-----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, By7PXrwy/HnwiES2Dd47VeOm5yaSTCjkDNHFDZPF9lw6AtIILSf1ZSntMjUZPyVY OAkILgTQ7Q1fbn1keLXdEQ== 0000920464-99-000019.txt : 19990824 0000920464-99-000019.hdr.sgml : 19990824 ACCESSION NUMBER: 0000920464-99-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990704 FILED AS OF DATE: 19990823 FILER: COMPANY DATA: COMPANY CONFORMED NAME: METROTRANS CORP CENTRAL INDEX KEY: 0000920464 STANDARD INDUSTRIAL CLASSIFICATION: TRUCK & BUS BODIES [3713] IRS NUMBER: 581393777 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23808 FILM NUMBER: 99697987 BUSINESS ADDRESS: STREET 1: 777 GREENBELT PKWY CITY: GRIFFIN STATE: GA ZIP: 30223 BUSINESS PHONE: 7704124149 MAIL ADDRESS: STREET 1: 777 GREENBELT PKWY CITY: GRIFFIN STATE: GA ZIP: 30223 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended July 4, 1999 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period from ______ to ______ Commission File Number 0-23808 METROTRANS CORPORATION (Exact name of Registrant as specified in its charter) Georgia 58-1393777 (State of Incorporation) (I.R.S. Employer Identification No.) 777 Greenbelt Parkway, Griffin, Georgia 30223 (Address of principal executive offices, including zip code) (770) 229-5995 (Registrant's telephone number, including area code) _______________ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No _____ Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: Class Outstanding at August 18, 1999 Common Stock, $.01 Par Value 4,129,737 shares METROTRANS CORPORATION Quarterly Report on Form 10-Q For the Quarter Ended July 4, 1999 Table of Contents Item Page Number Number ______ ______ PART I. FINANCIAL INFORMATION 1. Financial Statements: Consolidated Balance Sheets as of July 4, 1999 and December 31, 1998 3 Consolidated Statements of Income for the three and six months ended July 4, 1999 and July 5, 1998 4 Consolidated Statements of Cash Flows for the six months ended July 4, 1999 and July 5, 1998 5 Notes to Consolidated Financial Statements 6 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION 1. Legal Proceedings 16 3. Default Under Senior Securities 18 4. Submission of Matters to a Vote of Security Holders 19 5. Other Information 19 6. Exhibits and Reports on Form 8-K 20 Signature 21 Index of Exhibits 22 PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements METROTRANS CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, Except Share Data)
July 4, December 31, 1999 1998 (Unaudited) ASSETS CURRENT ASSETS: Cash $ 0 $ 0 Accounts Receivable, net of allowance for doubtful accounts of $490 and $134 in 1999 and 1998, respectively 4,610 6,047 Current portion of net investment in sales-type leases 71 256 Inventories 27,855 39,628 Refundable income taxes 214 2,229 Prepaid expenses and other 1,932 1,192 ________ ________ Total current assets 34,682 49,352 PROPERTY, PLANT AND EQUIPMENT, net 8,252 8,902 NET INVESTMENT IN SALES-TYPE LEASES 115 130 INTANGIBLES 485 502 DEPOSITS AND OTHER 438 415 ________ ________ $ 43,972 $ 59,301 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 15,224 $ 24,587 Current portion of long-term debt 21,831 2,236 Customer deposits 1,374 1,211 ________ ________ Total current liabilities 38,429 28,034 ________ ________ LONG-TERM DEBT, net of current portion 1,534 16,076 ________ ________ OTHER NONCURRENT LIABILITIES 150 300 ________ ________ STOCHOLDERS' EQUITY: Preferred stock, no par value; 10,000,000 shares authorized 0 0 Common stock, $.01 par value; 20,000,000 shares authorized, 4,129,737 and 4,098,244 shares issued and outstanding in 1999 and 1998, respectively 41 41 Additional paid-in capital 10,824 10,673 Deferred compensation (53) (105) Retained earnings (deficit) (6,953) 4,282 ________ ________ 3,859 14,891 ________ ________ $ 43,972 $ 59,301 ======== ========
The accompanying notes are an integral part of these balance sheets. 3 METROTRANS CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Share Data) (Unaudited)
Three Months Ended Six Months Ended __________________ ________________ July 4, July 5, July 4, July 5, 1999 1998 1999 1998 _______ _______ ______ ______ NET REVENUE $ 19,755 $ 22,899 $ 37,222 $ 38,917 COST OF SALES 19,131 18,528 38,188 32,324 _________ _________ _________ _________ Gross Profit (Loss) 624 4,371 (966) 6,593 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 5,006 2,857 9,356 5,765 _________ _________ _________ _________ Operating Income (Loss) (4,382) 1,514 (10,322) 828 INTEREST EXPENSE, net 472 275 913 554 _________ _________ _________ _________ INCOME (LOSS) BEFORE INCOME TAXES (4,854) 1,239 (11,235) 274 INCOME TAX PROVISION (BENEFIT) 0 486 0 107 _________ _________ _________ _________ NET INCOME (LOSS) $ (4,854) $ 753 $ (11,235) $ 167 ========= ========= ========= ========= NET INCOME (LOSS) PER COMMON SHARE: Basic $ (1.18) $ 0.18 $ (2.73) $ 0.04 ========= ========= ========= ========= Diluted $ (1.18) $ 0.18 $ (2.73) $ 0.04 ========= ========= ========= ========= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic 4,130 4,084 4,117 4,084 ========= ========= ========= ========= Diluted 4,130 4,121 4,117 4,121 ========= ========= ========= =========
The accompanying notes are an integral part of these statements. 4 METROTRANS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)
Six Months Ended __________________ July 4, July 5, 1999 1998 _______ _______ CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ (11,235) $ 167 _________ _________ Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 883 351 Compensation under restricted stock award 52 52 Changes in assets and liabilities: Accounts receivable 1,437 (4,140) Inventories 11,773 (5,778) Other assets 1,269 (91) Accounts payable and accrued expenses (9,212) 4,494 Customer deposits 163 884 _________ _________ Total adjustments 6,365 (4,228) _________ _________ Net cash (used in) provided by operating activities (4,870) (4,061) _________ _________ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (233) (930) Net decrease (increase) in property held for lease 0 214 Net decrease in investment in sales-type leases 200 349 _________ _________ Net cash (used in) investing activities (33) (367) _________ _________ CASH FLOWS FROM FINANCING ACTIVITIES: Net (repayments) under line of credit (185) 0 Net increase (decrease) in collateralized borrowings 0 355 Net borrowings (repayments) of long-term debt 5,088 4,073 _________ _________ Net cash provided by (used in) financing activities 4,903 4,428 _________ _________ INCREASE IN CASH 0 0 CASH AT BEGINNING OF PERIOD 0 50 _________ _________ CASH AT END OF PERIOD $ 0 $ 50 ========= ========= CASH PAID FOR INTEREST $ 912 $ 260 ========= ========= CASH PAID FOR TAXES $ 0 $ 0 ========= =========
The accompanying notes are an integral part of these statements. 5 METROTRANS CORPORATION Notes to Consolidated Financial Statements July 4, 1999 1. Basis of Presentation The financial statements include the accounts of Metrotrans Corporation and its Subsidiary (the "Company"). The financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and, therefore, omit certain information and footnotes required by generally accepted accounting principles for complete financial statements. Accordingly, these statements should be read in conjunction with the Company's audited financial statements included in its Annual Report on Form 10-K for the year ended December 31, 1998, filed with the Securities and Exchange Commission. In the opinion of management, the financial statements contain all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. The adjustments were of a normal recurring nature. Results presented for the six months ended July 4, 1999 are not necessarily indicative of results that may be expected for the full fiscal year. 2. Inventories Inventories consist of (in thousands): July 4, 1999 December 31, 1998 Chassis awaiting conversion $ 2,455 $ 3,958 Raw materials 5,476 6,061 Work in process 1,220 2,937 Finished goods 3,254 19,888 Used vehicles 5,450 6,784 _______ _______ $27,855 $39,628 6 3. Commitments and Contingencies The Company enters into various leasing arrangements with customers and leasing companies. Certain leases contingently obligate the Company to indemnify the leasing company for any losses it incurs up to a specified amount on the lease in the event the lessee defaults. In addition, the Company enters into certain agreements with financial institutions whereby the Company guarantees varying amounts of customers' purchase debt obligations. The Company's obligation under these guarantees becomes effective in the case of default in payments or certain other defined conditions. The Company's aggregate potential liability under these arrangements as of July 4, 1999 and December 31, 1998 was $17 million and $15 million, respectively. During the six months ended July 4, 1999, the Company purchased buses totaling approximately $90,000 related to lease defaults and litigation settlements on sales from prior periods. Purchases to date have been or are expected to be sold to third parties at or above amounts approximating the purchase price. The Company is involved in certain legal matters primarily arising in the normal course of business. In the opinion of management, the Company's liability in any of these matters will not have a material adverse effect on its financial condition or results of operations. The Company is also involved in other litigation that is discussed in Item 1 of Part II of this Quarterly Report on Form 10-Q. 4. New Accounting Pronouncements The Company has no Other Comprehensive Income Items as defined by SFAS No. 130. In July 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133 "Accounting for Derivative Instruments and for Hedging Activities". The Company does not presently have any hedging operations. 7 5. Long-Term Debt Effective April 12, 1999, the Company entered into an amended secured revolving credit facility (the "Amended Facility"). Under the Amended Facility, the Company obtained a waiver of all defaults which existed under the unsecured credit facility. The Amended Facility provides a commitment of up to $23 million, an increase of $3 million. Interest under the Amended Facility is at prime. In connection with the Amended Facility, the Company has pledged a security interest in substantially all of its assets. The $23 million commitment is subject to certain automatic reductions, including reductions related to decreases in the Company's level of inventory and an automatic reduction on December 31, 1999 to $20 million. Under the Amended Facility, the Company is subject to certain financial covenants, including a restriction on total capital expenditures of $500,000 in any calendar year, a prohibition on the payment of any cash dividends, as well as restrictions on maximum inventory levels and other covenants related to net income and tangible net worth. As a result of the second quarter loss, as of July 4, 1999, the Company was not in compliance with certain financial covenants contained in the Amended Facility, including financial covenants related to the maintenance of specified levels of tangible net worth and net income. As of August 18, 1999, the Company has entered into a forbearance agreement with the lender (the "Forbearance Agreement"), under which the lender has agreed to forbear until September 30, 1999 from exercising its rights and remedies under the Amended Facility with respect to the non-compliance. Upon the expiration of the Forbearance Agreement, unless the Company obtains a waiver of the noncompliance, or is able to negotiate amended terms to the Amended Facility, the lender will be entitled to exercise its rights and remedies under the Amended Facility which include ceasing additional advances under the Amended Facility and/or demanding payment in full of the outstanding borrowings under the Amended Facility. If the lender were to take any of these actions, the Company's operations and financial condition will be materially and adversely affected unless it is able to secure new third party financing under terms and conditions reasonably satisfactory to the Company. The Company is currently in discussions with the lender regarding an amendment to the terms of the Amended Facility. Additionally, pursuant to the terms of the Amended Facility, in August 1999, the total commitment under the Amended Facility was automatically reduced by approximately $670,000. The Company has entered into a Fifth Amendment to the Company's credit facility (the "Fifth Amendment") which contains a technical correction to the method used to determine the amount of the August 1999 commitment reduction. The foregoing is not a complete description of the terms of the Forbearance Agreement or the Fifth Amendment or the transactions contemplated thereby and is subject to and qualified in its entirety by reference to the Forbearance Agreement and the Fifth Amendment, which are filed as Exhibits 10.2 and 10.3 hereto respectively. