-----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, IgfNy3zMexreEDldG8FSBngTjE7jreODSv7+tT653VlsAgAIBUkKsNHb7luC3EtZ GglIQaB+fsYasRjvXOZ7mg== 0000931763-99-001192.txt : 19990416 0000931763-99-001192.hdr.sgml : 19990416 ACCESSION NUMBER: 0000931763-99-001192 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990415 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-K405 SEC ACT: SEC FILE NUMBER: 000-23808 FILM NUMBER: 99594931 BUSINESS ADDRESS: STREET 1: 777 GREENBELT PKWY CITY: GRIFFIN STATE: GA ZIP: 30223 BUSINESS PHONE: 7702295995 MAIL ADDRESS: STREET 1: 777 GREENBELT PKWY CITY: GRIFFIN STATE: GA ZIP: 30223 10-K405 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 [ ] 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 Company as specified in its charter) Georgia 58-1393777 (State of incorporation) (I.R.S. Employer Identification Number) 777 Greenbelt Parkway, Griffin, Georgia 30223 (Address of principal executive offices, including zip code) (770) 229-5995 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ - Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Company's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X - The aggregate market value of the Company's outstanding Common Stock held by non-affiliates of the Company on March 31, 1999 was $ 4,414,862. There were 4,129,737 shares of Common Stock outstanding as of March 31, 1999. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement for the 1999 Annual Meeting of Stockholders are incorporated by reference in Parts I and III hereof. Pursuant to General Instruction G (3) of Form 10-K, the Registrant will file the definitive Proxy Statement with the Securities and Exchange Commission no later than April 30, 1999. METROTRANS CORPORATION Annual Report On Form 10-K For the Fiscal Year Ended December 31, 1998 Table of Contents ----------------- Item Page Number Number - ------ ------ PART I 1. Business............................................................ 3 2. Properties.......................................................... 16 3. Legal Proceedings................................................... 16 4. Submission of Matters to a Vote of Security Holders................. 17 4A. Executive Officers of the Company.................................. 17 PART II 5. Market for the Registrant's Common Equity and Related Stockholder Matters......................................................... 18 6. Selected Financial Data............................................ 20 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 21 7A. Quantitative and Qualitative Disclosures About Market Risk......... 30 8. Financial Statements and Supplementary Data........................ 31 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................................ 31 PART III 10. Directors and Executive Officers of the Registrant................. 31 11. Executive Compensation............................................. 31 12. Security Ownership of Certain Beneficial Owners and Management..... 32 13. Certain Relationships and Related Transactions..................... 32 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K... 32 SIGNATURES................................................................ 35 INDEX OF EXHIBITS......................................................... 36 INDEX OF FINANCIAL STATEMENTS.............................................F-1 PART I ITEM 1. BUSINESS - ---------------- Forward-looking statements In addition to historical information, this Annual Report on Form 10-K 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 Metrotrans Corporation to attract and retain qualified management, manufacturing and sales personnel; the ability to control manufacturing costs; the effects of competition; changes in accounting policies and practices; the ability of Metrotrans Corporation, its vendors, suppliers and customers to be Year 2000 compliant; the ability to complete the implementation of a manufacturing cost accounting system; and, the ability to obtain chassis on a timely basis on terms acceptable to the company. 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. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's opinion as of the date of this report. Metrotrans Corporation refers readers to the information set forth under the captions "Item 1. Business", "Item 3. Legal Proceedings" and "Item 5. Management's Discussion and Analysis of Financial Condition and Results of Operations" contained herein, for a more complete discussion of certain risk factors. Overview Metrotrans Corporation (the "Company") is a manufacturer and distributor of a range of shuttle, mid-size, and full-size touring buses designed for use primarily by image conscious commercial enterprises. The Company's principal manufactured products are it's Classic line of shuttle and mid-size touring buses, the Eurotrans line of mid-size coaches and its Legacy LJ by Metrotrans line of mid-size coaches, positioned between the Classic and