additional purchase accounting adjustment. See Note I. The excess of the consideration paid by Dina over the estimated fair value of the net assets acquired, based upon the preliminary purchase accounting adjustment, was $236,064,000 and is being amortized over 40 years using the straight line method. The following table reflects the changes made in the accounts of MCII and its subsidiaries as a result of applying push down accounting: (000 OMITTED) Assets: Inventories .....................$ (1,200) Property, plant and equipment.... 7,383 Deferred income taxes............ (34,021) Intangibles ..................... 236,064 -------- $208,226 ======== Liabilities and Equity: Stockholders' equity...............$208,226 ======== The purchase accounting adjustments described above have resulted in an increase in depreciation expense due to the step-up in the basis of property, plant and equipment, and an increase in amortization expense due to the creation of the intangible. As a result of these adjustments, the increase in depreciation and amortization expense for 1995 and 1994 was $6,450,000 and $2,655,000, respectively. MERGER RELATED EXPENSES In connection with the 1994 acquisition of MCII by Dina, the Company incurred $11,294,000 of merger-related expenses. These expenses were for the cash settlement of all outstanding stock options and the acceleration of vesting on all unvested restricted stock ($6,831,000) and for professional fees, printing, travel and other costs related to the transaction ($4,463,000). C. ACQUISITIONS In November 1995, the Company purchased a 70% ownership interest in Nanjing Starley Transportation Company Limited, an intercity coach operation which provides regularly scheduled passenger service in China, for $2,021,000. The investment, which is being accounted for under the equity method, was made by contributing ten refurbished used coaches valued at $1,071,000 and payment of related fees, duties and shipping costs of $950,000. In April 1995, the Company acquired substantially all of the net assets of Billingsley Parts and Equipment, Inc., a distributor of school bus parts. The acquisition was accounted for as a purchase in which total consideration was $2,890,000, of which $2,000,000 was paid in cash and the remainder in the form of a note payable. In February 1994, the Company acquired the remaining 31% of the outstanding stock of its then 69% owned Canadian coach manufacturing subsidiary, Motor Coach Industries Limited ("MCIL"), for $34,290,000. The acquisition was accounted for as a purchase and the excess of the purchase price over the estimated fair value of net assets acquired was $11,933,000. Such excess is being amortized over 40 years using the straight line method. As a result of this acquisition, no additional charge to minority interests will be recorded in the Statement of Consolidated Income subsequent to the acquisition date. The following table reflects the changes made in the accounts of MCIL as a result of applying push down purchase accounting: (000 OMITTED) Assets: Property, plant and equipment..... $15,500 Intangibles....................... 11,933 ------- $27,433 ======= Liabilities and Equity: Deferred income taxes.............$ 6,425 Pensions and other benefits....... 235 Stockholders' equity.............. 20,773 -------- $ 27,433 ======== The purchase accounting adjustments described above have resulted in an increase in depreciation expense due to the step-up in the basis of property, plant and equipment, and an increase in amortization expense due to the creation of the intangible. As a result of these adjustments, depreciation and amortization expenses for 1995 and 1994 increased by $1,879,000 and $1,598,000, respectively. D. DISCONTINUED OPERATIONS In November 1993, the Board of Directors approved a plan of disposition of the transit bus manufacturing segment. This decision was based upon management's review of market activities, business prospects, competitive bidding, evaluation of backlogs, economic value analysis, and opportunities for cost reduction, which indicated that the transit bus manufacturing business may not achieve acceptable profitability in the foreseeable future. As a result of this decision, a charge to discontinued operations of $87,202,000 ($53,629,000 after-tax) was recorded in the third quarter of 1993 to reflect the estimated loss on disposal of the transit manufacturing segment. During 1994, based upon further analysis of the estimated loss to be incurred on the disposal, an additional provision of $5,385,000 ($3,500,000 after-tax) was recorded, resulting in a total charge to discontinued operations of $92,587,000 ($57,129,000 after-tax). In November 1994, the Company sold the fixed assets and certain of the inventory of the transit bus manufacturing business, as well as the right to manufacture, remanufacture and distribute transit buses previously made by the Company, for aggregate consideration of $14,947,000, of which $4,877,000 was in the form of a note receivable and the remainder was in cash. Additionally, the purchaser, for a period of five years from the sale date, has agreed not to distribute parts to transit buses previously made by the Company. The Company retained all other assets and all of the remaining liabilities of the transit manufacturing business. The summarized balance sheet of the transit manufacturing segment at December 31 was as follows: 1995 1994 (000 OMITTED) Assets: Accounts receivable............................... $18,247 $32,257 Inventories....................................... 20,878 Other current assets.............................. 2,548 3,997 Deferred taxes and other assets................... 5,097 18,676 --------- ---------- $25,892 $75,808 Liabilities and equity: Accounts payable.................................. $ 378 $ 1,598 Other current liabilities................ 12,858 28,460 Other liabilities................................. 1,345 2,929 The Company's investment and advances............. 11,311 42,821 -------- -------- $25,892 $75,808 The following is a summary of the operating results of the transit manufacturing segment for the years ended December 31: 1995 1994 1993 ---- ---- ---- (000 OMITTED) Revenues.................................. $24,278 $166,235 $126,364 Operating costs and expenses.............. 24,881 177,009 $141,683 -------- --------- -------- (603) (10,774) (15,319) Income tax benefit........................ 232 4,148 5,087 -------- --------- -------- $ (371) $ (6,626) $ (10,232) Losses charged to discontinued operations reserve, net of tax benefit of $232, $4,148 and $2,153...................... 371 6,626 $ 3,439 -------- --------- --------- Net loss from operations................. $ - $ - $ (6,793) ======= ========= ========= The cumulative loss on disposal of the transit manufacturing segment, recorded in 1994 and 1993, included the following components: (000 OMITTED) Write-down of assets to estimated liquidation value. $53,860 Provision for shut-down costs and other reserves.... 20,327 Provision for operating losses during phase-out period. 18,400 -------- 92,587 Tax benefit......................................... (35,458) -------- $57,129 ======= E. INVENTORIES Inventories at December 31 consisted of the following: 1995 1994 ---- ---- (000 OMITTED) Raw materials............................. $ 26,219 $ 18,586 Work in process .......................... 36,371 30,196 Finished goods ........................... 98,979 84,315 ------ ------- 161,569 133,097 Excess quantity and obsolescence reserve ............................... (14,851) (11,716) ------- ------- $146,718 $121,381 ======= ======= F. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at December 31 consisted of the following: 1995 1994 ---- ---- (000 OMITTED) Land...................................... $ 3,459 $ 3,192 Buildings and leasehold improvements...... 31,947 24,323 Assets held for lease..................... 21,361 8,109 Machinery and equipment................... 27,896 22,974 ------ ------- 84,663 58,598 Less accumulated depreciation and amortization........................ (9,642) (3,016) ------ ------- $75,021 $ 55,582 ======= ======= Depreciation and amortization expense for property, plant and equipment was $7,778,000 for the year ended December 31, 1995, $3,263,000 for the five month period ended December 31, 1994, $2,839,000 for the seven month period ended July 31, 1994, and $3,358,000 for the year ended December 31, 1993. G. NOTES RECEIVABLE Notes receivable at December 31 consisted of the following: 1995 1994 ---- ---- (000 OMITTED) Notes receivable, net of allowance for uncollectible contracts of $890 and $750................................ $35,631 $37,312 Less current portion....................... (4,722) (4,791) Long-term notes receivable ................ $30,909 $32,521 During the year ended December 31, 1995, the five month period ended December 31, 1994, the seven month period ended July 31, 1994 and the year ended December 31, 1993, the Company sold $42,366,000, $21,486,000, $23,097,000, and $72,511,000 of its notes receivable for $44,126,000, $22,386,000, $23,642,000, and $74,490,000, respectively. The Company has agreed to repurchase, for the unpaid balance, any contract for which there has been a material breach of any warranty, representation, covenant or other obligation of the Company as specified in the contract. In the case of default by a debtor, the purchaser, after taking possession of the underlying collateral equipment, may permit the Company to remarket the equipment. The Company is required to reimburse the purchaser for any losses as a result of defaults up to an aggregate of $8,467,000 at December 31, 1995. Scheduled annual maturities of notes receivable at December 31, 1995 are $4,722,000, (1996), $4,455,000 (1997), $5,068,000 (1998), $5,127,000 (1999), $3,716,000 (2000), and $13,433,000 (thereafter). H. LONG-TERM DEBT Long-term debt at December 31 was as follows: 1995 1994 ---- ---- (000 OMITTED) Borrowings under bank credit facility..... $92,000 $ 70,000 Term notes payable, due to 2002........... 125,000 125,000 Note payable at 7% due to 2001............ 816 ------ ------- 217,816 195,000 Less current portion...................... 148 ------ Long-term debt............................ $217,668 $195,000 ======= ======= Long-term bank credits are available to the Company from participating banks under an agreement (the "Bank Credit Facility") which provides up to $125,000,000 for borrowing purposes, of which up to $35,000,000 is available for issuance of standby letters of credit. Borrowings were available at December 31, 1995 on a revolving basis until July 31, 1998. At December 31, 1995, there were borrowings of $92,000,000 outstanding under the Bank Credit Facility, and $6,920,000 of standby letters of credit were issued. Canadian revolving credit loans are available to a subsidiary of the Company which provide for loans up to the Canadian equivalent of $7,329,000 of which no amounts were outstanding at December 31, 1995. Borrowings were available at December 31, 1995 on a revolving basis until January 31, 1996, with outstanding borrowings then converting into a term loan repayable in 36 equal monthly installments. The interest rates applicable to borrowings under these agreements are, at the Company's option, indexed to the bank prime rate or the London Interbank Offered Rate ("LIBOR"), plus appropriate spreads over such indices during the period of each borrowing agreement. The agreements also provide for commitment fees. Such spreads and fees can change based upon changes in the Company's financial ratios. Annually, with the participating banks' consent, the term of the agreements may be extended for one year. The Company has $125,000,000 of term notes payable which are due in annual installments of $25,000,000 beginning in November 1998 and extending through November 2002. Interest on the notes is at a fixed rate of 9.02%. However, the Company entered into an interest rate swap agreement in November 1994 which effectively changed the interest rate on the notes to LIBOR plus 1.14%. During 1995, the Company terminated $62,500,000 of the swap in exchange for $4,950,000 which is being amortized as a reduction of interest expense over the remaining life of the notes. As a result, the effective interest rate is at LIBOR plus 1.14% on $62,500,000 of the notes and at a fixed rate of 7.44% on the remaining $62,500,000. The Company's long-term debt agreements include various restrictive covenants and require the maintenance of certain defined financial ratios with which the Company is in compliance. Annual maturities of long-term debt due in the next five years will approximate $148,000 (1996), $148,000 (1997), $117,148,000 (1998), $25,148,000 (1999), $25,148,000 (2000) and $50,076,000 (thereafter). Interest paid in the year ended December 31, 1995, the five months ended December 31, 1994, the seven months ended July 31, 1994 and the year ended December 31, 1993, was $15,920,000, $3,559,000, $5,007,000, and $1,937,000, respectively. At December 31, 1995, no stockholder's equity was available for the payment of dividends by Holdings. I. INCOME TAXES Prior to August 1993, Dial charged or credited the U.S. operations of the Predecessor an amount equal to the tax payments made or tax reductions realized by Dial as a result of including the Predecessor's U.S. tax results and credits in Dial's consolidated federal tax return. Subsequent to August 1993, eligible subsidiaries are included in the consolidated and other applicable income tax returns of MCII. Taxable income of the Company's Canadian subsidiaries is included in separate tax returns filed in Canada. Income tax expense (benefit) was comprised of the following:
YEAR ENDED FIVE MONTHS SEVEN MONTHS YEAR ENDED DECEMBER ENDED DECEMBER ENDED JULY 31, DECEMBER 31, 1995 31, 1994 1994 31, 1993 ---------- -------------- -------------- ---------- (000 OMITTED) Current U.S. Federal......... $ 3,864 $ 2,267 $ 3,442 $13,249 State................ 1,108 537 1,699 2,007 Foreign.............. 11,646 2,914 5,194 4,945 ------- ------ -------- --------- 16,618 5,718 10,335 20,201 ------- ------ -------- -------- Deferred U.S. Federal......... 373 (246) 1,220 (3,479) State................ 79 (69) (22) (689) Foreign.............. 567 (1,445) (11) 573 -------- -------- --------- -------- 1,019 (1,760) 1,187 (3,595) -------- -------- --------- -------- Total income tax expense.. $17,637 $ 3,958 $11,522 $16,606 ------- ======= ========= ========
Deferred income tax assets and liabilities included in the Consolidated Balance Sheet at December 31 consisted of the following: 1995 1994 ---- ---- (000 OMITTED) Deferred tax assets: Pensions and other benefits ......................$ 4,979 $ 4,573 Allowances and reserves for losses ............... 8,739 8,414 Net operating loss carryforward................... 12,150 4,833 Deferred state income taxes ...................... 1,222 1,144 Other............................................. 546 683 ---------- --------- Total gross deferred tax assets...................... 27,636 19,647 ---------- --------- Deferred tax liabilities: Property, plant and equipment ................... (8,186) (9,364) Intangibles...................................... (2,439) (615) Installment sales ................................ (606) (413) Other ........................................... (98) (95) ---------- --------- Total gross deferred tax liabilities................. (11,329) (10,487) ---------- --------- Net deferred tax asset.............................. $16,307 $ 9,160 ========== ========= Income taxes paid (recovered) in the year ended December 31, 1995, in the five month period ended December 31, 1994, in the seven month period ended July 31, 1994, and in the year ended December 31, 1993, amounted to $4,606,000, $6,783,000, $(1,268,000) and $16,028,000, respectively. At December 31, 1995, the Company had net operating loss carry forwards as follows: EXPIRING IN NET OPERATING LOSS YEAR ENDING CARRY FORWARDS DECEMBER 31, ------------------ ------------ (000 OMITTED) $ 2,690 2007 6,261 2008 22,988 2009 2,774 2010 ---------- $ 34,713 United States and Canadian income before income taxes was as follows:
YEAR ENDED FIVE MONTHS SEVEN MONTHS YEAR ENDED DECEMBER 31, ENDED DECEMBER 31, ENDED JULY 31, DECEMBER 31, 1995 1994 1994 1993 ---- ---- --- ---- (000 OMITTED) United States......... $12,979 $4,649 $12,123 $31,288 Canada................ 22,916 2,195 11,541 11,959 -------- ------- -------- -------- $35,895 $6,844 $23,664 $43,247 ======= ====== ======= =======
A reconciliation of the provision for income taxes and the amount that would be computed using statutory federal income tax rates on income before income taxes is set forth below:
YEAR ENDED FIVE MONTHS SEVEN MONTHS YEAR ENDED DECEMBER 31, ENDED DECEMBER 31, ENDED JULY 31, DECEMBER 31, 1995 1994 1994 1993 ---- ---- ---- ---- (000 OMITTED) Computed income tax provision at statutory federal income tax rate of 35%..................... $12,563 $ 2,395 $ 8,283 $15,136 Minority interests........... 132 707 State income taxes......... 773 304 1,090 857 Canadian tax differences... 637 524 775 608 Foreign dividend received.. 2,039 Intangible amortization.... 1,652 543 53 Merger related expenses.... 1,563 Increase in deferred taxes due to 1% rate change.... (1,287) Other, net................. (27) 192 (374) 585 ------- ------- ------- ------- Provision for income taxes. $17,637 $3,958 $11,522 $16,606 ======= ======= ======= =======
The Predecessor's U.S. federal income tax returns have been examined through 1990 and are currently being examined for 1991, 1992 and the seven months ended July 1993. The Predecessor's Canadian income tax returns for 1982 through 1992 are currently under review by Revenue Canada. Authorities have proposed imputing additional income relating to transactions with a U.S. based subsidiary of the Company. A formal reassessment has been issued by Revenue Canada on the 1985 return. A notice of objection has been filed by the Company for 1985. In the event of an adverse judgment, the additional income taxes for 1982 through 1992 could amount to up to $25,000,000 plus interest of approximately $25,000,000 and, in addition, the Company may be subject to potential reassessments for years subsequent to 1992 on the same basis which could result in additional income taxes and interest, all before recoveries of U.S. Federal income taxes which may be available to offset a portion of any additional taxes paid to Canada. Although the Company is still in the process of obtaining additional information, based upon its review of current relevant information, including the advice of outside counsel, the Company is of the opinion that Revenue Canada's arguments are without merit and that any liability from this matter will not be material to its financial condition or results of operations. J. PENSION BENEFITS Net periodic pension cost included the following components:
UNITED STATES ------------------------------------------------------------- YEAR ENDED FIVE MONTHS SEVEN MONTHS YEAR ENDED DECEMBER 31, ENDED DEC. 31, ENDED JULY 31, DECEMBER 31, 1995 1994 1994 1993 ---- ---- ---- ---- (000 OMITTED) Service cost benefits earned during the period............ $ 797 $ 389 $ 545 $ 842 Interest cost on projected benefit o$ligation........... 827 269 377 528 Actual return on plan assets... (1,592) (135) (189) (332) Net amortization and deferral.. 1,127 (78) (109) 97 Other items, primarily defined contribution plans and settle- ment costs.................. 842 162 227 146 Net pension cost.............. ------- ------- ------- ------ $ 2,001 $ 607 $ 851 $ 1,281 ======= ======= ======= =======
CANADA ---------------------------------------------------------- YEAR ENDED FIVE MONTHS SEVEN MONTHS YEAR ENDED DECEMBER 31, ENDED DEC. 31, ENDED JULY 31, DECEMBER 31, 1995 1994 1994 1993 ---- ---- ---- ---- (000 OMITTED) Service cost benefits earned during the period........... $ 375 $ 134 $ 188 $ 315 Interest cost on projected benefit .................... 401 143 200 350 Actual return on plan assets.. (494) (187) (261) (416) Net amortization and deferral. 1 (3) (4) 1 Other items, primarily defined contribution plans and settlement costs........... 610 223 313 437 -------- -------- -------- -------- Net pension cost.............. $ 893 $ 310 $ 436 $ 687 ======== ======== ======== ========
The following tables indicate the plans' funded status and amounts recognized in the Consolidated Balance Sheet at December 31:
UNITED STATES --------------------------------------------------------- 1995 1994 ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED ACCUMULATED BENEFITS ACCUMULATED BENEFITS BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS ------------- ------------- ------------- ------------- (000 OMITTED) Actuarial present value of benefit obligations: Vested benefit obligation....... $5,035 $1,450 $4,134 $2,863 ===== ===== ===== ===== Accumulated benefit obligation. $6,422 $1,572 $5,424 $2,972 ===== ===== ===== ===== Projected benefit obligation... $8,048 $1,809 $6,955 $3,135 Market value of plan assets, primarily equity and fixed income securities.............. 8,935 162 6,990 101 ----- ----- ----- ----- Plan assets over (under) pro- jected benefit obligation...... 887 (1,648) 35 (3,034) Unrecognized transition asset..... (63) (73) Unrecognized prior service cost reduction....................... (12) 1,260 (14) 30 Unrecognized net (gain) loss...... (1,531) 190 (356) 47 Additional minimum liability...... (1,233) (37) ----- ------- ---- ------ Accrued pension cost.............. $ (719) $(1,431) $ (408) $(2,994) ===== ====== ===== =======
CANADA ------------------------------ ACCUMULATED ASSETS EXCEED BENEFITS 1995 1994 Actuarial present value of benefit obligations: Vested benefit obligation................. $3,711 $3,038 ===== ===== Accumulated benefit obligation............ $3,713 $3,039 ===== ===== Projected benefit obligation.............. $4,794 $4,085 Market value of plan assets, primarily equity and fixed income securities...... 5,030 4,933 ----- ----- Plan assets over projected benefit obligation.............................. 236 848 Unrecognized transition asset............. (6) (9) Unrecognized prior service cost reduction. 51 54 Unrecognized net (gain) loss.............. 201 (542) ----- ----- Prepaid pension cost...................... $ 482 $ 351 ==== ==== Weighted average assumptions used were:
UNITED STATES CANADA --------------------------- --------------------------- 1995 1994 1993 1995 1994 1993 ---- ---- ---- ---- ---- ---- Discount rate for obligation.... 7.5% 7.5% 7.5% 8.5% 8.5% 7.5% Rate of increase in compensation 4.5% 4.5% 4.5% 5.0% 5.0% 4.5% Long-term rate of return on assets.......................... 9.5% 9.5% 9.5% 9.0% 9.0% 9.0%
K. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The net periodic postretirement benefit cost included the following components:
Year Ended Five Months Seven Months Year Ended December 31, Ended Dec. 31, Ended July 31, December 31, 1995 1994 1994 1993 ---- ---- ---- ---- (000 OMITTED) Service cost benefits attributed to service during the period .................. $ 416 $ 188 $ 262 $ 405 Interest cost on the 401 162 227 314 accumulated postretirement benefit obligation.......... (45) (5) (6) (34) ------- -------- ------- ------- Net amortization and deferral. Net periodic postretirement benefit cost................ $ 772 $ 345 $ 483 $ 685 ======= ======= ======= =======
The status of the plans at December 31 was as follows: 1995 1994 ---- ---- (000 OMITTED) Retirees ...................................... $1,173 $1,141 Fully eligible active plan participants............ 1,425 1,320 Other active plan participants..................... 3,686 3,358 ------- ------- Accumulated postretirement benefit obligation...... 6,284 5,819 Unrecognized prior service cost.................... 34 42 Unrecognized net gain.............................. 329 121 -------- -------- Accrued postretirement benefit cost................ $6,647 $5,982 ======== ======== The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation ("APBO") was 12% in 1995, gradually declining to 5% by the year 2002 and remaining at that level thereafter for retirees below age 65, and 8.5% in 1995, gradually declining to 5% by the year 2002 and remaining at that level thereafter for retirees above age 65. A one-percentage-point increase in the assumed health care cost trend rate for each year would increase the accumulated postretirement benefit obligation as of December 31, 1995 by approximately 21%, and the net periodic postretirement benefit cost by approximately 25%. The assumed discount rate used in determining the APBO was 7.5% in 1995, 1994 and 1993. L. LEASE OBLIGATIONS Certain plants, warehouses, offices and equipment are leased under leases expiring through the year 2007 and some provide for renewal options. Leases which expire are generally renewed or replaced by similar leases. At December 31, 1995, future minimum rental payments with respect to noncancellable operating leases with terms in excess of one year were as follows: $2,806,000 (1996), $2,142,000 (1997), $1,390,000 (1998), $1,161,000 (1999), $985,000 (2000) and $1,567,000 (thereafter). Minimum rental expense for the year ended December 31, 1995, the five month period ended December 31, 1994, the seven month period ended July 31, 1994 and the year ended December 31, 1993, was $3,106,000, $1,211,000, $1,829,000 and $2,612,000, respectively. M. LITIGATION AND CONTINGENCIES Certain entities of the Company are plaintiffs or defendants to various actions, proceedings and pending claims. Some of the foregoing involve or may involve claims for compensatory, punitive or other damages in material amounts. Litigation is subject to many uncertainties and it is possible that some of these legal actions, proceedings and pending claims could be decided against the Company. Although the amount of liability at December 31, 1995 with respect to these matters is not ascertainable, the Company believes that any resulting liability would not materially affect the Company's financial condition or results of operations. N. GOVERNMENT ASSISTANCE The Company has undertaken a research and development project with the cooperation of the Government of Canada and the Province of Manitoba. Agreements were entered into between the parties for the research and development project which includes commitments for contributions. During 1995, 1994 and 1993, the Company recorded $3,305,000, $698,000 and $361,000, respectively, from the contribution programs, which has been applied against research and development expenses. Contributions may be repayable should the project not be completed or, for the first five years following project completion, should the ratio of Canadian employees to total employees of the Company be less than 40%. As of December 31, 1995, the amount of such contributions totaled $6,032,503. O. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK The Company enters into foreign exchange forward contracts to hedge certain firm and anticipated purchase commitments which are settled in Canadian dollars. These contracts are purchased to reduce the impact of Canadian dollar currency fluctuations on operating results. The Company does not engage in Canadian dollar currency speculation. The contracts do not subject the Company to risk due to exchange rate movements as gains and losses on the contracts offset gains and losses on the materials being purchased. At December 31, 1995 and 1994, the Company had approximately $52,902,000 and $68,068,000, respectively, of Canadian dollar exchange forward contracts outstanding. The Company's theoretical risk in these transactions is the cost of replacing, at current market rates, these contracts in the event of default by the other party. Management believes the risk of incurring such losses is remote as the contracts are entered into with major financial institutions. At December 31, 1994, the Company had an interest rate swap outstanding with a commercial bank which effectively changed the interest rate on the Company's $125,000,000 of term notes payable to LIBOR plus 1.14%. In June 1995, the Company settled $62,500,000 notional principal amount of the swap, resulting in proceeds to the Company of $4,950,000 which are being amortized as an adjustment to interest expense over the remaining life of the notes. Under the terms of the swap agreement, the Company receives interest of 7.88% and pays interest at LIBOR. At December 31, 1995, the notional amount on which the interest is calculated is $62,500,000 and matures ratably at the same time the related term notes mature. The counter party to the agreement has the right to designate a cash settlement of the swap 10 days prior to the maturity date of the Company's Bank Credit Facility. The maturity date of the Bank Credit Facility as of December 31, 1995, is July 31, 1998, but is expected to be extended annually by mutual agreement. In the event of a cash settlement designated by the counterparty, the Company intends to defer the proceeds received, or payments made, as a result of the settlement and immediately enter into a new swap agreement. The deferred settlement would then be amortized over the remaining life of the new swap, thus preserving the effective change in the interest rate on the term notes payable at LIBOR plus 1.14%. The Company is exposed to credit loss in the event of non-performance by the other party, however, the Company does not anticipate non-performance as the counter party is a major financial institution. As a necessary adjunct to its new and used coach business, the Company has entered into repurchase and first loss agreements with certain companies which provide financing for coaches sold by the Company, pursuant to which the Company agrees to either repurchase coaches from such companies or guarantees the payment of certain obligations of coach owners or operators. The amount of such agreements as of December 31, 1995 and 1994 was approximately $3,462,000 and $4,787,000, respectively. Additionally, as a result of certain sales of notes receivable and leases during 1995 and 1994, the Company is obligated to reimburse the purchaser of such notes and leases for any losses as a result of defaults up to $9,526,000 as of December 31, 1995 and $5,936,000 as of December 31, 1994. The Company has experienced no material losses in respect of such obligation, and losses under existing agreements are not expected to exceed amounts reserved for such losses. On December 28, 1994, the Company sold $24,425,000 of accounts receivables to a major financial institution with recourse. At December 31, 1995 none of the receivables sold remained outstanding. As a result, the Company had no exposure under the recourse provisions. FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosures of the estimated fair value of financial instruments have been determined by the Company using available market information and valuation methodologies described below. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein may not be indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value amounts. The carrying values of cash and cash equivalents, receivables, bank overdrafts and accounts payable approximate fair values due to the short-term maturities of these instruments. The carrying amounts and estimated fair values of the Company's other financial instruments at December 31 were as follows: 1995 1994 ---- ---- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE (000 OMITTED) Notes receivable............... $ 35,631 $ 35,658 $ 37,312 $ 37,284 Investment in equity security.. 1,200 1,200 - - Debt ........................ (217,816) (229,678) (195,000) (194,337) Interest rate swap ............ - 5,891 - (663) Foreign exchange forward contracts...................... - 84 - (1,486) The methods and assumptions used to estimate the fair values of the financial instruments are summarized as follows: Notes receivable - Estimated by discounting the future cash flows using rates currently used for notes of similar terms and maturities. Investment in equity security - Estimated at its carrying value as the investment was acquired December 28, 1995. See Note P. Debt - Estimated by discounting the future cash flows, using rates currently available for debt of similar terms and maturity. Interest rate swap - Estimated by discounting future cash flows using rates currently available. Represents the unrealized gain or (loss) if the agreement had been settled at year-end. The swap agreement specifically hedges portions of the Company's term notes payable. As market interest rates fluctuate, the unrealized gain or loss on the swap moves to offset the change in fair value of that portion of the term notes payable. Foreign exchange forward contracts (used for hedging purposes) - Estimated using quoted exchange rates. P. RELATED PARTY TRANSACTIONS In 1993, the Company purchased a 10% ownership interest in Mexicana de Autobuses, S.A. de C.V. ("MASA"), a coach manufacturing company in Mexico, for $6,000,000. In December 1994, the Company distributed the MASA shares to Dina as a dividend. In December 1995, the Company repurchased the MASA shares from Dina for $1,200,000. Since MASA shares are not publicly traded and have no readily determinable fair value, the investment is accounted for at cost and included in other noncurrent assets. In January 1995, the Company began purchasing coaches from Dina for resale in the United States. Through December 1995, the Company had purchased 129 coaches at a total cost of $27,289,000 and had resold or leased 112 of the coaches. In addition, during 1995 the Company purchased from Dina production materials and tooling totaling $1,423,000. Sales to Dina of production materials, after-market parts and used coaches during the same period totaled $2,279,000. Q. GAIN ON SALE OF MARKETABLE SECURITIES In January 1995, the Company purchased 6,004,144 shares of Greyhound Lines, Inc. ("GLI") through a rights offering of GLI's Common Stock. In October 1995, the investment was sold, resulting in a pre-tax gain of $10,522,000. R. BUSINESS SEGMENT AND GEOGRAPHIC DATA BUSINESS SEGMENT DATA The Company's principal business activities are categorized into two business segments for financial reporting purposes -- coach manufacturing and support and distribution of replacement parts.
YEAR ENDED FIVE MONTHS SEVEN MONTHS YEAR ENDED DECEMBER ENDED DEC. ENDED JULY DECEMBER 31, 1995 31, 1994 31, 1994 31, 1993 --------- ----------- ------------ ---------- (000 OMITTED) Revenues: Coach manufacturing and support.................. $375,837 $137,942 $194,873 $272,845 Replacement parts........ 140,500 56,431 78,221 126,175 --------- --------- --------- ---------- $516,337 $194,373 $273,094 $399,020 ======== ======== ======== ======== Operating income: Coach manufacturing and support................ $ 23,326 $ 2,118 $ 24,715 $ 25,143 Replacement parts........ 15,013 7,001 12,208 20,210 Non recurring merger expenses............... (11,294) -------- ------- -------- -------- $ 38,339 $ 9,119 $ 25,629 $ 45,353 ======== ======= ======== ======== Depreciation and amortization: Coach manufacturing and support................. $ 10,710 $ 4,268 $ 2,644 $ 3,617 Replacement parts........ 3,908 1,573 635 930 -------- ------- -------- ------- $ 14,618 $ 5,841 $ 3,279 $ 4,547 ======== ======= ======= ======= Capital Expenditures: Coach manufacturing and support................ $ 10,595 $ 4,052 $ 1,158 $ 4,712 Replacement parts........ 1,964 863 778 760 -------- ------- ------- ------- $ 12,559 $ 4,915 $ 1,936 $ 5,472 ======== ======= ======= =======
YEAR ENDED DECEMBER 31, 1995 1994 ---- ---- Assets: Coach manufacturing and support.................... $411,493 $348,381 Replacement parts............ 191,238 167,714 Discontinued operations...... 11,311 42,821 -------- -------- $614,042 $558,916 ======== ======== Major customers are defined as those which individually accounted for more than 10% of the Company's revenue. The Company's only major customer was during the seven months ended July 31, 1994 and the year ended December 31, 1993 when Greyhound Lines, Inc. accounted for 21% and 23%, respectively, of the Company's consolidated revenues.
GEOGRAPHIC DATA Year Ended Five Months Seven Months Year Ended December Ended Dec. Ended July December 31, 1995 31, 1994 31, 1994 31, 1993 ---------- ----------- ------------ --------- (000 OMITTED) Revenues: $445,732 $180,478 $247,974 $365,713 United States............ 70,605 13,895 25,120 33,307 ---------- ---------- ---------- ---------- Canada................... $516,337 $194,373 $273,094 $399,020 ======== ======== ======== ======== Operating Income: United States............ $ 31,496 $ 7,736 $ 34,060 $ 40,935 Canada................... 6,843 1,383 2,863 4,418 Non recurring merger expenses................ (11,294) ----------- ---------- --------- -------- $ 38,339 $ 9,119 $ 25,629 $ 45,353 ========= ========== ======== ========
YEAR ENDED DECEMBER 31, 1995 1994 ---- ---- Assets: United States................... $430,087 $412,209 Canada.......................... 183,955 146,707 --------- --------- $614,042 $558,916 S. TRANSACTIONS WITH THE DIAL CORP Prior to August 1993, Dial's executive, financial, legal, tax and other corporate staff departments performed certain services for the Company at charges which were intended to provide no profit to Dial. Expenses incurred by Dial and allocated to the Company were primarily determined based on specific identification of the applicable expenses. Those expenses which were not susceptible to specific identification were allocated based on formulas which served to allocate expenses on a proportional basis. Management is of the opinion that such methods of expense allocation were reasonable and the allocated expenses approximate or are less than what such expenses would have been on a stand-alone basis. The Company also had intercompany advances to and from Dial which have been reflected in the Consolidated Financial Statements on an interest-free basis. Allocated expenses from Dial were $980,000 in 1993. MCII HOLDINGS (USA), INC. (A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.) CONSOLIDATED BALANCE SHEET (unaudited) June 30, Dec 31, (000 omitted, except number of shares) 1996 1995 - ----------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $10,189 $30,607 Receivables, less allowance of $1,957 and $1,903 44,954 34,936 Current portion of notes receivable 5,620 4,722 Inventories 140,333 146,718 Deferred income taxes 8,480 8,570 Other current assets 3,807 4,073 ------- ------- Total current assets 213,383 229,626 Property, plant and equipment 54,660 54,959 Assets held for lease 48,649 20,062 Notes receivable 36,711 30,909 Investment in and advances to discontinued operations 649 11,311 Deferred income taxes 11,859 14,350 Intangibles 240,026 242,923 Other assets 8,093 9,902 -------- ---------- $614,030 $ 614,042 ======= ========= LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Bank overdrafts $ 6,446 $ 504 Accounts payable 33,544 24,722 Accrued compensation and other benefits 9,936 13,101 Accrued warranties 5,257 5,381 Accrued income taxes 5,644 11,924 Insurance reserves 5,594 5,337 Due to Grupo DINA 4,982 367 Other current liabilities 13,674 11,605 ------ ------ Total current liabilities 85,077 72,941 Long-term debt 195,594 217,668 Pensions and other benefits 9,656 8,866 Other deferred items and insurance reserves 14,867 13,146 Deferred income taxes 6,481 6,613 Stockholder's equity: Common stock, $.01 par value, 1,000 shares authorized and issued Additional capital 317,465 317,465 Deficit (11,366) (18,856) Cumulative translation adjustments (3,744) (3,801) ------- ------- Total stockholder's equity 302,355 294,808 ------- ------- $ 614,030 614,042 ======== ======== See notes to consolidated financial statements. MCII HOLDINGS (USA), INC. (A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.) STATEMENT OF CONSOLIDATED INCOME (unaudited) Three Months Ended June 30, June 30, (000 omitted) 1996 1995 - -------------------------------------------------------------------------- Revenues: Sales $ 175,521 $ 143,971 Finance income 2,254 1,643 ---------- --------- 177,775 145,614 Operating costs and expenses: Cost of sales (exclusive of items shown separately below) 136,827 109,271 Depreciation and amortization 4,433 3,696 Interest expense, finance operations 925 495 Research and development expenses 1,490 1,070 Selling, general and administrative expenses 13,424 13,319 ---------- ---------- 157,099 127,851 Operating income 20,676 17,763 ---------- ---------- Other (income) and expense: Interest expense 3,410 3,507 Other (income) (300) (84) --------- --------- 3,110 3,423 Income before income taxes 17,566 14,340 Income taxes 7,507 6,198 --------- --------- Income from continuing operations 10,059 8,142 Loss from discontinued operations, net of tax benefit $3,130 (5,000) 0 --------- --------- Net income $ 5,059 $ 8,142 ========== ========== See notes to consolidated financial statements. MCII HOLDINGS (USA), INC. (A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.) STATEMENT OF CONSOLIDATED INCOME (unaudited) Six Months Ended June 30, June 30, (000 omitted) 1996 1995 - ------------------------------------------------------------------------- Revenues: Sales $ 316,115 $ 267,348 Finance income 3,729 2,694 --------- --------- 319,844 270,042 Operating costs and expenses: Cost of sales (exclusive of items shown separately below) 249,086 203,829 Depreciation and amortization 8,552 7,045 Interest expense, finance operations 1,615 1,067 Research and development expenses 3,424 1,453 Selling, general and administrative expenses 28,404 28,276 ---------- ---------- 291,081 241,670 Operating income 28,763 28,372 ---------- ---------- Other (income) and expense: Interest expense 6,748 6,386 Other (income) (511) (318) --------- --------- 6,237 6,068 --------- --------- Income before income taxes 22,526 22,304 Income taxes 10,036 9,938 ---------- --------- Income from continuing operations 12,490 12,366 Loss from discontinued operations, net of tax benefit $3,130 (5,000) 0 --------- ---------- Net income $ 7,490 $ 12,366 ========== =========== See notes to consolidated financial statements.
MCII HOLDINGS (USA), INC. (A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.) STATEMENT OF CONSOLIDATED CHANGES IN STOCKHOLDER'S EQUITY (unaudited) Unrealized Gain on Cumulative Additional Marketable Translation (000 omitted) Common Stock Capital Deficit Securities Adjustment Total - ---------------------------------------------------------------------------------------------------------------------------- BALANCE, JANUARY 1, 1995 $ $317,465 $(37,114) $ $ (7,539) $272,812 Net income 12,366 12,366 Unrealized gain on marketable securities 10,250 10,250 Unrealized translation gain 3,046 3,046 -------- -------- -------- ---------- -------- -------- BALANCE, JUNE 30, 1995 $ 0 $317,465 $(24,748) $ 10,250 $ (4,493) $298,474 ======== ======== ======== ========== ======== ======== BALANCE, JANUARY 1, 1996 $ $317,465 $(18,856) $ $ (3,801) $294,808 Net income 7,490 7,490 Unrealized translation gain 57 57 -------- -------- -------- ---------- -------- -------- BALANCE, JUNE 30, 1996 $ 0 $317,465 $(11,366) $ 0 $ (3,744) $302,355 ======== ======== ======== ========== ======== ======== See notes to consolidated financial statements.