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward Looking Statements In addition to historical information, this Quarterly Report on Form 10- Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 (the "Securities Act"), as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). When used in this report, the words "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan" and similar expressions or statements regarding future periods are intended to identify forward-looking statements. All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events, which by their nature involve substantial risks and uncertainties beyond Metrotrans Corporation's control. Among other things, these risks and uncertainties include: the availability of third party lending on terms favorable to the Company; changes in price and demand for the Company's products; the ability of the Company to attract and retain qualified management, manufacturing and sales personnel; the ability to control manufacturing costs, overhead and Selling, General and Administrative expenses; the effects of competition; changes in accounting policies and practices; the ability of the Company, its vendors, suppliers and customers to be Year 2000 compliant; the ability to complete the implementation of a manufacturing cost accounting system; the ability to obtain chassis and other materials on a timely basis on terms acceptable to the Company; and the ability to satisfactorily resolve litigation and vendor claims. Forward-looking statements may also be made in Metrotrans Corporation's other reports filed under the Exchange Act, press releases, and other documents; as well as by management in oral statements. Metrotrans Corporation undertakes no obligation to update or revise any forward-looking statements for events or circumstances after the date on which such statement is made. New factors emerge from time to time, and it is not possible for Metrotrans Corporation to predict all of such factors. Further, Metrotrans Corporation cannot assess the impact of each such factor on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Overview The Company was incorporated in 1982 for the purpose of designing, manufacturing and marketing shuttle and mid-size buses. After the introduction of the Classic( in 1986, the Company experienced significant growth in unit sales and revenues but total unit sales have decreased over the past three years, primarily due to a decrease in sales of Classic models for transit use offset somewhat by the introduction of new products. The Company's product development strategy is to design and introduce new products after clearly identifying a market need based, in large part, on suggestions made by existing and potential customers. This approach resulted in the introduction of the Eurotrans( in 1990, the Eurotrans XLT( and the Classic II( in 1992, the Classic Commuter( in 1993, the Legacy LJ by Metrotrans( in 1996, the Anthem( in 1997, and the Classic XLT ( in 1998. The Anthem (tm) product line is still under development and no sales have been made. Metrotrans began exclusive marketing of the Irizar Century for North America in 1997 with the first deliveries occurring in the second quarter of 1998. 9 Results of Operations The Company's results for the first quarter and first six months of operations were adversely affected by a number of factors, including a change in management personnel involving The Mayflower Corporation plc ("Mayflower") representatives who occupied key management positions in the Company from November 1998 to February 1999 and the medical leave of D. Michael Walden, Chairman and CEO. Mayflower also was obligated under its loan agreement with the Company to lend it up to $15 million. As of December 31, 1998, the Company had borrowed $1.9 million under this agreement and in January 1999 requested additional advances under the agreement. Mayflower refused to make advances as required under the loan agreement and their personnel, who occupied key management positions, left the Company. These two occurrences caused significant problems for the Company, including liquidity problems. The liquidity problems caused concern to customers, vendors and the financing institutions, which provide financing for the Company's new bus sales. In some cases, vendors slowed or stopped deliveries of parts and customers deferred or cancelled orders. Accordingly, production schedules could not be met, buses could not be delivered as planned, and production levels had to be curtailed. As a result, the Company's margins and net income have decreased significantly. The Company entered into an amended secured revolving credit arrangement with its primary lender on April 12, 1999. In addition, due to the illness of the Chairman of the Board and Chief Executive Officer, as well as the departure of the Mayflower management team, it was necessary for the Company to employ an interim Chief Executive Officer in March 1999. The Company named a new permanent Chief Executive Officer in July 1999. During the second quarter of 1999, plans for significant reductions in ongoing costs (manufacturing overhead, selling, general and administrative costs) were implemented. In addition, reductions in direct labor personnel were accomplished and reorganization of the manufacturing process was initiated and is expected to be completed in the third quarter. The total number of employees at July 4, 1999 was 332 as compared to 374 at December 31, 1998. A review of cash, inventory and accounts payable management has taken place during the second quarter and inventories and accounts payable have been reduced significantly since year end ($11.8 million and $9.4 million respectively). The changes referred to above were necessary and were facilitated by additional borrowings of $3.0 million and required the use of outside consultants as well as legal advisors to deal with the numerous legal (including Mayflower) and other operational matters which required immediate and significant attention. See "Part II, Item I - Legal Proceedings" for further information regarding litigation. A review of the sales and internal organization was completed in late July 1999 and a corporate-wide internal reorganization of Senior Management was implemented at that time, as was the hiring of a new Chief Financial Officer, Mr. David Brewer in August, 1999. 10 Irizar sales in the first six months were less than originally planned, and sales for the third and fourth quarter are also expected to be below the prior year primarily because of the Company's cash constraints. Management is currently discussing with Irizar future production and sales issues. In addition, the Company has met with Irizar representatives and our chassis supplier (Spartan) and it's suppliers to determine the need for and type of corrective action on various mechanical problems which have occurred on certain Irizar buses previously sold. Customers have been notified of these steps and corrective action will be taken on the buses beginning in the third quarter. Ford Motor Company (the Company's primary supplier for chassis) notified the Company on May 21, 1999 that they were reviewing their payment terms with the Company. The Company has satisfactorily concluded those discussions and continues to receive all chassis ordered (but with some delays as a result of Ford's production schedules), paying Ford dealers as agreed upon for current as well as prior chassis deliveries. In addition, the Company is now negotiating a new credit facility with Ford Motor Credit Corp which is expected to result in more favorable repayment terms than were previously granted to the Company. In order to continue to reduce the existing inventory of used buses (406 units at December 31, 1998 compared with 341 units at July 4, 1999), and in recognition of the increased competition, the Company has initiated a new marketing plan for used buses. More used bus inventory will be moved out of the Bus Pro location in McDonough, Georgia to various sales office locations throughout the United States for direct selling from these regional offices. Inventory carrying values were reduced to facilitate faster inventory turnover of the used and demonstrator buses. 11 The following table sets forth, as a percentage of net revenue, the relationship of selected items included in the Company's income statement for the periods indicated. Three Months Ended Six Months Ended July 4, July 5, July 4, July 5, 1999 1998 1999 1998 Net revenue 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 96.8 80.9 102.6 83.1 Gross profit (loss) 3.2 19.1 (2.6) 16.9 Selling, general and administrative expenses 25.3 12.5 25.1 14.8 Operating Income (Loss) (22.1) 6.6 (27.7) 2.1 Interest expense 2.4 1.2 2.5 1.4 Income (Loss) before income taxes (24.5) 5.4 (30.2) 0.7 Income tax provision 0 2.1 0 0.3 Net Income (24.5)% 3.3 % (30.2)% 0.4% Net Revenue. Net revenue decreased 13.7% to $19.8 million for the quarter ended July 4, 1999 from $22.9 million for the comparable prior year period and decreased 4.4% to $37.2 million during the first six months of 1999 from $38.9 million over the same six-month period in 1998. The decrease in revenue in the second quarter of 1999 is primarily due to the decrease in Irizar sales in that quarter. In the second quarter of 1998 (when the Irizar was first introduced), 11 units were sold for $3.6 million, while in the second quarter of 1999, only 2 Irizars were sold and were higher than in the first quarter of 1999 when total manufactured sales were 209 units. Unit sales in the second quarter of 1999 of 263 Classics, 14 Eurotrans and 12 Legacy LJ by Metrotrans were virtually the same as the second quarter of the prior year. Irizar sales for the second quarter and the first six months decreased as a result of financing issues caused by Mayflower's refusal to fund it's commitments which began during the last quarter of 1998 and continued through the current quarter. As a result the sales backlog for Irizars existing as of December 31, 1998 was dissipated and sales efforts were limited. Used bus sales decreased in the second quarter from $2.9 million in 1998 to $2.2 million in 1999 or a decrease of 24.2% and for the first six months decreased from $5.9 million to $3.4 million or 42.4%. The sales results of 1999 were lower in both quarters of 1999 because of more competitive used bus markets in 1999. 