Eurotrans lines. The Anthem is an integral semi-monocoque constructed coach designed for a niche market between the Eurotrans XLT and the Irizar Century. The Anthem is standard with many of the features that attract the full-size coach buyer at a moderate price in comparison to the full-size 45-foot coach. The Company is the exclusive North American distributor of a line of full-size motorcoaches, the Century manufactured by Irizar S. Coop. in Spain but marketed and distributed by the Company in the United States. The Company's products are targeted at distinct markets, including tour and charter companies, hotels, automobile rental companies, airport ground transportation companies, parking lot operators, medical and retirement facilities, intra-city and rural transit operators, and churches. The Company's customers include ATE Management and Service Company, Inc. (a wholly-owned subsidiary of Ryder Systems, Inc.), Budget Rent-A-Car Corp., Alamo Rent-A-Car, Inc., Hyatt Hotels Corp., Marriott Hotels Inc., Dollar Rent-A-Car, Holiday Management, Inc., Allright Parking, Pritzker Group, Essex Group Management and Emeritus Corporation. The Company markets its products in the United States primarily through a number of Company operated sales centers located in 11 states. The Company also markets its products internationally on a limited basis primarily from its headquarters in Griffin, Georgia. See "Sales and Marketing" below. 3 The Company introduced the Classic in 1986. The Company's product offering has been enhanced by the introduction of the Eurotrans line in 1990, the Eurotrans XLT and the Classic II in late 1992, the Classic Commuter in late 1993, the Legacy LJ by Metrotrans in 1996, the Anthem in 1997 and the Classic XLT in 1998. The Company announced the addition of the Irizar Century exclusive marketing and distribution agreement in late 1997 with the first deliveries occurring in 1998. The Company manufactures its products in Griffin, Georgia in a facility built and occupied in 1992. During 1998, the Company manufactured an average of approximately 16 Classics, Classic IIs and Classic XLTs, one to two Eurotrans and Eurotrans XLTs and one to two Legacy LJ by Metrotrans per week. The Company manufactured two Anthems in 1998, however the processes and equipment required for steady high-quality output has necessitated further evaluation of the production process capabilities on the Anthem line. The Company currently is evaluating alternatives for the production of the Anthem, including production by a foreign or other third party manufacturer. The Company estimates existing capacity in its present facilities to manufacture up to six buses per day while maintaining it's current one-shift operation. Substantially all of the buses and coaches manufactured by the Company are based on firm customer orders received in advance of production. The Company was incorporated in 1982. During the period from 1982 until the introduction of the Classic in 1986, the Company marketed the Metrotrans, a mid- size bus designed by the Company but manufactured on a private label basis by a third party manufacturer, as well as another mid-size bus product manufactured by a large manufacturer of recreational vehicles. Historically, the buyers of the Company's products have obtained financing through independent third-party lenders or lessors under various arrangements. In some cases, the Company has provided credit enhancements to the lessor in order to facilitate the sale of its buses. The Company incorporated a wholly-owned subsidiary, Bus Pro, Inc. ("Bus Pro"), in February 1997 for the purpose of operating its used coach division. Bus Pro refurbishes and re-markets to various secondary markets used buses received by the Company through trade-ins related to new bus sales and purchased under terminating lease agreements. 4 Recent Developments On September 15, 1998, The Mayflower Corporation plc, a corporation organized under the laws of the United Kingdom ("Mayflower"), purchased from M. Earl Meck and Randolph B. Stanley, each of whom were non-management directors of the Company, an aggregate of 1,650,400 shares (the "Shares") of Common Stock of the Company ("Common Stock") at a purchase price of $15.00 per share (or an aggregate of $24,756,000) pursuant to an Agreement dated as of August 21, 1998 (the "Mayflower Agreement"), between Mayflower, Mayflower (U.S. Holdings), Inc., the Company, D. Michael Walden, Terri B. Hobbs, M. Earl Meck and Randolph B. Stanley. As a result of the transaction, Mayflower acquired 40.4% of the outstanding Common Stock of the Company. It is the Company's understanding, based solely upon statements made by Mayflower in its Schedule 13D filed with the Securities and Exchange Commission on September 24, 1998, with respect to its acquisition of the Shares, that, other than the Shares, Mayflower does not own any other shares of Common Stock and the source of funds Mayflower used to purchase the Shares was