MCII HOLDINGS (USA), INC. (A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.) STATEMENT OF CONSOLIDATED CASH FLOWS (unaudited) Six Months Ended ------------------------------------- June 30, June 30, 1996 1995 (000 omitted) - --------------------------------------------------------------------------------------------------------------------------- CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES: Net income $ 7,490 $ 12,366 Adjustments to reconcile net income to net cash used by operations: Discontinued operations loss provision 5,000 0 Depreciation and amortization 8,552 7,045 Deferred income taxes 570 61 Gain on sale of property and notes receivable (653) (1,080) Other noncash items, net 369 3,361 Change in operating assets and liabilities: Receivables (10,782) (2,651) Inventories 5,837 (15,888) Due to Grupo DINA 4,615 427 Accounts payable 9,263 5,051 Accrued income taxes (6,280) 435 Other current liabilities (963) (5,030) Other assets and liabilities, net 3,603 4,854 -------- -------- Net cash provided by operating activities 26,621 8,951 -------- -------- CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES: Capital expenditures (3,934) (7,733) Investment in assets held for lease (29,496) (13,490) Investments in, or purchases of, businesses or marketable securities 0 (14,570) Proceeds from sale of property and notes receivable 7,633 6,301 Proceeds from sale of business 1,304 0 Investment in notes receivable (18,095) (11,586) Collections of notes receivable 3,214 15,268 Investment in discontinued operations, net 5,662 30,728 -------- -------- Net cash provided (used) by investing activities (33,712) 4,918 -------- -------- CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES: Net change in bank overdrafts 5,942 (999) Payments of long-term borrowings (74) 0 Termination of interest rate swap position 2,805 0 Net change in bank credit facilities (22,000) (17,177) -------- -------- Net cash used by financing activities (13,327) (18,176) -------- -------- Net decrease in cash and cash equivalents (20,418) (4,307) Cash and cash equivalents, beginning of period 30,607 6,941 -------- -------- Cash and cash equivalents, end of period $ 10,189 $ 2,634 ======== ======== See notes to consolidated financial statements.
MCII HOLDINGS (USA), INC. (A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (A) BASIS OF PREPARATION These financial statements should be read in connection with the Company's 1995 audited financial statements included elsewhere in this Registration Statement. Accounting policies utilized in the preparation of the financial information herein presented are the same as set forth in the Company's annual financial statements except as modified for interim accounting policies which are within the guidelines set forth in Accounting Principles Board Opinion No. 28. The interim financial information is unaudited. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position as of June 30, 1996, and the results of operations for the six months ended June 30, 1996 and 1995, have been included. Interim results of operations are not necessarily indicative of the results of operations for the full year. (B) INVENTORIES Inventories consisted of the following: June 30, December 31, 1996 1995 ------------------------------ (000's omitted) Raw material $ 16,036 $ 26,219 Work in process 31,801 36,371 Finished goods 104,859 98,979 ------- ------ 152,696 161,569 Excess quantity and obsolescence reserve (12,363) (14,851) -------- -------- $ 140,333 $ 146,718 ========= ========= (C) SUPPLEMENTARY INFORMATION: REVENUES AND OPERATING INCOME OF PRINCIPAL BUSINESS SEGMENTS
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, -------------- -------------- 1996 1995 1996 1995 -------- -------- -------- ------- (000 OMITTED) Revenues: Coach manufacturing and support.............. $137,216 $109,671 $240,400 $200,712 Replacement parts............................ 40,559 35,943 79,444 69,330 -------- ---------- ---------- --------- $177,775 $145,614 $319,844 $270,042 ======== ======== ======== ======== Operating income: Coach manufacturing and support.............. $ 16,079 $ 13,967 $ 19,928 $ 21,318 Replacement parts............................ 4,597 3,796 8,835 7,054 --------- ------- -------- -------- $ 20,676 $ 17,763 $ 28,763 $ 28,372 ======== ======== ======== ========
(D) RELATED PARTY TRANSACTIONS Transactions between the Company and Dina were as follows:
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, 1996 1995 1996 1995 --------- --------- -------- ------- (000 OMITTED) Purchases from Dina: Coaches for resale $15,440 $ 209 $26,825 $ 5,835 Production materials and tooling 275 206 1,073 260 ------- ------- ------- ------- $15,715 $ 415 $27,898 $ 6,095 ======= ======= ======= ======= Number of coaches purchased for resale 77 1 128 26 Sales to Dina: Production materials and after-market parts $ 204 $ 144 $ 782 $ 150 ======= ======= ======= =======
(E) GUARANTEE OF PARENT COMPANY DEBT AND PLEDGE OF ASSETS On June 3, 1996, the Company became contingently liable for payments of principal and interest on Senior Secured Discount Notes of Grupo Dina due 2002 with an aggregate principal amount of US $206,499,680 ("Discount Notes"). It is intended that all payments with respect to the Discount Notes be paid by Grupo Dina, and that payments be made by the Company only in the event of a failure to pay by Grupo Dina. The Company's obligation under the Discount Notes is secured by a pledge of the common stock of its wholly-owned subsidiary, Motor Coach Industries International, Inc. The indenture governing the Discount Notes provides for certain restrictive covenants with which the Company must maintain compliance and with which it is currently in compliance. The Discount Notes bear interest at an annual rate of 12% through maturity, on a zero coupon basis through November 15, 1998 and, thereafter, payable in cash. If, however, the Discount Notes do not achieve minimum debt ratings by November 15, 1999, the interest rate increases to 15% from such date through maturity. As of June 30, 1996, the fair value of the Discount Notes is approximated by their carrying value of US $151.2 million. (F) DISCONTINUED OPERATIONS Charges of $8,130,000 ($5,000,000 after tax) were recorded in the accompanying Statements of Consolidated Income to reflect the write off of accounts receivable increased warranty costs and other charges related to the Company's discontinued transit manufacturing segment. (G) SUBSEQUENT EVENT In October 1996, the Company refinanced its bank credit facility. The new credit facility provides up to $125,000,000 for borrowing purposes, of which up to $35,000,000 is available for issuance of standby letters of credit, and contains other terms which are substantially similar to the refinanced facility. Borrowings are available under the new facility on a revolving basis until September 1999. As a result of this refinancing, it is anticipated that the Company's fourth quarter results will reflect an $850,000 after-tax extraordinary expense for the write off of debt issuance costs. In September 1996, the Company agreed to purchase certain assets of The Flxible Corporation that were being sold through bankruptcy proceedings. Flxible is a manufacturer of transit buses and distributor of related replacement parts. The assets are being purchased for $12.2 million, which will be funded from the Company's bank credit facility, and will be utilized for the purpose of becoming the OEM parts distributor for the installed fleet of Flxible transit buses. The transaction will close within five days of the bankruptcy court order becoming nonappealable. NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS. IF US$206,499,680 GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE ISSUER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION CONSORCIO G GRUPO DINA, THAT THE INFORMATION HEREIN IS S.A. DE C.V. CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS MCII HOLDINGS (USA), INC. BEEN NO CHANGE OF THE ISSUERS SINCE SUCH DATE. ------------------- TABLE OF CONTENTS PAGE Available Information............................ iii Enforceability of Civil Liabilities Against Foreign Persons....................... iii Presentation of Certain Information.............. iv Summary.......................................... 1 Risk Factors..................................... 9 Use of Proceeds.................................. 18 Exchange Rates................................... 18 Ratio of Earnings to Fixed Charges............... 20 Selected Financial Data of Grupo Dina.......................................... 21 Management's Discussion and Analysis of Financial Condition and Results of Operations of Grupo Dina................... 23 Selected Financial Data of MCII Holdings...................................... 36 Management's Discussion and Analysis of Financial Condition and Results of Operations of MCII Holdings................ 38 The Exchange Offer............................... 46 Business of Grupo Dina........................... 53 SENIOR SECURED Business of MCII Holdings DISCOUNT Management....................................... 69 EXCHANGE NOTES Ownership of Common Stock........................ 85 DUE 2002 Certain Transactions............................. 87 Description of the Notes......................... 88 Tax Considerations............................... 107 PROSPECTUS Plan of Distribution............................. 111 Legal Matters.................................... 111 Experts.......................................... 111 Index to Financial Statements.................... F-1 ________, 1996 UNTIL ___________, 1996 (__ DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS. PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Set forth below is a table of the registration fee for the Securities and Exchange Commission, and estimates of all other expenses to be incurred in connection with the issuance and distribution of the securities described in this Registration Statement: SEC Registration fee..................... US$ 71,207 Exchange Agent fees and expenses......... * Printing and engraving expenses.......... * Legal fees and expenses.................. * Accounting fees and expenses............. * Miscellaneous............................ * ---------- Total.............................. US$ * ========== - -------------------- *To be supplied by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS (a) Grupo Dina. Under Mexican law, when an officer or director of a corporation acts within its scope of his authority, the corporation will indemnify him or her for any resulting liabilities or expenses. (b) MCII Holdings Section 145 of the General Corporation Law of the State of Delaware (the "Delaware Corporation Law") empowers a Delaware corporation to indemnify any persons who are, or are threatened to be made, parties to any threatened, pending or completed legal action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was an officer, director, employee or agent of such corporation, or is or was serving as the request of such corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The indemnity may include 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, provided that such officer or director acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's best interests, and, for criminal proceedings, had no reasonable cause to believe his conduct was unlawful. A Delaware corporation may indemnify officers and directors against expenses (including attorneys' fees) in an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses which such officer or director actually and reasonably incurred. Article VII of the By-laws of MCII Holdings, a copy of which is filed as Exhibit 3.3 to this Registration Statement, allows MCII Holdings to maintain director and officer liability insurance on behalf of any person who is or was a director or officer of MCII Holdings or such person who serves or served as a director, officer, employee or agent, of another corporation, partnership or other enterprise, at the request of MCII Holdings. Article VII of the MCII Holdings By-Laws provides for indemnification of the officers and directors of MCII Holdings to the fullest extent permitted by applicable law. Article XI(c) of the Restated Certificate of Incorporation, a copy of which is filed as Exhibit 3.2 to this Registration Statement, provides that the right of any director or officer of MCII Holdings, other than any independent director, to be indemnified by MCII Holdings shall be subordinated in all respects to the obligations of MCII Holdings under the Indenture with respect to the Notes. Pursuant to Section 102(b)(7) of the Delaware Corporation Law, Article Sixth of the Restated Certificate of Incorporation of MCII Holdings provides that no director of MCII Holdings shall be personally liable to MCII Holdings or its shareholders for monetary damages for any breach of his fiduciary duty as a director; provided, however, that such clause shall not apply to any liability of a director (1) for any breach of his duty of loyalty to MCII Holdings or its stockholders, (2) for acts or omissions that are not in good faith or involve intentional misconduct or a knowing violation of the law, (3) under Section 174 of the Delaware Corporation Law, or (4) for any transaction from which the director derived an improper personal benefit. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES On May 28, 1996, MCII Holdings issued 1,000 shares of common stock to Grupo Dina in exchange for Grupo Dina's contribution to MCII Holdings of all of the outstanding shares of common stock of MCII. The transaction was exempt from the registration requirements of the Securities Act in reliance on Section 4(2) of the Securities Act on the basis that such transaction did not involve a public offering. On June 3, 1996, the co-registrants issued US$206,499,680 aggregate principal amount of the Old Notes in exchange for US$143,040,000 aggregate principal amount of Eurobonds. The Old Notes have not been registered under the Securities Act of 1933, and were offered to "qualified instituted buyers" in the United States in reliance on Rule 144A under the Exchange Act and in transactions outside the United States in accordance with Regulation S under the Securities Act. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits: EXHIBIT NO. DESCRIPTION 3.1 -- Bylaws (Estatutos Sociales) of Grupo Dina, which includes its Articles of Incorporation, together with an English translation, filed as Exhibit 1.1 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1994 and incorporated by reference herein. 3.2x -- Restated Certificate of Incorporation of MCII Holdings 3.3x -- Bylaws of MCII Holdings 4.1 -- Indenture, dated as of August 8, 1994, between Grupo Dina and Bankers Trust Company, as Trustee, relating to the Debentures, including the form of Debenture, filed as Exhibit 2.3 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1994 and incorporated by reference herein. 4.2 -- Indenture, dated as of April 30, 1996, between Grupo Dina and IBJ Schroder Bank & Trust Company, as Trustee, relating to the Notes, including the form of Old Note and New Note, filed as Exhibit 2.4 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1995 and incorporated by reference herein. 4.3* US$125,000,000 Credit Agreement, dated as of September 30, 1996, among Transportation Manufacturing Operations, Inc. as the Borrower, the Lenders Parties thereto and NBD Bank as Administrative Agent. 4.4 US$125,000,000 9.02% Senior Notes Due November 15, 2002 Note Agree- ment, as amended by letter agreement, filed as Exhibit 3.23 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1994 and incorporated by reference herein. 4.5* Form of Amendment to US$125,000,000 9.02% Senior Notes Due November 15, 2002 Note Agreement as executed by the requisite holders of the Notes. 4.6* Intercreditor Agreement, dated as of September 30, 1996, by and among the Lenders under the US$125,000,000 Credit Agreement dated as of September 30, 1996, NBD Bank, and the holders of the 9.02% Senior Notes due 2002 issued by Transportation Manufacturing Operations, Inc. 5.1+ -- Opinion of Ritch, Heather y Mueller, S.C., Mexican counsel to the co-registrants, regarding the legality of the New Notes. 5.2+ -- Opinion of Skadden, Arps, Slate, Meagher & Flom, U.S. counsel to the co-registrants, regarding the legality of the New Notes. 10.1 -- Research, Engineering and Maintenance Contract dated March 12, 1987 between Navistar and Camiones for the "S" Series of medium duty trucks, filed as Exhibit 10.1 to Grupo Dina's Registration Statement on Form F-1 (No. 33-53380) and incorporated by reference herein. 10.2 -- Supply Contract dated March 12, 1987 between Navistar and Camiones for the "S" Series of medium duty trucks, filed as Exhibit 10.2 to Grupo Dina's Registration Statement on Form F-1 (No. 33-53380) and incorporated by reference herein. 10.3 -- Research, Engineering, and Maintenance Contract dated November 21, 1989 between Navistar and Camiones for the "9400" Series of heavy duty trucks, filed as Exhibit 10.3 to Grupo Dina's Registration Statement on Form F-1 (No. 33-53380) and incorporated by reference herein. 10.4 -- Supply Contract dated November 21, 1989 between Navistar and Camiones for the "9400" Series of heavy duty trucks, filed as Exhibit 10.4 to Grupo Dina's Registration Statement on Form F-1 (No. 33-53380) and incorporated by reference herein. 10.5 -- Research, Engineering and Maintenance Contract dated November 20, 1990 between Navistar and Camiones for the "7.3", "DT/DTA-360" and "DT/DTA- 466" Series of diesel engines, filed as Exhibit 10.5 to Grupo Dina's Registration Statement on Form F-1 (No. 33-53380) and incorporated by reference herein. 10.6 -- Supply Contract dated November 20, 1990 between Navistar and Camiones for the "7.3", "DT/DTA-360" and DT/DTA-466" Series of diesel engines, filed as Exhibit 10.6 to Grupo Dina's Registration Statement on Form F-1 (No. 33-53380) and incorporated by reference herein. 10.7 -- Supply Contract for bus bodies dated February 20, 1992 between Marcopolo and Autobuses, filed as Exhibit 10.7 to Grupo Dina's Registration Statement on Form F-1 (No. 33-53380) and incorporated by reference herein. 10.8 -- Technology and Supply Contract dated February 21, 1992 between Marcopolo and Autobuses for bus bodies, filed as Exhibit 10.8 to Grupo Dina's Registration Statement on Form F-1 (No.33-53380) and incorporated by reference herein. 10.9 -- Amendment dated April 22, 1993 to Technology and Supply Contract dated February 21, 1992 between Marcopolo and Autobuses, filed as Exhibit 3.9 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1995 and incorporated by reference herein. 10.10 -- Licensing Agreement dated February 23, 1981 between Budd and Plasticos and amendments thereto, filed as Exhibit 10.10 to Grupo Dina's Registration Statement on Form F-1 (No. 33-53380) and incorporated by reference herein. 10.11 -- Shareholders and Subscription Agreement dated October 12, 1987 among the Company, Navistar and Chrysler, filed as Exhibit 10.13 to Grupo Dina's Registration Statement on Form F-1 (No. 33-53380) and incorporated by reference herein. 10.12 -- Form of Camiones Distribution Contract, together with English translation, filed as Exhibit 3.12 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1994 and incorporated by reference herein. 10.13 -- Form of Commercial Agency Agreement for heavy duty trucks for Camiones, filed as Exhibit 10.16 to Grupo Dina's Registration Statement on Form F-1 (No. 33-53380) and incorporated by reference herein. 10.14 -- Commercial Brokers Contract dated January 2, 1991 between Autobuses and Grupo Dina, filed as Exhibit 10.17 to Grupo Dina's Registration Statement on Form F-1 (No. 33-53380) and incorporated by reference herein. 10.15 -- Fiscal Agency Agreement dated November 18, 1992 among Grupo Dina, Camiones and Autobuses, as Guarantors, and Bankers Trust Company, as Fiscal Agent, filed as Exhibit 10.18 to Grupo Dina's Registration Statement on Form F-1 (No. 33-53380) and incorporated by reference herein. 10.16 -- Supplemental Fiscal Agency Agreement, dated as of May 28, 1996, among the Company, Camiones and Autobuses, as Guarantors, and Bankers Trust Company, as Trustee, filed as Exhibit 3.16 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1995 and incorporated by reference herein. 10.17 -- Agreement dated June 7, 1994 among Navistar, Navistar International Transportation Corp., Camiones and Grupo Dina, filed as Exhibit 4.3 to Grupo Dina's Registration Statement on Form F-1 and F-4 (No. 33-79392) and incorporated by reference herein. 10.18 -- Contract dated October 11, 1994, between Grupo Dina and Navistar, filed as Exhibit 3.17 to the Company's Annual Report on Form 20-F for the year ended December 31, 1994 and incorporated by reference herein. 10.19 -- Supply Contract entered into on November 28, 1994 between Autobuses and Navistar for the "T-444E", "T-444NG", "DT 466" and "530" engines, filed as Exhibit 3.18 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1994 and incorporated by reference herein. 10.20 -- Distribution Agreement dated September 2, 1994 between Autobuses and Dina Comercializadora, S.A. de C.V., together with an English translation, filed as Exhibit 3.19 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1994 and incorporated by reference herein. 10.21 -- Distribution Agreement dated September 2, 1994 between Camiones and Dina Comercializadora, S.A. de C.V., together with an English translation, filed as Exhibit 3.20 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1994 and incorporated by reference herein. 10.22 -- Bus Purchase Requirements Agreement by and among GLI Operating Company, Greyhound Lines, Inc., Transportation Manufacturing Corporation and Motor Coach Industries, Inc., as amended by: a letter agreement dated June 15, 1987 from GLI Holding Company to The Greyhound Corporation; Amendment to Bus Purchase Requirements Agreement; entered into as of June 30, 1988 by and among GLI Operating Company, Transportation Leasing Co., Transportation Manufacturing Corporation and Motor Coach Industries Inc.; Term Sheet/Agreement in Principle dated July 13, 1988 among GLI Holding Company and The Greyhound Corporation; Claims Treatment Agreement made and entered into in of August, 1991 among Greyhound Lines, Inc., the other Debtors signatory thereto and The Greyhound Corporation; and Amendment Number 2 to Bus Purchase Requirements Agreement executed as of December 21, 1994 by Greyhound Lines, Inc., Transportation Leasing Co., Motor Coach Industries, Inc. and Transportation Manufacturing Corporation, filed as Exhibit 3.21 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1994 and incorporated by reference herein. 10.23* -- Employment Agreement, dated as of September 30, 1996, between Universal Coach Parts, Inc. and Jerry W. Bost. 10.24* -- Employment Agreement, dated as of September 30, 1996, between Transportation Manufacturing Operations, Inc. and James P. Bernacchi. 10.25+ -- Employment Agreement, dated as of September 30, 1996, between Grupo Dina and Jose Luis Olvera. 10.26 -- Parts Purchase and Supply Agreement entered into as of May 1, 1994 by and between Greyhound Lines, Inc. and Universal Coach Parts, Inc., as amended by Amendment No.1 entered into as of May 1, 1994, filed as Exhibit 3.24 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1994 and incorporated by reference herein. 10.27 -- Limited Recourse Chattel Paper Purchase Agreement dated as of March 31, 1994 between MCI Acceptance Corp. and The CIT Group/Equipment Financing, Inc. and related Guaranty dated as of March 31, 1994; and Amendment No. 1 dated May 15, 1995 and related Guaranty dated as of May 15, 1995, filed as Exhibit 3.26 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1994 and incorporated by reference herein. 10.28 -- Registration Agreement, dated June 3, 1996, among the Company, MCII Holdings and Salomon Brothers Inc, Alliance Capital Management Corporation and John Hancock Mutual Life Insurance Company, filed as Exhibit 3.28 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1995 and incorporated by reference herein. 10.29* -- Coach Purchase Agreement, dated August 1, 1995, between Dina Autobuses, S.A. de C.V. and Hausman Bus Sales Inc. 12.1 -- Computation of ratio of earnings to fixed charges of Grupo Dina. 12.2 -- Computation of ratio of earnings to fixed charges of MCII Holdings. 21.1 -- List of Subsidiaries of Grupo Dina, filed as Exhibit 21.1 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1995 and incorporated by reference herein. 21.2x -- List of Subsidiaries of MCII Holdings. 23.1 -- Consent of Ritch, Heather y Meuller, S.C. (included in Exhibit 5.1). 23.2 -- Consent of Skadden, Arps, Slate, Meagher & Flom (included in Exhibit 5.2). 23.3* -- Consent of Arthur Andersen. 23.4* -- Consent of Deloitte & Touche LLP. 24.1x -- Powers of Attorney. 25.1x -- Statement of Eligibility and Qualification on Form T-1 of IBJ Schroder Bank & Trust Company, as trustee under the Indenture relating to the Notes (bound separately). 27x -- Financial Data Schedule of MCII Holdings. 99.1+ -- Form of Letter of Transmittal. - --------------------------- * Filed herewith + To be filed by amendment x Previously filed (b) Financial Statement Schedules The required Schedules II, V, VII and X are included in the notes to the audited financial statements of Grupo Dina. No other Schedules are required. ITEM 17. UNDERTAKINGS (a) The undersigned Co-Registrants hereby undertake: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the Prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more that 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) In the case of Grupo Dina, to file a post-effective amendment to the registration statement to include any financial statements required by Rule 3-19 at the start of any delayed offering or throughout a continuous offering. (b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Co-Registrants pursuant to the foregoing provisions, or otherwise, the Co-Registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by any of the Co-Registrants of expenses incurred or paid by a director, officer or controlling person of such Co-Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Co-Registrants will, unless in the opinion of their counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by them is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the co-registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this Amendment No. 1 to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Mexico, D.F., Mexico, on October 8, 1996. CONSORCIO G GRUPO DINA, S.A. DE C.V. By: /s/ JOSE LUIS OLVERA CABALLERO Jose Luis Olvera Caballero Director of Finance Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement on Form F-1 has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date Chairman, Director and October 8, 1996 * Chief Executive Officer ________________________ (Principal Executive Officer) Rafael Gomez Flores /s/ JOSE LUIS OLVERA CABALLERO Director of Finance October 8, 1996 _________________________ (Principal Financial and Jose Luis Olvera Caballero Accounting Officer) * Director October 8, 1996 ____________________________ Alejandro Cumming Soliveras * Director October 8, 1996 _____________________________ Luis German Carcova * Director October 8, 1996 _____________________________ Guillermo Gomez Flores * Director October 8, 1996 _____________________________ Luis Huante Rodriguez * Director October 8, 1996 ______________________________ Antonio Mijares Ricci * Director October 8, 1996 ______________________________ Juan Gargallo Costa *By: /s/ JOSE LUIS OLVERA CABALLERO ________________________________ Jose Luis Olvera Caballero Attorney-in-Fact By: /s/ JEFF W. SANDERS Authorized Representative October 8, 1996 ------------------------ in the United States Jeff W. Sanders Controller, MCII Holdings Pursuant to the requirements of the Securities Act of 1933, the co-registrant has duly caused this Amendment No. 1 to its Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Mexico, D.F., Mexico, on October 8, 1996. MCII HOLDINGS (USA), INC. By: /s/ GUILLERMO KAREH AARUN Guillermo Kareh Aarun Director, General Counsel and Secretary Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date * President and Director October 8, 1996 _______________________ (Principal Executive Officer) Rafael Gomez Flores /s/ JOSE LUIS OLVERA CABALLERO Vice President and Chief October 8, 1996 - -------------------------------- Financial Officer Jose Luis Olvera Caballero and Director (Principal Accounting Officer) /s/ JEFF W. SANDERS Controller October 8, 1996 - --------------------- Jeff W. Sanders /s/ GUILLERMO KAREH AARUN Director, General Counsel October 8, 1996 - --------------------------- and Secretary Guillermo Kareh Aarun * Director October 8, 1996 ____________________________ Stephen P. Glennon *By: /s/ GUILLERMO KAREH AARUN ______________________________ Guillermo Kareh Aarun Attorney-in-Fact Registration No. 333-08843 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------------------ EXHIBITS TO FORM F-1/S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------------------------ CONSORCIO G GRUPO DINA, S.A. DE C.V. (EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER) MCII HOLDINGS (USA), INC. (EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER) EXHIBIT INDEX EXHIBIT NO. DESCRIPTION PAGE NO. 3.1 -- Bylaws (Estatutos Sociales) of Grupo Dina, which includes its Articles of Incorporation, together with an English translation, filed as Exhibit 1.1 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1994 and incorporated by reference herein. 3.2x -- Restated Certificate of Incorporation of MCII Holdings 3.3x -- Bylaws of MCII Holdings 4.1 -- Indenture, dated as of August 8, 1994, between Grupo Dina and Bankers Trust Company, as Trustee, relating to the Debentures, including the form of Debenture, filed as Exhibit 2.3 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1994 and incorporated by reference herein. 4.2 -- Indenture, dated as of April 30, 1996, between Grupo Dina and IBJ Schroder Bank & Trust Company, as Trustee, relating to the Notes, including the form of Old Note and New Note, filed as Exhibit 2.4 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1995 and incorporated by reference herein. 4.3* US$125,000,000 Credit Agreement, dated as of September 30, 1996, among Transportation Manufacturing Operations, Inc. as the Borrower, the Lenders Parties thereto and NBD Bank as Administrative Agent. 4.4 US$125,000,000 9.02% Senior Notes Due November 15, 2002 Note Agreement, as amended by letter agreement, filed as Exhibit 3.23 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1994 and incorporated by reference herein. 4.5* Form of Amendment to US$125,000,000 9.02% Senior Notes Due November 15, 2002 Note Agreement as executed by the requisite holders of the Notes. 4.6* Intercreditor Agreement, dated as of September 30, 1996, by and among the Lenders under the US$125,000,000 Credit Agreement dated as of September 30, 1996, NBD Bank, and the holders of the 9.02% Senior Notes due 2002 issued by Transportation Manufacturing Operations, Inc. 5.1+ -- Opinion of Ritch, Heather y Mueller, S.C., Mexican counsel to the co-registrants, regarding the legality of the New Notes. 5.2+ -- Opinion of Skadden, Arps, Slate, Meagher & Flom, U.S. counsel to the co-registrants, regarding the legality of the New Notes. 10.1 -- Research, Engineering and Maintenance Contract dated March 12, 1987 between Navistar and Camiones for the "S" Series of medium duty trucks, filed as Exhibit 10.1 to Grupo Dina's Registration Statement on Form F-1 (No. 33-53380) and incorporated by reference herein. 10.2 -- Supply Contract dated March 12, 1987 between Navistar and Camiones for the "S" Series of medium duty trucks, filed as Exhibit 10.2 to Grupo Dina's Registration Statement on Form F-1 (No. 33-53380) and incorporated by reference herein. 10.3 -- Research, Engineering, and Maintenance Contract dated November 21, 1989 between Navistar and Camiones for the "9400" Series of heavy duty trucks, filed as Exhibit 10.3 to Grupo Dina's Registration Statement on Form F-1 (No. 33-53380) and incorporated by reference herein. 10.4 -- Supply Contract dated November 21, 1989 between Navistar and Camiones for the "9400" Series of heavy duty trucks, filed as Exhibit 10.4 to Grupo Dina's Registration Statement on Form F-1 (No. 33-53380) and incorporated by reference herein. 10.5 -- Research, Engineering and Maintenance Contract dated November 20, 1990 between Navistar and Camiones for the "7.3", "DT/DTA-360" and "DT/DTA-466" Series of diesel engines, filed as Exhibit 10.5 to Grupo Dina's Registration Statement on Form F-1 (No. 33-53380) and incorporated by reference herein. 10.6 -- Supply Contract dated November 20, 1990 between Navistar and Camiones for the "7.3", "DT/DTA-360" and DT/DTA-466" Series of diesel engines, filed as Exhibit 10.6 to Grupo Dina's Registration Statement on Form F-1 (No. 33-53380) and incorporated by reference herein. 10.7 -- Supply Contract for bus bodies dated February 20, 1992 between Marcopolo and Autobuses, filed as Exhibit 10.7 to Grupo Dina's Registration Statement on Form F-1 (No. 33-53380) and incorporated by reference herein. 10.8 -- Technology and Supply Contract dated February 21, 1992 between Marcopolo and Autobuses for bus bodies, filed as Exhibit 10.8 to Grupo Dina's Registration Statement on Form F-1 (No.33-53380) and incorporated by reference herein. 10.9 -- Amendment dated April 22, 1993 to Technology and Supply Contract dated February 21, 1992 between Marcopolo and Autobuses, filed as Exhibit 3.9 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1995 and incorporated by reference herein. 10.10 -- Licensing Agreement dated February 23, 1981 between Budd and Plasticos and amendments thereto, filed as Exhibit 10.10 to Grupo Dina's Registration Statement on Form F-1 (No. 33-53380) and incorporated by reference herein. 10.11 -- Shareholders and Subscription Agreement dated October 12, 1987 among the Company, Navistar and Chrysler, filed as Exhibit 10.13 to Grupo Dina's Registration Statement on Form F-1 (No. 33-53380) and incorporated by reference herein. 10.12 -- Form of Camiones Distribution Contract, together with English translation, filed as Exhibit 3.12 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1994 and incorporated by reference herein. 10.13 -- Form of Commercial Agency Agreement for heavy duty trucks for Camiones, filed as Exhibit 10.16 to Grupo Dina's Registration Statement on Form F-1 (No. 33-53380) and incorporated by reference herein. 10.14 -- Commercial Brokers Contract dated January 2, 1991 between Autobuses and Grupo Dina, filed as Exhibit 10.17 to Grupo Dina's Registration Statement on Form F-1 (No. 33-53380) and incorporated by reference herein. 10.15 -- Fiscal Agency Agreement dated November 18, 1992 among Grupo Dina, Camiones and Autobuses, as Guarantors, and Bankers Trust Company, as Fiscal Agent, filed as Exhibit 10.18 to Grupo Dina's Registration Statement on Form F-1 (No. 33-53380) and incorporated by reference herein. 10.16 -- Supplemental Fiscal Agency Agreement, dated as of May 28, 1996, among the Company, Camiones and Autobuses, as Guarantors, and Bankers Trust Company, as Trustee, filed as Exhibit 3.16 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1995 and incorporated by reference herein. 10.17 -- Agreement dated June 7, 1994 among Navistar, Navistar International Transportation Corp., Camiones and Grupo Dina, filed as Exhibit 4.3 to Grupo Dina's Registration Statement on Form F-1 and F-4 (No. 33-79392) and incorporated by reference herein. 10.18 -- Contract dated October 11, 1994, between Grupo Dina and Navistar, filed as Exhibit 3.17 to the Company's Annual Report on Form 20-F for the year ended December 31, 1994 and incorporated by reference herein. 10.19 -- Supply Contract entered into on November 28, 1994 between Autobuses and Navistar for the "T-444E", "T-444NG", "DT 466" and "530" engines, filed as Exhibit 3.18 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1994 and incorporated by reference herein. 10.20 -- Distribution Agreement dated September 2, 1994 between Autobuses and Dina Comercializadora, S.A. de C.V., together with an English translation, filed as Exhibit 3.19 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1994 and incorporated by reference herein. 10.21 -- Distribution Agreement dated September 2, 1994 between Camiones and Dina Comercializadora, S.A. de C.V., together with an English translation, filed as Exhibit 3.20 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1994 and incorporated by reference herein. 10.22 -- Bus Purchase Requirements Agreement by and among GLI Operating Company, Greyhound Lines, Inc., Transportation Manufacturing Corporation and Motor Coach Industries, Inc., as amended by: a letter agreement dated June 15, 1987 from GLI Holding Company to The Greyhound Corporation; Amendment to Bus Purchase Requirements Agreement; entered into as of June 30, 1988 by and among GLI Operating Company, Transportation Leasing Co., Transportation Manufacturing Corporation and Motor Coach Industries Inc.; Term Sheet/Agreement in Principle dated July 13, 1988 among GLI Holding Company and The Greyhound Corporation; Claims Treatment Agreement made and entered into in of August, 1991 among Greyhound Lines, Inc., the other Debtors signatory thereto and The Greyhound Corporation; and Amendment Number 2 to Bus Purchase Requirements Agreement executed as of December 21, 1994 by Greyhound Lines, Inc., Transportation Leasing Co., Motor Coach Industries, Inc. and Transportation Manufacturing Corporation, filed as Exhibit 3.21 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1994 and incorporated by reference herein. 10.23* -- Employment Agreement, dated as of September 30, 1996, between Universal Coach Parts, Inc. and Jerry W. Bost. 10.24* -- Employment Agreement, dated as of September 30, 1996, between Transportation Manufacturing Operations, Inc. and James P. Bernacchi. 10.25+ -- Employment Agreement, dated as of September 30, 1996, between Grupo Dina and Jose Luis Olvera. 10.26 -- Parts Purchase and Supply Agreement entered into as of May 1, 1994 by and between Greyhound Lines, Inc. and Universal Coach Parts, Inc., as amended by Amendment No.1 entered into as of May 1, 1994, filed as Exhibit 3.24 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1994 and incorporated by reference herein. 10.27 -- Limited Recourse Chattel Paper Purchase Agreement dated as of March 31, 1994 between MCI Acceptance Corp. and The CIT Group/Equipment Financing, Inc. and related Guaranty dated as of March 31, 1994; and Amendment No. 1 dated May 15, 1995 and related Guaranty dated as of May 15, 1995, filed as Exhibit 3.26 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1994 and incorporated by reference herein. 10.28 -- Registration Agreement, dated June 3, 1996, among the Company, MCII Holdings and Salomon Brothers Inc, Alliance Capital Management Corporation and John Hancock Mutual Life Insurance Company, filed as Exhibit 3.28 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1995 and incorporated by reference herein. 10.29* -- Coach Purchase Agreement, dated August 1, 1995, between Dina Autobuses, S.A. de C.V. and Hausman Bus Sales Inc. 12.1 -- Computation of ratio of earnings to fixed charges of Grupo Dina. 12.2 -- Computation of ratio of earnings to fixed charges of MCII Holdings. 21.1 -- List of Subsidiaries of Grupo Dina, filed as Exhibit 21.1 to Grupo Dina's Annual Report on Form 20-F for the year ended December 31, 1995 and incorporated by reference herein. 21.2x -- List of Subsidiaries of MCII Holdings. 23.1 -- Consent of Ritch, Heather y Meuller, S.C. (included in Exhibit 5.1). 23.2 -- Consent of Skadden, Arps, Slate, Meagher & Flom (included in Exhibit 5.2). 23.3* -- Consent of Arthur Andersen. 23.4* -- Consent of Deloitte & Touche LLP. 24.1x -- Powers of Attorney. 25.1x -- Statement of Eligibility and Qualification on Form T-1 of IBJ Schroder Bank & Trust Company, as trustee under the Indenture relating to the Notes (bound separately). 27x -- Financial Data Schedule of MCII Holdings. 99.1+ -- Form of Letter of Transmittal. - --------------------------- * Filed herewith + To be filed by amendment x Previously filed EX-4.3 2 EXHIBIT 4.3 EXECUTION COPY =============================================== U.S. $125,000,000 CREDIT AGREEMENT AMONG TRANSPORTATION MANUFACTURING OPERATIONS, INC AS THE BORROWER, THE LENDERS PARTIES HERETO, AND NBD BANK, AS ADMINISTRATIVE AGENT =============================================== Dated as of October 1, 1996 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS AND ACCOUNTING TERMS . . . . . . . . . 1 SECTION 1.01. Certain Defined Terms . . . . . . . 1 SECTION 1.02. Computation of Time Periods . . . 19 SECTION 1.03. Accounting Terms . . . . . . . . . 20 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES . . . . . . . . 20 SECTION 2.01. The Advances . . . . . . . . . . . 20 SECTION 2.02. Making the Advances . . . . . . . 20 SECTION 2.03. Swing Line Loans . . . . . . . . . 23 SECTION 2.04. Letters of Credit . . . . . . . . 24 SECTION 2.05. Facility Fees; Administrative Agent's and Arranger's Fees . . . . . . . . . . 31 SECTION 2.06. Termination and Reduction of the Commitments . . . . . . . . . . . . . . 31 SECTION 2.07. Repayment and Prepayment of Advances 31 SECTION 2.08. Interest on Advances; Default Rate 34 SECTION 2.09. Interest Rate Determination . . . 35 SECTION 2.10. Voluntary Conversion or Continuation of Advances . . . . . . . . . . . . . . 35 SECTION 2.11. Increased Costs . . . . . . . . . 36 SECTION 2.12. Payments and Computations . . . . 37 SECTION 2.13. Taxes . . . . . . . . . . . . . . 38 SECTION 2.14. Sharing of Payments, Etc . . . . . 40 SECTION 2.15. Evidence of Debt . . . . . . . . . 40 SECTION 2.16. Use of Proceeds . . . . . . . . . 41 SECTION 2.17. Margins, Applicable Facility Fees and Applicable Letter of Credit Fees . . . 41 ARTICLE III CONDITIONS OF LENDING . . . . . . . . . . . . . . 42 SECTION 3.01. Condition Precedent to Effectiveness 42 SECTION 3.02. Conditions Precedent to Each Borrowing . . . . . . . . . . . . . . . 46 SECTION 3.03. Conditions Precedent to Letter of Credit . . . . . . . . . . . . . . . . 46 ARTICLE IV REPRESENTATIONS AND WARRANTIES . . . . . . . . . 47 SECTION 4.01. Representations and Warranties of the Borrower . . . . . . . . . . . . . . . 47 ARTICLE V COVENANTS OF THE BORROWER . . . . . . . . . . . . 52 SECTION 5.01. Affirmative Covenants . . . . . . 52 SECTION 5.02. Negative Covenants . . . . . . . . 57 SECTION 5.03. Financial Covenants . . . . . . . 65 ARTICLE VI EVENTS OF DEFAULT . . . . . . . . . . . . . . . . 66 SECTION 6.01. Events of Default . . . . . . . . 66 ARTICLE VII THE ADMINISTRATIVE AGENT . . . . . . . . . . . . 70 SECTION 7.01 Appointment; Nature of Relationship 70 SECTION 7.02 POWERS . . . . . . . . . . . . . . 71 SECTION 7.03 GENERAL IMMUNITY . . . . . . . . . 71 SECTION 7.04 NO RESPONSIBILITY FOR LOANS, CREDITWORTHINESS, RECITALS, ETC . . . . . 71 SECTION 7.05 Action on Instructions of Lenders . 72 SECTION 7.06 EMPLOYMENT OF AGENTS AND COUNSEL . 72 SECTION 7.07 RELIANCE ON DOCUMENTS; COUNSEL . . 72 SECTION 7.08 THE ADMINISTRATIVE AGENT'S REIMBURSEMENT AND INDEMNIFICATION . . . 72 SECTION 7.09 RIGHTS AS A LENDER . . . . . . . . 73 SECTION 7.10 LENDER CREDIT DECISION . . . . . . 73 SECTION 7.11 SUCCESSOR ADMINISTRATIVE AGENT . . 73 SECTION 7.12. Loan Documents . . . . . . . . . . 74 ARTICLE VIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . 74 SECTION 8.01. Amendments, Etc . . . . . . . . . 75 SECTION 8.02. Notices, Etc . . . . . . . . . . . 75 SECTION 8.03. No Waiver; Remedies . . . . . . . 75 SECTION 8.04. Costs, Expenses and Indemnification 76 SECTION 8.05. Right of Set-off . . . . . . . . . 78 SECTION 8.06. Binding Effect . . . . . . . . . . 79 SECTION 8.07. Assignments and Participations . . 79 SECTION 8.08. Governing Law . . . . . . . . . . 81 SECTION 8.09. Execution in Counterparts . . . . 81 SECTION 8.10. Consent to Jurisdiction; Service of Process . . . . . . . . . . . . . . . . 81 SECTION 8.11. WAIVER OF TRIAL BY JURY; WAIVER OF BOND; ADVICE OF COUNSEL . . . . . . . . 82 SECTION 8.12. Confidentiality . . . . . . . . . 83 SECTION 8.13. Agreement Regarding Letters of Credit . . . . . . . . . . . . . . . . 84 SECTION 8.14. NO STRICT CONSTRUCTION . . . . . 84 SECTION 8.15. RATABLE PAYMENTS . . . . . . . . . 84 SECTION 8.16. APPLICATION OF PAYMENTS . . . . . 84 SECTION 8.17. RELATIONS AMONG LENDERS . . . . . 85 EXHIBITS Exhibit A Form of Assignment and Acceptance Exhibit B Form of Guaranty Exhibit C-1 Form of Note Exhibit C-2 Form of Swing Line Note Exhibit D Form of Notice of Borrowing Exhibit E Form of Notice of Letter of Credit Issuance Exhibit F-1 Form of Special Counsel's Opinion Exhibit F-2 Form of Corporate Counsel's Opinion Exhibit G Form of Compliance Certificate SCHEDULES Schedule 1.01 - List of Applicable Lending Offices and Notice Addresses Schedule 4.01(b) - List of Subsidiaries and Subsidiary Guarantors Schedule 4.01(g) - Litigation Schedule 4.01(k) - Pension Plans, Foreign Pension Plans, Etc. Schedule 5.02(a) - Permitted Existing Debt and Contin- gent Obligations. Schedule 5.02(c) - Permitted Existing Investments Schedule 5.02(d) - List of Certain Bonds Schedule 5.02(l) - Tax Distribution Calculations CREDIT AGREEMENT Dated as of October 1, 1996 TRANSPORTATION MANUFACTURING OPERATIONS, INC., a Delaware corporation (the "Borrower"), the "Lenders" (as defined below) parties from time to time hereto and NBD BANK, as contractual representative (the "Administrative Agent") for the Lenders hereunder, hereby agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.1. CERTAIN DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Adjusted Eurodollar Rate" means, for any Interest Period for each Eurodollar Rate Advance comprising part of the same Borrowing, an interest rate per annum equal to the rate per annum obtained by dividing (a) the rate per annum (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) at which deposits in U.S. dollars are offered by the Administrative Agent in London, England to prime banks in the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to its Eurodollar Rate Advance comprising part of such Borrowing and for a period equal to such Interest Period by (b) a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage. "Advance" means (i) with respect to a Lender, an advance by a Lender to the Borrower as part of a Borrowing made pursuant to Section 2.01 and refers to a Base Rate Advance or a Eurodollar Rate Advance, each of which shall be a "Type" of Advance and (ii) in the case of the Swing Line Bank, any Swing Line Loan made pursuant to Section 2.03 hereof, all of which shall be Base Rate Advances. "Affiliate" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. A Person shall be deemed to control another Person if the controlling Person is the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of greater than ten percent (10%) or more of any class of voting securities (or other voting interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of capital stock, by contract or otherwise. "Agreement" means this Credit Agreement, as it may be amended, restated, supplemented or otherwise modified from time to time. "Alternate Base Rate" means, for any period, a fluctuating interest rate per annum as shall be in effect from time to time which rate per annum shall at all times be equal to the higher of: (a) the Prime Rate; (b) the sum of (A) 0.625% per annum plus (B) the Federal Funds Rate. "Applicable Lending Office" means, with respect to each Lender, such Lender's Domestic Lending Office in the case of a Base Rate Advance, and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance. "Arranger" means First Chicago Capital Markets, Inc. "Asset Sale" means, with respect to any Person, the sale, lease, conveyance, disposition or other transfer by such Person of any of its assets (including by way of a sale-leaseback transaction and including the sale or other transfer of any of the Equity Interests of any Subsidiary of such Person). "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Administrative Agent, in substantially the form of EXHIBIT A hereto. "Base Rate Advance" means an Advance which bears interest as provided in Section 2.08(a). "Borrowing" means a borrowing consisting of Advances of the same Type made on the same day pursuant to the same Notice of Borrowing by each of the Lenders pursuant to Section 2.01. "Business Day" means a day of the year on which banks are not required or authorized to close in Detroit, Michigan and, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings are carried on in the London interbank market. "Canadian Debt" has the meaning specified in Section 5.02(a)(vii). "Capital Lease" means, with respect to any Person, any lease of any property by that Person as lessee which would, in conformity with GAAP, be required to be accounted for as a capital lease on the balance sheet of that Person. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Capitalization Ratio" means, as of any date of determination, the ratio of (i) Consolidated Total Debt to (ii) the sum of Consolidated Total Debt plus Consolidated Net Worth, in each case determined as of such date of determination. "Cash Equivalents" means (i) marketable securities issued or directly and unconditionally guaranteed by the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having a rating of at least AA from S&P or at least Aa2 from Moody's; (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any Lender or any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia having unimpaired capital and surplus of not less than $250,000,000 (each Lender and each such commercial bank herein called a "Cash Equivalent Bank"); (v) Eurodollar time deposits having a maturity of less than one year purchased directly from any Cash Equivalent Bank (whether such deposit is with such Cash Equivalent Bank or any other Cash Equivalent Bank); (vi) any demand deposit and cash management accounts maintained with any Cash Equivalent Bank; and (vii) bank instruments maturing within one year from the date of acquisition thereof issued by a bank or trust company (or a branch or affiliate thereof), organized under the laws of the United Mexican States, Canada, any European Economic Community country, Japan or any other country, that has an A-1 or P-1 commercial paper rating or is rated AA or better by S&P or Aa2 or better by Moody's on its long-term debt having capital, surplus and individual profits aggregating at least $1,000,000,000. "Code" means the Internal Revenue Code of 1986, as amended. "Commitment" has the meaning specified in Section 2.01. "Company" means Motor Coach Industries International, Inc., a Delaware corporation. "Consolidated Capital Expenditures" means, for any period, the aggregate of all expenditures (whether paid in cash or other consideration or accrued as a liability, but excluding expenditures made in connection with the replacement, substitution or restoration of assets (A) to the extent financed from insurance proceeds paid on account of the loss or damage to the assets being replaced or restored or (B) with awards of compensation arising from the taking by eminent domain or condemnation of the assets being replaced) by the Borrower and its Subsidiaries during that period that, in conformity with GAAP, are or should be included in "additions to property, plant or equipment" or comparable items reflected in the consolidated statement of cash flows of the Borrower and its Subsidiaries. "Consolidated EBITDA" means, for any period, the sum (without duplication) of the amounts for such period of (i) Consolidated Net Income, (ii) Consolidated Interest Expense, (iii) provisions for taxes based on income, (iv) total depreciation expense and (v) total amortization expense plus other non-cash items deducted in arriving at Consolidated Net Income, all of the foregoing as determined on a consolidated basis for the Borrower and its Subsidiaries in conformity with GAAP. "Consolidated Interest Expense" means, for any period, total interest expense (including the interest component as determined in accordance with GAAP of all rents paid under Capital Leases and capitalized interest) of the Borrower and its Subsidiaries on a consolidated basis with respect to all outstanding Debt of the Borrower and its Subsidiaries, including, without limitation, all financial interest expense, the facility fees payable pursuant to Section 2.05(a) hereof and all fees, commissions, discounts and other charges with respect to letters of credit and net costs under Interest Rate Agreements, but excluding, in any event, any amortization or payment of Non-Recurring Financing Fees. "Consolidated Net Income" means, for any period, the net income (or loss) of the Borrower and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP; provided that there shall be excluded (i) the income (or loss) of any Person (other than a Subsidiary of the Borrower) in which any other Person (other than the Borrower or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to the Borrower or any of its Subsidiaries by such Person during such period, (ii) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of the Borrower or is merged into or consolidated with the Borrower or any of its Subsidiaries or that Person's assets are acquired by the Borrower or any of its Subsidiaries, (iii) the income of any Subsidiary of the Borrower to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, (iv) any after-tax gains or losses attributable to returned surplus assets of any Pension Plan, (v) any after-tax gains or losses on sales or dispositions of assets other than sales or dispositions of buses, coaches, leases or notes receivable in the ordinary course of business consistent with past practice and (vi) (to the extent not included in clauses (i) through (v) above) any net extraordinary gains or net extraordinary losses including, without limitation, the loss in the amount of $5,000,000 reflected on the Borrower's financial statements dated as of June 30, 1996 from discontinued operations of the Borrower's transit bus business. "Consolidated Net Worth" means the stockholders equity of the Borrower, determined in conformity with GAAP. "Consolidated Rental Payments" means, for any period, the aggregate amount of all rents paid under all operating leases and the principal portion (as determined in accordance with GAAP) of all rents paid under all Capital Leases of the Borrower and its Subsidiaries as lessee. "Consolidated Total Debt" means, as at any date of determination, the aggregate amount of all Debt of the Borrower and its Subsidiaries, determined on a consolidated basis in accordance with GAAP. "Contingent Obligation," as applied to any Person, means any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) Financial Guaranties, (ii) Interest Rate Agreements or Currency Agreements, (iii) obligations to repurchase coach or bus leases or chattel paper, (iv) first loss or similar arrangements entered into in connection with sales of receivables, and (v) surety bonds issued for the account of that Person or as to which that Person is otherwise liable for reimbursement. Contingent Obligations shall include, without limitation, (a) the direct or indirect guaranty, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another, (b) the obligation to make take-or-pay or similar payments if required regardless of non- performance by any other party or parties to an agreement, and (c) any liability of such Person for the obligation of another through any agreement (contingent or otherwise) (X) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise) or (Y) to maintain the solvency or any balance sheet item, level of income or financial condition of another if, in the case of any agreement described under subclauses (X) or (Y) of this sentence, the primary purpose or intent thereof is as described in the preceding sentence (it being agreed and understood that Contingent Obligations do not include Residual Value Guaranties, Trade-In Value Guaranties or obligations to repurchase buses and coaches incurred in connection with sales of such buses and coaches). The amount of any Contingent Obligation shall be equal to the amount of the obligation so guaranteed or otherwise supported or, if less, the amount to which such Contingent Obligation is specifically limited. "Convert," "Conversion" and "Converted" each refers to a conversion of Advances of one Type into Advances of another Type pursuant to Section 2.10. "Credit Level" means, for the purposes of determining the Margin, the amount of facility fees payable under Section 2.05(a) or the letter of credit fees payable under Section 2.04(e)(ii) as of any date of determination, Level 1, Level 2, Level 3 or Level 4, as applicable, determined (a) by reference to the Borrower's debt ratings (as in effect on such date of determination) if the Borrower's senior unsecured non- credit-enhanced, long-term debt ("Rated Debt") carries an investment grade rating by S&P and Moody's or (b) if the Borrower's Rated Debt does not carry an investment grade rating by both S&P and Moody's, by reference to the Borrower's Leverage Ratio (determined, as of any date of determination, based upon the most recent financial statements delivered by the Borrower pursuant to Section 5.01(a) on or prior to such date of determination), as follows: Level 1: (a) the Borrower's Rated Debt is rated by at least two of S&P, Moody's and NAIC and is not rated below BBB+ by S&P, Baa1 by Moody's or NAIC 1 by NAIC or (b) if the Borrower's Rated Debt is not rated by any two such rating agencies, the Leverage Ratio is less than or equal to 2.50 to 1.00; Level 2: (a) the Borrower's Rated Debt is rated by at least two of S&P, Moody's and NAIC, does not meet the requirements for Level 1 set forth above and is not rated below BBB by S&P, Baa2 by Moody's or NAIC 2 by NAIC or (b) if Borrower's Rated Debt is not rated by any two such rating agencies, the Leverage Ratio is greater than 2.50 to 1.00 and less than or equal to 3.00 to 1.00; Level 3: the Borrower's credit ratings or, if applicable, the Leverage Ratio are such that neither the requirements for Level 1 or 2, set forth above, nor the requirements for Level 4, set forth below, are satisfied; Level 4: (a) the Borrower's Rated Debt is not rated by at least two of S&P, Moody's and NAIC or is rated BBB- or less by S&P, Baa3 or less by Moody's or NAIC 2 or less by NAIC, or (b) the Leverage Ratio is equal to or greater than 4.00 to 1.00; provided, however, that if, as of any date of determination, the Borrower's Rated Debt is not rated by at least two of S&P, Moody's and NAIC and the Borrower shall have failed to deliver financial statements in accordance with Sections 5.01(a)(i) and 5.01(a)(ii), and such failure shall be continuing, the Borrower's Credit Level shall be Level 4. In the event that there is a split in Credit Levels between the credit ratings of S&P and Moody's, the stronger rating of those two agencies (yielding the lower Margin) shall be applicable. The Credit Levels as set forth above (which in all events shall be controlling) are also set forth in the table below for the convenience of the parties hereto: Credit Rated Debt Leverage Level (by at least Ratio two agencies) Level 1 S&P: BBB+ or better > 2.50 to Moody's: BAA1 or better 1.00 NAIC: NAIC1 or better Level 2 S&P: BBB or better > 2.50 to 1.00 Moody's: Baa2 or better and NAIC: NAIC2 or better < 3.00 to 1.00 (but Level 1 not satisfied) Level 3 No other level applicable No other level applicable Level 4 S&P: BBB- or worse > 4.00 to 1.00 Moody's: Baa3 or worse NAIC: NAIC2 or worse or not rated "Currency Agreement" means (a) any foreign exchange contract, currency swap agreement, futures contract, option contract, synthetic cap or (b) any other similar agreement or arrangement designed to protect the Borrower or any of its Subsidiaries against currency risks. "Debt" means, with respect to any Person, (i) indebtedness of such Person for borrowed money, (ii) obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) obligations of such Person to pay the deferred purchase price of property or services, excluding trade payables or accrued expenses arising in the ordinary course of business, (iv) obligations of such Person as lessee under Capital Leases, (v) obligations of such Person under any financing lease or so-called "synthetic" lease transactions (it being expressly understood that "synthetic" lease does not mean any operating lease in the ordinary course of the Borrower's business) and (vi) Financial Guaranties. "Dina" means Consorcio G Grupo Dina, S.A. de C.V. "Dina Distribution" means a distribution, in an amount not exceeding $30,000,000, by the Borrower in respect of its shares of common stock paid to the Company. "Domestic Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" opposite its name on SCHEDULE 1.01 hereto or in the Assignment and Acceptance pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent. "Effective Date" means the first date, if any, on or before October 1, 1996, upon which each of the conditions precedent to the effectiveness of this Agreement set forth in Section 3.01 are satisfied or waived. "Eligible Assignee" means any financial institution or entity engaged in the business of extending revolving credit which has combined capital and surplus of not less than $50,000,000 or which is an Affiliate of the assigning Lender and, in either such case, which financial institution is acceptable to the Administrative Agent (the approval of the Administrative Agent not to be unreasonably withheld). "Environmental Law" means any and all statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions of any federal, state or local governmental authority within the United States or any State or territory thereof or Canada or any Province thereof and which relate to the environment or the release of any materials into the environment. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means any Person who for purposes of Title IV of ERISA is a member of the Borrower's controlled group, or under common control with the Borrower, within the meaning of Section 414 of the Code and the regulations promulgated and rulings issued thereunder. "ERISA Event" means (i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, unless the 30-day notice requirement with respect thereto has been waived by the PBGC; (ii) the imposition of an obligation on the administrator of any Pension Plan to provide affected parties with a notice of intent to terminate such Pension Plan pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (iii) the cessation of operations at a facility in the circumstances described in Section 4062(e) of ERISA; (iv) the withdrawal by the Borrower or an ERISA Affiliate from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (v) the failure by the Borrower or any ERISA Affiliate to make a payment to a Pension Plan required under Section 302(f)(1) of ERISA, which Section imposes a lien for failure to make required payments; (vi) failure by any Subsidiary or ERISA Affiliate to pay any required contributions or payments to a Foreign Pension Plan on or before the due date for such required installment or payment; (vii) the adoption of an amendment to a Pension Plan requiring the provision of security to such Pension Plan, pursuant to Section 307 of ERISA; (viii) the institution by the PBGC or any similar governmental authority of proceedings to terminate a Pension Plan, pursuant to Section 4042 of ERISA, or a Foreign Pension Plan, or the occurrence of any event or condition which, in the reasonable judgment of the Borrower, might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, a Pension Plan or (ix) a foreign governmental authority shall appoint or institute proceedings to appoint a trustee to administer any Foreign Pension Plan. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Eurodollar Lending Office" opposite its name on SCHEDULE 1.01 hereto or in the Assignment and Acceptance pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent. "Eurodollar Rate Advance" means an Advance which bears interest as provided in Section 2.08(b). "Eurodollar Rate Reserve Percentage" for any Interest Period for any Eurodollar Rate Advance means the reserve percentage applicable during such Interest Period (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirements (including, without limitation, any emergency, supplemental or other marginal reserve requirement) with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period. "Events of Default" has the meaning specified in Section 6.01. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Financial Guaranties" as applied to any Person, means any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend or other payment obligation of another if the primary purpose or intent thereof by the Person incurring such liability is to provide assurance to the obligee of such obligation of another that such obligation of another will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof, or (ii) any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings to the extent such letter of credit supports a financial instrument or any Debt (it being agreed and understood that Financial Guaranties do not include (a) Residual Value Guaranties, Trade-In Value Guaranties or obligations to repurchase buses and coaches incurred in connection with sales of such buses and coaches or (b) "first-loss" or similar arrangements entered into in connection with the sale of receivables whereby the seller is obligated to pay the purchaser all or any portion of any such receivables that are not paid when due). "Financing" means, with respect to any Person, the issuance by such Person of any Debt consisting of debt securities of such Person pursuant to a registered offering or private placement or the incurrence of obligations under bank credit facilities other than the Obligations under this Agreement. "Foreign Employee Benefit Plan" means any employee benefit plan as defined in Section 3(3) of ERISA which is maintained or contributed to for the benefit of the employees of the Borrower, any of its Subsidiaries or any of its ERISA Affiliates, but which is not covered by ERISA pursuant to Section 4(b)(4) of ERISA. "Foreign Pension Plan" means any Foreign Employee Benefit Plan which under applicable local law is required to be funded through a trust or other funding vehicle. "Foreign Subsidiary" means MCIL, TMO Holdings, MCIL Holdings, Limited, and any other Subsidiary of the Borrower that is incorporated under the laws of a jurisdiction outside the United States of America. "GAAP" means generally accepted accounting principles in effect from time to time, applied in a manner consistent with that used in preparing the historical financial statements referred to in Section 4.01(f) hereof; provided, however, that with respect to the calculation of financial ratios, financial covenants and other financial tests (and the various components thereof) required by this Agreement, "GAAP" means such generally accepted accounting principles as in effect as of the Effective Date, applied in a manner consistent with that used in preparing the financial statements referred to in Section 4.01(f) hereof. "Gross Negligence" means recklessness, the absence of the slightest care or the complete disregard of consequences. Gross Negligence does not mean the absence of ordinary care or diligence, or an inadvertent act or inadvertent failure to act. If the term "gross negligence" is used with respect to the Administrative Agent or any Lender or any indemnitee in any of the other Loan Documents, it shall have the meaning set forth herein. "Guaranties" means, collectively, the Subsidiary Guaranty dated as of the date hereof, executed by each of the Subsidiary Guarantors (other than any Foreign Subsidiary) in favor of the Administrative Agent, a copy of which is annexed as EXHIBIT B hereto, and any other guaranty of the obligations, in form and substance satisfactory to the Administrative Agent, executed by any Subsidiary of the Borrower after the Effective Date in accordance with Section 5.02(e)(ii), in each case as such Guaranties may be amended, restated, supplemented or otherwise modified from time to time. "Initial Rate Adjustment Date" has the meaning specified in the definition of "Margin." "Insufficiency" means, with respect to any Pension Plan, the amount, if any, of its unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA. "Interest Period" means, for each Eurodollar Rate Advance comprising part of the same Borrowing, the period commencing on the date of such Eurodollar Rate Advance, or on the date of continuation of such Advance as a Eurodollar Rate Advance upon expiration of successive Interest Periods applicable thereto, or on the date of Conversion of a Base Rate Advance into a Eurodollar Rate Advance, and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one, two, three or six months, as the Borrower may select in the Notice of Borrowing or the Notice of Conversion/Continuation for such Advance; provided, however, that: (i) the Borrower may not select any Interest Period which ends after the Termination Date; (ii) Interest Periods commencing on the same date for Advances comprising part of the same Borrowing shall be of the same duration; (iii) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, that if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; (iv) there shall be no more than ten Interest Periods relating to Eurodollar Rate Advances outstanding at any time; and (v) notwithstanding the foregoing, for the 90-day period following the Effective Date, at the option of the Administrative Agent, the Administrative Agent may require the Borrower to select only one-month Interest Periods all of which shall expire on the same day. "Interest Rate Agreement" means (a) any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or (b) any other similar agreement or arrangement designed to protect the Borrower or any of its Subsidiaries against interest rate risks. "Investment" means (i) any direct or indirect purchase or other acquisition by the Borrower or any of its Subsidiaries of, or of a beneficial interest in, stock, notes or other securities of any other Person, or a joint venture or partnership interest or (ii) any direct or indirect loan, advance (other than advances to employees for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contribution by the Borrower or any of its Subsidiaries to any other Person (other than a Subsidiary of the Borrower) including all indebtedness and accounts receivable from that other Person that are not current assets or did not arise from sales to that other Person in the ordinary course of business (it being agreed and understood that financing provided by MCI Acceptance Corp. or BusLease, Inc. for customers of the Borrower and its Subsidiaries is considered to be in the ordinary course of business for this purpose). The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment. "Issuing Lender" means, with respect to any Letter of Credit, the Lender that agrees or is otherwise obligated to issue such Letter of Credit, which Lender shall be determined in accordance with the provisions of Section 2.04. "Lenders" means (a) the lenders listed on the signature pages hereof, each Eligible Assignee that shall become a party hereto pursuant to Section 8.07 and (b) the Swing Line Bank. "Letter of Credit" means any standby letter of credit issued by an Issuing Lender for the account of the Borrower pursuant to Section 2.04. "Letter of Credit Exposure" means, as to any Lender, the aggregate amount of such Lender's participations in Letters of Credit plus, in the case of any Lender that is an Issuing Lender, the aggregate amount of Letters of Credit issued by such Lender less the aggregate amount of the participations of other Lenders in such Letter of Credit. "Letter of Credit Usage" means, as at any date of determination, the sum of (i) the maximum aggregate amount which is or at any time thereafter may become available for drawing under all Letters of Credit then outstanding plus (ii) the aggregate amount of all drawings under all Letters of Credit honored by any Issuing Lender and not theretofore reimbursed by the Borrower. "Leverage Ratio" means, as of any date of determination, the ratio of (i) Consolidated Total Debt to (ii) Consolidated EBITDA, determined as of the last day of each fiscal quarter for the four fiscal quarter period then ended. "Lien" means any lien, mortgage, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement and any lease in the nature thereof). "Loan Documents" means this Agreement, the Notes, the Guaranties and any other documents or instruments required hereunder in relation thereto, as any of the same may be amended, restated, supplemented or otherwise modified from time to time. "Majority Lenders" means at any time the Lenders holding at least 66-2/3% of the then aggregate unpaid principal amount of the Advances held by Lenders, or, if no such principal amount is then outstanding, Lenders having at least 66-2/3% of the Commitments (provided that, for purposes hereof, neither the Borrower, nor any of its Affiliates, if a Lender, shall be included in (i) the Lenders holding such amount of the Advances or having such amount of the Commitments or (ii) determining the aggregate unpaid principal amount of the Advances or the total Commitments; and provided, further, no Lender which shall have failed to fund its pro rata share of any Advance requested by the Borrower or any Swing Line Loan as requested by the Administrative Agent which such Lender is obligated to fund under the terms of this Agreement shall be included in (i) the Lenders holding such amount of the Advances or having such amount of the Commitments or (ii) determining the aggregate unpaid principal amount of the Advances or the total Commitments for so long as such failure has not been cured). "Management Contracts" has the meaning specified in Section 3.01(c). "Margin" means: (1) with respect to Eurodollar Rate Advances: (A) 0.95% per annum with respect to any Eurodollar Rate Advance outstanding as of any date of determination prior to the date (the "Initial Rate Adjustment Date") occurring six (6) months after the Effective Date; provided, however, such margin shall be 1.10% per annum for any time during such period that the Borrower's Leverage Ratio was equal to or greater than 4.00 to 1.00 or (B) with respect to any Eurodollar Rate Advance outstanding on or after the Initial Rate Adjustment Date, the margin percentages for each Eurodollar Rate Advance determined in accordance with Section 2.17, and (2) with respect to Base Rate Advances, the margin percentages for each Base Rate Advance determined in accordance with Section 2.17. "Material Adverse Effect" means (i) a material adverse effect upon the business, condition (financial or otherwise), operations, performance, properties, assets or prospects of the Borrower and its Subsidiaries, taken as a whole, or (ii) a material adverse effect on the ability of the Borrower or any Material Subsidiary to perform, or of the Administrative Agent, Swing-Line Bank or Lenders to enforce, the Obligations. "Material Subsidiary" means those Subsidiaries of the Borrower listed on SCHEDULE 4.01(B) and any Subsidiary of the Borrower hereafter acquired or created which accounts for more than five percent (5%) of either consolidated assets or Consolidated Net Income of the Borrower and its Subsidiaries, determined as of the end of the most recent fiscal quarter and for the four fiscal quarter period then ended, provided that for purposes of Section 6.01, "Material Subsidiary" shall include any Subsidiary Guarantor. "MCIL" means Motor Coach Industries Limited, a Canada corporation. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making, or is obligated to make, contributions or has within any of the preceding six plan years been obligated to make or accrue contributions. "Multiple Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which (i) is maintained for employees of the Borrower or an ERISA Affiliate and at least one Person other than the Borrower and its ERISA Affiliates or (ii) was so maintained and in respect of which the Borrower or an ERISA Affiliate could have liability under Section 4063, 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "NAIC" means the National Association of Insurance Commissioners. "Net Cash Proceeds" means, with respect to any Asset Sale or Financing by any Person, (a) cash (freely convertible into Dollars) received by such Person or any Subsidiary of such Person from such Asset Sale (including cash received as consideration for the assumption or incurrence of liabilities incurred in connection with or in anticipation of such Asset Sale) or Financing, after (i) provision for all income or other taxes measured by or resulting from such Asset Sale, (ii) payment of all brokerage commissions and other fees and expenses related to such Asset Sale or Financing, and (iii) all amounts used to repay Debt secured by a Lien on any asset disposed of in such Asset Sale or which is or may be required (by the express terms of the instrument governing such Debt) to be repaid in connection with such Asset Sale (including payments made to obtain or avoid the need for the consent of any holder of such Debt); and (b) cash payments in respect of any Debt, Equity Interest or other consideration received by such Person or any Subsidiary of such Person from such Asset Sale upon receipt of such cash payments by such Person or such Subsidiary. "Non-Recurring Financing Fees" means any consent fees, up-front fees, facility fees, amendment fees or other fees paid by the Borrower once (as opposed to on a scheduled, recurring basis) in connection with the financing provided under this Agreement, the Senior Notes and other financing arrangements. "Note" means (i) any Note, substantially in the form of EXHIBIT C-1, executed and delivered by the Borrower pursuant to Section 2.15(d) to evidence Advances other than in respect of Swing Line Loans and (ii) a promissory note ("Swing Line Note"), in substantially the form of EXHIBIT C-2 hereto, executed and delivered by the Borrower pursuant to Section 2.03 to evidence the Swing Line Loans. "Notice of Borrowing" has the meaning specified in Section 2.02(a). "Notice of Conversion/Continuation" has the meaning specified in Section 2.10. "Obligations" means all obligations of every nature of the Borrower from time to time owed to the Administrative Agent, the Swing Line Bank, the Arranger, the Lenders, any Indemnitee or any of them under the Loan Documents, whether for principal, interest, fees, expenses, indemnification or otherwise. "PBGC" means the U.S. Pension Benefit Guaranty Corporation. "Pension Plan" means a Single Employer Plan or a Multiple Employer Plan or both. "Permitted Encumbrances" means the following types of Liens: (i) Liens for taxes, assessments or governmental charges or claims the payment of which is not, at the time, required by Section 5.01(b), other than any Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or by any statutory provisions under ERISA; (ii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics and materialmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made therefor; (iii) Liens incurred or deposits made in the ordinary course of business, which do not adversely affect the use or (in any significant manner) the value of the property encumbered thereby, in connection with workers' compensation, unemployment insurance and other types of social security, or to secure payment of charged back amounts under merchant bank card or credit card arrangements, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, trade contracts, performance, bid, warranty and return- of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); provided that no UCC-1 financing statement, mortgage or similar instrument or document shall be filed or recorded in connection with any such Lien, except that lessors of personal property may file protective UCC-1 financing statements solely covering the property being leased; (iv) any attachment or judgment Lien not constituting an Event of Default under Section 6.01; (v) leases or subleases granted to others not interfering in any material respect with the ordinary conduct of the business of the Borrower or any of its Subsidiaries; (vi) easements, rights-of-way, restrictions, minor defects, encroachments or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the ordinary conduct of the business of the Borrower or any of its Subsidiaries; and (vii) any interest or title of a lessor or sublessor under any lease not prohibited by this Agreement. "Person" means an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "Potential Event of Default" means a condition or event which, after notice or lapse of time or both, would constitute an Event of Default if that condition or event were not cured or removed within any applicable grace or cure period. "Prime Rate" means the rate of interest announced by NBD Bank from time to time as its prime rate, changing when and as said prime rate changes. "Residual Value Guaranties" means any agreement entered into by the Borrower or any of its Subsidiaries to promote the sales of any bus or coach pursuant to which the Borrower or any of its Subsidiaries is guarantying at some future time any minimum value (which may be determined by a formula) of a bus or coach as specified in such agreement, the terms and provisions of which agreement are consistent with the past practices and policies of the Borrower and its Subsidiaries prior to the date of this Agreement. "Restricted Junior Payment" means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock of the Borrower or any Subsidiary of the Borrower that is not, directly or indirectly, wholly-owned by the Borrower now or hereafter outstanding, except a dividend payable solely in shares of that class of stock to the holders of that class, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of stock of the Borrower or any Subsidiary of the Borrower that is not, directly or indirectly, wholly- owned by the Borrower now or hereafter outstanding, (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock of the Borrower or any Subsidiary of the Borrower that is not, directly or indirectly, wholly-owned by the Borrower now or hereafter outstanding and (iv) any payment or prepayment of principal of, premium, if any, or interest on, or redemption, purchase, retirement, defeasance (including in-substance or legal defeasance), sinking fund or similar payment with respect to any debt owed to a Person other than the Borrower or any of its Subsidiaries that is by its terms subordinated to the Obligations. "SEC" means the Securities and Exchange Commission and any successor agency. "Senior Notes" means the 9.02% Senior Notes due November 15, 2002 issued by the Borrower in the aggregate principal amount of $125,000,000 pursuant to the Note Agreement dated as of November 15, 1994 among the Borrower and the purchasers named therein, as such Note Agreement has been amended as of the Effective Date and as amended or modified from time to time thereafter, provided that no such amendment or modification shall accelerate any amortization of the outstanding principal amount thereof. "Single Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which (i) is maintained for employees of the Borrower or any ERISA Affiliate and no Person other than the Borrower and its ERISA Affiliates or (ii) was so maintained and in respect of which the Borrower or an ERISA Affiliate could have liability under Section 4062 or 4069 of ERISA in the event such plan has been or were to be terminated. "Solvent" means, with respect to any Person, that as of the date of determination (i) the then fair saleable value of the property of such Person as a going concern is (y) greater than the total amount of liabilities (including anticipated Contingent Obligations and other contingent liabilities only to the extent of the probable liability with respect to such Contingent Obligations and other contingent liabilities) of such Person and (z) greater than the amount that will be required to pay the probable liabilities of such Person's then existing debts as they become absolute and matured; (ii) such Person's capital is not unreasonably small in relation to its business or any contemplated or undertaken transaction; and (iii) such Person does not intend to incur, or believe that it will incur, debts beyond its ability to pay such debts as they become due. "S&P" means Standard & Poor's Corporation. "Subsidiary" of any Person means any corporation, limited liability company, association, partnership or other business entity of which at least 50% of the total voting power of shares of stock, membership interests or other securities entitled to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof; provided that Nanjing Starley Transportation Company Limited, a limited liability Chinese and foreign joint venture organized under the laws of China, shall not be deemed to be a Subsidiary of the Borrower for purposes of this Agreement. "Subsidiary Guarantors" means each Subsidiary of the Borrower that is identified as a Subsidiary Guarantor on SCHEDULE 4.01(B) together with each Person becoming a Subsidiary of the Borrower after the date hereof that is required to guaranty the Obligations pursuant to Section 5.02(e)(ii). "Swing Line Bank" means NBD Bank or any other Lender as a successor Swing Line Bank. "Swing Line Commitment" means the obligation of the Swing Line Bank to make Swing Line Loans up to a maximum principal amount of $5,000,000 at any one time outstanding. "Swing Line Loan" means an Advance made available to the Borrower by the Swing Line Bank pursuant to Section 2.03 hereof. "Termination Date" means October 1, 1999 or the earlier date of termination in whole of the Commitments pursuant to Section 2.06 or 6.01. "TMO Holdings" means TMO Holdings of Canada, Ltd., a Canada corporation and a wholly-owned Subsidiary of the Borrower. "Total Utilization of Commitments" means, as at any date of determination, the sum of (i) the aggregate principal amount of all outstanding Advances (including, without limitation, Swing Line Loans) plus (ii) the Letter of Credit Usage. "Trade-In Value Guaranties" means any agreement entered into by the Borrower or any of its Subsidiaries to promote the sales of any bus or coach pursuant to which the Borrower or any of its Subsidiaries is obligated to accept such bus or coach for trade-in in connection with the sale of a bus or coach at a value specified in such agreement (which may be determined by a formula) regardless of the actual fair market value of such bus or coach at the time of such trade-in, the terms and provisions of which agreement are consistent with the past practices and policies of the Borrower and its Subsidiaries prior to the date of this Agreement. "Type" means, with reference to an Advance under Section 2.01, a Base Rate Advance or a Eurodollar Rate Advance. "Withdrawal Liability" has the meaning given such term under Part I of Subtitle E of Title IV of ERISA. SECTION 1.2. COMPUTATION OF TIME PERIODS. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding." SECTION 1.3. ACCOUNTING TERMS. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. If at any time the computations for determining compliance with financial ratios, financial covenants or provisions relating thereto utilize generally accepted accounting principles different than those then being utilized in the financial statements being delivered to the Lenders, such financial statements shall be accompanied by a reconciliation statement. ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.1. THE ADVANCES. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of the Borrower herein set forth, each Lender severally agrees to lend to the Borrower from time to time during the period on and after the Effective Date to but excluding the Termination Date, Advances in an aggregate outstanding principal amount not at any time exceeding the amount set opposite such Lender's name on the signature pages hereof or, if such Lender has entered into any Assignment and Acceptance, set forth for such Lender in the Register maintained by the Administrative Agent pursuant to Section 8.07(c), as such amount may be reduced pursuant to Section 2.06 (such Lender's "Commitment"). Each Borrowing shall be in an aggregate amount not less than $5,000,000 (except that a Borrowing comprised of Base Rate Advances shall be in an aggregate amount not less than $1,000,000) or an integral multiple of $1,000,000 in excess thereof and shall consist of Advances of the same Type made on the same day by the Lenders ratably according to their respective Commitments. Within the limits of each Lender's Commitment, the Borrower may from time to time borrow, prepay pursuant to Section 2.07(c) and reborrow under this Section 2.01. Anything contained in this Agreement to the contrary notwithstanding, the Borrower shall not request any Advance that would, upon giving effect thereto, cause the Total Utilization of Commitments to exceed the aggregate Commitments of the Lenders. SECTION 2.2. MAKING THE ADVANCES. (a) Each Borrowing shall be made on notice, given not later than (x) 12:00 noon (Detroit time) on the Business Day that is the date of a proposed Borrowing consisting of Base Rate Advances and (y) 12:00 noon (Detroit time) on the third Business Day prior to the date of a proposed Borrowing consisting of Eurodollar Rate Advances, by the Borrower to the Administrative Agent, which shall give to each Lender prompt notice thereof by telecopier, telex or cable. Each such notice of borrowing (a "Notice of Borrowing") shall be by telephone (confirmed in writing) or by telecopier, telex or cable, confirmed immediately in writing, in substantially the form of EXHIBIT D hereto, specifying therein the requested (i) date of such Borrowing, (ii) Type of Advances comprising such Borrowing, (iii) aggregate amount of such Borrowing, and (iv) in the case of a Borrowing comprised of Eurodollar Rate Advances, the initial Interest Period for each such Advance. The Borrower may, subject to the conditions herein provided, borrow more than one Borrowing on any Business Day. Each Lender shall, before 12:00 noon (Detroit time) or, in the case of a Base Rate Advance as to which the Borrower delivers Notice of Borrowing on the date of such Borrowing, 2:00 P.M. (Detroit time) on the date of such Borrowing, make available for the account of its Applicable Lending Office to the Administrative Agent at its address referred to in Section 8.02, in same day funds, such Lender's ratable portion of such Borrowing. After the Administrative Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent will make such funds available to the Borrower at the Administrative Agent's aforesaid address. (b) Anything in clause (a) above to the contrary notwithstanding, (i) the Borrower may not select Eurodollar Rate Advances for (y) any Borrowing or with respect to the Conversion or continuance of any Borrowing if the aggregate amount of such Borrowing or such Conversion or continuance is less than $5,000,000 or (z) any Borrowing on the Effective Date; (ii) if any Lender shall, at least one Business Day before the date of any requested Borrowing, notify the Administrative Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or that any central bank or other governmental authority asserts that it is unlawful, for such Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or to fund or maintain Eurodollar Rate Advances hereunder, the Commitment of such Lender to make Eurodollar Rate Advances or to Convert all or any portion of Base Rate Advances shall forthwith be suspended until the Administrative Agent shall notify the Borrower that such Lender has determined that the circumstances causing such suspension no longer exist and such Lender's then outstanding Eurodollar Rate Advances, if any, shall be Base Rate Advances; to the extent that such affected Eurodollar Rate Advances become Base Rate Advances, all payments of principal that would have been otherwise applied to such Eurodollar Rate Advances shall be applied instead to such Lender's Base Rate Advances; provided that if Majority Lenders are subject to the same illegality or assertion of illegality, then the right of the Borrower to select Eurodollar Rate Advances for such Borrowing or any subsequent Borrowing or to Convert all or any portion of Base Rate Advances shall forthwith be suspended until the Administrative Agent shall notify the Borrower that the circumstances causing such suspension no longer exist, and each Advance comprising such Borrowing shall be a Base Rate Advance; (iii) if the Majority Lenders shall, at least one Business Day before the date of any requested Borrowing, notify the Administrative Agent that the Adjusted Eurodollar Rate for Eurodollar Rate Advances comprising such Borrowing will not adequately reflect the cost to such Majority Lenders of making, funding or maintaining their respective Eurodollar Rate Advances for such Borrowing, the right of the Borrower to select Eurodollar Rate Advances for such Borrowing or any subsequent Borrowing shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist, and each Advance comprising such Borrowing shall be a Base Rate Advance. (c) Each Notice of Borrowing shall be irrevocable and binding on the Borrower. In the case of any Borrowing which the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of Borrowing for such Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss, costs or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Advance to be made by such Lender as part of such Borrowing when such Advance, as a result of such failure, is not made on such date. (d) Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's ratable portion of such Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with clause (a) of this Section 2.02 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such ratable portion available to the Administrative Agent, such Lender and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, the interest rate applicable at the time to Advances comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Lender's Advance as part of such Borrowing for purposes of this Agreement. (e) The failure of any Lender to make any Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Advance on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing. SECTION 2.3. SWING LINE LOANS. (a) Amount of Swing Line Loans. Upon the satisfaction of the conditions precedent set forth in Section 3.01 and 3.02, from and including the Effective Date and prior to the Termination Date, the Swing Line Bank agrees, on the terms and conditions set forth in this Agreement, to make loans to the Borrower from time to time, in Dollars, in an amount not to exceed the Swing Line Commitment (each, individually, a "SWING LINE LOAN" and collectively, the "SWING LINE LOANS"); provided, however, at no time shall the Total Utilization of Commitments exceed the aggregate Commitment of the Lenders and provided, further, that at no time shall the sum of (a) the outstanding amount of the Swing Line Loans, plus (b) the outstanding amount of Advances made by the Swing Line Bank pursuant to Section 2.01 (after giving effect to any concurrent repayment of Advances), exceed the Swing Line Bank's Commitment at such time. Subject to the terms of this Agreement, the Borrower may borrow, repay and reborrow Swing Line Loans at any time prior to the Termination Date. (b) Borrowing Notice. The Borrower shall deliver to the Administrative Agent and the Swing Line Bank a Notice of Borrowing, signed by it, not later than 12:00 noon (Detroit time) on the Business Day that is the date of the proposed Swing Line Loan (which shall be a Business Day) specifying the aggregate amount of the requested Swing Line Loan. The Swing Line Loans shall at all times be Base Rate Advances, which shall be an amount not less than $500,000. The Administrative Agent shall promptly notify each Lender of such request. (c) Making of Swing Line Loans. Promptly after receipt of the Notice of Borrowing under Section 2.03(b) in respect of Swing Line Loans, the Administrative Agent shall notify each Lender by telex or telecopy, or other similar form of transmission, of the requested Swing Line Loan. Not later than 3:00 p.m. (Detroit time) on the applicable borrowing date, the Swing Line Bank shall make available its Swing Line Loan, in funds immediately available to the Administrative Agent at its address referred to in Section 8.02. The Administrative Agent will promptly make the funds so received from the Swing Line Bank available to the Borrower at the Administrative Agent's aforesaid address. (d) Repayment of Swing Line Loans. The Swing Line Loans shall be evidenced by the Swing Line Note, and each Swing Line Loan shall be paid in full by the Borrower on or before the fifth Business Day after the borrowing date for such Swing Line Loan. The Borrower may at any time pay, without penalty or premium, all outstanding Swing Line Loans or, in a minimum amount of $500,000, any portion of the outstanding Swing Line Loans, upon notice to the Administrative Agent and the Swing Line Bank. In addition, the Administrative Agent (i) may at any time in its sole discretion with respect to any outstanding Swing Line Loan, or (ii) shall on the fifth Business Day after the Borrowing Date of any Swing Line Loan, require each Lender (including the Swing Line Bank) to make an Advance in the amount of such Lender's ratable share of such Swing Line Loan, for the purpose of repaying such Swing Line Loan. Not later than 2:00 p.m. (Detroit time) on the date of any notice received pursuant to this Section 2.03(d), each Lender shall make available its required Advance or Advances, in funds immediately available to the Administrative Agent at its address. Advances made pursuant to this Section 2.03(d) shall initially be Base Rate Advances and thereafter may be continued as Base Rate Advances or converted into Eurodollar Rate Advances in the manner provided in Section 2.10 and subject to the other conditions and limitations therein set forth and set forth in this Article II. Unless a Lender shall have notified the Swing Line Bank, prior to its making any Swing Line Loan, that any applicable condition precedent set forth in Sections 3.01 and 3.02 had not then been satisfied, such Lender's obligation to make Advances pursuant to this Section 2.03(d) to repay Swing Line Loans shall be unconditional, continuing, irrevocable and absolute and shall not be affected by any circumstances, including, without limitation, (A) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against the Administrative Agent, the Swing Line Bank or any other Person, (B) the occurrence or continuance of an Event of Default or Potential Event of Default, (C) any adverse change in the condition (financial or otherwise) of the Borrower, or (D) any other circumstances, happening or event whatsoever. In the event that any Lender fails to make payment to the Administrative Agent of any amount due under this Section 2.03(d), the Administrative Agent shall be entitled to receive, retain and apply against such obligation the principal and interest otherwise payable to such Lender hereunder until the Administrative Agent receives such payment from such Lender or such obligation is otherwise fully satisfied. In addition to the foregoing, if for any reason any Lender fails to make payment to the Administrative Agent of any amount due under this Section 2.03(d), such Lender shall be deemed, at the option of the Agent, to have unconditionally and irrevocably purchased from the Swing Line Bank, without recourse or warranty, an undivided interest and participation in the applicable Swing Line Loan in the amount of such Advance, and such interest and participation may be recovered from such Lender together with interest thereon at the Federal Funds Rate for each day during the period commencing on the date of demand and ending on the date such amount is received. On the Termination Date, the Borrower shall repay in full the outstanding principal balance of the Swing Line Loans. SECTION 2.4. LETTERS OF CREDIT. (a) Letters of Credit. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of the Borrower set forth herein, the Borrower may, in accordance with the provisions of this Section 2.04(a), from time to time on and after the Effective Date, request the issuance of Letters of Credit for the account of the Borrower. The Borrower may select any Lender to be the Issuing Lender in relation to such Letter of Credit; provided that such Lender is reasonably satisfactory to the Administrative Agent; and provided further that each Lender may in its discretion decline to issue any Letter of Credit and NBD Bank shall be the Issuing Lender if other Lenders selected by the Borrower decline to issue such Letter of Credit or if no other Lender selected by the Borrower is reasonably satisfactory to the Administrative Agent. Such Letters of Credit shall be issued solely for the purpose of supporting the obligations of the Borrower and its Subsidiaries. Issuances of Letters of Credit shall be subject to the following limitations: (i) The Borrower shall not request any Letter of Credit if, after giving effect to such issuance, (a) the Total Utilization of Commitments would exceed the aggregate amount of Commitments as then in effect or (b) the Letter of Credit Usage would exceed $35,000,000; and (ii) In no event shall any Lender take any action to issue, reissue, amend or permit the extension of any Letter of Credit if such action would result in: (x) any Letter of Credit having an expiration date later than the Termination Date in effect at the time of issuance, reissuance, amendment or extension (automatic or otherwise) thereof; (y) subject to the foregoing clause (x), any Letter of Credit having an expiration date more than one year after its date of issuance; provided that subject to the foregoing clause (x), this clause (y) shall not prevent any Issuing Lender from agreeing that its Letter of Credit will automatically be extended annually for a period not to exceed one year if such Issuing Lender does not cancel such extension. It shall be a condition precedent to the issuance of any Letter of Credit in accordance with the provisions of this Section 2.04 that each condition set forth in Section 3.03 shall have been satisfied. Immediately upon the issuance of each Letter of Credit, each Lender shall be deemed to, and hereby agrees to, have irrevocably purchased from the Issuing Lender a participation in such Letter of Credit and drawings thereunder in an amount equal to such Lender's ratable share (based on the respective Commitments of the Lenders) of the maximum amount which is or at any time may become available to be drawn thereunder. (b) Notice of Issuance. Whenever the Borrower desires the issuance of a Letter of Credit, it shall deliver to the Issuing Lender and the Administrative Agent a Notice of Issuance of Letter of Credit in the form of EXHIBIT E hereto no later than 1:00 P.M. (Detroit time) at least five Business Days or such shorter period as may be agreed to by the Issuing Lender in any particular instance, in advance of the proposed date of issuance. Each Notice of Issuance of Letter of Credit shall specify (i) the proposed Issuing Lender for the requested Letter of Credit, (ii) the proposed date of issuance (which shall be a Business Day), (iii) the face amount of the Letter of Credit, (iv) the expiration date of the Letter of Credit, (v) the name and address of the beneficiary, (vi) a summary of the purpose and the verbatim text of such Letter of Credit, and (vii) a precise description of the documents and the proposed text of any certificate to be presented by the beneficiary which, if presented by the beneficiary prior to the expiration date of the Letter of Credit, would require the Issuing Lender to make payment under the Letter of Credit; provided that the Issuing Lender, in its sole reasonable judgment, may require changes in any such documents and certificates; and provided further that no Letter of Credit shall require payment against a conforming draft to be made thereunder on the same Business Day that such draft is presented if such presentation is made after 11:00 A.M. (Detroit time) on such Business Day. In determining whether to pay under any Letter of Credit, the Issuing Lender shall be responsible only to determine that the documents and certificates required to be delivered under that Letter of Credit have been delivered and that they comply on their face with the requirements of that Letter of Credit. (c) Payment of Amounts Drawn Under Letters of Credit. In the event of any drawing under any Letter of Credit, the Issuing Lender shall promptly notify the Borrower and the Administrative Agent, and the Borrower shall reimburse the Issuing Lender on the date on which such drawing is honored in an amount in same day funds equal to the amount of such drawing; provided that, anything contained in this Agreement to the contrary notwithstanding, (i) unless the Borrower shall have notified the Administrative Agent prior to 11:00 A.M. (Detroit time) on the Business Day immediately prior to the date of such drawing that the Borrower intends to reimburse the Issuing Lender for the amount of such drawing with funds other than the proceeds of an Advance, the Borrower shall be deemed to have given a Notice of Borrowing to the Administrative Agent requesting Lenders to make Base Rate Advances on the date such drawing is honored in an amount equal to the amount of such drawing, and (ii) subject to satisfaction or waiver of the conditions specified in Section 3.02, the Lenders shall, on the date of such drawing, make such Base Rate Advances in the aggregate amount of such drawing, the proceeds of which shall be applied directly by the Administrative Agent to reimburse the Issuing Lender for the amount of such drawing; and provided further that, if any Base Rate Advances are required to be made and for any reason proceeds of such Advances are not received by the Issuing Lender on such date in an amount equal to the amount of such drawing, the Borrower shall reimburse the Issuing Lender, on the Business Day immediately following the date of such drawing, in an amount in same day funds (and in the same currency as the unreimbursed drawing) equal to the excess of the amount of such drawing over the amount of such Advances which are so received, plus accrued interest on such amount at the rate set forth in Section 2.04(e). (d) Payment by Lenders with Respect to Letters of Credit. If the Borrower shall fail to reimburse the Issuing Lender as provided in Section 2.04(c) in an amount equal to the amount of any drawing honored by the Issuing Lender under a Letter of Credit, the Issuing Lender shall promptly notify the Administrative Agent which shall promptly notify each Lender of the unreimbursed amount of such drawing and of such Lender's respective participation therein, which participation shall be equal to such Lender's ratable share (determined based on the respective Commitments of the Lenders) of the unreimbursed amount of such drawing. Each Lender shall make available to the Issuing Lender an amount equal to its respective participation in same day funds and in the same currency as the drawing, at the office of the Issuing Lender specified in such notice, not later than 1:00 P.M. (Detroit time) on the Business Day after the date notified by the Administrative Agent. If any Lender fails to make available to the Issuing Lender the amount of such Lender's participation in such Letter of Credit as provided in this Section 2.04(d), the Issuing Lender shall be entitled to recover such amount on demand from such Lender together with interest at the customary rate set by the Issuing Lender for the correction of errors among banks for three Business Days and thereafter at the Alternate Base Rate. Nothing in this Section 2.04 shall be deemed to prejudice the right of any Lender to recover from the Issuing Lender any amounts made available by such Lender to the Issuing Lender pursuant to this Section 2.04 if it is determined by a court of competent jurisdiction that the payment with respect to a Letter of Credit by such Issuing Lender in respect of which payment was made by such Issuing Lender constituted Gross Negligence or willful misconduct on the part of such Issuing Lender. The Issuing Lender shall deliver to the Administrative Agent, for distribution to each other Lender which has paid all amounts payable by it under this Section 2.04(d) with respect to any Letter of Credit issued by the Issuing Lender, such other Lender's ratable share (based on the respective Commitments of the Lenders) of all payments received by the Issuing Lender from the Borrower in reimbursement of drawings honored by the Issuing Lender under such Letter of Credit when such payments are received. Notwithstanding anything to the contrary herein, each Lender which has paid all amounts payable by it under this Section 2.04(d) shall have a direct right to reimbursement of such amounts from the Borrower, subject to the procedures for reimbursing Lenders set forth in this Section 2.04. (e) Compensation. The Borrower agrees to pay, without duplication, the following amounts to the Issuing Lender or the Administrative Agent, as the case may be, with respect to each Letter of Credit issued hereunder: (i) with respect to each Letter of Credit, an issuance fee payable on the date of issuance to the Issuing Lender for the account of the Issuing Lender equal to the greater of (x) 0.125% of the face amount of such Letter of Credit and (y) $500, in immediately available funds; (ii) with respect to each Letter of Credit, a letter of credit fee payable to the Administrative Agent for the ratable distribution to the Lenders equal to the applicable per annum rate set forth below calculated on the basis of a 360-day year and the actual number of days elapsed on the maximum aggregate daily amount available for drawing under the outstanding Letters of Credit, such letter of credit fee to be paid to the Administrative Agent quarterly in arrears on the last day of each March, June, September and December of each year and on the Termination Date. The applicable letter of credit fee shall be determined in accordance with Section 2.17; provided however for the period from the Effective Date until the Initial Rate Adjustment Date such letter of credit fee shall be 0.95% per annum; provided further that the Level 4 rate shall be applicable at any time during such period that the Leverage Ratio is equal to or greater than 4.0 to 1.0; (iii) with respect to drawings made under any Letter of Credit, interest, payable to the Issuing Lender on demand in immediately available funds, on the amount paid by the Issuing Lender in respect of each such drawing from the date of the drawing through the date such amount is reimbursed by the Borrower (but only if not reimbursed when due) at a rate which is 2% per annum in excess of the rate of interest otherwise payable under this Agreement for Base Rate Advances; and (iv) with respect to the issuance, amendment or transfer of each Letter of Credit and each drawing made thereunder, documentary and processing charges in accordance with the Issuing Lender's standard schedule for such charges in effect at the time of such issuance, amendment, transfer or drawing, as the case may be. Promptly upon receipt by the Administrative Agent of any amount described in clause (ii) of this Section 2.04(e), the Administrative Agent shall distribute to each Lender its ratable share of such amount based on the respective Commitments of the Lenders. (f) Obligations Absolute. The obligation of the Borrower to reimburse the Issuing Lender for drawings made under the Letters of Credit shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances including, without limitation, the following circumstances: (i) any lack of validity or enforceability of any Letter of Credit; (ii) the existence of any claim, set-off, defense or other right the Borrower may have at any time against a beneficiary or any transferee of any Letter of Credit (or any persons or entities for whom any such transferee may be acting), the Issuing Lender or any other Person, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between the Borrower or any of its Subsidiaries and the beneficiary for which the Letter of Credit was procured); (iii) any draft, demand, certificate or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) payment by the Issuing Lender under any Letter of Credit against presentation of a demand, draft or certificate or other document which does not comply with the terms of such Letter of Credit; (v) any other circumstance or happening whatsoever, which is similar to any of the foregoing; or (vi) the fact that an Event of Default or a Potential Event of Default shall have occurred and be continuing. (g) Additional Payments. If by reason of (a) any change in applicable law, regulation, rule, decree or regulatory requirement or any change in the interpretation or application by any judicial or regulatory authority of any law, regulation, rule, decree or regulatory requirement made after the date hereof or (b) compliance by the Issuing Lender or any other Lender with any direction, request or requirement (whether or not having the force of law) of any governmental or monetary authority made after the date hereof including, without limitation, Regulation D: (i) any reserve, deposit or similar requirement is or shall be applicable, imposed or modified in respect of any Letters of Credit issued by the Issuing Lender or participations therein purchased by any Lender; or (ii) there shall be imposed on any Issuing Lender or any other Lender any other condition regarding this Section 2.04, any Letter of Credit or any participation therein; and the result of the foregoing is to directly or indirectly increase the cost to the Issuing Lender or any other Lender of issuing, making or maintaining any Letter of Credit or of purchasing or maintaining any participation therein, or to reduce the amount receivable in respect thereof by the Issuing Lender or any other Lender, then and in any such case the Issuing Lender or such other Lender may, notify the Borrower, and the Borrower shall pay within ten days of receipt of notice such amounts as the Issuing Lender or such other Lender may specify pursuant to the certificate described below to be necessary to compensate it for such additional cost or reduced receipt, together with interest on such amount from the date of such demand until payment in full thereof at a rate equal at all times to the Alternate Base Rate per annum plus the applicable Margin in effect from time to time with respect to Base Rate Advances. The determination by the Issuing Lender or any other Lender, as the case may be, of any amount due pursuant to this Section 2.04(g) as set forth in a certificate setting forth the calculation thereof in reasonable detail, shall, in the absence of manifest error, be final and conclusive and binding on all of the parties hereto. An Issuing Lender which incurs such an increased cost shall give the Borrower reasonably prompt notice thereof; provided that failure to give such notice shall not affect the Borrower's obligations hereunder. (h) Indemnification; Nature of Issuing Lender's Duties. In addition to amounts payable as elsewhere provided in this Section 2.04, the Borrower hereby agrees to protect, indemnify, pay and save each Issuing Lender harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys' and paralegals' fees) which such Issuing Lender may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit, or (ii) the failure of such Issuing Lender to honor a drawing under any such Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority (all such acts or omissions herein called "Government Acts"). As between an Issuing Lender and the Borrower, the Borrower assumes all risks of the acts and omissions of, or misuse of any such Letter of Credit by the beneficiary of any such Letter of Credit. In furtherance and not in limitation of the foregoing, the Issuing Lender shall not be responsible: (i) for the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of such Letters of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) for failure of the beneficiary of any such Letter of Credit to comply fully with conditions required in order to draw upon such Letter of Credit; (iv) for errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) for errors in interpretation of technical terms; (vi) for any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (vii) for the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; and (viii) for any consequences arising from causes beyond the control of the Issuing Lender, including, without limitation, any Government Acts. None of the above shall affect, impair, or prevent the vesting of any of an Issuing Lenders's rights or powers hereunder. In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by any Issuing Lender under or in connection with Letters of Credit issued by it or the related certificates, if taken or omitted in good faith and without Gross Negligence or willful misconduct as determined by a court of competent jurisdiction, shall not put the Issuing Lender under any resulting liability to the Borrower. Notwithstanding anything to the contrary contained in this Section 2.04, the Borrower shall not have any obligation to indemnify any Issuing Lender in respect of any liability incurred by such Issuing Lender or to reimburse such Issuing Lender (to the extent reimbursement would result in a loss to the Borrower) for drawings improperly honored under a Letter of Credit as the result of the Gross Negligence or willful misconduct of such Issuing Lender, as determined in a final judgment by a court of competent jurisdiction, or out of the wrongful dishonor by the Issuing Lender of proper demand for payment made under the Letters of Credit issued by it. (i) Computation of Fees and Interest. Fees and interest payable pursuant to this Section 2.04 shall be computed on the basis of a 360-day year and the actual number of days elapsed in the period during which it accrues. SECTION 2.5. FACILITY FEES; ADMINISTRATIVE AGENT'S AND ARRANGER'S FEES. (a) Facility Fee. The Borrower agrees to pay to the Administrative Agent for the account of each Lender a facility fee on the daily amount by which such Lender's Commitment (determined without regard to the amount of Advances outstanding thereunder and after giving effect to any reduction thereof pursuant to Section 2.06) exceeds such Lender's Letter of Credit Exposure from the Effective Date (in the case of each Lender party hereto as of the Effective Date) or from the effective date specified in the applicable Assignment and Acceptance (in the case of any Lender becoming a Lender after the Effective Date), until the Termination Date, payable in arrears on the last day of each March, June, September and December during the term of such Lender's Commitment, commencing December 31, 1996, and on the Termination Date, at the rate determined in accordance with Section 2.17; provided, however, for the period from the Effective Date until the Initial Rate Adjustment Date such facility fee will be 0.40% per annum; provided further that the Level 4 rate shall be applicable at any time during such period that the Leverage Ratio is equal to or greater than 4.0 to 1.00. (b) Administrative Agent's and Arranger's Fees. The Borrower agrees to pay to the Administrative Agent, for its own account and for the account of the Arranger, such fees as may be mutually agreed upon from time to time among the Borrower, the Administrative Agent and the Arranger. SECTION 2.6. TERMINATION AND REDUCTION OF THE COMMITMENTS. (a) Mandatory Termination. The Commitments of the Lenders shall immediately terminate if the Advances are at any time required to be prepaid pursuant to Section 2.07(b)(i). (b) Optional Reductions. The Borrower shall have the right, upon at least four Business Days' notice to the Administrative Agent, to terminate in whole or reduce ratably in part the unused portions of the respective Commitments of the Lenders, provided that the aggregate amount of the Commitments of the Lenders shall not be reduced to an amount which is less than the aggregate principal amount of the Total Utilization of Commitments and provided, further, that each partial reduction shall be in the aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof. SECTION 2.7. REPAYMENT AND PREPAYMENT OF ADVANCES. (a) Mandatory Repayment on Termination Date. The Borrower shall repay on the Termination Date the outstanding principal amount of each Advance made by each Lender. (b) Mandatory Prepayment Upon Occurrence of Certain Events. (i) Mandatory Prepayments in Connection with a Change of Control. If any one of the following events shall occur: (A) Dina shall fail to own, directly or indirectly, all of the issued and outstanding capital stock of the Borrower; (B) notice shall have been given under Section 11.05 of the Indenture dated as of April 30, 1996 among Dina, MCII Holdings (USA), Inc. and IBJ Schroder Bank & Trust Company, as Trustee, vesting in the Trustee voting rights relating to the Capital Stock of the Company, or the Trustee shall have commenced any action to foreclose on or otherwise enforce the pledge of the Company's Capital Stock pursuant to such Indenture; or (C) during any period of up to 24 consecutive months, commencing after the date of this Agreement, individuals who at the beginning of such 24-month (or shorter) period were directors of the Company or the Borrower shall cease for any reason to constitute a majority of the board of directors of the Company or the Borrower, respectively; then, and in any such event, the Borrower shall immediately prepay in full the Advances together with interest accrued to the date of prepayment, shall cash collateralize the Letters of Credit in the manner provided for in Section 6.01 as if an Event of Default had occurred and the Obligations had been declared immediately due and payable, and shall reimburse the Lenders in respect of all amounts that may then be due pursuant to Section 8.04(b). (ii) Mandatory Prepayments in Connection with Over Utilization. The Borrower shall immediately prepay the Advances at any time that the Total Utilization of Commitments exceeds the Commitments (after giving effect to any reduction of the Commitments pursuant to Section 2.06) in an amount equal to such excess. (iii) Other Mandatory Prepayments. (A) Upon the consummation of any Asset Sale by the Borrower or any Subsidiary of the Borrower (other than (1) sales of receivables of MCI Acceptance Corp. permitted pursuant to Section 5.02(e)(iv) or (2) the sale of inventory, notes receivable and leases supporting coach financings, in each case in the ordinary course of business), except to the extent that the Net Cash Proceeds of such Asset Sale, when combined with the Net Cash Proceeds of all such Asset Sales during the immediately preceding twelve-month period, do not exceed five percent (5.0%) of the Borrower s net tangible assets as of the beginning of such twelve-month period, within three (3) Business Days after the Borrower's or any of its Subsidiaries' (i) receipt of any Net Cash Proceeds from any such Asset Sale, or (ii) conversion to cash or Cash Equivalents of non-cash proceeds (whether principal or interest and including securities, release of escrow arrangements or lease payments) received from any Asset Sale, the Borrower shall make a mandatory prepayment of the Obligations in an amount equal to one hundred percent (100%) of such Net Cash Proceeds or such proceeds converted from non-cash to cash or Cash Equivalents. (B) Upon the consummation of any Financing by the Borrower or any Subsidiary of the Borrower the Net Cash Proceeds of which exceed an aggregate amount for all such Financings after the date hereof of $5,000,000, within three (3) Business Days after the Borrower's or any of its Subsidiaries' receipt of any Net Cash Proceeds from such Financing, the Borrower shall make a mandatory prepayment of the Obligations in an amount equal to one hundred percent (100%) of such Net Cash Proceeds and the Commitments shall be automatically and permanently reduced as of such date by an amount equal to the amount of such mandatory prepayment; provided, however, (1) no such prepayment shall be required in connection with a refinancing of all or any portion of the Senior Notes consummated in accordance with the terms of this Agreement, and (2) if at the time of receipt of such Net Cash Proceeds the Senior Notes shall not have been refinanced or all principal payments on the Senior Notes deferred until at least ninety-one (91) days after the Termination Date, the Commitments shall not be permanently reduced except to the extent that such mandatory prepayment exceeds $25,000,000 and the Borrower's availability under the Commitments shall be suspended in an amount equal to the lesser of the amount of such mandatory prepayment and $25,000,000 to provide for availability under the Commitments when principal payments become due under the Senior Notes. (C) Nothing in this Section 2.07(b)(iii) shall be construed to constitute the Lenders' consent to any transaction referred to in clauses (A) and (B) above which is not expressly permitted by the terms of this Agreement. (D) Each mandatory prepayment required by clauses (A) and (B) of this Section 2.07(b)(iii) shall be referred to herein as a "Designated Prepayment." Designated Prepayments shall be allocated and applied to the Obligations as follows: (I) the amount of each Designated Prepayment shall be applied to repay the Swing Line Loans; and (II) following the payment in full of the Swing Line Loans, the amount of each Designated Prepayment shall be applied to repay the other Advances. (E) On the date any Designated Prepayment is received by the Agent, such prepayment shall be applied first to Base Rate Advances and to any Eurodollar Rate Advances maturing on such date and then to subsequently maturing Eurodollar Rate Advances in order of maturity. (c) Voluntary Prepayments of Borrowings. The Borrower may upon prior notice stating the proposed date and aggregate principal amount of a proposed prepayment of the Advances, which notice shall given to the Administrative Agent not later than 1:00 P.M. (Detroit time) on the day of such prepayment, in the case of a prepayment of Base Rate Advances, or and at least three Business Days' prior to proposed date of such prepayment, in the case of Eurodollar Rate Advances, prepay (and if such notice is given the Borrower shall prepay) the outstanding principal amounts of the Advances comprising part of the same Borrowing in whole or ratably in part in such amount as is set forth in such notice; provided, however, that (x) each partial prepayment shall be in an aggregate principal amount not less than $5,000,000 (or $1,000,000 in the case of Base Rate Advances) and integral multiples of $1,000,000 in excess thereof and (y) in the case of any such prepayment of any Eurodollar Rate Advance, the Borrower shall pay all accrued interest to the date of such prepayment on the portion of such Eurodollar Rate Advance being prepaid and shall be obligated to reimburse the Lenders in respect of all amounts that may then be owing pursuant to Section 8.04(b). SECTION 2.8. INTEREST ON ADVANCES; DEFAULT RATE. The Borrower shall pay interest accrued on the principal amount of each Advance outstanding from time to time from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum: (a) Base Rate Advances. If such Advance is a Base Rate Advance (including, without limitation, all Swing Line Loans), a rate per annum equal at all times to the Alternate Base Rate in effect from time to time plus the applicable Margin, payable monthly in arrears on the last day of each month during the term of this Agreement, commencing December 31, 1996, and on the Termination Date. (b) Eurodollar Rate Advances. If such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during the Interest Period for such Advance to the sum of the Adjusted Eurodollar Rate for such Interest Period plus the applicable Margin, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on the day which occurs during such Interest Period three months from the first day of such Interest Period. (c) Default Rate. After the occurrence and during the continuance of an Event of Default, the interest rate(s) applicable to the Obligations and the fees payable under Section 2.04(e)(ii) with respect to Letters of Credit shall be increased by two percent (2.0%) per annum above the interest rate(s) and fees otherwise in effect from time to time hereunder. SECTION 2.9. INTEREST RATE DETERMINATION. The Administrative Agent shall give prompt notice to the Borrower and the Lenders of the applicable interest rate determined by the Administrative Agent for purposes of Section 2.08. SECTION 2.10. VOLUNTARY CONVERSION OR CONTINUATION OF ADVANCES. (a) The Borrower may on any Business Day, upon notice given to the Administrative Agent not later than 12:00 noon (Detroit time) on the third Business Day prior to the date of the proposed Conversion or continuance (a "Notice of Conversion/Continuation") and subject to the provisions of Section 2.02(b), (1) Convert all Advances (other than Swing Line Loans) of one Type comprising the same Borrowing into Advances of another Type and (2) upon the expiration of any Interest Period applicable to Advances which are Eurodollar Rate Advances, continue all (or, subject to Section 2.02(b), any portion of) such Advances as Eurodollar Rate Advances and the succeeding Interest Period(s) of such continued Advances shall commence on the last day of the Interest Period of the Advances to be continued; provided, however, that any Conversion of any Eurodollar Rate Advances into Advances of another Type shall be made on, and only on, the last day of an Interest Period for such Eurodollar Rate Advances. Each such Notice of Conversion/Continuation shall, within the restrictions specified above, specify (i) the date of such continuation or Conversion, (ii) the Advances (or, subject to Section 2.02(b), any portion thereof) to be continued or Converted, (iii) if such continuation is of, or such Conversion is into, Eurodollar Rate Advances, the duration of the Interest Period for each such Advance and (iv) that no Potential Event of Default or Event of Default has occurred and is continuing. (b) If upon the expiration of the then existing Interest Period applicable to any Advance which is a Eurodollar Rate Advance, the Borrower shall not have delivered a Notice of Conversion/Continuation in accordance with this Section 2.10, then such Advance shall upon such expiration automatically be Converted to a Base Rate Advance. (c) After the occurrence of and during the continuance of a Potential Event of Default or an Event of Default, at the option of the Majority Lenders, the Borrower may not elect to have an Advance be made or continued as, or Converted into, a Eurodollar Rate Advance after the expiration of any Interest Period then in effect for that Advance. SECTION 2.11. INCREASED COSTS. (a) If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements in the case of Eurodollar Rate Advances included in the Eurodollar Rate Reserve Percentage) in or in the interpretation of any law or regulation made after the date hereof or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law) made after the date hereof, there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining Eurodollar Rate Advances, then the Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost. A reasonably detailed certificate as to the amount and manner of calculation of such increased cost, submitted to the Borrower and the Administrative Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error. A Lender which incurs such an increased cost shall give the Borrower reasonably prompt notice thereof; provided that failure to give such notice shall not affect the Borrower's obligations hereunder. (b) If any Lender determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) taking effect after the date hereof affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and that the amount of such capital is increased by or based upon the existence of such Lender's commitment to lend hereunder and other commitments of this type or Letters of Credit issued hereunder and other letters of credit, then, upon demand by such Lender (with a copy of such demand to the Administrative Agent), the Borrower shall immediately pay to the Administrative Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender or such corporation in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's commitment to lend hereunder. A reasonably detailed certificate as to such amounts and the manner of calculation thereof submitted to the Borrower and the Administrative Agent by such Lender shall be conclusive and binding for all purposes, absent manifest error. A Lender which becomes subject to the circumstances set forth in this Section 2.11(b) shall give the Borrower reasonably prompt notice thereof; provided that failure to give such notice shall not affect the Borrower's obligations hereunder. (c) If any Lender requests compensation from the Borrower under Section 2.11(a) or (b), the Borrower shall have the right, with the assistance of the Administrative Agent, to seek one or more substitute banks or financial institutions (which may be one or more of the Lenders) reasonably satisfactory to the Administrative Agent and the Borrower to purchase the Advances and assume the Commitments of such Lender, and the Borrower, the Administrative Agent, such Lender, and such substitute banks or financial institutions shall execute and deliver an appropriately completed Assignment and Acceptance pursuant to Section 8.07(a) hereof to effect the assignment of rights to and the assumption of obligations by such substitute banks or financial institutions; provided that such requesting Lender, shall be entitled to compensation under this Section 2.11 for any costs incurred by it prior to its replacement and provided further that if such requesting Lender is an Issuing Bank, all Letters of Credit issued by it shall be returned to it (or subject to other arrangements satisfactory to it) prior to its replacement. (d) If a Lender shall change its Applicable Lending Office, such Lender shall not be entitled to receive any greater payment under Sections 2.11 and 2.13 than the amount such Lender would have been entitled to receive if it had not changed its Applicable Lending Office, unless such change was made at the request of the Borrower or at a time when the circumstances giving rise to such greater payment did not exist. SECTION 2.12. PAYMENTS AND COMPUTATIONS. (a) The Borrower shall make each payment hereunder not later than 1:00 P.M. (Detroit time) on the day when due in U.S. dollars to the Administrative Agent at its address referred to in Section 8.02 in same day funds. The Administrative Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or commitment or facility fees ratably to the Lenders in accordance with their respective Commitments (other than amounts payable pursuant to Section 2.11 or 2.13) for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 8.07(d), from and after the effective date specified in such Assignment and Acceptance, the Administrative Agent shall make all payments hereunder in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) All computations of interest and fees shall be made by the Administrative Agent on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or such fees are payable. Each determination by the Administrative Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. (c) Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or commitment fee, as the case may be; provided, however, if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent that the Borrower shall not have so made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate. SECTION 2.13. TAXES. (a) Any and all payments by the Borrower hereunder shall be made, in accordance with Section 2.12, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Administrative Agent, (i) taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Lender or the Administrative Agent (as the case may be) is organized or any political subdivision thereof or in which its principal office is located, (ii) taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction of such Lender's Applicable Lending Office or any political subdivision thereof, (iii) taxes imposed upon or measured by the overall net income of such Lender by the United States of America, any State, or any political subdivision or taxing authority thereof or therein, and (iv) United States income taxes (including withholding taxes with respect thereto) payable with respect to payments hereunder under laws (including without limitation any statute, treaty, ruling, determination or regulation) in effect on the date hereof in the case of each Lender and on the effective date of the Assignment and Acceptance pursuant to which it became a Lender in the case of each other Lender (all such non- excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to any Lender or the Administrative Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.13) such Lender or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. In no event shall the Borrower be required to pay any tax that would violate any applicable law. (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from the execution, delivery or registration of, or otherwise with respect to, this Agreement (hereinafter referred to as "Other Taxes"). (c) The Borrower will indemnify each Lender and the Administrative Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.13) paid by such Lender or the Administrative Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within 30 days from the date such Lender or the Administrative Agent (as the case may be) makes written demand therefor. (d) Within 30 days after the date of any payment of Taxes, the Borrower will furnish to the Administrative Agent, at its address referred to in Section 8.02, the original or a certified copy of a receipt evidencing payment thereof. (e) Each Lender organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Lender and on the date of the Assignment and Acceptance pursuant to which it becomes a Lender in the case of each other Lender, and from time to time thereafter if requested in writing by the Borrower (but only so long as such Lender remains lawfully able to do so), shall provide the Borrower with Internal Revenue Service form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. If the form provided by a Lender at the time such Lender first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from "Taxes" as defined in Section 2.13(a). (f) For any period with respect to which a Lender has failed to provide the Borrower with the appropriate form described in Section 2.13(e) (other than if such failure is due to a change in law occurring subsequent to the date on which a form originally was required to be provided, or if such form otherwise is not required under the first sentence of Section (e) above), such Lender shall not be entitled to indemnification under Section 2.13(a) with respect to Taxes imposed by the United States; provided, however, that should a Lender become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall, at the expense of such Lender, take such steps as the Lender shall reasonably request to assist the Lender to recover such Taxes. (g) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 2.13 shall survive the payment in full of principal and interest hereunder and the termination of this Agreement. SECTION 2.14. SHARING OF PAYMENTS, ETC. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Advances made by it (other than nonratable payments made on the Effective Date pursuant to the proviso set forth in the second sentence of Section 2.12 or payments made pursuant to Section 2.11 or 2.13) in excess of its ratable share of payments on account of the Advances obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in the Advances made by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them, provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.14 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. SECTION 2.15. EVIDENCE OF DEBT. (a) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Advance or participation in any Letter of Credit made or purchased by such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (b) The Register maintained by the Administrative Agent pursuant to Section 8.07(c) shall include a control account, and a subsidiary account for each Lender, in which accounts (taken together) shall be recorded (i) the date, amount and tenor, as applicable, of each Borrowing, the Type of Advances comprising such Borrowing and the Interest Period applicable thereto, (ii) the date of issuance of each Letter of Credit, the face amount thereof, the expiration date thereof, each Lender's participation therein, and any drawings and reimbursements made thereunder, (iii) the terms of each Assignment and Acceptance delivered to and accepted by it, (iv) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder, and (v) the amount of any sum received by the Administrative Agent from the Borrower hereunder and each Lender's share thereof. (c) The entries made in the Register shall be conclusive and binding for all purposes, absent manifest error. (d) Any Lender may at any time request that the Borrower execute and deliver to such Lender a Note, substantially in the form of EXHIBIT C-1 annexed hereto, to evidence such Lender's Advances (other than Swing Line Loans) hereunder. The Borrower agrees promptly upon its receipt of any such request from a Lender to execute and deliver a Note to such Lender. SECTION 2.16. USE OF PROCEEDS. (a) Advances shall be used by the Borrower for (i) the Dina Distribution, (ii) other general corporate purposes and (iii) for seasonal working capital requirements. (b) No portion of the proceeds of any Advances under this Agreement shall be used by the Borrower or any of its Subsidiaries (i) in any manner which might cause the Advances or the application of such proceeds to violate, or require any Lender to make any filing or take any other action under, Regulation G, Regulation U, Regulation T, or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation of such Board or to violate the Securities Exchange Act of 1934, in each case as in effect on the date or dates of such Advances and such use of proceeds or (ii) to purchase any securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, other than purchases of the Company's common stock permitted under Section 5.02(j). SECTION 2.17. MARGINS, APPLICABLE FACILITY FEES AND APPLICABLE LETTER OF CREDIT FEES. Each of the applicable Margin, the applicable facility fee payable by the Borrower pursuant to Section 2.05, and the applicable letter credit fee payable by the Borrower pursuant to Section 2.04(e)(ii) shall be subject to adjustment (upwards or downwards, as appropriate) based on the existence of the applicable Credit Level described in the table below. APPLICABLE MARGIN, FACILITY FEE AND LETTER OF CREDIT FEE TABLE APPLICABLE APPLICABLE MARGIN FOR MARGIN FOR APPLICABLE CREDIT EURODOLLAR BASE RATE APPLICABLE LETTER OF LEVEL RATE ADVANCES ADVANCES FACILITY FEE CREDIT FEE Level 1 .475% 0.00% .25% .475% Level 2 .550% 0.00% .30% .550% Level 3 .875% .125% .35% .875% Level 4 1.10% .60% .50% 1.10% Notwithstanding the foregoing, (i) for any Eurodollar Rate Advances or Letters of Credit outstanding prior to the Initial Rate Adjustment Date, the Margin for Eurodollar Rate Advances and the letter of credit fee shall equal 0.95% per annum until the Initial Rate Adjustment Date; provided, however, such Margin and letter of credit fee shall be 1.10% per annum for any time prior to the Initial Rate Adjustment Date that the Borrower's Leverage Ratio is equal to or greater than 4.00 to 1.00; (ii) the applicable facility fee from the Effective Date to the Initial Rate Adjustment Date shall be 0.40% per annum; provided, however, that the facility fee shall be 0.50% per annum for any time during such period that the Borrower's Leverage Ratio is equal to or greater than 4.00 to 1.00; and (iii) the Margin for Base Rate Advances shall be 0.0% per annum until the earlier of (a) the first date on which a financial institution other than NBD Bank shall become a Lender pursuant to an Assignment and Acceptance and (b) the date which occurs ninety (90) days after the Effective Date, provided, however, that the Margin for Base Rate Advances shall be 0.60% per annum for any time during such period that the Borrower's Leverage Ratio is equal to or greater than 4.00 to 1.00. ARTICLE III CONDITIONS OF LENDING SECTION 3.1. CONDITION PRECEDENT TO EFFECTIVENESS. This Agreement shall become effective only upon, and the obligations of each Lender to make Advances and to issue, or to participate in, Letters of Credit are, in addition to the conditions precedent specified in Section 3.02 or Section 3.03, subject to prior or concurrent satisfaction of the following conditions: (a) Borrower Documents. On or before the Effective Date, the Borrower shall deliver or cause to be delivered to Lenders (or to the Administrative Agent for the Lenders with sufficient originally executed copies, where appropriate, for each Lender and its counsel) the following, each, unless otherwise noted, dated the Effective Date: (i) Certified copies of its Certificate of Incorporation, together with a good standing certificate from the Secretary of State of the State of Delaware and each other state in which it is qualified as a foreign corporation to do business, each dated a recent date prior to the Effective Date and certified as of the Effective Date by its corporate secretary or assistant secretary; (ii) Copies of its Bylaws, certified as of the Effective Date by its corporate secretary or an assistant secretary; (iii) Resolutions of its Board of Directors approving and authorizing the execution, delivery and performance of this Agreement, any Notes, and the other Loan Documents to which the Borrower is a party, certified as of the Effective Date by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment; (iv) Signature and incumbency certificates of its officers authorized to request Advances or executing this Agreement, any Notes and the other Loan Documents to which the Borrower is a party; (v) Executed originals of this Agreement, the Swing Line Note, the other Notes and each other Loan Document to which the Borrower is a party; and (vi) Such other documents as the Administrative Agent may reasonably request. (b) Subsidiary Guarantor Documents. On or before the Effective Date, each Subsidiary Guarantor shall deliver or cause to be delivered to the Lenders (or to the Administrative Agent for the Lenders with sufficient originally executed copies, where appropriate, for each Lender and its counsel) the following, each, unless otherwise noted, dated the Effective Date: (i) Certified copies of its Certificate of Incorporation, together with a good standing certificate from the Secretary of State of its state of incorporation and each other state in which it is qualified as a foreign corporation to do business, each dated a recent date prior to the Effective Date and certified as of the Effective Date by its corporate secretary or assistant secretary; (ii) Copies of its Bylaws, certified as of the Effective Date by its corporate secretary or an assistant secretary; (iii) Resolutions of its Board of Directors approving and authorizing the execution, delivery and performance of the Guaranty and the other Loan Documents to which such Subsidiary Guarantor is a party, certified as of the Effective Date by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment; (iv) Signature and incumbency certificates of its officers executing the Guaranty and the other Loan Documents to which such Subsidiary Guarantor is a party; (v) Executed originals of the Guaranty and the other Loan Documents to which such Subsidiary Guarantor is a party; and (vi) Such other documents as the Administrative Agent may reasonably request. (c) Management Contracts. On or before the Effective Date, the Administrative Agent and the Lenders shall have received copies of the current management contracts for the Borrower's chief operating officer, chief financial officer, treasurer and controller and for the president of the Borrower's Universal Coach Parts subsidiary (the "Management Contracts") and such contracts shall be in form and substance satisfactory to the Administrative Agent and each of the Lenders. (d) Opinions of Counsel. The Lenders and their respective counsel shall have received: (i) originally executed copies of one or more favorable written opinions of Latham & Watkins, counsel for the Borrower and the Subsidiary Guarantors, dated as of the Effective Date and setting forth substantially the matters in the opinions designated in EXHIBIT F-1 hereto and as to such other matters as the Administrative Agent acting on behalf of the Lenders may reasonably request; (ii) originally executed copies of one or more favorable written opinions of Kristin Schloemer, Corporate Counsel of the Borrower and the Subsidiary Guarantors, in form and substance reasonably satisfactory to the Administrative Agent and its counsel and setting forth substantially the matters in the opinions designated by EXHIBIT F-2 hereto and as to such other matters as the Administrative Agent acting on behalf of the Lenders may reasonably request; and (iii) evidence satisfactory to the Administrative Agent (which may be recitals in such opinions) that the Borrower has requested such counsel to deliver such opinions to the Lenders. (e) Noteholders' Consent and Intercreditor Agreement. The Borrower shall have caused the required holders of the Senior Notes to have delivered a consent to the Dina Distribution and the transactions evidenced by this Agreement and to have entered into an intercreditor agreement with the Administrative Agent and the Lenders, which consent and intercreditor agreement shall be in form and substance acceptable to the Administrative Agent and the Lenders. (f) Fees. The Borrower shall have paid to the Administrative Agent, for distribution (as appropriate) to the Administrative Agent, and the Arranger, the fees and expenses payable on the Effective Date. (g) Representations and Warranties; Performance of Agreements. The Borrower shall have delivered to the Administrative Agent an Officer's Certificate, in form and substance satisfactory to the Administrative Agent, to the effect that the representations and warranties in Section 4.01 hereof are true, correct and complete in all material respects on and as of the Effective Date to the same extent as though made on and as of that date and that the Borrower shall have performed in all material respects all agreements and satisfied all conditions that this Agreement provides shall be performed or satisfied by it on or before the Effective Date, except as otherwise disclosed to and agreed to in writing by the Administrative Agent and Majority Lenders. (h) Repayment of Amounts Outstanding Under Existing Credit Agreement. Concurrently with the effectiveness of this Agreement and the making of the initial Advances hereunder, the Borrower shall pay all principal and all accrued and unpaid fees and interest outstanding under the Amended and Restated Credit Agreement dated as of August 8, 1994, as amended, among the Company, the Borrower, various financial institutions parties thereto as lenders and co-agents and Citibank, N.A., as Agent (the "Citibank Agreement"); (i) Payoff and Release Documents. The Administrative Agent shall have received a payoff, estoppel and release letter with respect to the Citibank Agreement, which letter shall be in form and substance acceptable to the Administrative Agent and its counsel. (j) No Material Adverse Effect. Since December 31, 1995, there shall not have occurred any change, or development or event involving a prospective change, which in either case, has had or could have a Material Adverse Effect. (k) No Event of Default. Immediately prior to the Effective Date, no "Event of Default" or "Potential Event of Default" hereunder or under the Citibank Agreement shall have occurred and be continuing. (l) Completion of Proceedings. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto not previously found acceptable by the Administrative Agent, acting on behalf of the Lenders, and its counsel shall be satisfactory in form and substance to the Administrative Agent and such counsel, and the Administrative Agent and such counsel shall have received all such counterpart originals or certified copies of such documents as Administrative Agent may reasonably request. (m) Other Conditions. The Agent shall, to its satisfaction, have confirmed that the Borrower shall have satisfied all conditions precedent as set forth in the Term Sheet dated as of August 13, 1996. SECTION 3.2. CONDITIONS PRECEDENT TO EACH BORROWING. The obligation of the Swing Line Bank to make a Swing Line Loan and the obligation of each Lender to make an Advance on the occasion of each Borrowing (including, without limitation, the Advances to be made on the Effective Date) shall be subject to the further conditions precedent that (x) the Administrative Agent shall have received a Notice of Borrowing with respect thereto in accordance with Section 2.02 or 2.03, as applicable, and (y) on the date of such Borrowing (a) the following statements shall be true (and each of the giving of the applicable Notice of Borrowing and the acceptance by the Borrower of the proceeds of such Borrowing shall constitute a representation and warranty by the Borrower that on the date of such Borrowing such statements are true): (i) The representations and warranties of the Borrower contained in Section 4.01 (excluding Section 4.01(f)) are correct in all material respects on and as of the date of such Swing Line Loan or Borrowing, before and after giving effect to such Swing Line Loan or Borrowing and to the application of the proceeds therefrom, as though made on and as of such date, except to the extent that any such representation or warranty expressly relates only to an earlier date, in which case they were correct as of such earlier date; (ii) Since December 31, 1995, there has not occurred any change, or development or event involving a prospective change, which, in either case, has had or could have a Material Adverse Effect; and (iii) No event has occurred and is continuing, or would result from such Swing Line Loan or Borrowing or from the application of the proceeds therefrom, which constitutes an Event of Default or a Potential Event of Default; and (b) the Administrative Agent shall have received such other approvals, opinions or documents as the Majority Lenders through the Administrative Agent may reasonably request. SECTION 3.3. CONDITIONS PRECEDENT TO LETTER OF CREDIT. The obligation of any Issuing Lender to issue any Letter of Credit hereunder is subject to prior or concurrent satisfaction of all of the following conditions: (a) On or before the date of issuance of any Letter of Credit hereunder, the Administrative Agent shall have received, in accordance with the provisions of Section 2.04(b), a Notice of Issuance of Letter of Credit relating to the proposed Letter of Credit, all other information specified in Section 2.04(b) and such other documents as the Administrative Agent and the Issuing Lender may reasonably require in connection with the issuance of such Letter of Credit. (b) On or before the date of issuance of such Letter of Credit, each of the conditions set forth in Section 3.01 shall have been satisfied as of the Effective Date, and, on such date of issuance, all conditions precedent described in Section 3.02 shall be satisfied to the same extent as though the issuance of such Letter of Credit were the making of an Advance. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.1. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The Borrower represents and warrants as follows: (a) Due Organization, etc. The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. The Borrower has the corporate power, authority and legal right to own and operate the assets and properties and conduct the business now, or proposed to be, owned, operated and conducted by it. All necessary consents, licenses, permits, approvals or authorizations of, exemptions by, notices and reports to, registrations, filings and declarations with, and any other act by or in respect of, any Person requisite for such ownership, operation and conduct have been obtained or performed except such of the foregoing the failure to obtain or perform which would not, in the aggregate, have a Material Adverse Effect. The Borrower is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership or leasing of property or conduct of business requires such qualification and where the failure to be so qualified or in good standing would have a Material Adverse Effect. (b) Subsidiaries. All of the Subsidiaries of the Borrower as of both the date hereof and the Effective Date are identified in SCHEDULE 4.01(B) annexed hereto. The capital stock of each of the Subsidiaries of the Borrower identified in SCHEDULE 4.01(B) annexed hereto is duly authorized, validly issued, fully paid and nonassessable. Each of the Subsidiaries of the Borrower identified in SCHEDULE 4.01(B) annexed hereto is validly existing and in good standing under the laws of its respective jurisdiction of incorporation set forth therein, has full corporate power and authority to own its assets and properties and to operate its business as presently owned and conducted, and is qualified to do business and in good standing in every jurisdiction where its assets are located and wherever necessary to carry out its business and operations, in each case except where failure to be so qualified or in good standing or a lack of such corporate power and authority has not had and will not have a Material Adverse Effect. SCHEDULE 4.01(B) annexed hereto correctly sets forth the ownership interest of the Borrower in each of its Subsidiaries identified therein. (c) Due Authorization, etc. The Borrower has full power, authority and legal right to execute, deliver and perform this Agreement and the Notes, and each of the Subsidiary Guarantors has full power, authority and legal right to execute, deliver and perform the Guaranties. The execution, delivery and performance of this Agreement and the Notes by the Borrower have been duly authorized by all necessary corporate action on the part of the Borrower and the execution, delivery and performance of the Guaranties by each Subsidiary Guarantor have been duly authorized by all necessary corporate action on the part of each such Subsidiary Guarantor. (d) Governmental Consent, No Conflicts. Neither (i) the execution and delivery of (y) this Agreement and the Notes by the Borrower or (z) the Guaranties by each such Subsidiary Guarantor, nor (ii) the declaration or payment of the Dina Distribution requires any governmental registrations or filings or approvals or violates or contravenes any law or any order of any court or governmental agency or any indenture, agreement or other instrument, including, without limitation, with respect to the Senior Notes, to which any of the Company, the Borrower or the Subsidiary Guarantors is party or by which it or any of its properties may be bound. (e) Validity. (i) This Agreement and the Notes are the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, and (ii) the Guaranties are the legal, valid and binding obligations of each of the Subsidiary Guarantors parties thereto enforceable against each such Subsidiary Guarantor in accordance with their respective terms, in each case as enforceability may be subject to the effect of applicable bankruptcy, insolvency, arrangement, moratorium and other similar laws affecting creditors' rights generally and to the application of general principles of equity. (f) Condition of the Borrower. The consolidated balance sheet of the Borrower and its consolidated Subsidiaries at December 31, 1995 and the related statements of income and cash flows for the year then ended, fairly present the financial condition of the Borrower and its consolidated Subsidiaries at such date and the results of the operations of the Borrower and its consolidated Subsidiaries for the year then ended, all in accordance with GAAP consistently applied. Since December 31, 1995, there has not occurred any change, or development or event involving a prospective change, which has had or could have a Material Adverse Effect. (g) Litigation. Except as set forth in SCHEDULE 4.01(G), (i) there is no pending action or proceeding against the Borrower or any of its Subsidiaries before any court, governmental agency or arbitrator, and (ii) there is no pending or threatened action or proceeding affecting the Borrower or any of its Subsidiaries before any court, governmental agency or arbitrator, which in either case would reasonably be expected to result in liability for the payment of amounts individually or in the aggregate in excess of $5,000,000, would reasonably be expected to have a Material Adverse Effect or which purports to affect the legality, validity or enforceability of this Agreement or any other Loan Document. (h) Margin Regulations. Neither the Borrower nor any of its Subsidiaries is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Advance will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock in any manner that violates, or would cause a violation of or require any Lender to make any filing or take any other action under Regulation G, Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System. None of the issued and outstanding capital stock of any of the Company's Subsidiaries constitutes margin stock under Regulation U. (i) Payment of Taxes. The Borrower and each of its Subsidiaries have filed or caused to be filed all material tax returns (federal, state, local and foreign) required to be filed and paid all material amounts of taxes shown thereon to be due, including interest and penalties, except for such taxes as are being contested in good faith and by proper proceedings and with respect to which appropriate reserves are being maintained by the Borrower or any such Subsidiary, as the case may be. (j) Governmental Regulation. The Borrower is not subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or the Investment Company Act of 1940, each as amended, or to any Federal or state statute or regulation limiting its ability to incur indebtedness for money borrowed. No Subsidiary of the Borrower is subject to any regulation that would limit the ability of the Borrower or such Subsidiary to enter into or perform its obligations under this Agreement, the Guaranties or the other Loan Documents. (k) ERISA. (i) No ERISA Event which might result in liability individually or in the aggregate in excess of $5,000,000 (other than for premiums payable under Title IV of ERISA) has occurred or is reasonably expected to occur with respect to any Pension Plan. (ii) Schedule B (Actuarial Information) to the most recently completed annual report (Form 5500 Series) for each Pension Plan, copies of which have been filed with the Internal Revenue Service and furnished to the Administrative Agent, is complete and, to the best knowledge of the Borrower, accurate, and since the date of such Schedule B there has been no material adverse change in the funding status of any such Pension Plan. (iii) Neither the Borrower nor any ERISA Affiliate has incurred, or, to the best knowledge of the Borrower, is reasonably expected to incur, any Withdrawal Liability to any Multiemployer Plan. (iv) Neither the Borrower nor any ERISA Affiliate has been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA, and, to the best knowledge of the Borrower, no Multiemployer Plan is reasonably expected to be in reorganization or to be terminated within the meaning of Title IV of ERISA. (v) The Borrower and each of its ERISA Affiliates is in compliance in all material respects with ERISA, the Code, to the extent applicable to any employee benefit plan as defined in Section 3(3) of ERISA, and all applicable regulations promulgated under ERISA and the Code the noncompliance with which could reasonably be expected to have a Material Adverse Effect or result in liability individually or in the aggregate in excess of $5,000,000. (vi) No Single Employer Plan has incurred any accumulated funding deficiency (as defined in Sections 302(a)(2) of ERISA and 412(a) of the Code), whether or not waived. (vii) Neither Borrower nor any ERISA Affiliate has failed to make a required contribution or any other required payment to a Multiemployer Plan. (viii) Listed on SCHEDULE 4.01(K) hereto are all Pension Plans, Foreign Pension Plans and employee welfare benefit plans that provide retiree welfare benefits maintained or contributed to by Borrower or any ERISA Affiliate. (ix) Neither Borrower nor any ERISA Affiliate has engaged in a nonexempt prohibited transaction described in Sections 406 of ERISA or 4975 of the Code which is reasonably expected to result in liability of the Borrower or any ERISA Affiliate individually or in the aggregate in excess of $5,000,000. (l) Disclosure. As of the date hereof and the Effective Date, no representation or warranty of the Borrower or any of its Subsidiaries contained in this Agreement or any other Loan Document, or in any other document, certificate or written statement furnished to Lenders by or on behalf of the Borrower or any of its Subsidiaries for use in connection with the transactions contemplated by this Agreement contains any untrue statement of a material fact or omits to state a material fact (known to the Borrower, in the case of any document not furnished by it) necessary in order to make the statements contained in such agreements, documents, certificates and statements, taken as a whole, not misleading in light of the circumstances in which the same were made. Any projections and pro forma financial information contained in such materials are based upon good faith estimates and assumptions believed by the Borrower to be reasonable at the time made, it being recognized by Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results as of the date hereof or the Effective Date. (m) Insurance. The Borrower and its Subsidiaries have in full force insurance coverage of their respective properties, assets and business (including casualty, general liability, products liability and business interruption insurance) that is (i) no less protective in any material respect than the insurance the Borrower and its Subsidiaries have carried in accordance with their past practices or (ii) prudent given the nature of the business of the Borrower and its Subsidiaries and the prevailing practice among companies similarly situated. (n) Environmental Matters. (i) The Borrower and each of its Subsidiaries is in compliance in all material respects with all Environmental Laws the non- compliance with which could reasonably be expected to have a Material Adverse Effect or result in liability for the payment of amounts individually or in the aggregate in excess of $5,000,000, and (ii) there has been no "release or threatened release of a hazardous substance" (as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. SECTION 9601 et seq.) or any other release, emission or discharge into the environment of any hazardous or toxic substance, petroleum, pollutant or other materials from the Company's or its Subsidiaries' property other than as permitted under applicable Environmental Law and other than those which would not have a Material Adverse Effect or result in liability for the payment of amounts individually or in the aggregate in excess of $5,000,000. Other than disposals for which the Borrower has been indemnified in full, all "hazardous waste" (as defined by the Resource Conservation and Recovery Act, 42 U.S.C. SECTION6901 et seq., as amended, and the regulations thereunder, 40 CFR Part 261 ("RCRA")) generated at the Borrower's or any Subsidiaries' properties or through their operations has in the past been and shall continue to be disposed of at sites which maintain valid permits under RCRA and any applicable state or local Environmental Law. (o) Solvency. As of the Effective Date, the Borrower and each Subsidiary Guarantor is Solvent and will, immediately after giving effect to the transactions contemplated to occur in connection with this Agreement and the Dina Distribution, be Solvent. (p) Employee Matters. There is no strike or work stoppage in existence or threatened involving the Borrower or any of its Subsidiaries that may have a Material Adverse Effect. (q) Foreign Employee Benefit Matters. (i) Each Foreign Employee Benefit Plan is in compliance in all material respects with all laws, regulations and rules applicable thereto and the respective requirements of the governing documents for such Plan the noncompliance with which could reasonably be expected to have a Material Adverse Effect or result in liability individually or in the aggregate in excess of $5,000,000. (ii) The aggregate of the liabilities to provide all of the accrued benefits under any Foreign Pension Plan does not exceed the current fair market value of the assets held in the trust or other funding vehicle for such Plan. (iii) With respect to any Foreign Employee Benefit Plan maintained by the Borrower, any of its Subsidiaries or any ERISA Affiliate (other than a Foreign Pension Plan), reasonable reserves have been established in accordance with prudent business practice or where required by ordinary accounting practices in the jurisdiction in which such Plan is maintained. (iv) The aggregate unfunded liabilities, after giving effect to any reserves for such liabilities, with respect to any Foreign Employee Benefit Plan will not result in a liability to Borrower, any of its Subsidiaries or any ERISA Affiliate individually or in the aggregate in excess of $5,000,000. (v) There are no actions, suits or claims (other than routine claims for benefits) pending or threatened against the Borrower, any of its Subsidiaries or any ERISA Affiliates with respect to any Foreign Employee Benefit Plan. ARTICLE V COVENANTS OF THE BORROWER SECTION 5.1. AFFIRMATIVE COVENANTS. So long as any Advance shall remain unpaid, any Letter of Credit shall remain outstanding or any Lender shall have any Commitment hereunder, the Borrower will, unless the Majority Lenders shall otherwise consent in writing: (a) Reporting Requirements. Furnish to the Lenders: (i) as soon as available and in any event within 60 days after the end of each fiscal quarter (beginning with the fiscal quarter ending September 30, 1996), (A) the consolidated balance sheet for Dina and its consolidated Subsidiaries as at the end of such fiscal quarter and the related consolidated statements of income and cash flows of Dina and its consolidated Subsidiaries for such fiscal quarter and for the period from the beginning of the then current fiscal year to the end of such fiscal quarter, provided that so long as Dina is a foreign private issuer complying with reporting requirements under the Securities Exchange Act of 1934, the foregoing requirement shall be satisfied by the delivery of Dina's quarterly report for such fiscal quarter on Form 6K thereunder, and (B) the consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as at the end of such fiscal quarter and the related consolidated and consolidating statements of income and cash flows of the Borrower and its Subsidiaries for such fiscal quarter and for the period from the beginning of the then current fiscal year to the end of such fiscal quarter, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous fiscal year, all in reasonable detail and certified, in the case of any such financial statements of the Borrower, by the chief financial officer of the Borrower that they fairly present the financial condition of the Borrower and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments; (ii) as soon as available and in any event within 120 days after the end of each fiscal year, (A) the consolidated balance sheet of Dina and its consolidated Subsidiaries as at the end of such fiscal year and the related consolidated statements of income, stockholders' equity and cash flows of Dina and its consolidated Subsidiaries for such fiscal year, setting forth in comparative form the corresponding figures for the previous fiscal year, all in reasonable detail, provided that so long as Dina is a foreign private issuer complying with reporting requirements under the Securities Exchange Act of 1934, the foregoing requirement shall be satisfied by the delivery of Dina's annual report for such fiscal year on Form 20F thereunder, (B) the consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as at the end of such fiscal year and the related consolidated and consolidating statements of income, stockholders' equity and cash flows of the Borrower and its Subsidiaries for such fiscal year, setting forth in comparative form the corresponding figures for the previous fiscal year, all in reasonable detail and certified by the chief financial officer of the Borrower that they present fairly in all material respects the financial condition of the Borrower and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, and (C) in the case of such consolidated financial statements of the Borrower and Dina, reports thereon of Arthur Andersen LLP or other independent auditors of recognized national standing selected by the Borrower or Dina, as the case may be, and (in the case of any such auditor selected by the Borrower) satisfactory to the Administrative Agent, which reports shall be unqualified, shall not include any reference to doubts about the ability of the Borrower and its Subsidiaries or Dina and its Subsidiaries, as the case may be, to continue as a going concern and, in the case of any such report concerning the financial statements of the Borrower, shall state that such consolidated financial statements present fairly the financial position of the Borrower and its Subsidiaries as at the dates indicated and the results of their operations and cash flow for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as stated therein); (iii) together with each delivery of financial statements of the Borrower and its Subsidiaries pursuant to subdivisions (i) and (ii) above, a Compliance Certificate substantially in the form of EXHIBIT G annexed hereto certifying as to the absence of any Event of Default and demonstrating in reasonable detail compliance during and at the end of the applicable accounting periods with the restrictions contained in Sections (a)(ii), (a)(vii), (c)(iv), and (d)(vi) of Section 5.02 and in Section 5.03; (iv) together with each delivery of consolidated financial statements of the Borrower and its Subsidiaries pursuant to subdivision (ii) above, a written statement by the independent certified public accountants giving the report thereon (a) stating that their audit examination has included a review of the terms of this Agreement and the other Loan Documents as they relate to accounting matters, (b) stating whether, in connection with their audit examination, any condition or event that constitutes an Event of Default or Potential Event of Default has come to their attention and, if such a condition or event has come to their attention, specifying the nature and period of existence thereof; provided that such accountants shall not be liable by reason of any failure to obtain knowledge of any such Event of Default or Potential Event of Default that would not be disclosed in the course of their audit examination, and (c) stating that based on their audit examination nothing has come to their attention that causes them to believe that the matters set forth in the Compliance Certificate delivered pursuant to clause (iii) above for the applicable fiscal year are not stated in accordance with the terms of this Agreement; (v) as soon as possible and in any event within five days after the occurrence of each Event of Default and each Potential Event of Default, continuing on the date of such statement, a statement of an authorized financial officer of the Borrower setting forth details of such Event of Default or event and the action which the Borrower has taken and proposes to take with respect thereto; (vi) promptly after any significant change in accounting policies or reporting practices, notice and a description in reasonable detail of such change; (vii) promptly and in any event within 30 days after the Borrower or any ERISA Affiliate knows or has reason to know that any ERISA Event referred to in clause (i) of the definition of ERISA Event with respect to any Pension Plan has occurred which might result in liability to the PBGC, a statement of the chief accounting officer of the Borrower describing such ERISA Event and the action, if any, that the Borrower or such ERISA Affiliate has taken or proposes to take with respect thereto; (viii) promptly and in any event within 10 days after the Borrower or any ERISA Affiliate knows or has reason to know that any ERISA Event (other than an ERISA Event referred to in (vii) above) with respect to any Pension Plan has occurred which might result in liability to the PBGC, a statement of the chief accounting officer of the Borrower describing such ERISA Event and the action, if any, that the Borrower or such ERISA Affiliate has taken or proposes to take with respect thereto; (ix) promptly and in any event within five Business Days after receipt thereof by the Borrower or any ERISA Affiliate from the PBGC, copies of each notice from the PBGC of its intention to terminate any Pension Plan or to have a trustee appointed to administer any Pension Plan; (x) promptly and in any event within seven Business Days after receipt thereof by the Borrower or any ERISA Affiliate from the sponsor of a Multiemployer Plan, a copy of each notice received by the Borrower or any ERISA Affiliate concerning (w) the imposition of Withdrawal Liability by a Multiemployer Plan, (x) the determination that a Multiemployer Plan is, or is expected to be, in reorganization within the meaning of Title IV of ERISA, (y) the termination of a Multiemployer Plan within the meaning of Title IV of ERISA or (z) the amount of liability incurred, or expected to be incurred, by the Borrower or any ERISA Affiliate in connection with any event described in clause (w), (x) or (y) above; (xi) promptly and in any event within five Business Days after the filing thereof with the Internal Revenue Service, a copy of each funding waiver request filed with respect to any Single Employer Plan; (xii) promptly after the commencement thereof, notice of all material actions, suits and proceedings before any court or government department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting the Borrower or any of its Subsidiaries, of the type described in Section 4.01(g); (xiii) promptly after the occurrence thereof, notice of (A) any event which makes any of the representations contained in Section 4.01(n) inaccurate in any material respect or (B) the receipt by the Borrower of any notice, order, directive or written demand from a governmental authority or third party alleging violations of, noncompliance with or liability under any Environmental Law which could reasonably be expected to have a Material Adverse Effect or result in liability for the payment of amounts individually or in the aggregate in excess of $5,000,000; (xiv) promptly upon their becoming available, copies of (a) all financial statements, reports, notices and proxy statements sent or made available generally by the Company to its security holders or by any Subsidiary of the Company to its security holders other than the Company or another Subsidiary of the Company, (b) all regular and periodic reports and all registration statements (other than on Form S-8 or a similar form) and prospectuses, if any, filed by the Company or any of its Subsidiaries with any securities exchange or with the Securities and Exchange Commission or any governmental or other regulatory authority, and (c) all press releases and other statements made available generally by the Company or any of its Subsidiaries to the public concerning material developments in the business of the Company or any of its Subsidiaries; and (xv) such other information respecting the condition or operations, financial or otherwise, of the Company, the Borrower or any of their respective Subsidiaries as any Lender through the Administrative Agent may from time to time reasonably request. (b) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, (i) complying with all Environmental Laws, ERISA, the Code and all laws applicable to Foreign Employee Benefit Plans and (ii) paying before the same become delinquent all taxes, assessments and governmental charges imposed upon it or upon its property except to the extent contested in good faith, except where failure to so comply would not reasonably be expected to result in liability for the payment of amounts individually or in the aggregate in excess of $5,000,000 or to have a Material Adverse Effect. (c) Corporate Existence, Etc. The Borrower will, and will cause each of its Material Subsidiaries to, at all times maintain its fundamental business and preserve and keep in full force and effect its corporate existence (except as permitted under Section 5.02(e) hereof) and all rights, franchises and licenses necessary or desirable in the normal conduct of its business; provided, however, that the corporate existence of any Subsidiary of the Borrower which is not a Material Subsidiary may be terminated if (i) after giving effect thereto, no Event of Default or Potential Event of Default shall have occurred and be continuing, (ii) such termination is determined in good faith by the board of directors of the Borrower to be in the best interests of the Borrower and (iii) such termination is not disadvantageous to the Lenders. (d) Maintenance of Insurance. The Borrower will and will cause each of its Subsidiaries to maintain insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as are usually insured by companies engaged in similar businesses. (e) Inspection of Property; Books and Records; Discussions. The Borrower shall permit, and cause the Company and each of the Borrower's Subsidiaries to permit, any authorized representative(s) designated by either the Administrative Agent or any Lender to visit and inspect any of the properties of the Company, the Borrower or any of its Subsidiaries, to examine, audit, check and make copies of their respective financial and accounting records, books, journals, orders, receipts and any correspondence and other data relating to their respective businesses or the transactions contemplated hereby and to discuss their affairs, finances and accounts with their officers and independent certified public accountants (provided that representative(s) of the Borrower shall be entitled to be included in or present at any such discussions with such accountants), all upon reasonable notice and at such reasonable times during normal business hours, as often as may be reasonably requested. The Borrower shall keep and maintain, and cause the Company and each of the Borrower's Subsidiaries to keep and maintain, in all material respects, proper books of record and account in which entries in conformity with GAAP shall be made of all dealings and transactions in relation to their respective businesses and activities. SECTION 5.2. NEGATIVE COVENANTS. So long as any Advance shall remain unpaid, any Letter of Credit shall remain outstanding or any Lender shall have any Commitment hereunder, without the written consent of the Majority Lenders: (a) Debt. The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or guaranty, or otherwise become or remain directly or indirectly liable with respect to, any Debt, except: (i) the Borrower and the Subsidiary Guarantors may become and remain liable with respect to the Obligations; (ii) the Borrower and its Subsidiaries may become and remain liable with respect to unsecured Debt (in addition to Debt otherwise permitted by this Section 5.02(a)) in an aggregate outstanding principal amount which, when added to the aggregate liability of the Borrower and its Subsidiaries with respect to Contingent Obligations incurred pursuant to Section 5.02(d)(vi), does not exceed $25,000,000; (iii) any wholly-owned Subsidiary of the Borrower other than any Foreign Subsidiary may become and remain liable with respect to Debt to the Borrower; provided that any payment by any Subsidiary Guarantor of the Obligations shall result in a pro tanto reduction of the amount of any intercompany Debt owed by such Subsidiary to the Borrower or to any of its Subsidiaries for whose benefit such payment is made; (iv) the Borrower and its Subsidiaries, as applicable, may remain liable with respect to the Debt described in SCHEDULE 5.02(A) annexed hereto and with respect to any renewals, refundings or refinancings thereof to the extent that any such renewal, refunding or refinancing does not increase the original principal amount thereof or grant collateral security not provided for under terms of the original Debt as of the Effective Date; (v) the Borrower and the Subsidiary Guarantors may become and remain liable with respect to the Senior Notes and any renewals, refundings or refinancings of all or any part of the Senior Notes consummated on terms and conditions acceptable to each of the Lenders (which terms shall include, without limitation, no amortization, mandatory prepayments or other required payments shall be required prior to ninety-one (91) days after the Termination Date); (vi) Universal Coach Parts, Inc. may become and remain liable under that certain promissory note dated April 17, 1995, in the principal amount of $890,000 payable to Billingsley Parts and Equipment, Inc.; provided the principal amount outstanding thereunder at no time exceeds $890,000; (vii) one or more of the Borrower's Foreign Subsidiaries organized under the laws of Canada or any Canadian Province may become and remain liable with respect to Debt in an aggregate principal amount not exceeding U.S. $25,000,000 (or the Canadian equivalent thereof) (the "Canadian Debt"), which aggregate amount shall include any such Debt outstanding on the date hereof or any renewal, refunding or refinancing thereof and any such Debt advanced by the Borrower, and the Borrower may become and remain liable with respect to any guaranty of the Canadian Debt; and (viii) subject to Section 2.07(b)(iii)(B), the Borrower may become and remain liable with respect to unsecured Debt incurred pursuant to a Financing consummated on terms and conditions acceptable to each of the Lenders (including, without limitation, amount, maturity, amortization, interest rate, premiums, fees, covenants, events of default, remedies and, if applicable, subordination terms). (b) Liens, Etc. The Borrower will not create or suffer to exist, or permit any of its Subsidiaries to create or suffer to exist, any Lien upon or with respect to any of their properties, whether now owned or hereafter acquired, or assign, or permit any of such Persons to assign, any right to receive income, in each case to secure or provide for the payment of any Debt or Contingent Obligations of any Person; provided however that the foregoing restriction shall not apply to the following Liens which are permitted: (i) Permitted Encumbrances; and (ii) Liens, if any, created and existing in favor of the Administrative Agent, for the ratable benefit of the Lenders. (c) Investments. The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, make or own any Investment in any Person, except: (i) the Borrower and its Subsidiaries may make and own Investments in Cash Equivalents; (ii) the Borrower may make intercompany loans to its wholly-owned Subsidiary Guarantors and to its Foreign Subsidiaries organized under the laws of Canada or any Canadian Province (subject to the limitation set forth in Section 5.02(a)(vii)); (iii) the Borrower and its Subsidiaries may continue to own the Investments owned by them as of the date hereof, including Investments in the Subsidiaries of the Company listed on SCHEDULE 4.01(B) annexed hereto and those Investments described in SCHEDULE 5.02(C) annexed hereto; (iv) the Borrower and its Subsidiaries may in the ordinary course of business consistent with past practice (including, without limitation, practices relating to international joint ventures) make and maintain other Investments; provided that (A) except as permitted in accordance with Section 5.02(l), such Investments shall not include investments in Dina or any of its Subsidiaries (other than the Borrower and its Subsidiaries) and (B) the aggregate outstanding amount of such Investments shall not at any time exceed $15,000,000; (v) MCIL may make Investments in its Subsidiaries; and (vi) the Borrower or any of its Subsidiaries may hold the promissory note dated November 29, 1994 in the original principal amount of $3,152,150 from NovaBus of America, Inc. as partial consideration of the Borrower's sale of its transit bus business as conducted by Transit Bus International, Inc. (formerly known as Transportation Manufacturing Corporation); provided that payment of all principal and interest owing under such promissory note is at all times supported by an irrevocable standby letter of credit issued to the Borrower or any Subsidiary holding such promissory note by a commercial bank having, as of the Effective Date and as of the date of issuance of any replacement letter of credit, a rating of A and A2, as applicable, or better from S&P and Moody's. (d) Contingent Obligations. The Borrower shall not, and shall not permit any of its Subsidiaries to, become or remain, directly or indirectly, liable with respect to any Contingent Obligations, except: (i) the Borrower and its Subsidiaries may