12 Production backlog at the end of the second quarter of 1999 was approximately $29 million for buses to be manufactured in the U.S. This compares with a backlog of approximately $30 million at the end of the second quarter of 1998, exclusive of Irizar backlog at July 5, 1998 of $13 million. There is no current firm backlog for Irizar sales but the Company is meeting with certain key customers regarding future orders. Cost of Sales and Gross Profit. Gross profit declined to $624 thousand in the second quarter of 1999 from $4.371 million in the second quarter of 1998. For the first six months of 1999, gross loss was $966 thousand compared to a profit of $6.593 million for the same period in 1998. The decrease in gross profit in the second quarter was due to a number of factors including a decrease of approximately $700,000 on margin earned on the Irizar sales in the second quarter of 1998 versus the second quarter of 1999 and the related decrease in finance income of $400,000 in 1999 on financing fees earned on Irizar and other lease transactions in 1998. In addition, approximately $3.6 million of manufactured buses sold in the second quarter of 1999 were units manufactured in the fourth quarter of 1998 or in some cases the first quarter of 1999 with virtually no gross profit. If these 1999 second quarter sales had a margin similar to the margin realized in the second quarter of 1998 (19%), the gross margin in the second quarter of 1999 would have been increased by approximately $775,000. The reasons these units carried no margin in the second quarter of 1999 were as a result of the losses incurred in the prior two quarters. During the second quarter, efforts were made to reduce manufacturing costs, including direct labor and overhead and improving production throughput. As a result, the gross profit for the second quarter (3.2%) offset some of the loss reported in the first quarter resulting in a 2.6% loss on the margin line for the six months ended July 4, 1999 as compared to the profit for the six months ended July 5, 1998 of 16.9%. The decrease between years was caused by the factors mentioned above for the second quarter, and also because of the manufacturing issues discussed previously under "Results of Operations." The total amount of new bus sales for the six month period with little or no margin (as described above) was approximately $10 million (approximately $1.9 million in lost margin). In addition, because of the Company's need for liquidity and conversion of receivables and inventory into cash, the Company has reduced its carrying value of its used bus and demonstrator inventory by approximately $1.1 million in 1999 to facilitate more timely sales. 13 Selling, General and Administrative Expenses and Operating Income. Selling, general and administrative expenses for the second quarter of 1999 were approximately $5.0 million or an increase of $2.1 million over the corresponding quarter in 1998. Substantially all of the increases are due to: (1) significant professional fees for counsel and "management turnaround" consultants incurred because of significant litigation and operating and financial issues ($0.9 million), (2) write-off of old receivables and other assets, providing for lease guarantees from prior years sales where lessees have or are expected to default on obligations the Company has guaranteed or adjusting carrying values of assets ($1.3 million) and (3) severance pay and contractual payments to employees no longer active with the Company ($0.2 million). These increases have been partially offset by other selling expense reductions. Selling, general and administrative expenses for the first six months of 1999 were approximately $9.4 million or an increase of $3.6 million over the prior year for the reasons described above. For the six months ended July 4, 1999, the total adjustments to carrying values of assets and provisions for losses were $2.6 million and professional fees totaled $1.5 million. Interest Expense. Interest expense of $475,000 in the second quarter of 1999 increased 70.0% from $275,000 for the prior year's comparable quarter and increased from $554,000 to $911,000 through the six months ending July 4, 1999 as compared to the same time period in 1998. The increase for the quarter primarily was the net result of a reduction in the amount of interest paid to Ford Motor Credit Corporation ("FMCC") for chassis held under its consignment pool agreement in excess of an initial 90-day non-interest bearing period, an increase in the overall rate of interest paid on borrowings under terms of the revised revolving credit facility, and an increase in the average balance outstanding under the facility during the quarter. Liquidity and Capital Resources Net cash used in operating activities during the six months ended July 4, 1999 totaled $4.9 million compared with cash used in operating activities of $4.1 million in the comparable 1998 period. Decreases in accounts receivable and inventory of $11.8 million and $1.4 million, respectively, and a reduction by a $9.2 million in accounts payable, were primarily responsible for the cash used in operating activities during the period. The decrease in inventory resulted primarily from the sales of finished goods inventory, a reduction of raw materials and work in process inventory and net reductions in the used bus and demonstrator inventory. Under the Amended Facility, the Company is limited in Capital Expenditures and will be required to use substantially all cash flow to fund future operations and reduce outstanding debt. The Company does not anticipate receiving any additional funding under the Mayflower Agreement nor does the Company intend to repay the existing $1.9 million advance made under the Mayflower Loan Agreement pending resolution of the pending litigation between the parties. 14 Effective April 12, 1999, the Company entered into an amended secured revolving credit facility (the "Amended Facility"). Under the Amended Facility, the Company obtained a waiver of all defaults which existed under the unsecured credit facility. The Amended Facility provides a commitment of up to $23 million, an increase of $3 million. Interest under the Amended Facility is at prime. In connection with the Amended Facility, the Company has pledged a security interest in substantially all of its assets. The $23 million commitment is subject to certain automatic reductions, including reductions related to decreases in the Company's level of inventory and an automatic reduction on December 31, 1999 to $20 million. Under the Amended Facility, the Company is subject to certain financial covenants, including a restriction on total capital expenditures of $500,000 in any calendar year, a prohibition on the payment of any cash dividends, as well as restrictions on maximum inventory levels and other covenants related to net income and tangible net worth. As a result of the second quarter loss, as of July 4, 1999, the Company was not in compliance with certain financial covenants contained in the Amended Facility, including financial covenants related to the maintenance of specified levels of tangible net worth and net income. As of August 18, 1999, the Company has entered into a forbearance agreement with the lender (the "Forbearance Agreement"), under which the lender has agreed to forbear until September 30, 1999 from exercising its rights and remedies under the Amended Facility with respect to the non-compliance. Upon the expiration of the Forbearance Agreement, unless the Company obtains a waiver of the noncompliance, or is able to negotiate amended terms to the Amended Facility, the lender will be entitled to exercise its rights and remedies under the Amended Facility which include ceasing additional advances under the Amended Facility and/or demanding payment in full of the outstanding borrowings under the Amended Facility. If the lender were to take any of these actions, the Company's operations and financial condition will be materially and adversely affected unless it is able to secure new third party financing under terms and conditions reasonably satisfactory to the Company. The Company is currently in discussions with the lender regarding an amendment to the terms of the Amended Facility. Additionally, pursuant to the terms of the Amended Facility, in August 1999, the total commitment under the Amended Facility was automatically reduced by approximately $670,000. The Company has entered into a Fifth Amendment to the Company's credit facility (the "Fifth Amendment") which contains a technical correction to the method used to determine the amount of the August 1999 commitment reduction. 15 Year 2000 Issues. Like many other companies, the year 2000 computer issue creates risks for the Company. If internal systems do not correctly recognize and process date information beyond the year 1999, there could be an adverse impact on the Company's operations. There are two other related issues, which could also lead to incorrect calculations or failures; (i) some systems' programming assigns special meaning to certain dates, such as 9/9/99, and (ii) the fact that the year 2000 is a leap year. The Company's manufacturing and distribution operations are not critically dependent on any mainframe, mini-computer or personal computer-based systems or software applications. The Company is implementing a plan to modify its information technology for the year 2000. During the past two years, the Company has implemented a program designed to update its information systems. Although the implementation of the program primarily is intended to provide better operating systems and accounting, inventory and production controls, the Company has been aware of the year 2000 issues in its selection of hardware and software. The third party vendors that have supplied new hardware and software have informed the Company that the new systems and software are year 2000 compliant. The Company has experienced some delays in the implementation and integration of the new systems; although the Company has completed and tested substantially all of the major systems which have been made Y2K compliant and anticipates that the balance of existing systems will made Y2K compliant and be operational prior to December 31, 1999. The cost to complete this process is expected to be less than $25,000. As of July 4, 1999, the Company has incurred approximately $27,000 in year 2000 expenses. The amount may increase as additional information is obtained to complete the replacement and conversion process. The Company is also assessing the impact of the year 2000 issue on its major vendors and suppliers to determine the extent to which the Company is vulnerable to those third parties' failure to remediate their own year 2000 issues. Based on information presently available, the Company does not anticipate any material impact on its financial condition or results of operations from the effect of the year 2000 issue or the Company's internal systems or those of its major suppliers and customers. However, there can be no guarantee that the systems of other companies on which the Company's system rely will be brought to compliance, or that a failure to convert by another company would not have a material adverse impact on the Company. PART II. OTHER INFORMATION Item 1. Legal Proceedings Jerry J. Schweiner v. Metrotrans Corporation, Superior Court for Spalding, State of Georgia, Civil Action File No. 98-CV-1994. In November, 1998, the Company gave notice of termination of Jerry J. Schweiner's employment with the Company. Mr. Schweiner had served as President and Chief Operating Officer of the Company since April 1998. On December 29, 1998, Mr. Schweiner filed a Complaint against the Company alleging that the Company wrongfully terminated him in violation of his employment contract with the Company. In July 1999, Mr. Schweiner and the Company, without either party admitting liability, reached an agreement settling the lawsuit. In connection with the settlement, the Company has agreed to pay Mr. Schweiner $87,500.00 in six installments. 16 Metrotrans Corporation v. The Mayflower Corporation, plc, and Mayflower (U.S. Holdings), Inc., United States District Court for the Northern District of Georgia, Atlanta Division, Case No. 1:99-CV-0681-WBH. On March 15, 1999, the Company filed a Complaint against Defendants Mayflower, and its subsidiary, Mayflower (U.S. Holdings), Inc. In its Complaint, the Company seeks compensatory damages in excess of $4,682,000, punitive damages, and specific performance of the Mayflower Agreement and the Loan Agreement between the Company and the Defendants based on theories of breach of contract, quantum meruit, promissory estoppel, breach of fiduciary duty, and fraudulent misrepresentation and concealment. The Company's Complaint is based in part on the fact that Mayflower has refused to fund additional loans to the Company under the Loan Agreement or to pay a fee for the Company's provision of material assistance, at Mayflower's request, in connection with Mayflower's acquisition of Dennis Group, plc. On April 14, 1999, the Mayflower Defendants filed their Answer and Counterclaim, as well as a Motion to Join Indispensable Parties seeking to add seven of the Company's current or former officers or directors. The Company has opposed the Mayflower Defendants' Motion to Join Indispensable Parties, but, before the Company was able to respond to the Mayflower Defendants' Counterclaim, the Mayflower Defendants filed an Amended Counterclaim. In the Amended Counterclaim, filed May 3, 1999, the Mayflower Defendants seek either rescission of the Mayflower Agreement and the Loan Agreement, or compensatory and punitive damages, based on seven causes of action: securities fraud under Federal and Georgia law, common law fraud, negligent misrepresentation, breach of contract and a derivative claim for breach of fiduciary duties. On May 27, 1999, the Company filed its Motion to Dismiss the Mayflower Defendants' Amended Counterclaim. The Company's Motion is fully briefed, and the parties are awaiting the Court's decision. In light of the Company's pending Motion to Dismiss, the Court has entered into an order staying all discovery in the case. Demand Under O.C.G.A. 14-2-742. On July 29, 1999, Michael Stucchio, one of the Company's shareholders, demanded through his counsel that the Company file a lawsuit against certain individual officers and directors for their alleged breaches of fiduciary duty and usurpation of corporate opportunities. On August 10, 1999, the Board considered Mr. Stuccio's demand and determined that it was in the best interests of the Company to constitute a special litigation committee to investigate and evaluate the demand. The special litigation committee will shortly begin its investigation. 