from available working capital of Mayflower. At the time of the Mayflower Agreement, Mr. Walden was Chairman of the Board and Chief Executive Officer of the Company and Ms. Hobbs was Deputy Chief Executive Officer of the Company. Pursuant to the Mayflower Agreement, Mr. Meck and Mr. Stanley resigned as directors of the Company effective as of September 15, 1998. The Mayflower Agreement also provided, among other things, for the following: . The Board of Directors of the Company will be expanded from six to eight directors consisting of five directors selected by the current directors of the Company and three directors designated by Mayflower. Mr. Walden will continue as Chairman of the Board and Chief Executive Officer of the Company. . Mayflower, Mr. Walden and Ms. Hobbs agreed to vote their shares of Common Stock to maintain the composition and membership of the Board of Directors of the Company as provided above. . Mayflower agreed to vote its shares of Common Stock in accordance with the vote of the majority of the Board of Directors of the Company with respect to all matters presented to a vote of the stockholders; provided that Mayflower may vote its shares of Common Stock as it shall determine in connection with certain matters set forth in the Mayflower Agreement, should any such matter be presented to a vote of stockholders. . Mayflower agreed to loan to the Company up to $15 million (the "Loan") for a term of 5 years which will be used by the Company for working capital and to finance capital expenditures. If Mr. Walden exercises his Put (as defined below) or Mayflower exercises its Call (as defined below), Mayflower will have the right at anytime thereafter to convert the outstanding principal, interest, fees and other amounts owing under the Loan into shares of Common Stock. The price per share for such conversion will be the average of the closing bid and asked price for the Common Stock reported by the Nasdaq National Market (or other exchange or quotation system on which the Common Stock is then traded) for the 20 trading days immediately prior to the date of the exercise of the conversion right or, if the Common Stock is not then traded on an exchange, the appraised value determined by an independent appraiser. The terms of the Loan are set forth in a Loan Agreement dated as of August 21, 1998 (the "Loan Agreement"), a copy of which is filed as Exhibit 10.2 to the Company's Current Report on Form 8-K dated September 25, 1998, and is incorporated herein by reference. 5 . Mr. Walden and Ms. Hobbs shall have the right (the "Put"), commencing December 31, 2000 and expiring 45 days after results of operation are published by the Company for the period ending December 31, 2002 (the "Option Term"), to tender all of either of their shares of Common Stock to Mayflower at a price equal to the average of the closing bid and asked prices reported on the NASDAQ National Market for the 20 trading days immediately prior to the date that notice of intent to exercise the Put is given; provided that in no event will the purchase price per share exceed $40.00 per share, and provided further that the purchase price per share shall be no less than $10.00 per share for the period from December 31, 2000 to December 31, 2001; no less than $12.50 per share for the period from January 1, 2002 to September 30, 2002; and no less than $15.00 per share for the period from October 1, 2002 to December 31, 2002. As of the date of the Mayflower Agreement, Mr. Walden beneficially owned 843,950 shares (20.6%) of Common Stock (including vested options to purchase 18,750 shares of Common Stock) (the "Walden Shares") and Ms. Hobbs beneficially owned 70,200 shares (1.7%) of Common Stock (including vested options to purchase 18,750 shares of Common Stock, 12,500 restricted shares that are subject to forfeiture upon certain circumstances and 450 shares owned by her spouse (which shares are excluded from the Mayflower Agreement)) (the "Hobbs Shares"). . In the event that the Option Term expires without Mr. Walden and Ms. Hobbs, or either of them, having exercised the Put or under certain other circumstances, Mayflower shall have the right to purchase (the "Call"), at any time prior to December 31, 2004, all of the Walden Shares and the Hobbs Shares at a purchase price of $15.00 per share. . Until such time as Mr. Walden has exercised his Put, Mayflower has exercised its Call with respect to the Walden Shares, or the Option Term has expired, whichever occurs first (the "Standstill Period"), (i) Mayflower agreed not to directly or indirectly sell or purchase, contract to sell or purchase, obtain a right to purchase or sell or otherwise acquire or sell any shares of Common Stock and (ii) each of Mr. Walden and Ms. Hobbs covenanted and agreed that he or she will not (A) except with respect to certain shares of Common Stock owned by Ms. Hobbs, offer for sale, sell, transfer (including by way of gift), tender, pledge, encumber or otherwise