become and remain liable with respect to Contingent Obligations in favor of bonding companies, incurred in the ordinary course of business consistent with past practice, with respect to performance and warranty bonds in an aggregate outstanding amount not exceeding $25,000,000 plus the aggregate principal amount of additional performance or warranty bonds, up to an amount not exceeding $180,000,000, required in relation to orders for coaches received from the New Jersey Transit Authority or similar requests for coaches by other municipal agencies after the date hereof; provided that, in the case of any such Contingent Obligations, any credit support therefor shall be in such forms and amounts as are reasonably consistent with past practice; (ii) the Borrower and its Subsidiaries may become and remain liable with respect to Contingent Obligations in favor of bonding companies, incurred in the ordinary course of business consistent with past practice, with respect to bid bonds and other types of bonds listed on SCHEDULE 5.02(D); (iii) the Borrower may become and remain liable with respect to Currency Agreements and Interest Rate Agreements in the ordinary course of business pursuant to which Borrower has hedged actual interest rate or foreign currency exposure and which are non- speculative; (iv) the Borrower may become and remain liable under guaranties of the Debt of any of the Borrower's Foreign Subsidiaries organized under Canadian law, provided that the aggregate outstanding amount of such guarantied Debt shall be treated as an Investment and permitted only to the extent permitted under Section 5.02(c); (v) the Borrower and its Subsidiaries may remain liable with respect to Contingent Obligations existing as of the date hereof and listed on SCHEDULE 5.02(A); (vi) the Borrower and its Subsidiaries may become and remain liable with respect to Contingent Obligations (in addition to Contingent Obligations otherwise permitted by this Section 5.02(d)) incurred in the ordinary course of business consistent with past practice (excluding any guaranties of the obligations of any Foreign Subsidiary), provided that the Borrower's and its Subsidiaries' aggregate liability with respect to such Contingent Obligations, when added to the aggregate outstanding principal amount of Debt of the Borrower and its Subsidiaries incurred pursuant to Section 5.02(a)(ii), does not exceed $25,000,000; (vii) the Subsidiary Guarantors may become and remain liable under the Guaranties and under guaranties of the Senior Notes; and (viii) the Borrower and its Subsidiaries may become and remain liable under Financial Guaranties to the extent such Financial Guaranties are otherwise permitted under Section 5.03(a). (e) Restrictions on Fundamental Changes. The Borrower shall not, and shall not permit any of its Subsidiaries to, alter its corporate, capital or legal structure, or enter into any transaction of merger or consolidation, or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, sublease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any substantial part of its business, property or fixed assets, whether now owned or hereafter acquired, or acquire by purchase or otherwise all or substantially all the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person, except: (i) any Subsidiary of the Borrower may be merged or consolidated with or into the Borrower or any wholly-owned Subsidiary of the Borrower (provided that such wholly-owned Subsidiary is a Subsidiary Guarantor), or be liquidated, wound up or dissolved, or all or any substantial part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to the Borrower or any wholly-owned Subsidiary of the Borrower that is a Subsidiary Guarantor; provided that, in the case of such a merger or consolidation, the Borrower or such wholly-owned Subsidiary shall be the continuing or surviving corporation; and provided further that any wholly-owned Subsidiary that is not a Subsidiary Guarantor may be merged or consolidated with or into any other wholly- owned Subsidiary that is not a Subsidiary Guarantor; (ii) any Subsidiary of the Borrower may merge or consolidate with any other Person, or the Borrower or any Subsidiary of the Borrower may acquire the business, property, assets or outstanding capital stock of such other Person, provided (A) that the entity surviving any such merger or consolidation or, in the case of any acquisition of stock, the issuer of such stock will, upon giving effect to such merger, consolidation or acquisition, be (1) a wholly-owned Subsidiary of the Borrower and (2) a guarantor of the Obligations pursuant to the terms of a Guaranty, and (B) that, after giving effect to such merger, consolidation or acquisition, the Company, the Borrower and their respective Subsidiaries are in compliance with all of their respective covenants and agreements set forth in this Agreement; (iii) the Borrower and its Subsidiaries may in each calendar year sell, lease, transfer or otherwise dispose of assets and properties (other than stock of their Subsidiaries) having an aggregate fair market value not in excess of 5.0% of the Borrower's consolidated total assets calculated as of the beginning of such calendar year; provided that the consideration received for such assets or properties shall be in an amount at least equal to the fair market value thereof; provided further that (A) dispositions of inventory (including, without limitation, sales or leases of buses or coaches which may or may not be included in inventory) in the ordinary course of business, (B) any disposition of assets expressly permitted under clause (iv) below, (C) any dispositions of plant, equipment and inventory used in the transit bus manufacturing and remanufacturing businesses of the Borrower and its Subsidiaries in connection with the discontinuation and liquidation of such businesses and (D) the Borrower's or any of its Subsidiary's sale of its interests (as lessor) under any leases of buses and/or coaches to customers in the ordinary course of business and/or sales of any assets underlying such leases, shall be excluded in determining compliance with the foregoing 5.0% limitation; and (iv) note, lease and other receivables (but not trade receivables) of the Borrower's Subsidiaries may be sold in arms-length transactions that are customary for receivables financings, including, among others, securitization transactions, which sales may be on a non-recourse basis or on a limited recourse basis; provided that any Contingent Obligations arising from any such recourse or limited recourse must be permitted under Section 5.02(d) and that the terms of any limited recourse sale shall be consistent with past practice. (f) Disposal of Subsidiary Stock. The Borrower shall not: (i) directly or indirectly sell, assign, pledge or otherwise encumber or dispose of any shares of capital stock or other equity securities of any of its Subsidiaries, except to qualify directors if required by applicable law; or (ii) permit any of its Subsidiaries directly or indirectly to sell, assign, pledge or otherwise encumber or dispose of any shares of capital stock or other equity securities of any of its Subsidiaries (including such Subsidiary), except to the Borrower, Subsidiary Guarantor, or to qualify directors if required by applicable law. (g) Plan Terminations. The Borrower will not, and will not permit any ERISA Affiliate to, terminate any Pension Plan so as to result in liability of the Borrower or any ERISA Affiliate to the PBGC individually or in the aggregate in excess of $5,000,000, or permit to exist any occurrence of an event or condition which reasonably presents a material risk of a termination by the PBGC of any Pension Plan with respect to which the Borrower or any ERISA Affiliate would, in the event of such termination, incur liability to the PBGC individually or in the aggregate in excess of $5,000,000. (h) Employee Benefit Costs and Liabilities. The Borrower will not, and will not permit any ERISA Affiliate to, create or suffer to exist, (i) any Insufficiency with respect to a Pension Plan, any Withdrawal Liability with respect to a Multiemployer Plan or any unfunded liabilities with respect to a Foreign Pension Plan if, immediately after giving effect thereto, such Insufficiencies, Withdrawal Liabilities and unfunded liabilities of all Pension Plans, Multiemployer Plans and Foreign Pension Plan, respectively, of the Borrower and its ERISA Affiliates exceeds $5,000,000, (ii) except as provided in Section 4980B of the Code and except as provided under the terms of any employee welfare benefit plans (A) in effect as of the date hereof or (B) provided from time to time pursuant to the terms of collective bargaining agreements, any employee benefit plan to provide health or welfare benefits (through the purchase of insurance or otherwise) for any retired or former employee of the Borrower or any of its ERISA Affiliate unless the Borrower and/or any of its ERISA Affiliates are permitted to terminate such benefits pursuant to the terms of such employee benefit plan, (iii) any accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of the Code), whether or not waived, (iv) any failure to pay any required installment or any other payment required under Section 412 of the Code that is reasonably likely to result in the imposition of a lien under Section 412(n) of the Code or (v) any failure to make any contribution or payment to any Multiemployer Plan which Borrower or any ERISA Affiliate may be required to make under any agreement relating to such Multiemployer Plan, or any law pertaining thereto. (i) No Restrictions on Subsidiary Distributions to Borrower or Other Subsidiaries. Except for encumbrances and restrictions that are identical to, or less restrictive than, those provided in this Agreement and except pursuant to the Canadian Debt, the Borrower will not, and will not permit the Company or any of its Subsidiaries to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any such Subsidiary to (i) pay dividends or make any other distributions on any of such Subsidiary's capital stock owned by the Borrower or any other Subsidiary of the Borrower, (ii) repay or prepay any Indebtedness owed by such Subsidiary to the Borrower or any other Subsidiary of the Borrower, (iii) make loans or advances to the Borrower or any other Subsidiary of the Borrower, or (iv) transfer any of its property or assets to the Borrower or any other Subsidiary of the Borrower. (j) Restricted Junior Payments. The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Junior Payment, except that: (i) the Borrower may make the Dina Distribution, provided that (a) any portion of the Dina Distribution not paid on the Effective Date shall be paid in a single payment on or before March 31, 1997, (b) on the date of such payment, no Event of Default or Potential Event of Default shall have occurred or be continuing, or would result therefrom, and (c) prior to the date of any such payment after the Effective Date, the Borrower shall deliver to the Administrative Agent a financial condition certificate signed by the chief financial officer or treasurer of the Borrower certifying that the Borrower is Solvent after giving effect to such payment and attaching thereto financial projections and a pro forma "fair value" balance sheet of the Borrower and its Subsidiaries supporting such certification, which certificate and attachments shall be in form and substance satisfactory to each of the Lenders; and (ii) as long as (a) no Event of Default or Potential Event of Default shall have occurred or be continuing, or would result therefrom, and (b) one of the following (a "Dividend Release Event") shall have occurred: (1) the Senior Notes shall have been refinanced on terms and conditions acceptable to the Administrative Agent and the Lenders and principal payments with respect to such refinancing indebtedness shall commence not earlier than ninety-one (91) days after the Termination Date; (2) all principal payments on the Senior Notes shall have been deferred until at least ninety-one (91) days after the Termination Date; or (3) the Borrower shall have received Net Cash Proceeds of at least $25,000,000 from a Financing, which Net Cash Proceeds shall have been applied either to the prepayment of the Obligations pursuant to Section 2.07(b)(iii)(B) or to the prepayment of principal payments on the Senior Notes which are payable prior to ninety-one (91) days after the Termination Date, and the principal payments with respect to such Financing shall commence not earlier than ninety-one (91) days after the Termination Date; then the Borrower may (A) declare and pay ordinary dividends on its outstanding common stock in such amounts as may be determined by its Board of Directors and (B) make other distributions (including, without limitations, dividends on preferred stock and payments for the redemption or repurchase of common or preferred stock) provided that the aggregate amount of all such distributions from and after the date hereof does not exceed 50% of cumulative Consolidated Net Income determined for all fiscal quarters ending after the occurrence of a Dividend Release Event but prior to the date of such distribution. (k) Conduct of Business; Transfer of Assets. The Borrower shall not, and shall not permit any of its Subsidiaries to, (i) engage in any business other than lines of business in which the Borrower and its Subsidiaries, taken as a whole, are engaged in on the date hereof or (ii) transfer or convey any of its or their assets to the Company, other than cash in respect of Restricted Junior Payments permitted by Section 5.02(j) or tax-related payments permitted by Section 5.02(l). (l) Transactions with Affiliates. The Borrower will not and will not permit any of its Subsidiaries directly or indirectly to enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with the Company or any Affiliate of the Company, the Borrower or with any director, officer or employee of any such Person, except (a) ordinary course compensation arrangements pursuant to the reasonable requirements of the business of the Borrower or any of its Subsidiaries and consistent with past practice in effect at such time as the common stock of the Company was publicly traded; (b) transactions in the ordinary course of and pursuant to the reasonable requirements of the business of the Borrower or any of its Subsidiaries and upon fair and reasonable terms which are no less favorable to the Borrower or such Subsidiary than would be obtained in a comparable arm's length transaction with a Person that is not such an Affiliate, director, officer or employee; (c) transactions arising from tax sharing arrangements among the Company, the Borrower and the Borrower's Subsidiaries, provided that pursuant to such arrangements the Borrower and its Subsidiaries shall not be obligated to make distributions to the Company in an amount in excess of the amount calculated pursuant to SCHEDULE 5.02(L) minus any amounts in respect of tax liabilities of the Company and its Subsidiaries paid directly by the Borrower or any of its Subsidiaries to any governmental entity; (d) transactions arising from the Borrower's cash management system, so long as title and dominion of the Borrower's and its Subsidiaries' accounts remain in the name of the Borrower and its Subsidiaries, all amounts held in such accounts are accessible by the Borrower and its Subsidiaries and not more than $5,000,000 is at any time held in such accounts; (e) transactions relating to licenses of trade names, technology and other intellectual property; (f) the payment of management fees at a time when no Event of Default or Potential Event of Default has occurred and is continuing to Dina of not more than $500,000 in the aggregate in any calendar year plus reasonable out- of-pocket expenses incurred by Dina in an amount not exceeding $500,000 in any calendar year; (g) joint ventures and other operating arrangements with Dina and its Subsidiaries the terms of which have been determined by the Borrower's board of directors in good faith to be fair and reasonable from the perspective of the Borrower and/or its Subsidiaries. Notwithstanding any provision of this Section 5.02(l) to the contrary, the Borrower and its Subsidiaries shall not (i) purchase, from Dina or any of its Subsidiaries (excluding the Borrower and its Subsidiaries) or Affiliates, any buses, coaches or other goods to be held in inventory if, upon giving effect to such purchase, the aggregate amount (valued at cost) of such inventory (excluding any buses or coaches sold and financed by the Borrower and any buses or coaches leased by the Borrower as lessor in the ordinary course of business) held by the Borrower and its Subsidiaries would exceed $20,000,000 at any time, or (ii) in connection with purchases permitted by clause (i) above, make payments therefor in advance of receipt of the inventory or provide commercial letters of credit for the account of the Borrower or any of its Subsidiaries and for the benefit of Dina or any of its Subsidiaries (excluding the Borrower and its Subsidiaries) in an aggregate amount that would exceed $7,500,000 at any time. (m) Management Contracts. The Borrower shall not, and shall not permit any of its Subsidiaries to, amend or modify the Management Contracts. SECTION 5.3. FINANCIAL COVENANTS. (a) Leverage Ratio. The Borrower will not permit the Leverage Ratio to be greater than the ratios set forth below at any time during the periods set forth below: Applicable Period Maximum Ratio Effective Date - March 30, 1997 4.25 to 1.00 March 31, 1997 - December 30, 1997 3.75 to 1.00 December 31, 1997 - December 30, 1998 3.25 to 1.00 At all times thereafter 3.00 to 1.00 (b) Fixed Charge Coverage Ratio. The Borrower will not permit the ratio ("Fixed Charge Coverage Ratio) of (i) the sum of Consolidated EBITDA minus Consolidated Capital Expenditures plus Consolidated Rental Payments to (ii) the sum of Consolidated Interest Expense plus Consolidated Rental Payments plus payments (but not prepayments) made with respect to scheduled amortization of all Debt of the Borrower and its Subsidiaries during such period plus consolidated cash tax expense with respect to income taxes of the Borrower and its consolidated Subsidiaries (whether paid directly or indirectly) plus the aggregate amount of cash dividends (or similar Restricted Junior Payments) other than the Dina Distribution paid during such period with respect to the Borrower's Capital Stock, determined as of the last day of each fiscal quarter for the four fiscal quarter period then ended, to be less than 1.40 to 1.00 as of the last day of any fiscal quarter; provided, if the Borrower does not refinance the Senior Notes and/or defer all principal payments thereon until at least ninety-one days after the Termination Date, in either case by March 30, 1998, then the Borrower will not permit the Fixed Charge Coverage Ratio, determined as of the last day of each fiscal quarter for the four fiscal quarter period then ended to be less than: (i) 1.05 to 1.00 for the fiscal quarters ending March 31, 1998 through December 31, 1998; and (ii) 1.25 to 1.00 for the fiscal quarter ending March 31, 1999 and each fiscal quarter thereafter. (c) Capitalization Ratio. The Borrower shall not permit the Capitalization Ratio to exceed 0.50 to 1.00 at any time. (d) Net Worth. The Borrower shall not at any time permit Consolidated Net Worth to be less than $250,000,000, plus 40% of cumulative Consolidated Net Income (including, for purposes of this Section, any after-tax gains or losses attributable to asset sales or returned surplus assets of any Pension Plan and any net extraordinary gains or net extraordinary losses) for each quarter ending after the date hereof plus 100% of the aggregate proceeds received by the Company, the Borrower or any of its Subsidiaries through the issuance and sale of any shares of its Capital Stock after the date hereof; provided that no effect shall be given to Consolidated Net Income for any quarter to the extent it is negative. ARTICLE VI EVENTS OF DEFAULT SECTION 6.1. EVENTS OF DEFAULT. If any of the following events ("Events of Default") shall occur and be continuing: (a) The Borrower shall fail to pay any principal of any Advance when the same becomes due and payable or the Borrower shall fail to pay any interest on any Advance or any fees or other amounts payable hereunder within five days of the date due; or (b) Any representation or warranty made by the Borrower herein or in connection with this Agreement shall prove to have been incorrect in any material respect when made; or (c) The Borrower shall fail to perform or observe (i) any term, covenant or agreement contained in Section 5.01(c), Section 5.01(e), Section 5.02 (other than subsection (b) and (d) thereof) or Section 5.03 or (ii) any other term, covenant or agreement contained in this Agreement on its part to be performed or observed if the failure to perform or observe such other term, covenant or agreement shall remain unremedied for 30 days after the Borrower obtains, or should have obtained, knowledge of such breach; or (d) The Borrower or any of its Subsidiaries shall fail to pay any principal of or premium or interest on any Debt which is outstanding in a principal amount of at least $5,000,000 in the aggregate (but excluding Debt arising under this Agreement) of the Borrower or any such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment or by a required prepayment of insurance proceeds or by a required prepayment as a result of formulas based on asset sales or excess cash flow), redeemed, purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or (e) The Borrower or any of its Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower or any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 60 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or the Borrower or any of its Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this clause (e); or (f) Any judgment or order for the payment of money in excess of $5,000,000 shall be rendered against the Borrower or any of its Subsidiaries and such judgment or order shall not be satisfied, bonded or stayed for any period of 10 consecutive days; or (g) Any Subsidiary Guarantor shall seek to revoke its guaranty of the Obligations; or any provisions of any Guaranty shall at any time for any reason cease to be valid and binding on any Subsidiary Guarantor (to the extent such Subsidiary Guarantor is a party to such Guaranty); or any Subsidiary Guarantor shall so state in writing; or (h) (i) Any ERISA Event with respect to a Pension Plan shall have occurred and, 30 days after notice thereof shall have been given to the Borrower by the Administrative Agent, (x) such ERISA Event shall still exist and (y) the sum (determined as of the date of occurrence of such ERISA Event) of the Insufficiency of such Pension Plan and the Insufficiency of any and all other Pension Plans with respect to which an ERISA Event shall have occurred and then exist (or in the case of a Pension Plan with respect to which an ERISA Event described in clause (iii) through (vi) of the definition of ERISA Event shall have occurred and then exist, the liability related thereto) is equal to or greater than $5,000,000; or (ii) The Borrower or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred an aggregate Withdrawal Liability for all years to such Multiemployer Plan in an amount that, when aggregated with all other amounts required to be paid to Multiemployer Plans by the Borrower and its ERISA Affiliates as Withdrawal Liability (determined as of the date of such notification), exceeds $5,000,000 and such Withdrawal Liability shall remain unpaid, or payment thereof shall not be stayed pending any judicial review or challenge relating to such Withdrawal Liability, for a period of 10 consecutive days; or (iii) The Borrower or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV or ERISA, if as a result of such reorganization or termination the aggregate annual contributions of the Borrower and its ERISA Affiliates to all Multiemployer Plans that are then in reorganization or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the plan year of such Multiemployer Plan immediately preceding the plan year in which the reorganization or termination occurs by an amount exceeding $5,000,000; or (iv) The plan administrator of any Single Employer Plan applies under Section 412(d) of the Code for a waiver of the minimum funding standards of Section 412(a) of the Code and the Administrative Agent reasonably believes that the substantial business hardship upon which the application for the waiver is based could subject Borrower of any ERISA Affiliate to a liability in excess of $5,000,000; or (i) The Borrower shall fail to pay such fees as have been mutually agreed upon between the Borrower and the Arranger or the Administrative Agent in relation to this Agreement within five days of the date due; (j) The following officers of the Borrower and its Subsidiaries and Affiliates shall be terminated from employment, or shall no longer be performing their current functions, in the respective positions set forth below at any time during the term of this Agreement for any reason whatsoever other than at any such officer's own election: (a) both of the Borrower Financial Officers; (b) either of the Borrower Financial Officers and any two of the Other Executive Officers; or (c) any three of the Other Executive Officers; Borrower Financial Officers: Treasurer Albert J. Abram Controller Jeffrey Sanders Other Executive Officers: Borrower Chief Operating Officer James P. Bernacchi Borrower Chief Financial Officer Jose L. O. Caballero Universal Coach Parts, Inc. President Jerry W. Bost Dina Chairman Rafael Gomez Flores Dina Director of Legal Affairs Guillermo Kareh Aarun Dina Commercial Director Gamaliel Garcia Cortes Hausman Bus Vice President - Sales and Francois Bouffard Sales, Inc. Marketing - U.S. and Canada then (i) upon the occurrence and during the continuance of any Event of Default described in the foregoing Section 6.01(e) each of (x) the unpaid principal amount of and accrued interest on the Advances, (y) an amount equal to the maximum amount which may at any time be drawn under all Letters of Credit then outstanding (whether or not any beneficiary under any Letter of Credit shall have presented, or shall be entitled at such time to present, the drafts or other documents required to draw under such Letter of Credit) and (z) all other Obligations shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by the Borrower and the obligation of each Lender to make any Advance, the obligation of the Swing Line Bank to make any Swing Line Loan and the obligation of any Lender or NBD Bank to issue any Letter of Credit hereunder shall thereupon terminate, and (ii) upon the occurrence and during the continuation of any other Event of Default, the Administrative Agent may, or upon the written request of Majority Lenders shall, by written notice to the Borrower (1) declare all of the Advances to be, and an amount equal to the amounts described in clauses (x) through (z) above to be, and the same shall forthwith become, due and payable, together with accrued interest thereon, and/or (2) terminate the obligation of each Lender to make any Advance, the obligation of the Swing Line Bank to make any Swing Line Loan and the obligation of any Lender or NBD Bank to issue any Letter of Credit hereunder shall thereupon terminate; provided that the foregoing shall not affect in any way the obligations of Lenders to purchase from the Swing Line Bank participations in the Swing Line Loans as provided in Section 2.03 or the obligations of Lenders to purchase from any Issuing Lender participations in the unreimbursed amount of any drawings under any Letters of Credit as provided in Section 2.04(d). So long as any Letter of Credit shall remain outstanding, any amounts described in clause (y) above with respect to such Letter of Credit, when received by the Administrative Agent, shall be held by the Administrative Agent pursuant to such documentation as the Administrative Agent shall request, as cash collateral for the obligation of the Borrower to reimburse the applicable Issuing Lender in the event of any drawing under such Letter of Credit, and so much of such funds shall at all times remain on deposit as cash collateral as aforesaid as shall equal the maximum amount available at any time for drawing under all Letters of Credit (the "Maximum Available Amount"); provided that, in the event of cancellation or expiration of any Letter of Credit or any reduction in the Maximum Available Amount, the Administrative Agent shall apply the difference between the Maximum Available Amount immediately prior to such cancellation, expiration or reduction and the Maximum Available Amount immediately after such cancellation or reduction, first, to the payment in full of the outstanding Obligations, and second, to the Borrower or to such other Person who may be lawfully entitled to receive such funds or as a court of competent jurisdiction may direct. ARTICLE VII THE ADMINISTRATIVE AGENT SECTION 7.1. APPOINTMENT; NATURE OF RELATIONSHIP. NBD Bank is appointed by the Lenders as the Administrative Agent hereunder and under each other Loan Document, and each of the Lenders irrevocably authorizes the Administrative Agent to act as the contractual representative of such Lender with the rights and duties expressly set forth herein and in the other Loan Documents. The Administrative Agent agrees to act as such contractual representative upon the express conditions contained in this Article VII. Notwithstanding the use of the defined term "Agent," it is expressly understood and agreed that the Administrative Agent shall not have any fiduciary responsibilities to any Lender by reason of this Agreement and that the Administrative Agent is merely acting as the representative of the Lenders with only those duties as are expressly set forth in this Agreement and the other Loan Documents. In its capacity as the Lenders' contractual representative, the Administrative Agent (i) does not assume any fiduciary duties to any of the Lenders, (ii) is a "representative" of the Lenders within the meaning of Section 9-105 of the Uniform Commercial Code and (iii) is acting as an independent contractor, the rights and duties of which are limited to those expressly set forth in this Agreement and the other Loan Documents. Each of the Lenders agrees to assert no claim against the Administrative Agent on any agency theory or any other theory of liability for breach of fiduciary duty, all of which claims each Lender waives. SECTION 7.2. POWERS. The Administrative Agent shall have and may exercise such powers under the Loan Documents as are specifically delegated to the Administrative Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. The Administrative Agent shall have no implied duties or fiduciary duties to the Lenders, or any obligation to the Lenders to take any action hereunder or under any of the other Loan Documents except any action specifically provided by the Loan Documents required to be taken by the Administrative Agent. SECTION 7.3. GENERAL IMMUNITY. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable to the Borrower, the Lenders or any Lender for any action taken or omitted to be taken by it or them hereunder or under any other Loan Document or in connection herewith or therewith except to the extent such action or inaction is found in a final judgment by a court of competent jurisdiction to have arisen solely from (i) the Gross Negligence or willful misconduct of such Person or (ii) breach of contract by such Person with respect to the Loan Documents. SECTION 7.4. NO RESPONSIBILITY FOR LOANS, CREDITWORTHINESS, RECITALS, ETC. Neither the Administrative Agent nor any of its directors, officers, affiliates, agents or employees shall be responsible for or have any duty to ascertain, inquire into, or verify (i) any statement, warranty or representation made in connection with any Loan Document or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of any obligor under any Loan Document; (iii) the satisfaction of any condition specified in Article III, except receipt of items required to be delivered solely to the Administrative Agent; (iv) the existence or possible existence of any Event of Default or Potential Event of Default or (v) the validity, effectiveness or genuineness of any Loan Document or any other instrument or writing furnished in connection therewith. The Administrative Agent shall not be responsible to any Lender for any recitals, statements, representations or warranties herein or in any of the other Loan Documents or for the execution, effectiveness, genuineness, validity, legality, enforceability, collectibility, or sufficiency of this Agreement or any of the other Loan Documents or the transactions contemplated thereby, or for the financial condition of any guarantor of any or all of the Obligations, the Company, the Borrower or any of their respective Subsidiaries. SECTION 7.5. ACTION ON INSTRUCTIONS OF LENDERS. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and under any other Loan Document in accordance with written instructions signed by the Majority Lenders (unless all of the Lenders are expressly required pursuant to the terms of this Agreement), and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders and on all holders of Notes. The Administrative Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Loan Document unless it shall first be indemnified to its satisfaction by the Lenders pro rata against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action. SECTION 7.6. EMPLOYMENT OF AGENTS AND COUNSEL. The Administrative Agent may execute any of its duties as the Administrative Agent hereunder and under any other Loan Document by or through employees, agents, and attorney-in-fact and shall not be answerable to the Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. The Administrative Agent shall be entitled to advice of counsel concerning the contractual arrangement between the Administrative Agent and the Lenders and all matters pertaining to the Administrative Agent's duties hereunder and under any other Loan Document. SECTION 7.7. RELIANCE ON DOCUMENTS; COUNSEL. The Administrative Agent shall be entitled to rely upon any Note, notice, consent, certificate, affidavit, letter, telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by the Administrative Agent, which counsel may be employees of the Administrative Agent. SECTION 7.8. THE ADMINISTRATIVE AGENT'S REIMBURSEMENT AND INDEMNIFICATION. The Lenders agree to reimburse and indemnify the Administrative Agent ratably in proportion to their respective Commitment (i) for any amounts not reimbursed by the Borrower for which the Administrative Agent is entitled to reimbursement by the Borrower under the Loan Documents, (ii) for any other expenses incurred by the Administrative Agent on behalf of the Lenders, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents and (iii) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of the Loan Documents or any other document delivered in connection therewith or the transactions contemplated thereby, or the enforcement of any of the terms thereof or of any such other documents, provided that no Lender shall be liable for any of the foregoing to the extent any of the foregoing is found in a final non-appealable judgment by a court of competent jurisdiction to have arisen solely from the Gross Negligence or willful misconduct of the Administrative Agent. SECTION 7.9. RIGHTS AS A LENDER. With respect to its Commitment, Advances made by it and the Notes issued to it, the Administrative Agent shall have the same rights and powers hereunder and under any other Loan Document as any Lender and may exercise the same as though it were not the Administrative Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Administrative Agent in its individual capacity. The Administrative Agent may accept deposits from, lend money to, and generally engage in any kind of trust, debt, equity or other transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Borrower or any of its Subsidiaries or Affiliates in which such Person is not prohibited hereby from engaging with any other Person. SECTION 7.10. LENDER CREDIT DECISION. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent, the Arranger or any other Lender and based on the financial statements prepared by the Borrower and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent, the Arranger or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents. SECTION 7.11. SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower, and the Administrative Agent may be removed at any time with or without cause by written notice received by the Administrative Agent from the Majority Lenders. Upon any such resignation or removal, the Majority Lenders shall have the right to appoint, on behalf of the Borrower and the Lenders, a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Majority Lenders and shall have accepted such appointment within thirty days after the retiring Administrative Agent's giving notice of resignation, then the retiring Administrative Agent may appoint, on behalf of the Borrower and the Lenders, a successor Administrative Agent. Notwithstanding anything herein to the contrary, so long as no Event of Default has occurred and is continuing, each such successor Administrative Agent shall be subject to approval by the Borrower, which approval shall not be unreasonably withheld. Such successor Administrative Agent shall be an Eligible Assignee. Upon the acceptance of any appointment as the Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Article VII shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent hereunder and under the other Loan Documents. SECTION 7.12. LOAN DOCUMENTS. Each of the Lenders, by its execution hereof or acceptance of the benefits hereof, hereby appoints the Administrative Agent hereunder (including any successor Administrative Agent) as its Administrative Agent for the purpose of executing and delivering, and accepting the delivery of, any Guaranty and hereby authorizes the Administrative Agent, as such Lender's Administrative Agent, to enter into such Loan Documents on behalf of and for the benefit of the Lenders with the understanding that each Lender and the Administrative Agent shall be bound thereby. The Administrative Agent shall not enter into any amendment or modification of any such Loan Document without the prior written consent of Majority Lenders. Each of the Lenders and the Administrative Agent agree that no Lender shall have any right individually to enforce any Guaranty, it being agreed and understood that all rights and remedies available to the Lenders and the Administrative Agent thereunder shall be exercised by the Administrative Agent, for the benefit of itself and the Lenders in accordance with the terms of such Loan Documents and this Agreement. Each of the Lenders and the Administrative Agent agree that all rights and remedies available to the Lenders and the Administrative Agent shall be exercised by the Administrative Agent, for the benefit of the Lenders in accordance with the terms of this Agreement and the other Loan Documents. ARTICLE VIII MISCELLANEOUS SECTION 8.1. AMENDMENTS, ETC. No amendment or waiver of any provision of this Agreement, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Majority Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all the Lenders, do any of the following: (a) waive any of the conditions specified in Section 3.01, (b) increase the Commitments of the Lenders or subject the Lenders to any additional obligations, (c) reduce the principal of, or interest on, the Advances or any fees or other amounts payable hereunder, (d) postpone any date fixed for any mandatory reduction in the Commitments or payment of principal of, or interest on, the Advances or any fees or other amounts payable hereunder, (e) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Advances, or the number of Lenders, which shall be required for the Lenders or any of them to take any action hereunder or (f) amend this Section 8.01; and provided, further, that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Administrative Agent under this Agreement; and provided still further that no amendment, waiver or consent shall, unless in writing signed by the Swing Line Bank, affect the rights and duties of the Swing Line Bank; and provided still further that no amendment, waiver or consent shall, unless in writing signed by each Issuing Bank having issued an outstanding Letter of Credit, affect the rights and duties of such Issuing Bank with respect to any such Letter of Credit. SECTION 8.2. NOTICES, ETC. All notices and other communications provided for hereunder shall be in writing (including telecopier, telegraphic, telex or cable communication) and mailed, telecopied, telegraphed, telexed, cabled or delivered, if to the Company or the Borrower, at their address at 1850 North Central Avenue, 9th Floor, Phoenix, Arizona 85004, Attention: Treasurer; if to any Lender named on SCHEDULE 1.01 hereto, at its Domestic Lending Office specified opposite its name on SCHEDULE 1.01 hereto; if to any other Lender, at its Domestic Lending Office specified in the Assignment and Acceptance pursuant to which it became a Lender; and if to the Administrative Agent, (A) for all notices and communications relating to assignments, borrowings or repayments, including, without limitation, any Notice of Borrowing, Notice of Conversion/Continuation or notice of repayment or prepayment, at its address at NBD Bank, 611 Woodward Avenue, Detroit, Michigan 48226, Attention: Kathy Boles with a copy of any such Notice of Borrowing or notice of repayment or prepayment being sent by telecopy to NBD Bank, telecopier number 313-225-2747, Attention: Kathy Boles, and (B) for legal notices at Sidley & Austin, One First National Plaza, Chicago, Illinois 60603 Attention: Douglas H. Williams, telecopier number 312- 853-7036; or, as to the Borrower or the Administrative Agent, at such other address as shall be designated by such party in a written notice to the other parties and, as to each other party, at such other address as shall be designated by such party in a written notice to the Borrower and the Administrative Agent. All such notices and communications shall, when personally delivered, mailed, telecopied, telegraphed, telexed or cabled, be effective when personally delivered, after five (5) days after being deposited in the mails, when delivered to the telegraph company, when confirmed by telex answerback or when delivered to the cable company, respectively, except that notices and communications to the Administrative Agent pursuant to Article II or VII shall not be effective until received by the Administrative Agent. SECTION 8.3. NO WAIVER; REMEDIES. No failure on the part of any Lender or the Administrative Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 8.4. COSTS, EXPENSES AND INDEMNIFICATION. (a) Expenses. The Borrower shall reimburse the Administrative Agent and the Arranger for any reasonable costs and out-of-pocket expenses (including attorneys' and paralegals' fees and time charges of attorneys and paralegals for the Administrative Agent and the Arranger, which attorneys and paralegals may be employees of the Administrative Agent or the Arranger) paid or incurred by the Administrative Agent or the Arranger in connection with the preparation, negotiation, execution, delivery, syndication, review, amendment, modification, and administration of the Loan Documents. The Borrower also agrees to reimburse the Administrative Agent, the Arranger and the Lenders for any costs, and out-of-pocket expenses (including attorneys' and paralegals' fees and time charges of attorneys and paralegals for the Administrative Agent, the Arranger and the Lenders, which attorneys and paralegals may be employees of the Administrative Agent, the Arranger or the Lenders) paid or incurred by the Administrative Agent, the Arranger or any Lender in connection with the collection of the Obligations and enforcement of the Loan Documents. In addition to expenses set forth above, the Borrower agrees to reimburse the Administrative Agent, promptly after the Administrative Agent's request therefor, for each audit or other business analysis performed by or for the benefit of the Lenders in connection with this Agreement or the other Loan Documents in an amount equal to the Administrative Agent's then customary charges for each person employed to perform such audit or analysis, plus all costs and expenses (including without limitation, travel expenses) incurred by the Administrative Agent in the performance of such audit or analysis. Administrative Agent shall provide the Borrower with a detailed statement of all reimbursements requested under this Section 8.04(A). (b) Indemnity. The Borrower further agrees to defend, protect, indemnify, and hold harmless the Administrative Agent, the Arranger and each and all of the Lenders and each of their respective Affiliates, and each of such Administrative Agent's, Arranger's, Lender's, or Affiliate's respective officers, directors, employees, attorneys and agents (including, without limitation, those retained in connection with the satisfaction or attempted satisfaction of any of the conditions set forth in Article III) (collectively, the "Indemnitees") from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses of any kind or nature whatsoever (including, without limitation, the fees and disbursements of counsel for such Indemnitees in connection with any investigative, administrative or judicial proceeding, whether or not such Indemnitees shall be designated a party thereto), imposed on, incurred by, or asserted against such Indemnitees in any manner relating to or arising out of: (i) this Agreement, the other Loan Documents, or any act, event or transaction related or attendant thereto, the making of the Advances, the making of the Dina Distribution and the issuance of and participation in Letters of Credit hereunder, the management of such Advances or Letters of Credit, the use or intended use of the proceeds of the Advances or Letters of Credit hereunder, or any of the other transactions contemplated by the Loan Documents; or (ii) any liabilities, obligations, responsibilities, losses, damages, personal injury, death, punitive damages, economic damages, consequential damages, treble damages, intentional, willful or wanton injury, damage or threat to the environment, natural resources or public health or welfare, costs and expenses (including, without limitation, attorney, expert and consulting fees and costs of investigation, feasibility or remedial action studies), fines, penalties and monetary sanctions, interest, direct or indirect, known or unknown, absolute or contingent, past, present or future relating to violation of any environmental, health or safety requirements of law arising from or in connection with the past, present or future operations of the Company, the Borrower, its Subsidiaries or any of their respective predecessors in interest, or, the past, present or future environmental, health or safety condition of any respective property of the Borrower or its Subsidiaries, the presence of asbestos-containing materials at any respective property of the Borrower or its Subsidiaries or the release or threatened release of any contaminant or hazardous substance into the environment (collectively, the "Indemnified Matters"); provided, however, the Borrower shall have no obligation to an Indemnitee hereunder with respect to Indemnified Matters caused solely by or resulting solely from the willful misconduct or Gross Negligence of such Indemnitee or breach of contract by such Indemnitee with respect to the Loan Documents, in each case, as determined by the final non-appealed judgment of a court of competent jurisdiction. If the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all Indemnified Matters incurred by the Indemnitees. (c) Waiver of Certain Claims; Settlement of Claims. The Borrower further agrees to assert no claim against any of the Indemnitees on any theory of liability for consequential, special, indirect, exemplary or punitive damages. No settlement shall be entered into by the Company, the Borrower or any if its Subsidiaries with respect to any claim, litigation, arbitration or other proceeding relating to or arising out of the transaction evidenced by this Agreement or the other Loan Documents or in connection with the Dina Distribution (whether or not the Administrative Agent or any Lender or any Indemnitee is a party thereto) unless such settlement releases all Indemnitees from any and all liability with respect thereto. (d) Survival of Agreements. The obligations and agreements of the Borrower under this Section 8.04 shall survive the termination of this Agreement. SECTION 8.5. RIGHT OF SET-OFF. Upon (i) the occurrence and during the continuance of any Event of Default and (ii) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Administrative Agent to declare the Advances due and payable pursuant to the provisions of Section 6.01, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (time or demand, provisional or final, or general, but not special) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement that are then due and payable, whether or not such Lender shall have made any demand under this Agreement. Each Lender agrees promptly to notify the Borrower after any such set-off and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section 8.05 are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Lender may have. Notwithstanding any other provision of this Agreement, if (i) any Event of Default is then occurring or (ii) the Administrative Agent has declared the Advances due and payable pursuant to the provisions of Section 6.01, any Lender that sets off any such deposits or other indebtedness held or owing to such Lender, shall share the amount recovered by such Lender through such set-off with the other Lenders and the holders of the Senior Notes by purchasing participations in amounts outstanding under this Agreement (including, without limitation, Letters of Credit) and the Senior Notes, so that the amounts owing to each such Person under this Agreement (including, without limitation, the maximum amount that may be drawn under all outstanding Letters of Credit) and the Senior Notes are ratably reduced based on the aggregate of such amounts owing to all such Persons; provided, however, that if all or any portion of the amount recovered by any such set-off is thereafter recovered from such purchasing Lender, such purchase from each Lender and each holder of the Senior Notes shall be rescinded to the extent of such recovery and each Lender and Senior Noteholder shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender's or Senior Noteholder's ratable share (according to the proportion of (i) the amount of such Lender's or Senior Noteholder's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 8.05 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. The Borrower and the Lenders acknowledge that the provisions of this paragraph are for the benefit of the holders of the Senior Notes and that this paragraph may not be amended without the consent of the holders of a majority of the principal amount outstanding under the Senior Notes. SECTION 8.6. BINDING EFFECT. This Agreement shall become effective when it shall have been executed by the Borrower and the Administrative Agent and the Administrative Agent shall have been notified by each Lender that such Lender has executed it and thereafter shall be binding upon and inure to the benefit of the Company, the Borrower, the Administrative Agent and each Lender, and their respective successors and permitted assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of all Lenders. SECTION 8.7. ASSIGNMENTS AND PARTICIPATIONS. (a) Each Lender may assign to another Lender or, with the consent of the Borrower (which consent shall not be unreasonably withheld), to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment, its participations in Letters of Credit, its participations in Swing Line Loans and the Advances owing to it); provided, however, that (i) each such assignment shall be of a constant, and not a varying, percentage of all rights and obligations under this Agreement, (ii) after giving effect to any such assignment, (1) the assigning Lender shall no longer have any Commitment or (2) the amount of the assignment shall not be less than $5,000,000 (or after the occurrence of and during the continuance of an Event of Default such lesser amount to which the Administrative Agent has agreed), (iii) each such assignment shall be to an Eligible Assignee consented to by the Agent (which consent will not be unreasonably withheld), and (iv) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, and a processing and recordation fee of $3,500. Notwithstanding the foregoing, no consent of the Borrower shall be required for any assignment made (i) as part of the primary syndication of the Commitments and Obligations or (ii)after the occurrence and during the continuance of an Event of Default. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). Any Lender may at any time pledge or assign all or any portion of its rights hereunder to a Federal Reserve Bank without satisfying the requirements of clauses (i) through (iv) above; provided, that no such pledge or assignment shall release such Lender from any of its obligations hereunder. (b) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with any of the Loan Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of any of the Loan Documents or any other instrument or document furnished pursuant hereto or thereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or any Subsidiary Guarantor or the performance or observance by the Borrower or any Subsidiary Guarantor of any of its obligations under any of the Loan Documents or any other instrument or document furnished pursuant hereto or thereto; (iii) such assignee confirms that it has received a copy of the Loan Documents, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Administrative Agent, the Arranger, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Administrative Agent to take such action as Administrative Agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender. (c) The Administrative Agent shall maintain at its address referred to in Section 8.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Advances owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of the Loan Documents. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of the required recordation fee, an Assignment and Acceptance executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, and upon any necessary consent of the Borrower thereto, which consent shall not be unreasonably withheld, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of EXHIBIT A hereto, (i) accept such Assignment and Acceptance and (ii) record the information contained therein in the Register. (e) Each Lender may sell participations to one or more banks or other financial institutions in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment, its participations in Letters of Credit, its participation in Swing Line Loans and the Advances owing to it; provided, however, that (i) such Lender's obligations under this Agreement (including, without limitation, its Commitment to the Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Advance for all purposes of this Agreement, (iv) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents, and (v) no Lender shall grant any participation under which the participant shall have rights to require such Lender to take or omit to take any action hereunder or under the other Loan Documents or approve any amendment to or waiver of this Agreement or the other Loan Documents, except to the extent such amendment or waiver would: (A) extend the Termination Date; or (B) reduce the interest rate or the amount of principal or fees applicable to Advances or the Commitment in which such participant is participating. (f) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 8.07, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower, the Company or any Guarantor furnished to such Lender by or on behalf of the Borrower, the Company or any Guarantor; provided that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any confidential information relating to the Borrower, the Company or any Guarantor received by it from such Lender. SECTION 8.8. GOVERNING LAW. THE ADMINISTRATIVE AGENT ACCEPTS THIS AGREEMENT, ON BEHALF OF ITSELF AND THE LENDERS, AT CHICAGO, ILLINOIS BY ACKNOWLEDGING AND AGREEING TO IT THERE. ANY DISPUTE BETWEEN THE BORROWER AND THE AGENT OR ANY LENDER, ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF ILLINOIS. SECTION 8.9. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. SECTION 8.10. CONSENT TO JURISDICTION; SERVICE OF PROCESS. (A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (B), EACH OF THE PARTIES HERETO AGREES THAT ALL DISPUTES AMONG THEM ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED EXCLUSIVELY BY STATE OR FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS, BUT THE PARTIES HERETO ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF CHICAGO, ILLINOIS. EACH OF THE PARTIES HERETO WAIVES IN ALL DISPUTES BROUGHT PURSUANT TO THIS SUBSECTION (A) ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE. (B) OTHER JURISDICTIONS. THE BORROWER AGREES THAT THE ADMINISTRATIVE AGENT OR ANY LENDER SHALL HAVE THE RIGHT TO PROCEED AGAINST THE BORROWER OR ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1) OBTAIN PERSONAL JURISDICTION OVER THE BORROWER OR (2) TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PERSON. THE BORROWER AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY SUCH PERSON TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PERSON. THE BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH SUCH PERSON HAS COMMENCED A PROCEEDING DESCRIBED IN THIS SUBSECTION (B). (C) SERVICE OF PROCESS. THE BORROWER WAIVES PERSONAL SERVICE OF ANY PROCESS UPON IT AND IRREVOCABLY APPOINTS CT CORPORATION SYSTEM, INC., THE BORROWER'S REGISTERED AGENT, WHOSE ADDRESS IS 208 SOUTH LASALLE STREET, SUITE 1925, CHICAGO, ILLINOIS 60604, AS THE BORROWER'S AGENT FOR THE PURPOSE OF ACCEPTING SERVICE OF PROCESS ISSUED BY ANY COURT. THE BORROWER IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH IN ANY JURISDICTION SET FORTH ABOVE. SECTION 8.11. WAIVER OF TRIAL BY JURY; WAIVER OF BOND; ADVICE OF COUNSEL. (A) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including without limitation contract claims, tort claims, breach of duty claims and all other common law and statutory claims. Each party to this Agreement acknowledges that this waiver is a material inducement for each such party to enter into a business relationship, that such parties have already relied on this waiver in entering into this Agreement and that each such party will continue to rely on this waiver in its future dealings with the other parties hereunder. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, RESTATEMENTS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. (B) WAIVER OF BOND. THE BORROWER WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF ANY PARTY HERETO IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PARTY, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER, PRELIMINARY OR PERMANENT INJUNCTION, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. (C) ADVICE OF COUNSEL. EACH OF THE PARTIES REPRESENTS TO EACH OTHER PARTY HERETO THAT IT HAS DISCUSSED THIS AGREEMENT AND, SPECIFICALLY, THE PROVISIONS OF SECTIONS 8.10 AND 8.11, WITH ITS COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY IS ENTERING INTO THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION THE WAIVERS IN SUCH PROVISIONS. SECTION 8.12. CONFIDENTIALITY. Each of the Lenders and Administrative Agent shall hold all non-public information obtained pursuant to the requirements of this Agreement which has been identified as such by the Borrower or any of its Subsidiaries in accordance with their customary procedures for handling confidential information but shall be permitted to make disclosures reasonably requested by any bona fide assignee or participant (which disclosures shall be subject to Section 8.07(f)) or by any governmental agency or any disclosures required by law. SECTION 8.13. AGREEMENT REGARDING LETTERS OF CREDIT. Each Lender hereby agrees for the benefit of each other Lender that it will not issue standby letters of credit for the account of the Borrower, or letters of credit for the account of any Subsidiary of the Borrower that are guaranteed by the Borrower, other than Letters of Credit issued by such Lender as an Issuing Lender hereunder. SECTION 8.14. NO STRICT CONSTRUCTION. The parties hereto have participated jointly in the negotiation and drafting of this Agreement and the other Loan Documents. In the event an ambiguity or question of intent or interpretation arises, this Agreement and the other Loan Documents shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement or the other Loan Documents. SECTION 8.15. RATABLE PAYMENTS. If any Lender, whether by setoff or otherwise, has payment made to it upon its Advances (other than payments expressly stated to be payable to a specific Lender or on a non-pro-rata basis) in a greater proportion than that received by any other Lender, such Lender agrees, promptly upon demand, to purchase a portion of the Advances held by the other Lenders so that after such purchase each Lender will hold its ratable proportion of Advances. If any Lender, whether in connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for its Obligations or such amounts which may be subject to setoff, such Lender agrees, promptly upon demand, to take such action necessary such that all Lenders share in the benefits of such collateral ratably in proportion to the Obligations owing to them. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be made. SECTION 8.16. APPLICATION OF PAYMENTS. The Administrative Agent shall, unless otherwise specified at the direction of the Majority Lenders which direction shall be consistent with the last sentence of this Section 8.16, apply all payments and prepayments in respect of any Obligations and all proceeds of Collateral in the following order: (A) first, to pay interest on and then principal of any portion of the Advances which the Administrative Agent may have advanced on behalf of any Lender for which the Administrative Agent has not then been reimbursed by such Lender or the Borrower; (B) second, to pay Obligations in respect of any fees, expense reimbursements or indemnities then due to the Administrative Agent; (C) third, to pay Obligations in respect of any fees, expenses, reimbursements or indemnities then due to the Swing Line Bank, the Lenders and the Issuing Lenders; (D) fourth, to pay interest due in respect of Swing Line Loans; (E) fifth, to pay interest due in respect of Advances (other than Swing Line Loans) and Obligations with respect to Letters of Credit; (F) sixth, to the ratable payment or prepayment of principal outstanding on Swing Line Loans; (G) seventh, to the ratable payment or prepayment of principal outstanding on Advances (other than Swing Line Loans) and Obligations in respect of Letters of Credit in such order as the Administrative Agent may determine in its sole discretion; (H) eighth, to provide cash collateral, if any, required with respect to any of the Obligations under this Agreement; and (I) ninth, to the ratable payment of all other Obligations. Unless otherwise designated (which designation shall only be applicable prior to the occurrence of an Event of Default) by the Borrower, all principal payments in respect of Advances (other than Swing Line Loans) shall be applied first, to repay outstanding Base Rate Advances, and then to repay outstanding Eurodollar Rate Advances with those Eurodollar Rate Advances which have earlier expiring Interest Periods being repaid prior to those which have later expiring Interest Periods. The order of priority set forth in this Section 8.16 and the related provisions of this Agreement are set forth solely to determine the rights and priorities of the Administrative Agent, the Lenders, the Swing Line Bank and the Issuing as among themselves. The order of priority set forth in clauses (C) through (I) of this Section 8.16 may at any time and from time to time be changed by the Majority Lenders without necessity of notice to or consent of or approval by the Borrower, or any other Person; provided, that the order of priority of payments in respect of Swing Line Loans may be changed only with the prior written consent of the Swing Line Bank. The order of priority set forth in clauses (A) and (B) of this Section 8.16 may be changed only with the prior written consent of the Administrative Agent. SECTION 8.17. RELATIONS AMONG LENDERS. Except with respect to the exercise of set-off rights of any Lender in accordance with Section 8.05, the proceeds of which are applied in accordance with this Agreement, and except as set forth in the following sentence, each Lender agrees that it will not take any action, nor institute any actions or proceedings, against the Borrower or any other obligor hereunder or with respect to any Loan Document, without the prior written consent of the Majority Lenders or, as may be provided in this Agreement or the other Loan Documents, at the direction of the Administrative Agent. The Lenders are not partners or co-venturers, and no Lender shall be liable for the acts or omissions of, or (except as otherwise set forth herein in case of the Administrative Agent) authorized to act for, any other Lender. Notwithstanding the foregoing, and subject to Section 8.15, any Lender shall have the right to enforce on an unsecured basis the payment of the principal of and interest on any Advance made by it after the date such principal or interest has become due and payable pursuant to the terms of this Agreement. [Remainder of Page Intentionally Left Blank] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. Borrower: TRANSPORTATION MANUFACTURING OPERATIONS, INC. By_____________________ Name: Title: Commitment Administrative Agent, Swing Line Bank, Issuing Lenders and Lenders: $125,000,000 NBD BANK, as Administrative Agent, Swing Line Bank, Issuing Lender and a Lender By__________________________ Authorized Agent Signature page to Credit Agreement SCHEDULE 5.02(l) Computation of Permissible Tax Payments For purposes of Section 5.02(l) and this Schedule 5.02(l) in respect of taxes, the following provisions shall be applicable: As used herein the term "Affiliated Group" means the affiliated group as defined in Section 1504 of the Internal Revenue Code of 1986, as amended (the "Code"). 1. Determination of Federal Income Tax Liability. For each fiscal year or part thereof (each, a "Determination Period") with respect to which the Company files a consolidated federal or state income tax return and the Borrower is a member of the Affiliated Group of which the Company is the common parent corporation (the "Company Group") the Company shall determine (i) the federal income tax liability of the hypothetical Affiliated Group of which the Borrower would be the common parent corporation (the "Borrower Group") and (ii) the state liabilities of each member of the Borrower Group on a separate company or combined basis, as appropriate for such Determination Period, on a stand-alone basis taking only the income of the members of the Borrower Group into account, such determination to (i) include any benefit resulting from ordinary losses, capital losses and tax credits of the members of the Borrower Group from the current year or the carryforward of ordinary losses, capital losses and tax credits of the Borrower group from preceding years which would be utilizable under the Code or relevant state law and (ii) take into account the deductibility of state income tax for federal income tax purposes. The aggregate federal and state income tax liability for all members of the Borrower Group determined in accordance with this paragraph 1 with respect to any Determination Period is referred to as the "Borrower Group Tax Liability". 2. Payment of the Borrower's Tax Liability to Holdings. The Borrower shall be permitted to pay to the Company the lesser of (i) the Borrower Group Tax Liability for the relevant Determination Period (or reasonable estimates thereof) and (ii) the sum of (x) the amount determined by multiplying (A) the federal income tax liability of the Company Group for such Determination Period, by (B) a fraction, the numerator of which is the federal income tax liability of the Borrower Group for such Determination Period and the denominator of which is the aggregate federal income tax liabilities of each member of the Company Group having positive liability (determined in the manner described in paragraph 1 hereof) for such Determination Period, (y) with respect to each state in which members of the Borrower Group file a combined state income tax return with members of the Company Group which are not also members of the Borrower Group, the amount determined by multiplying (C) the relevant combined state tax liability of the Company Group for such Determination Period by (D) a fraction, the numerator of which is the combined hypothetical state income tax liability of the members of the Borrower Group (computed in a manner substantially similar to that set forth in paragraph 1 for such Determination Period) and the denominator of which is the combined state income tax liability of all members of the Company Group having positive liability for such Determination Period and (z) with respect to each state in which members of the Borrower Group do not file such a combined return, the aggregate separate state income tax liabilities of all of the members of the Borrower Group for such Determination Period. Such payments shall be made at such times as shall be requested by the Company, but not more frequently than quarterly. Except as provided in paragraph 3 below, the Borrower shall not have any obligation to the Company or to any other member of the Affiliated Group to pay any further amounts on account of the Company Group's tax liability, any such further amounts being the sole responsibility of the Company and the other members of the Company Group. If as a result of estimated payments or otherwise, the Borrower pays to the Company for any fiscal year an amount in excess of the amount determined under paragraph 1, the Borrower shall cause the Company to refund to the Borrower the amount of such excess no later than the date upon which the Company files the applicable consolidated federal income tax return for the Company Group. If such amount is not so refunded it shall be deducted from amounts which could otherwise be paid to the Company pursuant to Section 5.02(l) (whether in the nature of management fees (or other fees of a similar nature) or tax payments). 3. Adjustments to the Borrower's Federal Income Tax Liability. In the event that there is an increase or decrease in the amount determined under paragraph 2 for any fiscal year (whether by amended return, examination by the Internal Revenue Service, carryback or net operating loss or unused credits, or otherwise), the Borrower shall or shall cause the Company, as the case may be, to promptly make a payment to the other in the amount of such increase or decrease. EX-4.5 3 EXHIBIT 4.5 Form of Amendment to Note Agreement September __, 1996 Transportation Manufacturing Operations, Inc. Dial Tower 1850 North Central Avenue Phoenix, Arizona 85004 Re: 9.02% Senior Notes due 2002 Gentlemen: Reference is made to the Note Agreement (the "Agreement"), dated as of November 15, 1994, among Transportation Manufacturing Operations, Inc. (the "Company"), the undersigned and the other persons named on Schedule A thereto (together with the undersigned, the "Purchasers"), pursuant to which the Company issued and sold, and the Purchasers purchased, the Company's 9.02% Senior Notes due November 15, 2002 in the original principal amount of $125,000,000. Unless otherwise defined herein, capitalized terms used herein which are defined in the Agreement shall have the meanings as given in the Agreement. Pursuant to paragraph 11C of the Agreement and the request of the Company, and subject to the satisfaction of the conditions set forth in Section 4 below, the undersigned and the Company agree as follows: 1. CONSENT. Notwithstanding paragraph 6C(9)(ii) of the Agreement, the undersigned consent to the payment by the Company of a dividend in cash of up to $30,000,000 to MCII, provided, that (a) the payment of such dividend is permitted by clauses (i) and (iii) of paragraph 6C(9) of the Agreement, (b) such dividend is paid on or before March 31, 1997 and (c) immediately upon receipt of such payment, MCII pays a dividend to Grupo Dina in the same amount as the dividend payment made by the Company to MCII. 2. AMENDMENTS TO AGREEMENT. 2.1. Paragraph 5A is amended by adding the following as new clauses (iii) and (iv) and by renumbering the existing clauses (iii), (iv), (v) and (vi) as (v), (vi), (vii) and (viii), respectively: (iii) as soon as available and in any event within 60 days after the end of each fiscal quarter (beginning with the fiscal quarter ending September 30, 1996), the consolidated balance sheet for Grupo Dina and its consolidated Subsidiaries as at the end of such fiscal quarter and the related consolidated statements of income and cash flows of Grupo Dina and its consolidated Subsidiaries for such fiscal quarter and for the period from the beginning of the then current fiscal year to the end of such fiscal quarter, setting forth in comparative form the corresponding figures for the corresponding periods of the previous fiscal year, all in reasonable detail, provided, that so long as Grupo Dina is a foreign private issuer complying with reporting requirements under the Exchange Act, the foregoing requirement shall be satisfied by delivery of Grupo Dina's quarterly report for such fiscal quarter on Form 6K thereunder; (iv) as soon as available and in any event within 120 days after the end of each fiscal year, the consolidated balance sheet of Grupo Dina and its consolidated Subsidiaries as at the end of such fiscal year and the related consolidated statements of income, stockholders' equity and cash flows of Grupo Dina and its consolidated Subsidiaries for such fiscal year, setting forth in comparative form the corresponding figures for the previous fiscal year, all in reasonable detail, provided, that so long as Grupo Dina is a foreign private issuer complying with reporting requirements under the Exchange Act, the foregoing requirement shall be satisfied by delivery of Grupo Dina's annual report for such fiscal year on Form 20F thereunder, and in the case of such consolidated financial statements of Grupo Dina, reports thereon of Arthur Anderson LLP or other independent auditors of recognized national standing selected by Grupo Dina, which reports shall be unqualified and shall not include any reference to doubts about the ability of Grupo Dina and its Subsidiaries to continue as a going concern; 2.2. Clause (ii) of paragraph 6C(4) of the Agreement is amended and restated in its entirety as follows: (ii) the aggregate amount of all Contingent Liabilities (excluding performance bonds not to exceed $180,000,000 relating to an order which may be made by The New Jersey Transit Authority but including the aggregate amount of coach repurchase contracts described in clause (i)) to exceed 100% of Consolidated Net Worth, provided, that the aggregate amount of Contingent Liabilities consisting of (a) Surety Bonds and outstanding undrawn letters of credit for the account of the Company or any Restricted Subsidiary shall not exceed 50% of Consolidated Net Worth and (b) Residual Value Guarantees and the aggregate amount of coach repurchase contracts described in clause (i) hereof shall not exceed 50% of Consolidated Net Worth, in each case determined as of the end of the most recently completed fiscal quarter. 2.3. Clause (iii) of paragraph 6C(5) of the Agreement is amended and restated in its entirety as follows: (iii) Investments in addition to those set forth in clauses (i) and (ii) (other than Investments in any Person controlling, controlled by or under common control with the Company (other than Restricted Subsidiaries and Investments in Grupo Dina by the Company to the extent such Investments consist of purchases of motor coaches from Grupo Dina for resale in the United States or Canada ("Permitted Grupo Dina Investments"))), so long as (a) the aggregate original cost of such Investments, including, without limitation, Permitted Grupo Dina Investments, does not, at any time, exceed 5% of Consolidated Net Worth and (b) the aggregate original cost of such Permitted Grupo Dina Investments does not, at any time, exceed 2.5% of Consolidated Net Worth and all such Permitted Grupo Dina Investments are otherwise permitted by paragraph 6C(7) and 2.4. Clause (iv) of paragraph 6C(5) of the Agreement is amended by adding immediately after the phrase "Restricted Subsidiary" and before the parenthetical the phrase "and Permitted Grupo Dina Investments." 2.5. The following is added as a new paragraph 6D: 6D. ADDITIONAL GUARANTORS. The Company covenants not to permit any Subsidiary to become a guarantor of any of the obligations of the Company under the Bank Credit Facility or any other agreement, document or instrument now or hereafter executed or delivered in connection therewith unless concurrently therewith such Subsidiary provides to the holders of the Notes a guarantee of the obligations of the Company under this Agreement and the Notes pursuant to a written agreement in form and substance satisfactory to the Required Holders. 2.6. Paragraph 7A of the Agreement is amended by adding the following immediately after clause (13) as a new clause (14): (14) any Guarantor shall fail to perform or observe any agreement, term or condition contained in, or otherwise be in default (beyond any applicable grace period) under, any guarantee agreement in favor of the holders of the Notes; or any representation or warranty made by any Guarantor in any such guarantee shall be false in any material respect as of the date when made; or any such guarantee shall fail to be in full force and effect or otherwise shall not be enforceable in accordance with its terms; or any Guarantor shall contest or deny the validity or enforceability of, or deny that it has any liability or obligations under, any such guarantee to which it is a party; The last sentence of paragraph 7A is also amended by deleting the phrase "(12) to (13)" and inserting in lieu thereof the phrase "(12) to (14)." 2.7. Paragraph 10B of the Agreement is amended as follows: (a) The following definition is added immediately after the definition of "Guarantee": "GUARANTOR" shall mean any Subsidiary that is a party to any guarantee agreement in favor of the holders of the Notes with respect to the Company's obligations under this Agreement and the Notes, including, without limitation, any Subsidiary that becomes a guarantor pursuant to paragraph 6D. (b) The definition of "Priority Debt" in paragraph 10B of the Agreement is amended by adding immediately after "Intercompany Indebtedness" the phrase "and Guarantees of Indebtedness under this Agreement and the Notes and Guarantees of Indebtedness under the Bank Credit Facility." (c) The following definition is added immediately after the definition of "Required Holders": "RESIDUAL VALUE GUARANTIES" means any agreement entered into by the Company or any of its Subsidiaries to promote the sales of any bus or coach pursuant to which the Company or any of its Subsidiaries is guaranteeing at some future time any minimum value (which may be determined by a formula) of a bus or coach as specified in such agreement, the terms and provisions of which agreement are consistent with the past practices and policies of the Company and its Subsidiaries prior to September __, 1996. (c) The definition of "Significant Subsidiary" in paragraph 10B of the Agreement is amended by adding immediately after the phrase "fiscal year" the phrase ", provided, that for clauses (7) through (12), inclusive, of paragraph 7A the term "Significant Subsidiary" shall also mean any Guarantor." 3. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants as follows: (a) it has all necessary power and authority to execute and deliver this letter; (b) the execution, delivery and performance of this letter have been duly authorized by it; (c) this letter and the Agreement, as amended hereby, constitute the legal, valid and binding obligations of the Company and are enforceable against it in accordance with their terms; (d) the approval, execution, delivery and performance of the terms hereof do not violate any contractual provision to which it is a party or by which it is or its properties are bound or any law applicable to it; (e) all consents, notices, waivers and other actions by or of the Company or any other Person that are necessary in connection with the subject matter of the foregoing consents and amendments have been obtained or taken; and (f) no Default or Event of Default has occurred and is continuing. 4. CONDITIONS TO EFFECTIVENESS. The effectiveness of the consents and amendments herein is subject to satisfaction of the following conditions (the date upon which such conditions are satisfied being called the "Effective Date"): 4.1. The undersigned shall have received counterparts to this letter executed by the Company; 4.2. The undersigned shall have received a Guarantee Agreement (the "Guarantee") in favor of the holders of the Notes, in form and substance satisfactory to the undersigned, duly executed by each Subsidiary that is executing a guarantee pursuant to the Credit Agreement referred to below (collectively, the "Guarantors"), and the Guarantee shall be in full force and effect; 4.3. The undersigned shall have received a favorable opinion of Latham & Watkins, special counsel to the Guarantors, in form and substance satisfactory to the undersigned, as to the Guarantee; 4.4. The undersigned shall have received a copy of the Credit Agreement among the Company, the First National Bank of Chicago, NBD Bank, N.A. and the other parties thereto (the "Credit Agreement"), in form and substance satisfactory to the undersigned, duly executed by each party thereto, and the Credit Agreement shall be in full force and effect; 4.5. The holders of the Notes and the lenders that are parties to the Credit Agreement shall have entered into an Intercreditor Agreement, in form and substance satisfactory to the undersigned, and such Intercreditor Agreement shall be in full force and effect; 4.6. The undersigned shall have received copies of duly executed agreements, in substance identical to this letter agreement, from holders of the Notes that together with the undersigned would constitute the Required Holders, and all conditions to the effectiveness of such agreements shall have been satisfied. 4.7. The representations and warranties of the Company contained in Section 3 hereof and of the Guarantors in the Guarantee shall be true on and as of the Effective Date, after giving effect to the amendments and other transactions contemplated by this Agreement; and after giving effect to such amendments and other transactions there shall exist no Default or Event of Default. 4.8. The Company shall have paid to the undersigned a $100,000 amendment fee. 4.9. The Company shall have paid such fees and expenses of special counsel to the holders of the Notes in connection with the transactions contemplated hereby as holders of the Notes shall have requested be paid on or prior to the Effective Date. 4.10. The transactions contemplated by this letter shall not violate any applicable law or governmental regulation and shall not subject the undersigned to any tax, penalty, liability or other onerous condition under or pursuant to any applicable law or governmental regulation, and the undersigned shall have received such certificates or other evidence as may be requested to establish compliance with this condition. 4.11. All corporate and legal proceedings and all instruments and agreements in connection with the transactions contemplated by this letter shall be reasonably satisfactory in form and substance to the undersigned and its counsel, and the undersigned shall have received all information and copies of all documents and papers, including records of corporate and governmental proceedings, which the undersigned may reasonably have requested in connection therewith, such documents and papers when appropriate to be certified by proper corporate or governmental authorities. 5. MISCELLANEOUS. 5.1. Upon the Effective Date, each reference in the Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import shall mean and be a reference to the Agreement as amended hereby and each reference to the Agreement in the Notes shall mean and be a reference to the Agreement, as amended hereby. 5.2. This letter shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the internal law of the State of New York. 5.3. Except as specifically amended above, the Agreement and the Notes shall remain in full force and effect and are hereby ratified and confirmed. The execution, delivery and effectiveness of this letter shall not, except as expressly provided herein, operate as an amendment to any provision of the Agreement nor a waiver of any right, power or remedy of any holder of a Note, nor constitute a waiver of, or consent to any departure from, any provision of the Agreement or any Note. 5.4. This letter may be executed by one or more of the parties to this letter on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Please acknowledge the foregoing and your agreement thereto by signing this letter agreement where indicated below. Very truly yours, By: ________________________ Title:______________________ By: ________________________ Title:______________________ Accepted and Agreed to as of the date written above: TRANSPORTATION MANUFACTURING OPERATIONS, INC. By:____________________ Title:_________________ EX-4.6 4 EXHIBIT 4.6 INTERCREDITOR AGREEMENT INTERCREDITOR AGREEMENT, dated as of September 30, 1996 (as amended from time to time, the " AGREEMENT"), is entered into by and among those "Lenders" under the Bank Credit Agreement (as defined below) listed on Annex I attached hereto (the "BANKS"), NBD Bank, as contractual representative for the Banks (the "AGENT"), and the holders of the Company s 9.02% Senior Notes due 2002 (the "NOTES") listed on Annex II attached hereto (the "NOTEHOLDERS"; the Banks and the Noteholders are herein sometimes collectively called the LENDERS and individually called a "LENDER"). W I T N E S S E T H: WHEREAS, Transportation Manufacturing Operations, Inc., a Delaware corporation (herein called the" COMPANY"), the Banks and the Agent have entered into or are about to enter into that certain Credit Agreement dated as of the date hereof (herein, as amended from time to time, called the "BANK CREDIT AGREEMENT"), pursuant to which, among other things, the Banks have agreed or will agree to make certain advances to the Company (the "LOANS") and to issue Letters of Credit for the account of the Company (the "LETTERS OF CREDIT"); WHEREAS, the Company has executed and delivered to the Noteholders $125,000,000 principal amount of the Notes pursuant to the Note Agreement, dated as of November 15, 1994, by and among the Company and the Noteholders (herein, as amended from time to time, called the "NOTE AGREEMENT"); WHEREAS, in connection with the Bank Credit Agreement the Noteholders have entered into or are about to enter into an amendment to the Note Agreement (the "AMENDMENT") to, among other things, permit the transactions contemplated by the Bank Credit Agreement; WHEREAS, in connection with the Bank Credit Agreement and the Amendment Motor Coach Industries, Inc., a Delaware corporation, Universal Coach Parts, Inc., a Delaware corporation, Bus Lease, Inc., a Delaware corporation, Hausman Bus Sales, Inc., a Delaware corporation, MCI Acceptance Corp., a Delaware corporation, Motor Coach Industries - China, a Delaware corporation, Transit Bus International, Inc., a Delaware corporation, Custom Assets Corp., a California corporation and Transport Technology Corporation, an Arizona corporation (collectively, along with any Subsidiaries (as hereinafter defined) that may become parties to the Bank Guaranty or the Note Guaranty referred to below the "GUARANTORS") are entering into that certain Subsidiary Guaranty, dated as of the date hereof (herein, as amended from time to time, the "BANK GUARANTY"), under which the Guarantors are guarantying the obligations of the Company to the Banks under the Bank Credit Agreement, and that certain Guarantee Agreement, dated as of the date hereof (herein, as amended from time to time, the "NOTE GUARANTY") under which the Guarantors are guarantying the obligations of the Company under the Note Agreement and the Notes; and WHEREAS, it is an express condition precedent to the Bank s obligations to make the Loans under the Bank Credit Agreement and to the effectiveness of the Amendment that this Agreement be executed, delivered and become effective. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the Agent and the Lenders hereby agree as follows: 1. (a) If any Sharing Event has occurred, any amounts received by the Bank Agent or any Bank from any setoff of any deposits of the Company or any of its Subsidiaries (as defined in the Bank Credit Agreement and herein the "SUBSIDIARIES")or other indebtedness of the Bank Agent or any Bank held by or owing to the Company or any of its Subsidiaries and any amounts received by the Bank Agent or any Bank under the Bank Guaranty shall be distributed as provided in subsection (c) of this Section 1. (b) If any Sharing Event has occurred, any amounts received by any Noteholder under the Note Guaranty shall be distributed as provided in subsection (c) of this Section 1. "SHARING EVENT" shall mean (i) for the Loans to become immediately due and payable pursuant to Section 6.01 of the Bank Credit Agreement, (ii) for the Notes to become immediately due and payable pursuant to paragraph 7A of the Note Agreement, (iii) for the Company to default in the payment of the principal of or interest on the Loans or the Notes when such payment is due which payment default continues for at least 20 days, in which event the "Sharing Event" shall be deemed to have occurred on the date such payment default first occurred, (iv) for the Bank Agent or any Bank to setoff any deposits of the Company or any of its Subsidiaries or other indebtedness of the Bank Agent or any Bank held by or owing to the Company or any Subsidiary, or (v) the commencement by, against or with respect to the Company or any Subsidiary of any proceeding under any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law or for the appointment of a receiver for the Company or any Subsidiary or any of its assets. (c) The amounts referred to in subsection (a) and (b) of this Section 1 (the "SHARED AMOUNTS") shall be distributed to the Lenders pro rata in proportion to the respective amounts owed by the Company to the Lenders under the Bank Credit Agreement, the Note Agreement and the Notes or the Guarantors under the Bank Guaranty and the Note Guaranty (the "OBLIGATIONS"), including (1) the outstanding principal amount of, accrued and unpaid interest on, any unpaid Yield-Maintenance Amount (as defined in the Note Agreement) due with respect to, the Loans and the Notes, (2) any unpaid reimbursement obligations with respect to any Letters of Credit, (3) any undrawn amounts of any outstanding Letters of Credit, (4) any unpaid obligations of the Company arising under any Currency Agreement or Interest Rate Agreement (both as defined in the Bank Credit Agreement) with any Lender or any affiliate of any Lender, and (5) any other unpaid amounts due from the Company under the Note Agreement, the Notes or the Bank Credit Agreement (and, for this purpose, the undrawn amounts of any outstanding Letters of Credit shall be considered to have been reduced to the extent of any amount then on deposit with the Agent as provided in subsection (d) of this Section 1). (d) Any distribution pursuant to subsection (c) above with respect to the undrawn amount of any outstanding Letter of Credit shall be paid to the Agent to be held as collateral for the Lenders and disposed of as provided in this subsection (d). On each date on which a payment is made to a beneficiary pursuant to a draw on a Letter of Credit, the Agent shall distribute to the Banks from the amounts held pursuant to this subsection (d) for application to the payment of the reimbursement obligation due to the Banks with respect to such draw an amount equal to the product of (1) the total amount then held pursuant to this subsection (d), and (2) a fraction, the numerator of which is the amount of such draw and the denominator of which is the aggregate undrawn amount of all outstanding Letters of Credit immediately prior to such draw. On each date on which a reduction in the undrawn amount of any outstanding Letter of Credit occurs other than on account of a payment made to a beneficiary pursuant to a draw on such Letter of Credit, then the Agent shall distribute from the amounts held pursuant to this subsection (d) an amount equal to the product of (1) the total amount then held pursuant to this subsection (d) and (2) a fraction the numerator of which is the amount of such reduction and the denominator of which is the aggregate undrawn amount of all outstanding Letters of Credit immediately prior to such reduction, which amount shall be distributed as provided in subsection (c) above. At such time as no Letters of Credit are outstanding, any remaining amount held pursuant to this subsection (d), after the distribution therefrom as provided above, shall be distributed as provided in subsection (c) above. (e) The distribution provisions of this Section 1 are for the purpose of determining the relative amounts of any Shared Amounts to be distributed to the Lenders and not for the purpose of creating an agreement among the parties as to the manner in which any Shared Amounts are actually to be applied to pay the Obligations which are owed to each Lender. Each Lender shall be free, each in its own discretion, to apply any amounts distributed to it pursuant to subsection (c) hereof to the Obligations owed to it in such order as it may determine. Notwithstanding the foregoing, (1) for all purposes of this Agreement the Obligations shall be deemed paid to the same extent that payments are distributed with respect thereto pursuant to subsection (c) hereof notwithstanding the actual application thereof, and (2) as between the Company and the Guarantors, on one hand, and the Lenders, on the other hand, no portion of any Shared Amount distributed to the Lenders pursuant to subsection (c) hereof shall discharge the Obligations as to which such Shared Amount was distributed or applied. (f) Any Lender distributing any Shared Amount to the other Lenders pursuant to subsection (c) of this Section 1 shall be subrogated to the rights of such other Lenders with respect to the Obligations with respect to which such Shared Amount was distributed, including the rights with respect to the Bank Guaranty or the Note Guaranty, as the case may be, relating to such Obligations. 