17 The Company from time to time is a party to other legal proceedings arising out of and incidental to the operations of the Company. However, management does not anticipate that any of such other proceedings will have a material adverse effect on its financial condition or results of operations. The Company may be subject to product liability claims arising from the use of its products. The Company maintains product liability insurance which it currently considers adequate. Item. 3. Default Upon Senior Securities Effective April 12, 1999, the Company entered into an amended secured revolving credit facility (the "Amended Facility"). Under the Amended Facility, the Company obtained a waiver of all defaults which existed under the unsecured credit facility. The Amended Facility provides a commitment of up to $23 million, an increase of $3 million. Interest under the Amended Facility is at prime. In connection with the Amended Facility, the Company has pledged a security interest in substantially all of its assets. The $23 million commitment is subject to certain automatic reductions, including reductions related to decreases in the Company's level of inventory and an automatic reduction on December 31, 1999 to $20 million. Under the Amended Facility, the Company is subject to certain financial covenants, including a restriction on total capital expenditures of $500,000 in any calendar year, a prohibition on the payment of any cash dividends, as well as restrictions on maximum inventory levels and other covenants related to net income and tangible net worth. As a result of the second quarter loss, as of July 4, 1999, the Company was not in compliance with certain financial covenants contained in the Amended Facility, including financial covenants related to the maintenance of specified levels of tangible net worth and net income. As of August 18, 1999, the Company has entered into a forbearance agreement with the lender (the "Forbearance Agreement"), under which the lender has agreed to forbear until September 30, 1999 from exercising its rights and remedies under the Amended Facility with respect to the non-compliance. Upon the expiration of the Forbearance Agreement, unless the Company obtains a waiver of the noncompliance, or is able to negotiate amended terms to the Amended Facility, the lender will be entitled to exercise its rights and remedies under the Amended Facility which include ceasing additional advances under the Amended Facility and/or demanding payment in full of the outstanding borrowings under the Amended Facility. If the lender were to take any of these actions, the Company's operations and financial condition will be materially and adversely affected unless it is able to secure new third party financing under terms and conditions reasonably satisfactory to the Company. The Company is currently in discussions with the lender regarding an amendment to the terms of the Amended Facility. Additionally, pursuant to the terms of the Amended Facility, in August 1999, the total commitment under the Amended Facility was automatically reduced by approximately $670,000. The Company has entered into a Fifth Amendment to the Company's credit facility (the "Fifth Amendment") which contains a technical correction to the method used to determine the amount of the August 1999 commitment reduction. 18 Item 4. Submission of Matters to a Vote of Security Holders The 1999 Annual Meeting of Stockholders of the Company was held on June 8, 1999. Proxies were solicited under Regulation 14A of the Securities Exchange Act of 1934, as amended, with regard to the election of directors named below to serve until the 2000 Annual Meeting of Stockholders. There was no solicitation in opposition to any of the nominees listed in the proxy statement, and all of the nominees were elected. Set forth below are the results of the voting. NOMINEES VOTES For Withheld Patrick L. Flinn 2,277,110 80,275 William C. Pitt III 2,277,110 80,275 D. Michael Walden 2,316,567 40,818 Item 5. Other Information Recent Events Effects of Continued Listing on NASDAQ. On May 14, 1999, the Company was notified by the administrative staff of NASDAQ AMEX that the Company's Common Stock has failed to maintain the minimum market value of public float in accordance with NASDAQ Marketplace Rule 4450(a)(2). The Company was afforded 90 calendar days (up to August 16, 1999) in which to regain compliance with Marketplace Rule 4450(a)(2). If the Company was unable to demonstrate compliance by that date, the Company's securities may be delisted from trading on the NASDAQ National Market. The Company has requested a hearing with NASDAQ representatives to review the Company's continued listing and a hearing is currently scheduled for September 16, 1999. In the event that the Company's stock is delisted from the NASDAQ National Market, the Company would apply to list the Common Stock on the NASDAQ SmallCap Market, the American Stock Exchange, the OTC Bulletin Board or other quotation system or exchange on which the Common Stock would qualify, until such time that the Company is able to again qualify for listing on the NASDAQ National Market. It is possible, however, that investors might react negatively to a delisting from the NASDAQ National Market, which could adversely affect trading in the Common Stock. Employment of D. Michael Walden. The Company's founder, Chairman and Chief Executive Officer, D. Michael Walden, has been on a medical leave since March 3, 1999. As a result of the leave continuing for an indefinite period, the Amended Employment Agreement between the Company and Mr. Walden and the employment of Mr. Walden has terminated. Mr. Walden continues to serve as a director of the Company, although he is no longer Chairman of the Board. As previously announced, Henry J. Murphy served as interim Chief Executive Officer through the end of the second quarter of 1999 when John G. Wallace was hired as President and Chief Executive Officer. 19 Employment of John G. Wallace. On July 8, 1999, the Company hired John G. Wallace as President and Chief Executive Officer under an employment contract dated July 9, 1999. Employment of David E. Brewer. On August 5, 1999, David E. Brewer was hired as Vice President of Finance and Administration and Chief Financial Officer. Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are filed with this report: 10.1 Employment Agreement, dated July 9, 1999, effective July 9, 1999, between the Registrant and John G. Wallace. Mr. Wallace replaces Henry J. Murphy who served as Interim Chief Executive Officer. 10.2 Forbearance Agreement dated August 23, 1999, between the Registrant and Bank of America, N.A., successor to NationsBank, N.A. 10.3 Fifth Amendment to Loan Agreement dated August 18, 1999 between the Registrant and NationsBank, N.A. 27 Financial Data Schedule (b) No Current Reports on Form 8-K were filed by the Company during the Quarter ended April 4, 1999: 20 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. METROTRANS CORPORATION (Registrant) Date: August 23, 1999 By: /s/ Henry J. Murphy Henry J. Murphy Principal Executive Officer and Principal Financial and Accounting Officer during the reporting period) By: /s/ John G. Wallace John G. Wallace President and Chief Executive Officer (Principal Executive Officer) By: /s/ David E. Brewer David E. Brewer Vice-President/Finance & Administration and Chief Financial Officer (Principal Financial and Accounting Officer) 21 INDEX OF EXHIBITS Exhibit No. 10.1 Employment Agreement, dated July 9, 1999, effective July 9, 1999, between the Registrant and John G. Wallace. Mr. Wallace replaces Henry J. Murphy who served as Interim Chief Executive Officer. 10.2 Forbearance Agreement dated August 23, 1999, between the Registrant and Bank of America, N.A., successor to NationsBank, N.A. 10.3 Fifth Amendment to Loan Agreement dated August 18, 1999 between the Registrant and NationsBank, N.A. 27 Financial Data Schedule 22 10 EX-10 2 FIFTH AMENDMENT TO LOAN AGREEMENT This FIFTH AMENDMENT TO LOAN AGREEMENT (this "Amendment") is made and entered into as of the18th day of August, 1999, between BANK OF AMERICA, N.A. successor to NATIONSBANK, N.A., a national banking association (the "Lender"), and METROTRANS CORPORATION, a Georgia corporation (the "Borrower"). W I T N E S S E T H WHEREAS, the Lender and the Borrower have entered into that certain Loan Agreement dated as of September 5, 1997 (as amended to date, the "Loan Agreement"); and WHEREAS, the Borrower and the Lender have agreed to a further amendment of the Loan Agreement. NOW, THEREFORE, in consideration of the foregoing premises and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. All capitalized terms used herein and not otherwise expressly defined herein shall have the respective meanings given to such terms in the Loan Agreement. 2. The Loan Agreement is hereby amended as follows: Insert the following sentence at the end of Section 2.5 (a): Notwithstanding the foregoing, for purposes of the automatic reduction in the Commitment on August 18, 1999 only,"Inventory Value" shall not include any of the value attributable to work in process or finished goods consisting of new buses. 3. The Borrower hereby restates, ratifies, and reaffirms each and every term, condition, representation and warranty heretofore made by it under or in connection with the execution and delivery of the Loan Agreement, as amended hereby, and the other Loan Documents, as fully as though such representations and warranties had been made on the date hereof and with specific reference to this Amendment and the Loan Documents. 4. Except as expressly set forth herein, the Loan Agreement and the other Loan Documents shall be and remain in full force and effect as originally written, and shall constitute the legal, valid, binding and enforceable obligations of the Borrower to the Lender. 5. The Borrower agrees to pay on demand all reasonable costs and expenses of the Lender in connection with the preparation, execution, delivery and enforcement of this Amendment and all other Loan Documents and any other transactions contemplated hereby, including, without limitation, the reasonable fees and out of pocket expenses of legal counsel to the Lender. 6. The Borrower represents and warrants that: (a) the Borrower has no present intent to file any voluntary petition under any chapter of the Bankruptcy Code, Title 11, U.S.C. ("Bankruptcy Code"), or in any manner to seek any relief under any other state, federal, or insolvency laws or laws providing for relief f debtors, or directly or indirectly to cause others to file such petition or to seek any such relief, either at the present time or at any time hereafter; (b) the Borrower has no present intent to directly or indirectly cause any involuntary petition under any chapter of the Bankruptcy Code to be filed against the Borrower or directly or indirectly cause the Borrower to become the subject of any proceeding pursuant to any other state, federal or other insolvency law or laws providing for the relief of debtors, either at the present time or at any time hereafter; and (c) the Borrower has no present intent to directly or indirectly cause the property of the Borrower to become the property of any bankrupt estate or the subject of any state, federal or other bankruptcy, dissolution, liquidation, or insolvency proceedings, either at the present time or at any time hereafter. 7. The Borrower agrees to take such further action as the Lender shall reasonably request in connection herewith to evidence the amendment herein contained to the Loan Agreement and the other Loan Documents. 8. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same instrument. 9. This Amendment shall be binding upon and inure to the benefit of the successors and permitted assigns of the parties hereto. 10. This Amendment shall be governed by, and construed in accordance with, the laws of the State of Georgia. (Signatures on next page) 2 IN WITNESS WHEREOF, the Borrower and the Lender have caused this Fifth Amendment to Loan Agreement to be duly executed under seal, all as of the date first above written. METROTRANS CORPORATION BY: /s/ John G. Wallace Name: John G. Wallace Title: President and Chief Executive Officer [CORPORATE SEAL] BANK OF AMERICA, N.A. BY: _____________________ Name: Title: 3 EX-10 3 FORBEARANCE AGREEMENT THIS FORBEARANCE AGREEMENT ("Agreement") is made as of the 23rd day of August, 1999, (the "Effective Date") among METROTRANS CORPORATION, a Georgia corporation, ("Borrower"), BUS PRO, INC., a Georgia corporation, ("Guarantor") and BANK OF AMERICA, N.A., successor to NationsBank, N.A. ("Bank"). R E C I T A L S: A. Borrower is indebted to Bank (the "Loan") as evidenced by that certain Amended and Restated Note (the "Note"), dated as of April 12, 1999, in the original principal amount of $23,000,000.00 and made payable to Bank and that certain Loan Agreement Between Metrotrans Corporation and NationsBank, N.A. (the "Loan Agreement"), dated as of September 5, 1997, as amended. B. The Note is secured by, among other things, three Deeds to Secure Debt and one Mortgage and Security Agreement executed by Borrower, related to certain real property more particularly described therein (the "Property"), recorded as follows: (i) on April 14, 1999 in Book 3848, Page 013, public records of Clayton County, Georgia ("Clayton Co. Deed to Secure Debt"); (ii) on April 16, 1999 in Book 1645, Page 259, public records of Spalding County, Georgia ("Spalding Co. Deed to Secure Debt"); (iii) on April 15, 1999 in Book 3266, Page 322, public records of Henry County, Georgia ("Henry Co. Deed to Secure Debt"); (iv) on April 15, 1999 in Book 5728, Page 3282, public records of Orange County, Florida ("Orange Co. Mortgage") (collectively, the "Mortgages"). C. The Note is further secured by those certain Security Agreements dated April 12, 1999, executed by Borrower and Guarantor, covering certain property more particularly described therein ("Security Agreements"). D. The Note is further secured by that certain Stock Pledge Agreement ("Stock Pledge") executed by Borrower pledging to Bank certain shares ("Pledged Securities") of capital stock described more fully therein. 1 E. The Note is further secured by those certain UCC-1 Financing Statements executed by Borrower and recorded as follows: (i) In the Superior Court, Spalding County, Georgia, on April 13, 1999, file no. 126-1999-778; (ii) Secretary of State for the State of Illinois on April 13, 1999, file no. 4019583; (iii) Secretary of State on April 13, 1999, file no. APO133614; (iv) Hamilton County, Ohio on May 3, 1999, file no. 99-88091; (v) Texas Secretary of State on April 13, 1999, file no. 99- 073700; (vi) Secretary of State for California on April 13, 1999 file no. 9911160423; (vii) Secretary of State for Colorado on April 13, 1999 file no. 19992020867; (viii) Tennessee Secretary of State on April 13, 1999, file no. 991- 001553; (ix) Department of Treasury, State of New Jersey on April 20, 1999, file no. 1900718; (x) State of Maryland Dept. of Assessments and Taxation on April 13, 1999, file no. 1000007852000000; (xi) Florida Secretary of State on April 13, 1999, file no. 990000080981; F. The Note is further secured by those certain UCC-1 Financing Statements executed by Guarantor and recorded as follows: (i) In the Superior Court, Spalding County, Georgia, on April 13, 1999, file no. 126-1999-779; (ii) Secretary of State for the State of Illinois on April 13, 1999, file no. 4019582; (iii) Ohio Secretary of State on April 13, 1999, file no. APO133613; (iv) Hamilton County, Ohio on May 3, 1999, file no. 99-88092; (v) Texas Secretary of State on April 13, 1999, file no. 99- 073701; (vi) Secretary of State for California on April 13, 1999 file no. 9911160426; (vii) Secretary of State for Colorado on April 13, 1999 file no. 19992020868; 2 (viii) Tennessee Secretary of State on April 13, 1999, file no. 991- 001554; (ix) Department of Treasury, State of New Jersey on April 20, 1999, file no. 1900720; (x) State of Maryland Dept. of Assessments and Taxation on April 13, 1999, file no. 1000007851000000; (xi) Florida Secretary of State on April 13, 1999, file no. 990000080982; G. The Loan is guaranteed by Guarantor pursuant to that certain Guaranty dated as of April 12, 1999 ("Guaranty"). H. The Note, the Loan Agreement, the Mortgages, the Security Agreements and all other written documents executed in connection therewith, together with any written renewals, modifications or extensions thereof are collectively referred to as the "Loan Documents." I. Borrower is in default under the Loan Documents. Borrower and Guarantor have requested that Bank forebear from exercising its rights and remedies under the Loan Documents for a period of time as specified herein in reliance upon the covenants, representations, and warranties of Borrower and Guarantor herein and for other consideration. A G R E E M E N T: For and in consideration of the mutual covenants herein, Ten Dollars ($10.00), and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Bank agree as follows: 1. Recitals. The foregoing recitals are confirmed by the parties as true and correct and are incorporated herein by reference. The recitals are a substantive, contractual part of this Agreement. 2. No Waiver. The execution, delivery and performance of this Agreement by Bank and the acceptance by Bank of performance of Borrower and Guarantor hereunder (a) shall not constitute a waiver or release by Bank of any default that may now or hereafter exist under the Loan Documents, (b) shall not constitute a novation of the Loan Documents as it is the intent of the parties to modify the Loan Documents as expressly set out herein and (c) except as expressly provided in this Agreement, shall be without prejudice to, and is not a waiver or release of, Bank's rights at any time in the future to exercise any and all rights conferred upon Bank by the Loan Documents or otherwise at law or in equity, including but not limited to the right to institute foreclosure proceedings against the Property and/or institute collection or arbitration proceedings against Borrower and/or Guarantor and/or to exercise any right against any other person or entity not a party to this Agreement. 3 3. Forbearance. So long as this Agreement is not terminated earlier as provided herein, Bank agrees not to foreclose or attempt to foreclose any collateral securing the Note, institute suit or arbitration proceedings for collection of the Note against Borrower, or exercise any other remedies available to it under the Loan Documents or under applicable law from the Effective Date ntil September 30, 1999 (the "Termination Date"). The period of time from the Effective Date through the Termination Date shall be referred to as the Forbearance Period. If all defaults under the Note and Loan Documents are not cured on or before the Termination Period or the earlier termination of this Agreement, then Bank may seek to foreclose upon any collateral for the Note and to exercise any other remedies to which Bank may be entitled under the Loan Documents or applicable law to collect amounts due under the Note or other Loan Documents. Borrower and Guarantor agree that neither Borrower nor Guarantor will, during the Forbearance Period, initiate any action of any kind against Bank with respect to the Note, exercise any remedy available under the Loan Documents or otherwise, or make any type of demand upon Bank with respect to the indebtedness evidenced by the Note. 4. Contemporaneously with the execution of the Agreement, Borrower agrees to pay to Bank $3500.00 of Banks' attorneys' fees and expenses incurred related to the Agreement and the Loan Documents, plus $12,950.00 of the costs incurred to date related to conducting appraisals of the Property and other collateral. Borrower further agrees to pay to Bank on or before September 15, 1999 an additional $12,950.00 of the costs incurred to date related to conducting appraisals of the Property and other collateral. Further Borrower covenants and agrees to make payments as provided under the Note and Loan Documents subsequent to the date hereof. 5. Acknowledgment of Default, Amounts Due and Maturity Date. Bank and Borrower acknowledge that as of the Effective Date the outstanding unpaid principal balance of the Note is $22,088,242.70 and the accrued, unpaid interest under the Note as of the Effective Date is $83,319.47. Borrower and Guarantor also acknowledge that costs and expenses, including without limitation attorneys' fees and appraisal fees, are owed under the Note in addition to principal and accrued interest. The maturity date for the Note is May 31, 2000. Borrower and Guarantor waive any and all rights to other notice of payment default or any other default, protest and notice of protest, dishonor, diligence in collecting and the bringing of suit or arbitration proceedings against any party, notice of intention to accelerate, notice of acceleration, demand for payment and any other notices whatsoever regarding the Note or the other Loan Documents, and further waive any claims that any notices previously given are insufficient for any reason. 6. Limitation on Interest. No provision of this Agreement, the Note, any of the other Loan Documents, or any instrument evidencing or securing the Note, or otherwise relating to the indebtedness evidenced by the Note, shall require the payment or permit the collection, application or receipt of interest in excess of the maximum rate permitted by applicable state or federal law. If any excess of interest in such respect is herein or in any such other instrument provided for, or shall be adjudicated to be so provided for herein or in any such instrument, the provisions of this paragraph shall govern, and neither Borrower nor any endorsers of the Note nor their respective heirs, personal representatives, successors or assigns shall be obligated to pay the amount of such interest to the extent it is in excess of the amount permitted by applicable law. It is expressly stipulated and agreed to be the intent of Borrower and Bank at all times to comply with the usury and other laws relating to the Note 4 and the other Loan Documents and any subsequent revisions, repeals or judicial nterpretations thereof, to the extent applicable to the Note or the other Loan Documents. In the event Bank ever receives, collects or applies as interest any such excess, such amount which would be excessive interest shall be applied to the reduction of the unpaid principal balance of the Note, and, if upon such application the principal balance of the Note is paid in full, any remaining excess shall be paid forthwith to Borrower and the provisions of the Note, the other Loan Documents and any demand or other charging document shall immediately be deemed reformed and the amounts thereafter collectible thereunder reduced, without the necessity of execution of any new document, so as to comply with the then applicable law, but so as otherwise to permit the recovery of the fullest amount called for thereunder. In determining whether or not the interest paid or payable under any specific contingency exceeds the maximum rate of interest allowed to be charged by applicable law, Borrower and Bank shall, to the maximum extent permitted under applicable law, amortize, prorate, allocate and spread the total amount of interest throughout the entire term of the respective Note so that the amount or rate of interest charged for any and all periods of time during the term of the Note is to the greatest extent possible less than the maximum amount or rate of interest allowed to be charged by law during the relevant period of time. Notwithstanding any of the foregoing, if at any time applicable laws shall be changed so as to permit a higher rate or amount of interest to be charged than that permitted prior to such change, then unless prohibited by law, references in the Note to "applicable law" for purposes of determining the maximum interest or rate of interest that can be charged shall be deemed to refer to such applicable law as so amended to allow the greater amount or rate of interest. 