2. Each Lender agrees to use its best efforts to give to the others (a) copies of any notice of the occurrence or existence of an Event of Default (as defined in the Bank Credit Agreement or the Note Agreement) sent to the Company or any Guarantor, simultaneously with the sending of such notice to the Company or any Guarantor, and (b) notice of any acceleration of the Loans or the Notes, promptly upon such acceleration, but the failure to give any of the foregoing notices shall not affect the validity of such notice of an Event of Default or such acceleration or create a cause of action against or cause a forfeiture of any rights of the party failing to give such notice or create any claim or right on behalf of any third party. 3. Neither the Agent nor any Lender shall take or receive a security interest in or lien upon any of the property or assets of the Company or any Guarantor as security for the Obligations, nor shall the Agent or any Lender retain or obtain the primary or secondary obligation of any other obligor or obligors with respect to any of the Obligations other than pursuant to the Bank Guaranty or the Note Guaranty. The existence of a common law lien on deposit accounts shall not be prohibited by the provisions of this section provided that any realization on such lien and the application of the proceeds thereof shall be subject to the provisions of this Agreement. 4. Neither the Agent nor any Lender shall contest the validity or enforceability of or seek to avoid, have declared fraudulent or have set aside any of the Obligations. 5. (a) The Agent and each Lender agrees to render an accounting to any of the others of the outstanding amounts of the Obligations, receipts of payments from the Company and the Guarantors and of other items relevant to the provisions of this Agreement upon the reasonable request from one of the others as soon as reasonably practicable after such request. (b) To the extent any Shared Amount received by any Lender which was distributed to the other Lenders pursuant to Section 1(c) hereof is subsequently invalidated, declared fraudulent or preferential, set aside or required to be paid to a trustee, receiver, or any other party under any bankruptcy act, state or federal law, common law or equitable cause, then each such other Lender shall repay to the distributing Lender, at such time as the distributing Lender is required to return or repay such Shared Amount, the portion of the Shared Amount so distributed to it. 6. This Agreement shall in all respects be a continuing, absolute, unconditional and irrevocable agreement, and shall remain in full force and effect until all Obligations shall have been satisfied in full and all obligations of all Lenders to the other Lenders hereunder shall have been satisfied in full. Without limiting the generality of the foregoing, this Agreement shall survive the commencement of any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar proceeding involving the Company or any Guarantor. Each Lender agrees that this Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment (in whole or in part) of any of the obligations of the Company or any Guarantor is rescinded or must otherwise be restored by any Lender, upon the insolvency, bankruptcy or reorganization of the Company or any Guarantor or otherwise, as though such payment had not been made. 7. (a) In order to induce the Banks and the Agent to enter into this Agreement, each of the Noteholders severally represents and warrants to the Banks and the Agent that it has full corporate power, and has taken all action necessary, to execute and deliver this Agreement and to fulfill its obligations hereunder, and that no governmental or other authorizations are required in connection herewith, and that this Agreement constitutes its legal, valid and binding obligation, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency, reorganization, moratorium, regulatory and similar laws of general application and by general principles of equity. (b) In order to induce the Noteholders to enter into this Agreement, each of the Banks and the Agent severally represents and warrants to the Noteholders that it has full corporate power, and has taken all action necessary, to execute and deliver this Agreement and to fulfill its respective obligations hereunder, and that no governmental or other authorizations are required in connection herewith, and that this Agreement constitutes its legal, valid and binding obligation, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency, reorganization, moratorium, regulatory and similar laws of general application and by general principles of equity. 8. This Agreement shall be binding upon, and inure to the benefit of and be enforceable by, the Lenders and each of their respective successors, transferees and assigns. Without limiting the generality of the foregoing sentence, if any Lender assigns or otherwise transfers (in whole or in part) to any other person or entity the Obligations to such Lender under the Bank Credit Agreement or the Note Agreement, such other person or entity shall thereupon become vested with all rights and benefits, and become subject to all the obligations, in respect thereof granted to or imposed upon such Lender under this Agreement. 9. None of the provisions of this Agreement shall inure to the benefit of the Company, any Guarantor or any other person than the Lenders; consequently, the Company and any and all other persons shall not be entitled to rely upon, or to raise as a defense, in any manner whatsoever, the provisions of this Agreement or the failure of any Lender to comply with such provisions. 10. Nothing contained herein shall limit or restrict the independent right of any Lender to initiate an action or actions in any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar proceeding in its individual capacity and to appear or to be heard on any matter before the bankruptcy or other applicable court in any such proceeding, including, without limitation, with respect to any question concerning the post- petition usage of collateral and post-petition financing arrangement. 11. No amendment to or waiver of any provision of this Agreement, nor consent to any departure by any Lender herefrom, shall in any event be effective unless the same shall be in writing and signed by all the Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 12. All notices and other communications provided to any Lender under this Agreement shall be in writing or by facsimile and addressed, delivered or transmitted to such Lender at its address or facsimile number set forth (a) in the case of each of the Noteholders, on Annex II hereto and (b) in the case of the Agent and each of the Banks on Annex I hereto, or (c) in any case, at such other address or facsimile number as may be designated by such Lender in a notice to the other Lenders. Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by prepaid courier service, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when transmitted if actually received, and the burden or proving receipt shall be on the transmitting Lender. 13. No failure or delay on the part of any Lender in exercising any power or right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof of the exercise of any other power or right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. 14. Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THIS AGREEMENT CONSTITUTES THE ENTIRE UNDERSTANDING BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDES ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO. 16. This Agreement may be separately executed in counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers. NBD BANK, as Agent and as a Bank By: /s/ Title: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/ Title: PRUCO LIFE INSURANCE COMPANY By: /s/ Title: THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES By: /s/ Title: THE TRAVELERS INSURANCE COMPANY By: /s/ Title: GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY By: /s/ Title: THE FRANKLIN LIFE INSURANCE COMPANY By: /s/ Title: PAN-AMERICAN LIFE INSURANCE COMPANY By: /s/ Title: GENERAL AMERICAN LIFE INSURANCE COMPANY By: /s/ Title: The Company and the Guarantors hereby agree to be bound by the terms of this Agreement to the extent relating to it: TRANSPORTATION MANUFACTURING OPERATIONS, INC. By: /s/ Title: MOTOR COACH INDUSTRIES, INC. By: /s/ Title: UNIVERSAL COACH PARTS, INC. By: /s/ Title: BUS LEASE, INC. By: /s/ Title: HAUSMAN BUS SALES, INC. By: /s/ Title: MCI ACCEPTANCE CORP. By: /s/ Title: MOTOR COACH INDUSTRIES - CHINA By: /s/ Title: TRANSIT BUS INTERNATIONAL, INC. By: /s/ Title: CUSTOM ASSETS CORP. By: /s/ Title: TRANSPORT TECHNOLOGY CORPORATION By: /s/ Title: ANNEX I NBD Bank 611 Woodward Avenue Detroit, MI 48226 Attention: James B. Junker Fax: 313/225-2649 ANNEX II The Prudential Insurance Company of America Pruco Life Insurance Company c/o Prudential Capital Group Four Embarcadero Center - Suite 2700 San Francisco, CA 94111 Attention: Managing Director The Equitable Life Assurance Society of the United States c/o Alliance Capital Management Corp. Fixed Income Research/Private Placements 1345 Avenue of the Americas, 37th Floor New York, New York 10105 Attention: Beatrice M. Cuervo Vice President The Travelers Insurance Company One Tower Square Hartford, Connecticut 06183-2030 Attention: Securities Department Private Placement Division - 9P.B. Great-West Life & Annuity Insurance Company 8515 East Orchard Road 3rd Floor, Tower 2 Englewood, Colorado 80111 Attention: U.S. Private Placements The Franklin Life Insurance Company Franklin Square Springfield, Illinois 62713 Attention: Investment Division Pan-American Life Insurance Company Pan American Life Center 601 Poydras Street New Orleans, Louisiana 70130 Attention: Investment Department - 28th Floor Fixed Income Securities General American Life Insurance Company Attention: Securities Division P.O. Box 396 St. Louis, Missouri 63166 EX-10.23 5 EXHIBIT 10.23 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of September 30, 1996 by and between Universal Coach Parts, Inc., a Delaware corporation ("Employer"), and Jerry Bost ("Executive"). WHEREAS, Executive is willing to serve as the President of Employer pursuant to the terms and conditions hereof. NOW, THEREFORE, Executive and Employer hereby agree as follows: 1. Terms of Employment. (a) Position and Duties. Commencing on the date of hire (the "Effective Date" and the "Employment Period"), unless terminated as provided herein, Employer agrees to employ Executive, and Executive agrees to serve Employer as its President and to perform the general functions and duties as described in Exhibit A attached hereto, as such functions and duties may be modified by mutual agreement by Employer and Executive. During the Employment Period, Executive shall be accountable, and report to the Management Committee of Employer. (b) Compensation. (i) Base Salary. During the Employment Period, Executive shall receive a base cash salary (the "Base Salary") at an annual rate (pro-rated for partial years during the Employment Period), of at least TWO HUNDRED THIRTY SIX THOUSAND AND 00/100 DOLLARS ($236,000.00), payable pursuant to Employer's standard payroll practices for executives. During the Employment Period, the Base Salary shall be reviewed at least annually and shall be increased from time to time in accordance with Employer's performance evaluation criteria applied to Executive reasonably and in good faith consistent with application to other executives of Employer. For purposes of this Agreement, the term "executive" shall mean all executives at the same corporate level of the Executive of Employer. Executive Base Salary will be increased ("Adjusted Base Salary") in the event of a relocation to a Relocation City by a factor determined by the Company. In the event Employer changes its employment grade levels at any time during the Employment Period, Executive will be classified under the new levels so as to remain in all substantial respects within the same organizational, compensation and benefit levels as under the current structure. Any increase in Base Salary shall not limit or reduce any other obligation to Executive under this Agreement. Executive's Base Salary shall not be reduced after the effective date of this Agreement and after any such increase. (ii) Incentive Bonuses. In addition to Base Salary payable as hereinabove provided, Executive shall be entitled to participate in Employer's Management Incentive Program (the "Incentive Program") for each fiscal year or portion thereof during the Employment Period. For purposes of this Paragraph, Employment Period shall be considered to include the full year 1996. Executive shall be eligible for awards ("Incentive Bonuses") under the Incentive Program during the Employment Period, pursuant to the terms and conditions of such Program as in effect on the Effective Date. (iii) Incentive, Savings and Retirement Plans. In addition to amounts payable as provided in 1(b)(i) and (ii) above, Executive shall be entitled to participate in all other incentive plans, practices, policies and programs applicable to other senior executives of Employer, including, without limitation, all plans qualified under Section 401 of the Internal Revenue Code of 1986, as amended (the "Code"), all medical insurance and health plans, and all additional, supplemental and incentive compensation plans, in each instance providing benefits reasonably equivalent or in excess of those provided other executives of Employer. (iv) Welfare Benefit Plans. During the Employment Period, Executive and Executive's family shall be eligible for participation in and shall receive all benefits under the terms of welfare benefit plans, practices, policies and programs provided to senior executives of Employer (including, without limitation, medical prescription, dental, vision, disability, basic life, supplemental life, accidental death and travel accident insurance plans and programs) and all additional, supplemental and replacement plans, practices, policies and programs provided to executives of Employer, in each instance, providing benefits reasonably equivalent or in excess of those provided other executives of Employer. (v) Expenses. During the Employment Period, Executive shall be entitled to reimbursement for all reasonable expenses incurred by Executive in the performance of duties hereunder, in accordance with the terms of the policies, practices and procedures of Employer as generally applicable to its executives. (vi) Fringe and Other Benefits. During the Employment Period, Executive shall be entitled to fringe benefits, including, without limitation: (A) exclusive and full time use of an automobile, consistent with Employer's policies as applied to its other executives, selected by Executive comparable to automobiles provided other executives of Employer, (B) payment of reasonable business related expenses including, without limitation, professional association dues and (C ) all other benefits, prerequisites, vacation, insurance, severance, disability, and incentives provided to other executives of Employer. 2. Termination of Employment. (a) Disability. If Executive becomes disabled, which, for purposes of this Agreement, shall mean that (i) Executive fails to perform his essential duties on an active full-time basis by reason of disability or impairment of health for a period of at least three hundred sixty five (365) consecutive calendar days or (ii) Employer shall have received a certificate from a physician reasonably acceptable to Employer and Executive, or any duly appointed legal representative of Executive, to the effect that Executive cannot reasonably be expected to be capable of performing his essential duties under this Agreement for a period of at least one (1) year in accordance with past practices, Executive's employment may be terminated for "Disability" pursuant to a Notice of Termination (as hereinafter defined) delivered by Employer or by Executive or his duly appointed legal representative. Payment to Executive will be made in accordance with the terms of the Employer's Short Term Disability Plan and Employer's Long Term Disability Plan (if elected by Executive). (b) Cause. Pursuant to a Notice of Termination, Employer may terminate Executive's employment hereunder "for Cause." For the purposes of this Agreement, "for cause" means termination upon Executive's continual failure to perform in a satisfactory manner, his essential duties and obligations hereunder in any material respect after written notice and reasonable opportunity to cure performance. (c) Termination by Executive. Notwithstanding anything contained herein to the contrary, Executive may terminate this Agreement pursuant to a Notice of Termination at any time. (d) Notice and Date of Termination, Etc. For purposes of this Agreement, "Notice of Termination" means a written notice which indicates the specific termination provision of this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment. For purposes of this Agreement, "Date of Termination" means (i) if Executive's employment is terminated for Disability pursuant to Subsection (a) of this Section 2, the date that Notice of Termination is given, (ii) if Executive's employment is terminated by reason of his death, the date of death, and (iii) if Executive's employment is terminated by Employer "for Cause" or by either party for any other reason (other than Disability or death), the date specified in the Notice of Termination, which date shall not be less than thirty (30) days after the date of such Notice. 3. Compensation Upon Termination of Employment or During Disability. Upon termination of Executive's employment, Executive shall be entitled to the following benefits: (a) If Executive's employment is terminated for Disability, Employer shall pay and provide Executive his full Base Salary through the Date of Termination, plus all other disability and related benefits in accordance with existing Company benefit plans, and Employer shall have no further obligations to Executive under this Agreement. (b) If Executive's employment shall be terminated other than pursuant to Executive's death or Disability or by Employer (for Cause), Employer shall pay and provide Executive his full Base Salary through the Date of Termination, at the rate in effect at the time Notice of Termination is given, plus all other benefits to which Executive is entitled as of the Date of Termination under any compensation or benefit plans in accordance with existing Company benefit plans, and Employer shall have no further obligation to Executive under this Agreement. (c) If Executive's employment shall be terminated by reason of his death, Employer shall pay and provide his estate or designated beneficiaries his full Base Salary through the end of the month in which death occurs, plus any Incentive Bonuses and other bonus earned under any bonus program as prorated for the portion of the applicable bonus measurement period occurring prior to the date of death, plus all other amounts and benefits to which Executive is entitled under any compensation or benefit plans or policies provided any executive officer of Employer at the date of death, and Employer shall have no further obligation to Executive or his estate under this Agreement. (d) If Executive's employment shall be terminated other than pursuant to Executive's death or Disability by Employer other than "for Cause" then Executive shall be entitled to the following: (i) Through Date of Termination. Employer shall pay Executive his full Base Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts and benefits to which Executive is entitled under any compensation or benefit plans of Employer, including, without limitation, Incentive Bonuses, accrued or prorated through the Date of Termination, at the time such payments are due. (ii) Severance. Severance will be in accordance with the Company's existing Severance Policy which is actually based on Executive's current base salary from 6-12 months.. (e) If Executive terminates his employment pursuant to Section 2(c), Executive shall be entitled only to his current Base Salary and benefits through the Date of Termination. 5. Arbitration. Any dispute or controversy arising under or in connection with this Agreement that cannot be mutually resolved by the parties and their respective advisors and representatives, shall be settled exclusively by arbitration in the city of residence of the Executive in accordance with the procedures of the American Arbitration Association. 6. Confidentiality. Executive shall not, at any time following his termination, use the name, marks, records, plans, or proprietary methods nor the list of customers of Employer or disclose them or any part thereof to any person, firm, corporation, association, or other entity (other than a subsidiary, parent or affiliate of MCII/TMO) for any purpose or reason whatsoever, or remove or retain, without Employer's consent, any figures, calculations, letters, documents, papers, drawings, or copies thereof, or other confidential information of any type or description or breach the Covenants contained in the Employee Patent and Trade Secret Agreement signed by Executive on _______________. 7. Non-Competition. Upon termination of Executive's employment, Executive agrees not to enter into the employ of or consultancy for any bus or coach manufacturer, or bus or coach parts manufacturer or distributor, or bus or coach sales or service business, or bus or coach operator, in competition with Employer, for a period of three (3 ) years from the date of Executive's termination. 8. Transfers. The Employer shall, at any time, transfer the Executive to any other different location as the Employer sees fit for business reasons, locally or internationally. 9. Full Settlement. Employer's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder, shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which Employer may have against Executive, or otherwise. 10. Successors. (a) This Agreement is personal to Executive and without the prior written consent of Employer, shall not be assignable by Executive other than as provided herein. This Agreement shall inure to the benefit of and be enforceable by Executive and Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon and enforceable by Employer and its permitted successors and assigns. (c) Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all, or substantially all, of the business and/or assets of Employer to assume expressly and agree to perform this Agreement in the same manner, and to the same extent, that Employer is bound hereunder. 11. Miscellaneous. (a) Acceleration of Payments. In the event Employer fails to pay Executive any payment when due and payable and such failure continues for five (5) business days after written notice of such failure, then all payments under this Agreement shall be accelerated and the entire amount of such payments shall then be due and payable immediately. (b) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (c) Notices. All notices and other communication hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to Executive: Executive's home address is on file with Employer's payroll department. If to Employer: Universal Coach Parts, Inc. 10 E. Golf Road Des Plaines, Illinois 60016 Attention: Chief Operating Officer or if by the Chief Operating Officer, Attention: Chief Financial Officer or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when moved. (d) Entire Agreement; Amendments; Waivers. This Agreement contains the entire agreement between the parties concerning the subject matter hereof. It may not be changed orally, but only by agreement, in writing, signed by each of the parties. The terms or covenants of this Agreement may be waived only by a written instrument specifically referring to this Agreement, executed by the party waiving compliance. The failure of Employer at any time, or from time to time, to require performance of any of the Executive's obligations under this Agreement shall, in no manner, affect Employer's right to enforce any provisions of this Agreement at a subsequent time; and the waiver by Employer of any right arising out of any subsequent breach. IN WITNESS WHEREOF, Executive has hereunder set his hand and, pursuant to authorization from its Board of Directors, Employer has caused these presents to be executed in its name on its behalf, all as of the date and year first above written. "Executive" ------------------------ Jerry Bost UNIVERSAL COACH PARTS, INC. By _/s/__________________ Chairman of the Board EX-10.24 6 EXHIBIT 10.24 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of September 30, 1996 by and between Transportation Manufacturing Operations, Inc., a Delaware corporation ("Employer"), and James P. Bernacchi ("Executive"). WHEREAS, Executive is willing to serve as the Chief Operating Officer of Employer pursuant to the terms and conditions hereof. NOW, THEREFORE, Executive and Employer hereby agree as follows: 1. Terms of Employment. (a) Position and Duties. Commencing on the date of hire (the "Effective Date" and the "Employment Period"), unless terminated as provided herein, Employer agrees to employ Executive, and Executive agrees to serve Employer as its Chief Operating Officer and to perform the general functions and duties as described in Exhibit A attached hereto, as such functions and duties may be modified by mutual agreement by Employer and Executive. During the Employment Period, Executive shall be accountable, and report to the Management Committee of Employer. (b) Compensation. (i) Base Salary. During the Employment Period, Executive shall receive a base cash salary (the "Base Salary") at an annual rate (pro-rated for partial years during the Employment Period), of at least TWO HUNDRED FOURTEEN THOUSAND TWO HUNDRED AND 00/100 DOLLARS ($214,200.00), payable pursuant to Employer's standard payroll practices for executives. During the Employment Period, the Base Salary shall be reviewed at least annually and shall be increased from time to time in accordance with Employer's performance evaluation criteria applied to Executive reasonably and in good faith consistent with application to other executives of Employer. For purposes of this Agreement, the term "executive" shall mean all executives at the same corporate level of the Executive of Employer. Executive Base Salary will be increased ("Adjusted Base Salary") in the event of a relocation to a Relocation City by a factor determined by the Company. In the event Employer changes its employment grade levels at any time during the Employment Period, Executive will be classified under the new levels so as to remain in all substantial respects within the same organizational, compensation and benefit levels as under the current structure. Any increase in Base Salary shall not limit or reduce any other obligation to Executive under this Agreement. Executive's Base Salary shall not be reduced after the effective date of this Agreement and after any such increase. (ii) Incentive Bonuses. In addition to Base Salary payable as hereinabove provided, Executive shall be entitled to participate in Employer's Management Incentive Program (the "Incentive Program") for each fiscal year or portion thereof during the Employment Period. For purposes of this Paragraph, Employment Period shall be considered to include the full year 1996. Executive shall be eligible for awards ("Incentive Bonuses") under the Incentive Program during the Employment Period, pursuant to the terms and conditions of such Program as in effect on the Effective Date. (iii) Incentive, Savings and Retirement Plans. In addition to amounts payable as provided in 1(b)(i) and (ii) above, Executive shall be entitled to participate in all other incentive plans, practices, policies and programs applicable to other senior executives of Employer, including, without limitation, all plans qualified under Section 401 of the Internal Revenue Code of 1986, as amended (the "Code"), all medical insurance and health plans, and all additional, supplemental and incentive compensation plans, in each instance providing benefits reasonably equivalent or in excess of those provided other executives of Employer. (iv) Welfare Benefit Plans. During the Employment Period, Executive and Executive's family shall be eligible for participation in and shall receive all benefits under the terms of welfare benefit plans, practices, policies and programs provided to senior executives of Employer (including, without limitation, medical prescription, dental, vision, disability, basic life, supplemental life, accidental death and travel accident insurance plans and programs) and all additional, supplemental and replacement plans, practices, policies and programs provided to executives of Employer, in each instance, providing benefits reasonably equivalent or in excess of those provided other executives of Employer. (v) Expenses. During the Employment Period, Executive shall be entitled to reimbursement for all reasonable expenses incurred by Executive in the performance of duties hereunder, in accordance with the terms of the policies, practices and procedures of Employer as generally applicable to its executives. (vi) Fringe and Other Benefits. During the Employment Period, Executive shall be entitled to fringe benefits, including, without limitation: (A) exclusive and full time use of an automobile, consistent with Employer's policies as applied to its other executives, selected by Executive comparable to automobiles provided other executives of Employer, (B) payment of reasonable business related expenses including, without limitation, professional association dues and (C ) all other benefits, prerequisites, vacation, insurance, severance, disability, and incentives provided to other executives of Employer. 2. Termination of Employment. (a) Disability. If Executive becomes disabled, which, for purposes of this Agreement, shall mean that (i) Executive fails to perform his essential duties on an active full-time basis by reason of disability or impairment of health for a period of at least three hundred sixty five (365) consecutive calendar days or (ii) Employer shall have received a certificate from a physician reasonably acceptable to Employer and Executive, or any duly appointed legal representative of Executive, to the effect that Executive cannot reasonably be expected to be capable of performing his essential duties under this Agreement for a period of at least one (1) year in accordance with past practices, Executive's employment may be terminated for "Disability" pursuant to a Notice of Termination (as hereinafter defined) delivered by Employer or by Executive or his duly appointed legal representative. Payment to Executive will be made in accordance with the terms of the Employer's Short Term Disability Plan and Employer's Long Term Disability Plan (if elected by Executive). (b) Cause. Pursuant to a Notice of Termination, Employer may terminate Executive's employment hereunder "for Cause." For the purposes of this Agreement, "for cause" means termination upon Executive's continual failure to perform in a satisfactory manner, his essential duties and obligations hereunder in any material respect after written notice and reasonable opportunity to cure performance. (c) Termination by Executive. Notwithstanding anything contained herein to the contrary, Executive may terminate this Agreement pursuant to a Notice of Termination at any time. (d) Notice and Date of Termination, Etc. For purposes of this Agreement, "Notice of Termination" means a written notice which indicates the specific termination provision of this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment. For purposes of this Agreement, "Date of Termination" means (i) if Executive's employment is terminated for Disability pursuant to Subsection (a) of this Section 2, the date that Notice of Termination is given, (ii) if Executive's employment is terminated by reason of his death, the date of death, and (iii) if Executive's employment is terminated by Employer "for Cause" or by either party for any other reason (other than Disability or death), the date specified in the Notice of Termination, which date shall not be less than thirty (30) days after the date of such Notice. 3. Compensation Upon Termination of Employment or During Disability. Upon termination of Executive's employment, Executive shall be entitled to the following benefits: (a) If Executive's employment is terminated for Disability, Employer shall pay and provide Executive his full Base Salary through the Date of Termination, plus all other disability and related benefits in accordance with existing Company benefit plans, and Employer shall have no further obligations to Executive under this Agreement. (b) If Executive's employment shall be terminated other than pursuant to Executive's death or Disability or by Employer (for Cause), Employer shall pay and provide Executive his full Base Salary through the Date of Termination, at the rate in effect at the time Notice of Termination is given, plus all other benefits to which Executive is entitled as of the Date of Termination under any compensation or benefit plans in accordance with existing Company benefit plans, and Employer shall have no further obligation to Executive under this Agreement. (c) If Executive's employment shall be terminated by reason of his death, Employer shall pay and provide his estate or designated beneficiaries his full Base Salary through the end of the month in which death occurs, plus any Incentive Bonuses and other bonus earned under any bonus program as prorated for the portion of the applicable bonus measurement period occurring prior to the date of death, plus all other amounts and benefits to which Executive is entitled under any compensation or benefit plans or policies provided any executive officer of Employer at the date of death, and Employer shall have no further obligation to Executive or his estate under this Agreement. (d) If Executive's employment shall be terminated other than pursuant to Executive's death or Disability by Employer other than "for Cause" then Executive shall be entitled to the following: (i) Through Date of Termination. Employer shall pay Executive his full Base Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts and benefits to which Executive is entitled under any compensation or benefit plans of Employer, including, without limitation, Incentive Bonuses, accrued or prorated through the Date of Termination, at the time such payments are due. (ii) Severance. Severance will be in accordance with the Company's existing Severance Policy which is actually based on Executive's current base salary from 6-12 months.. (e) If Executive terminates his employment pursuant to Section 2(c), Executive shall be entitled only to his current Base Salary and benefits through the Date of Termination. 5. Arbitration. Any dispute or controversy arising under or in connection with this Agreement that cannot be mutually resolved by the parties and their respective advisors and representatives, shall be settled exclusively by arbitration in the city of residence of the Executive in accordance with the procedures of the American Arbitration Association. 6. Confidentiality. Executive shall not, at any time following his termination, use the name, marks, records, plans, or proprietary methods nor the list of customers of Employer or disclose them or any part thereof to any person, firm, corporation, association, or other entity (other than a subsidiary, parent or affiliate of MCII/TMO) for any purpose or reason whatsoever, or remove or retain, without Employer's consent, any figures, calculations, letters, documents, papers, drawings, or copies thereof, or other confidential information of any type or description or breach the Covenants contained in the Employee Patent and Trade Secret Agreement signed by Executive on _______________. 7. Non-Competition. Upon termination of Executive's employment, Executive agrees not to enter into the employ of or consultancy for any bus or coach manufacturer, or bus or coach parts manufacturer or distributor, or bus or coach sales or service business, or bus or coach operator, in competition with Employer, for a period of three (3 ) years from the date of Executive's termination. 8. Transfers. The Employer shall, at any time, transfer the Executive to any other different location as the Employer sees fit for business reasons, locally or internationally. 9. Full Settlement. Employer's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder, shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which Employer may have against Executive, or otherwise. 10. Successors. (a) This Agreement is personal to Executive and without the prior written consent of Employer, shall not be assignable by Executive other than as provided herein. This Agreement shall inure to the benefit of and be enforceable by Executive and Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon and enforceable by Employer and its permitted successors and assigns. (c) Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all, or substantially all, of the business and/or assets of Employer to assume expressly and agree to perform this Agreement in the same manner, and to the same extent, that Employer is bound hereunder. 11. Miscellaneous. (a) Acceleration of Payments. In the event Employer fails to pay Executive any payment when due and payable and such failure continues for five (5) business days after written notice of such failure, then all payments under this Agreement shall be accelerated and the entire amount of such payments shall then be due and payable immediately. (b) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (c) Notices. All notices and other communication hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to Executive: Executive's home address is on file with Employer's payroll department. If to Employer: Transportation Manufacturing Operations, Inc. 10 E. Golf Road Des Plaines, Illinois 60016 Attention: Chief Operating Officer or if by the Chief Operating Officer, Attention: Chief Financial Officer or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when moved. (d) Entire Agreement; Amendments; Waivers. This Agreement contains the entire agreement between the parties concerning the subject matter hereof. It may not be changed orally, but only by agreement, in writing, signed by each of the parties. The terms or covenants of this Agreement may be waived only by a written instrument specifically referring to this Agreement, executed by the party waiving compliance. The failure of Employer at any time, or from time to time, to require performance of any of the Executive's obligations under this Agreement shall, in no manner, affect Employer's right to enforce any provisions of this Agreement at a subsequent time; and the waiver by Employer of any right arising out of any subsequent breach. IN WITNESS WHEREOF, Executive has hereunder set his hand and, pursuant to authorization from its Board of Directors, Employer has caused these presents to be executed in its name on its behalf, all as of the date and year first above written. "Executive" ------------------------------- James P. Bernacchi TRANSPORTATION MANUFACTURING OPERATIONS, INC. By /s/ -------------------------------- Chairman of the Board EX-10.29 7 EXHIBIT 10.29 COACH PURCHASE AGREEMENT (DASA - 1995) Hausman Bus Sales, Inc., a corporation organized under the laws of the State of Delaware, U.S.A. ("Hausman"), and Dina Autobuses, S.A. de C.V., a corporation organized under the laws of the United Mexican States ("DASA"), agree as follows: 1. Purchase and Sale of Coaches. Hausman intends to purchase certain motor coaches assembled by DASA (including the Viaggio 1000) from DASA for resale in the United States, and DASA intends to sell such coaches to Hausman, each such purchase and sale being referred to in this Coach Purchase Agreement ("Agreement") as a "Coach Sale". Each Coach Sale will be accomplished in accordance with the terms and conditions of this Agreement. 2. Purchase Order and Delivery Schedules. (a) Hausman will, from time to time, order coaches from DASA using Hausman's standard purchase order or other appropriate order form ("Purchase Order"). Unless an individual Purchase Order specifically states that this Agreement does not apply, all of the terms and conditions of this Agreement will be incorporated into and become a part of the Purchase Order. In the event there is a conflict between the terms of the Purchase Order, DASA's acceptance of the Purchase Order and this Agreement, the terms of this Agreement will prevail. (b) The Purchase Order will describe the coach or coaches being ordered by Hausman -- including detailed specifications and options. (c) The purchase prices of the coaches and options will be negotiated and agreed to by DASA and Hausman from time to time. 3. Delivery and Pre-Delivery Inspection. (a) The delivery dates for the coaches will be negotiated and agreed to by DASA and Hausman from time to time. (b) Hausman may inspect incomplete and completed coaches at DASA's plant prior to delivery to assure compliance with the Purchase Order. Hausman's inspection may include determining that the coach has been assembled as specified, that all parts and components are functioning properly and that the coach is cosmetically acceptable condition for resale. (c) Coaches will be delivered by DASA (or its agent), at DASA's expense, to United States Customs in Laredo, Texas, or such other location in the United States as DASA and Hausman may agree on from time to time. (d) DASA will issue an invoice for each coach when it is released from DASA's plant for delivery to United States Customs. 4. Acceptance and Final Preparation for Sale. (a) Notwithstanding Section 3(b) of this Agreement, Hausman may inspect each coach at its delivery point or may remove the coach to another inspection point. Hausman's inspection will include determining that the coach has been assembled as specified (if not already determined by Hausman at DASA's plant), that all parts and components are functioning properly and that the coach is in cosmetically acceptable condition for resale. Hausman will repair any defects it discovers if it can reasonably do so without returning the coach to DASA or incurring unnecessarily excessive expenses. Hausman will not do any unnecessarily expensive repairs or engineering work in connection with repairing the coaches unless DASA and Hausman have agreed in writing in advance that Hausman will do such work and how Hausman will be reimbursed. (b) Upon Hausman's determination in its sole discretion that a coach has cleared United States Customers and is acceptable for resale (and the coach has been redelivered to Hausman, if it had been returned to DASA or its agent for repair), Hausman will promptly notify DASA in writing (identifying the coach by its VIN number) that the coach has been accepted ("Acceptance"). (c) After Acceptance, Hausman will at its expense make any final preparations (such as washing the coach, assuring that it contains proper fluids, and installing options such as paint schemes and destination signs requested by Hausman's customers) necessary to prepare the coach for resale. Hausman will obtain and deliver all parts, service and other manuals to be included with the coach when it is resold. 5. Payment. (a) Hausman will pay all undisputed portions of the invoice on the earlier of 90 days after Acceptance or within three days after the date Hausman closes the sale of the coach to its customer. (b) Hausman will retain all amounts it receives upon resale in excess of the invoice price. 6. Warranty. (a) Each coach will be resold by Hausman with a 2 year or unlimited mile warranty, whichever comes first. (b) Hausman will administer and pay for all warranty claims. Hausman will promote itself to its customers as being responsible for and administering all warranty claims. (c) DASA and Hausman agree that this Section 6 also applies to all Viaggio 1000 coaches sold by DASA to Hausman prior to execution of this Agreement. 7. Termination. Either party may terminate this Agreement effective anytime on or after July 31, 1996 by giving the other party at least 120 days advance written notice stating the effective date of termination. All coaches ordered prior to the giving of the notice of termination will be assembled, sold and purchased in accordance with this Agreement. 8. Dollars. Whenever used in this Agreement, any attachment hereto, any Purchase Order or in the invoice for any Coach Sale, the term "dollar", "dollars" or "$" means U.S. dollars. 9. Choice-of-Law. This Agreement will be governed by and construed in accordance with the laws (except those respecting choice-of-law and the United Nations Convention on Contracts for the International Sale of Goods) of the State of Arizona, U.S.A. Hausman and DASA each agree to submit to the personal jurisdiction of the state and federal courts of the State of Arizona, U.S.A. If any provision of this Agreement is found by a court of competent jurisdiction to be void or unenforceable, Hausman and DASA agree that such provision should be modified by the court so that it becomes enforceable and, as modified, will be enforced as any other provision of this Agreement, all other provisions of the Agreement continuing in full force and effect. Such a modification, however, will be effective only in the legal proceeding of which it is a part and only on the facts to which it is applied; all provisions herein will be applied as written, to the extent enforceable, in any other legal proceeding or on any other facts. 10. Specification Changes. DASA will endeavor to give Hausman at least 180 days advance notice of material changes in the coach specifications. 11. Arm's-Length Agreement. Although Hausman and DASA are affiliates through their common parent, Consorcio G Grupo Dina, S.A. de C.V., Hausman and DASA each acknowledge that this Agreement has been fairly negotiated and is an arm's-length transaction. Acknowledged and agreed this 1st day of August, 1995. DINA AUTOBUSES, S.A. DE C.V. HAUSMAN BUS SALES, INC. /s/ Jose Luis Olvera Name: Jose Luis Olvera Name: John R. Nasi Title: Finance Director Title: President, Chief Operating Officer EX-23.3 8 EXHIBIT 23.3 EXHIBIT 23.3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use in this Registration Statement of our reports on the consolidated financial statements of Consorcio G Grupo Dina, S.A. de C.V. and Subsidiaries and MCII Hold- ings (USA), Inc., and all references to our firm, includ- ed in or made a part of this Registration Statement. /s/Arthur Andersen Mexico, D.F. October 4, 1996 EX-23.4 9 EXHIBIT 23.4 EXHIBIT 23.4 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Amendment No. 1 to Registration Statement No. 333-08843 of MCII Holdings (USA) Inc. of our reports dated February 24, 1995 appearing in the Prospectus, which is part of this Registration Statement, and to the reference to us under the heading "Experts" in such Prospectus. /s/Deloitte & Touche LLP Phoenix, Arizona September 20, 1996 -----END PRIVACY-ENHANCED MESSAGE-----