7. Representations and Warranties. In order to induce Bank to execute, deliver, and perform this Agreement, Borrower and Guarantor warrant and represent to Bank that: (a) this Agreement is not being made or entered into with the actual intent to hinder, delay, or defraud any entity or person, and the Borrower and Guarantor are each solvent and not bankrupt; (b) this Agreement is not intended by the parties to be a novation of the Loan Documents and, except as expressly modified herein, all terms, conditions, rights and obligations as set out in the Loan Documents are hereby reaffirmed and shall otherwise remain in full force and effect as originally written and agreed; (c) other than as those previously disclosed to Bank by Borrower, no action or proceeding, including, without limitation, a voluntary or involuntary petition for bankruptcy under any chapter of the Federal Bankruptcy Code, has been instituted or threatened by or against Borrower or any Guarantor; (d) the execution of this Agreement by Borrower and Guarantor and the performance by Borrower and Guarantor of their obligations hereunder will not violate or result in a breach or constitute a default under any agreements to which any of them is a party; (e) all information provided by Borrower and Guarantor to Bank prior to the date hereof, including, without limitation, all financial statements, balance sheets, and cash flow statements, was, at the date of delivery, and is, as of the date hereof, true and correct in all 5 material respects. Borrower and Guarantor recognize and acknowledge that Bank is entering into this Agreement based in part on the financial information provided to Bank by each of them and that the truth and correctness of that financial information is a material inducement to Bank in entering into this Agreement. During the term of this Agreement, Borrower and Guarantor agree to advise Bank promptly in writing of any and all new information, facts, or occurrences which would in any way materially supplement, contradict, or affect any financial statements, balance sheets, cash flow statements, or similar items furnished to Bank; and (f) This Agreement and the Loan Documents constitute the entire agreement among Bank, Guarantor and Borrower with respect to this matter. 8. Termination of this Agreement. This Agreement will terminate upon the expiration of the Forbearance Period unless terminated earlier by Bank, at Bank's sole option, upon written notice to Borrower and Guarantor of the occurrence of any of the following: (a) Borrower or Guarantor files a petition for bankruptcy under any chapter of the Federal Bankruptcy Code or takes advantage of any other debtor relief law, or an involuntary petition for bankruptcy under any chapter of the Federal Bankruptcy Code is filed against Borrower and/or any Guarantor, or any other judicial action is taken with respect to Borrower or Guarantor by any creditor; (b) Bank discovers that any representation or warranty made herein by Borrower or Guarantor was or is untrue, incorrect or misleading in any material respect; (c) An Event of Default occurs under the Loan Documents, other than any Event of Default known to exist as of the date hereof (and the Bank hereby acknowledges that it knows of the following: (i) Events of Default presently existing under the following Sections of the Loan Agreement: 7.9 (a) (regarding Tangible Net Worth), 7.9 (c) (regarding Net Income), 5.8 (regarding payment of all debts as they come due), and (ii) Any Event of Default which may arise under Section 8.1 (I) of the Loan Agreement in connection with certain litigation or financial circumstances which the Borrower has made the Bank aware of prior to the date hereof: 6 (d) Borrower or Guarantor breaches or defaults in performance of any covenant or agreement contained in this Agreement. 9. Waiver of Claims. Borrower and Guarantor warrant and represent to Bank that the Note is not subject to any credits, charges, claims, or rights of offset or deduction of any kind or character whatsoever; and Borrower and Guarantor release and discharge Bank from any and all claims and causes of action, whether known or unknown and whether now existing or hereafter arising, including without limitation, any usury claims, that have at any time been owned, or that are hereafter owned, in tort or in contract by Borrower or Guarantor and that arise out of any one or more circumstances or events that occurred prior to the date of this Agreement. Moreover, Borrower and Guarantor, jointly and severally, waive any and all claims now or hereafter arising from or related to any delay by Bank in exercising any rights or remedies under the Loan Documents, including, without limitation, any delay in foreclosing any collateral securing the Note. 10. ARBITRATION. THE LOAN DOCUMENTS ARE HEREBY AMENDED TO INCLUDE AND THIS AGREEMENT SHALL BE SUBJECT TO THE FOLLOWING PROVISION: ARBITRATION. EXCEPT AS SET OUT BELOW, ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS DOCUMENT OR ANY RELATED DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT (COLLECTIVELY, "CLAIM"), SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS DOCUMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CLAIM IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION. THE INSTITUTION AND MAINTENANCE OF AN ACTION FOR ANY JUDICIAL RELIEF SHALL NOT CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE PLAINTIFF, TO SUBMIT THE CLAIM TO ARBITRATION IF ANY OTHER PARTY CONTESTS SUCH ACTION FOR JUDICIAL RELIEF. a. SPECIAL RULES. ANY ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF ANY BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS DOCUMENT, OR IF THERE IS REAL OR PERSONAL PROPERTY COLLATERAL, IN THE COUNTY WHERE SUCH REAL OR PERSONAL PROPERTY IS LOCATED, AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL 7 ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS. ANY DISPUTE CONCERNING THIS ARBITRATION PROVISION OR WHETHER A CLAIM IS ARBITRABLE SHALL BE DETERMINED BY THE ARBITRATOR. THE ARBITRATOR SHALL HAVE THE POWER TO AWARD LEGAL FEES PURSUANT TO THE TERMS OF THIS DOCUMENT. b. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF ANY PARTY HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST OR SELL ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. ANY PARTY MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE OR SELL COLLATERAL OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS DOCUMENT. NONE OF THESE ACTIONS SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CLAIM OCCASIONING RESORT TO SUCH REMEDIES OR PROCEDURES. c. WAIVER OF CERTAIN DAMAGES. THE PARTIES HERETO WAIVE ANY RIGHT OR REMEDY EITHER MAY HAVE AGAINST THE OTHER TO RECOVER PUNITIVE OR EXEMPLARY DAMAGES ARISING OUT OF ANY CLAIM WHETHER THE CLAIM IS RESOLVED BY ARBITRATION OR BY JUDICIAL ACTION. 11. Miscellaneous. (a) This Agreement may be executed in a number of identical counterparts which, taken together, shall constitute collectively one (1) agreement; but in making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart executed by the party to be charged. (b) Any future waiver, alteration, amendment or modification of any of the provisions of the Loan Documents or this Agreement shall not be valid or enforceable unless in writing and signed by all parties, it being expressly agreed that neither the Loan Documents, or this Agreement can be modified orally, by course of dealing or by implied agreement. Moreover, any delay by Bank in enforcing its rights after an event of default shall not be a 8 release or waiver of the event of default and shall not be relied upon by the Borrower or Guarantor as a release or waiver of the default. (c) This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their heirs, executors, administrators, successors, legal representatives, and assigns. (d) The headings of paragraphs in this Agreement are for convenience of reference only and shall not in any way affect the interpretation or construction of this Agreement. (e) THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF GEORGIA AND FEDERAL LAW, AS APPLICABLE. (f) The warranties and representations of the parties in this Agreement shall survive the termination of this Agreement. (g) The terms and conditions set forth in this Agreement are the product of joint draftsmanship by all parties, each being represented by counsel, and any ambiguities in this Agreement or any documentation prepared pursuant to or in connection with this Agreement shall not be construed against any of the parties because of draftsmanship. 12. FINAL AGREEMENT. THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR ORAL OR WRITTEN, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS AMONG THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. (SIGNATURES ON NEXT PAGE) 9 EXECUTED under seal as of the Effective Date. BORROWER ATTEST: (SEAL) METROTRANS CORPORATION ________________________ BY: /s/ John G. Wallace (SEAL) NAME: David E. Brewer NAME: John G. Wallace TITLE: Chief Financial Officer TITLE: President/Chief Executive Offier DATE: August 23, 1999 [CORPORATE SEAL] GUARANTOR ATTEST: (SEAL) BUS PRO, INC. ________________________ BY: _____________________________(SEAL) NAME: __________________ NAME:__________________________________ TITLE:__________________ TITLE:_________________________________ DATE: _________________________________ [CORPORATE SEAL] BANK ATTEST: (SEAL) BANK OF AMERICA, N.A. /s/ Linda J. Frixson BY: /s/ Kimberly D. Stamey (SEAL) NAME: Linda J. Frixson NAME: Kimberly D. Stamey TITLE: Assistant Secretary TITLE: Senior Vice President DATE: August 23, 1999 [CORPORATE SEAL] 10 EX-10 4 EMPLOYMENT AGREEMENT THIS AGREEMENT is entered into by and between JOHN G. WALLACE the "Executive") and METROTRANS CORPORATION (the "Company"). WHEREAS, the Company desires to employ the Executive upon certain terms and conditions, and the Executive desires to accept such employment upon such terms and conditions; and WHEREAS, the Company and the Executive desire to further set forth in a written agreement the complete terms and conditions pursuant to which the Executive shall be employed by the Company; NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE 1. DEFINITIONS As used in this Agreement, the following words and/or phrases shall have the meanings set forth below unless a different meaning plainly is required by the context: 1.1 Agreement shall mean this Employment Agreement between the Company and the Executive. 1.2 Board shall mean the Board of Directors of the Company. 1.3 Cause shall mean (i) any act of fraud by the Executive (whether or not against or involving the Company); (ii) the Executive's competing with the Company, either directly or indirectly; (iii) the Executive's breach of any provision of this Agreement; (iv) the Executive's failure to discharge his duty of loyalty to the Company; (v) the Executive's indictment or conviction of any felony or misdemeanor (other than minor traffic violations); (vi) any willful act by the Executive that adversely affects the Company or its financial condition or business reputation; (vii) the Executive's willful failure to perform the duties of his position (other than any such failure resulting from incapacity due to Disability), within fifteen (15) days after notice from the Board identifying the specific duties which are not being performed; and (viii) any other action or inaction by the Executive which constitutes "good cause" under the laws of the State of Georgia. 1.4 Company shall mean Metrotrans Corporation its successors and assigns, and any other corporation, partnership, sole proprietorship or other type of business entity into which the Company may be merged, consolidated or otherwise combined. 1.5 Disability shall mean a physical or mental impairment that prohibits the Executive from performing the essential duties of his position, is expected to be of a long and continued duration, and for which he becomes eligible to receive benefits under the Company's long-term disability plan. 1.6 Effective Date shall mean July 9, 1999. 1.7 Executive shall mean John G. Wallace. 1.8 Proprietary Information shall mean information that meets the definition of "trade secret" under the laws of the State of Georgia (i.e., the Uniform Trade Secrets Act, O.C.G.A. ?10-1-760, et seq.), as well as any scientific or technical information, design, process, procedure, formula or improvement that is secret and of value, information that the Company takes reasonable efforts to protect from disclosure and from which the Company derives actual or potential economic value due to its confidential nature, including, but not limited to, technical or nontechnical data, formulas, complications, programs, devices, methods, techniques, drawings, processes, financial data, lists of actual or potential customers, price lists, business plans, customer and vendor records, training and operations materials and memoranda, personnel records, financial information relating to the business of the Company, accounts, customers, vendors, employees and affairs of the Company, and any information marked "confidential" by the Company. 1.9 Restricted Territory shall mean the geographic area described as follows: [territory needed] 1.10 Business of the Company shall mean all operations reasonably related to effecting the manufacture, distribution and sale of buses of all sizes. 1.11 Termination Date shall mean the date specified as the Executive's official termination of employment date. 1.12 Term shall mean the period during which this Agreement is wholly effective, which shall be the period commencing on the Effective Date and ending on the Termination Date. ARTICLE 2. DUTIES AND AUTHORITY 2.1 Duties and Authority. The Executive is engaged and agrees to perform services for and on behalf of the Company as its President and Chief Executive Officer and shall report directly to the Board. The Executive shall have such duties and authority as may be assigned to him by the Company's bylaws or by the Board. The Executive agrees to perform such duties diligently and efficiently and in accordance with the reasonable directions of the Board. The Executive shall conduct himself at all times in a business-like and professional manner as appropriate for his position and shall represent the Company in all respects in compliance with good business and ethical practices. In addition, the Executive shall be subject to and abide by the policies and procedures of the Company applicable to personnel of the Company, as may be adopted from time to time. 2.2 Best Efforts. During the term of this Agreement, the Executive shall devote his full attention, energies and best efforts to rendering services on behalf of the Company and shall not engage in any outside employment without the express written consent of the Board. Notwithstanding the foregoing, the Executive may pursue personal interests as he may have so long as such participation does not interfere with the Executive's performance of his duties hereunder, and the Executive may participate in industry, civic and charitable activities so long as such activities do not materially interfere with the performance of his duties hereunder. The Executive may also participate in any interest or activity which is approved in writing by the Board. 2.3 Term. The initial term of this Agreement shall commence on the effective date hereof and shall continue until the close of business at the end of two (2) years from the effective date, subject to earlier termination as provided in this Agreement. At least ninety (90) days prior to the end of the initial term hereof and each subsequent year thereafter, this Agreement shall be deemed to be extended automatically for an additional one-year term on the same terms and conditions unless either the Company or the Executive gives contrary written notice to the other party no less that ninety (90) days prior to the date on which this Agreement would otherwise be extended. ARTICLE 3. COMPENSATION AND BENEFITS 3.1 Annual Base Salary. The Company shall pay to the Executive as compensation for his services provided hereunder a base salary of $250,000 per year ("Base Salary"), unless increased in such amount as may be determined by the Board. Executive's base salary shall be payable in accordance with the Company's normal payroll procedures. 3.2 Annual Bonus. At the expiration of one (1) year from the effective date of this Agreement (the "bonus date"), the Company shall pay to the Executive a bonus in the amount of $100,000 provided that on the bonus date the Executive continues to be employed as the President and Chief Executive Officer of the Company and the Company continues to exist as a going concern. 3.3 Long-Term Cash Incentive Compensation. For the last six months of the year 2000, the Company agrees to enter into a revised Management Incentive Compensation Plan with the Executive and other key management employees of the Company based upon budgets and goals established by the Board during the first quarter of the year 2000. 3.4 Stock Option. On the effective date of this Agreement, the Executive shall be entitled to a grant of Incentive Stock Options in the amount of 100,000 shares of Company common stock at its then fair market value. To the extent that there are insufficient shares in the Company's option plan to allow for the issuance of Incentive Stock Options, the Company will issue nonqualified stock options and will provide a cash bonus to the Executive in the amount of the tax due upon exercise of the nonqualified stock options. 3.5 Employee Benefit Plans and Policies. The Executive shall be entitled to participate in each employee benefit plan, policy or arrangement which is sponsored, maintained or contributed to by the Company from time to time and in which current executive officers of the Company may participate, in accordance with the terms and provisions of such plans. Contributions by the Executive to such plans shall be required only to the extent required of other executive officers of the Company. 3.6 Disability Insurance. The Executive shall be entitled to obtain, at the Company's expense, a disability insurance policy covering 100% of the Executive's base salary not inclusive of bonuses provided that the premiums are reasonable as determined by the Company. 3.7 Automobile Allowance. The Company shall provide the Executive with a monthly allowance of [$____] for his use in owning or leasing an automobile for business purposes. 3.8 Vacation. The Executive shall be entitled to such paid vacation time as is generally provided to the Company's executive officers subject to the rules in effect regarding such leave. 3.9 Expense Reimbursement. The Company shall reimburse the Executive for reasonable and necessary travel and other business related expenses, including entertainment expenses, incurred by him in performance of the business of the Company in accordance with the Company's standard expense reimbursement practices and policies in existence from time to time, subject to such dollar limitations and verification and record keeping requirements as may be established from time to time by the Company. 3.10 Legal Fees Reimbursement. The Company shall reimburse the Executive up to $2500 for the legal fees he incurs in connection with his execution of this Agreement. 3.11 Modification of Compensation and Benefits. By written amendment, the Executive and the Company may agree to reform provisions contained in this Article, particularly the provisions pertaining to bonuses and benefits. ARTICLE 4. RESTRICTIVE COVENANTS 4.1 Use and Return of Documents and Property. Executive acknowledges that in the course of his employment with the Company, he will have the opportunity to inspect and use certain property, both tangible and intangible, of the Company. All such property shall remain the exclusive property of the Company, and Executive has and shall have no right or interest in such property. Executive shall use Company property only during employment and only in the performance of his job and to further the Company's interests, and he will not remove Company property from the Company's premises except to the extent necessary to perform his duties and to the extent approved by the Company, either expressly or generally under its policies. Promptly upon the Executive's Termination Date, Executive shall return to the Company all of the Company's memoranda, notes, records, data, books, sketches, computer programs, audio-visual materials, correspondence, lists, every piece of information recorded in any form, and all other tangible property. 4.2 New Developments. Any discovery, invention, process or improvement made or discovered by the Executive during the term of this Agreement in connection with or in any way affecting or relating to the Business of the Company (as then carried on or under active consideration) shall forthwith be disclosed to the Company and shall belong to and be the absolute property of the Company. The preceding sentence does not apply to any invention for which no equipment, supplies, facility, trade secret information of the Company was used and which was developed entirely on the Executive's own time, unless the invention relates directly to the business of the Company or to its actual or demonstrably anticipated research or development, or the invention results from any work performed by the Executive for the Company. 4.3 Covenant Not to Compete. Executive agrees that, during the term of his employment under this Agreement and for a period of one (1) year following the Termination Date, regardless of the reasons for the Executive's termination of employment, Executive will not, directly or indirectly, expressly or tacitly, for himself or on behalf of any entity anywhere in the Restricted Territory, (i) act as an officer, manager, advisor, executive, controlling shareholder, or consultant to any business in which his duties at or for such business include oversight of or actual involvement in providing services which are competitive with the Business of the Company, (ii) recruit investors on behalf of an entity which engages in activities which are competitive with the Business of the Company, or (iii) become employed by such an entity in any capacity which would require Executive to carry out, in whole or in part, the duties Executive has performed for the Company which are competitive with the Business of the Company. This covenant shall apply to any services or products under investigation by the Company on the Termination Date to the extent that the Executive initiated, promoted, participated in, or otherwise had knowledge of such investigation. Executive acknowledges that because of the nature of the Company's business, this restriction will prevent the Executive from acting in any of the foregoing capacities for any competing entity wherever located within the Restricted Territory and that this scope is reasonable in light of the business of the Company. 4.4 Nonsolicitation of Customers, Clients and Suppliers. Executive agrees that during the term of his employment with the Company, he will not, directly or indirectly, without the Company's prior written consent, contact any customer, client or supplier of the Company for business purposes unrelated to furthering the Business of the Company. Executive further agrees that for a period of one (1) year following his Termination Date, he will not directly or indirectly, (i) contact, solicit or divert, or attempt to contact, solicit, divert or take away, any customer, client or supplier of the Company for purposes of, or with respect to, providing a customer, client or supplier to a competing business; or (ii) take any affirmative action with a customer, client or supplier of the Company for purposes of providing a customer, client or supplier to a business competing with the Company. The prohibitions of the preceding sentence shall apply only to customers, clients and suppliers of the Company with whom the Executive had Material Contact on the Company's behalf during the twelve months immediately preceding the Termination Date. For purposes of this Agreement, the Executive had "Material Contact" with a customer, client or supplier if (a) he had business dealings with the customer, client or supplier on the Company's behalf; (b) he was responsible for supervising or coordinating the dealings between the Company and the customer, client or supplier; or (c) he obtained Proprietary Information about the customer, client or supplier as a result of his association with the Company. 4.5 Nonsolicitation of Employees. The Executive agrees that during his employment with the Company and for one (1) year after his Termination Date, the Executive will not, directly or indirectly, solicit or attempt to recruit or hire any employees of the Company who were employed by the Company at any time during the last year of the Executive's employment with the Company and who are actively employed by the Company at the time of the solicitation or attempted solicitation, to provide services similar to those performed by the employee for the Company on behalf of, or for the purpose of engaging in employment with, a competitor of the Company. 4.6 Nondisclosure of Trade Secrets and Proprietary Information. Except to the extent reasonably necessary for Executive to perform his duties for the Company, the Executive shall not, directly or indirectly, furnish or disclose to any person, or use in any way, any trade secrets of the Company, for so long as such trade secrets remain "trade secrets" under applicable state law. Except to the extent reasonably necessary for Executive to perform his duties for the Company, Executive shall not, during the term of his employment with the Company and for a period of one (1) year following the Executive's Termination Date, directly or indirectly, furnish or disclose to any person, or use in any way, for personal benefit or the benefit of others, any Proprietary Information of the Company. 4.7 Reasonableness. Executive has carefully considered the nature and extent of the restrictions upon his and the rights and remedies conferred on the Company under this Agreement, and Executive hereby acknowledges and agrees that: (a) the restrictions and covenants contained herein, and the rights and remedies conferred upon the Company, are necessary to protect the goodwill and other value of the business of the Company; (b) the restrictions placed upon Executive hereunder are fair and reasonable in time and territory, will not prevent him from earning a livelihood, and place no greater restraint upon the Executive than is reasonably necessary to secure the business and goodwill of the Company; (c) the Company is relying upon the restrictions and covenants contained herein in continuing to make available to Executive information concerning the business of the Company; (d) Executive's employment hereunder places him in a position of confidence and trust with the Company and its employees, customers and suppliers; and (e) the provisions of this section shall be interpreted so as to protect the Proprietary Information, and to secure for the Company the exclusive benefits of the work performed on behalf of the Company by the Executive under this Agreement, and not to unreasonably limit his ability to engage in employment and consulting activities in noncompetitive areas which do not endanger the Company's legitimate interests expressed in this Agreement. 4.8 Remedy for Breach. Executive acknowledges and agrees that his breach of any of the covenants contained in this Article of this Agreement will cause irreparable injury to the Company and that remedies at law available to the Company for any actual or threatened breach by the Executive of such covenants will be inadequate and that the Company shall be entitled to specific performance of the covenants in this Article or injunctive relief against activities in violation of this Article by temporary or permanent injunction or other appropriate judicial remedy, writ or order, without the necessity or proving actual damages. This provision with respect to injunctive relief shall not diminish the right of the Company to claim and recover monetary damages against the Executive for any breach of this Agreement, in addition to injunctive relief. The Executive acknowledges and agrees that the covenants contained in this Article shall be construed as agreements independent of any other provision of this or any other contract between the parties hereto, and that the existence of any claim or cause of action by the Executive against the Company, whether predicated upon this or any other contract, shall not constitute a defense to the enforcement by the Company of said covenants. ARTICLE 5. TERMINATION OF EMPLOYMENT 5.1 Termination by Company. (a) For Cause. During the two (2) year term of this Agreement, the Company may terminate the Executive for "Cause" as defined in section 1.3 of this Agreement effective immediately upon written notice to Executive. Upon such a termination for "Cause," the Executive shall not be entitled to any severance pay or post-termination benefits, other than as required by law. (b) Without Cause. During the term of this Agreement, the Company may terminate the Executive for any reason other than "Cause" upon thirty (30) days' prior written notice to the Executive. For example, under this provision, the Company may terminate this Agreement upon the Executive's failure to meet the financial goals established by the Board, whether or not the failure is willful. If such a termination occurs during the first year of this Agreement, the Executive shall be entitled to severance pay in the amount of three (3) months of his monthly base salary then in effect. If such a termination occurs during the second year of this Agreement, the Executive shall be entitled to severance pay in the amount of six (6) months of his monthly base salary then in effect. If such a termination occurs anytime after the initial term of this Agreement, and during a period in which this Agreement has been renewed, the Executive shall be entitled to severance pay in the amount of twelve (12) months of his monthly base salary then in effect. The severance pay provided for herein shall be in lieu of any and all other payments, bonuses or other compensation to which he may have been entitled, which may be paid in a lump sum payment at the Company's discretion. 5.2 Termination by Executive. The Executive may voluntarily terminate his employment with the Company and terminate this Agreement by giving the Board a written notice at least sixty (60) days prior to his proposed date of termination. Upon such a voluntary termination by the Executive, the Executive shall not be eligible for any severance payment or benefit other than those earned prior to his date of termination. 5.3 Automatic Termination. This Agreement shall terminate immediately upon the death of Executive, or upon written notice from the Company to Executive if Executive shall at any time become incapacitated by reason of a Disability. 5.4 Cessation of Payment and Benefits. The base salary and other benefits provided herein shall be paid to Executive through the effective date of termination of this Agreement for whatever reason, including the death of Executive, and not thereafter. ARTICLE 6. MISCELLANEOUS PROVISIONS 6.1 Invalidity of Any Provision. It is the intention of the parties hereto that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws of each state and jurisdiction in which such enforcement is sought, but that the unenforceability (or the modification to conform with such laws) of any provision hereof shall not render unenforceable or impair the remainder of this Agreement which shall be deemed amended to delete or modify, as necessary, the invalid or unenforceable provisions. The parties further agree to alter the balance of this Agreement in order to render the same valid and enforceable. The terms of the restrictive covenant provisions of this Agreement shall be deemed modified to the extent necessary to be enforceable and, specifically, without limiting the foregoing, if the term of the applicable restrictive covenant is too long to be enforceable, it shall be modified to encompass the longest term which is enforceable and, if the scope of the geographic area of the applicable restrictive covenant is too great to be enforceable, it shall be modified to encompass the greatest area that is enforceable. 6.2 Applicable Law. This Agreement shall be construed and enforced in accordance with the laws of the State of Georgia. 6.3 Arbitration. Any claim or dispute arising under this Agreement shall be subject to arbitration, and prior to commencing any court action, the parties agree that they shall arbitrate all controversies. The arbitration shall be conducted in Atlanta, Georgia, in accordance with the Employment Dispute Rules of the American Arbitration Association and the Federal Arbitration Act, 9 U.S.C. 1, et. seq. The arbitrator(s) shall be authorized to award both liquidated and actual damages, in addition to injunctive relief, but no punitive damages. The arbitrator(s) may also award attorney's fees and costs, without regard to any restriction on the amount of such award under Georgia or other applicable law. Such an award shall be binding and conclusive upon the parties hereto, subject to 9 U.S.C. 10. Each party shall have the right to have the award made the judgment of a court of competent jurisdiction. 6.4 Waiver of Breach. The waiver of a breach of any provision of this Agreement by a party hereto shall not operate or be construed as a wavier of any subsequent breach by the other party hereto. 6.5 Successors and Assigns. This Agreement shall inure to the benefit of the Company, and its respective successors and assigns. This Agreement shall inure to the benefit of and be enforceable by the Executive's estate and/or legal representatives. 6.6 Assignment of Agreement. This Agreement is not assignable by the Executive, but shall be freely assignable by the Company to any successor with the written consent of the Executive. The Company 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 the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. 6.7 Notices. All notices, demands and other communications hereunder shall be in writing and shall be delivered in person or deposited in the United States mail, certified or registered, with return receipt requested, as follows: (a) if to Executive: Mr. John G. Wallace [Information Needed] _____________________ (b) if to Company: Metrotrans Corporation Attention: Board of Directors [Information Needed] ________________________ (with a copy to the Chairman of each Board Committee) 6.8 Entire Agreement. This Agreement contains the entire agreement of the parties with respect to the subject matter hereof. All understanding and agreements heretofore made between the parties hereto with respect to the subject matter of this Agreement are merged into this document which alone fully and completely expresses their agreement. This Agreement may not be changed orally but only by an agreement in writing signed by both parties. 6.9 Survival of Provisions. The provisions of Article 4 - Restrictive Covenants shall survive termination of this Agreement. 6.10 Captions. The captions appearing in this Agreement are inserted only as a matter of convenience and in no way define, limit, construe or describe the scope or intent of any provisions of this Agreement or in any way affect this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal as of this _____________ day of July, 1999. [signatures on next page] EXECUTIVE: /s/ John G. Wallace JOHN G. WALLACE COMPANY: METROTRANS CORPORATION By: /s/ William C. Pitt III William C. Pitt III Title: [Information Needed] [THIS AGREEMENT HAS BEEN EXECUTED IN DUPLICATE.] ATLANTA:4108194.1 Wallace Employment Agreement Page 9 EX-27 5
5 3-MOS DEC-31-1999 APR-05-1999 JUL-04-1999 0 0 5100 490 27855 34682 10639 2387 43972 38429 0 0 0 41 3818 43972 19755 19755 19131 19131 5006 0 472 (4854) 0 (4854) 0 0 0 (4854) (1.18) (1.18)
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