subject to a lien, assign or otherwise dispose of, or enter into any contract or other arrangement or understanding with respect to or consent to the offer for sale, sale, transfer, tender, pledge, encumbrance, or other disposition of, or exercise any discretionary powers to distribute, any of his or her shares of Common Stock, or (B) grant any proxies or powers of attorney with respect to any of his or her shares of Common Stock, deposit any of his or her shares of Common Stock into a voting trust or enter into a voting agreement with respect to any of his or her shares. The foregoing does not apply to the exercise by Mr. Walden or Ms. Hobbs of options to purchase Common Stock granted to either of them by the Company. . After the Standstill Period, Mayflower may offer to acquire all of the remaining shares of Common Stock of the Company, provided, however, that in the event that Mayflower shall offer to acquire all of the publicly traded shares of Common Stock prior to 45 days after publication of results of operations of the Company for the year ended December 31, 2001, Mayflower shall offer a price of not less than $15.00 per share, subject to receipt of a fairness opinion satisfactory to the Board of Directors of the Company. Based on the number of shares of Common Stock currently outstanding, Mayflower would acquire in excess of 61% of the outstanding Common Stock upon exercise of the Put or Call. 6 . Mayflower has agreed to provide various technical services to the Company, at the request of Mr. Walden. These shall include, but not be limited to, Mayflower arranging for its affiliated company, Walter Alexander, to second Mr. Nigel McGaughey or such other person(s) designated by Mayflower and approved by the Company (which approval may not be unreasonably withheld) on behalf of the Company for a period of up to two years. Mayflower and the Company will also select various specialized industry consultants, satisfactory to both Mayflower and the Company, which will be retained by the Company. The Company will pay the base salary while Mr. McGaughey or such other person(s) are assigned to the Company not to exceed $150,000 per year. The Company will also pay the fees of any consultants which may be retained to provide technical services to the Company. . Mayflower agreed to enter into a separate agreement with Mr. Walden and Ms. Hobbs, which will contain a non-competition provision effective following exercise of the Put or the Call in consideration for the payment upon the exercise of the Put or Call of $1,500,000.00 to Mr. Walden and $500,000.00 for Ms. Hobbs. . The expansion of the Board of Directors of the Company did not occur in 1998 since Mayflower did not designate directors as provided in the Mayflower Agreement. A copy of the Mayflower Agreement and the Loan Agreement filed as Exhibits 10.1 and 10.2 to the Company's Current Report on Form 8-K dated September 25, 1998, and are incorporated herein by reference. The foregoing is not a complete description of the terms of the Mayflower Agreement, the Loan Agreement or the transactions contemplated thereby and is subject to and qualified in its entirety by reference to the Mayflower Agreement and the Loan Agreement. As of December 31, 1998, Mayflower had loaned to the Company $1.9 million of the amount available under the Loan Agreement, but refused to fund additional advances requested by the Company. Mayflower also provided some technical and administrative services to the Company but, based upon Mayflower's refusal of further funding and the discovery that the technical and administrative employees were reporting directly to Mayflower in London, the Mayflower personnel are no longer providing services for the Company pending resolution of disputes between Mayflower and the Company. The Company has filed suit against Mayflower, and litigation is pending. See "Item 3. Legal Proceedings." On November 18, 1998, the Company gave notice of termination of Jerry J. Schweiner's employment as the President and Chief Operating Officer of the Company. The Company is currently involved in litigation with Mr. Schweiner. See "Item 3. Legal Proceedings." In an unrelated event in early September 1998, Richard M. Bruno delivered his resignation as the Chief Financial Officer, Treasurer and Secretary of the Company effective September 30, 1998. There where no disputes with Mr. Bruno, who resigned to pursue opportunities closer to his residence. In early March 1999, D. Michael Walden, the Chairman of the Board and Chief Executive Officer of the Company, took a medical leave of absence as an officer of the Company for an indefinite period of time. Mr. Walden remains the Chairman of the Board. In early March 1999, the Board of Directors of the Company appointed Henry J. Murphy as Interim Chief Executive Officer of the Company. Mr. Murphy has agreed to serve in such capacity until at least June 1999, subject to extension by mutual agreement by the Company and Mr. Murphy. 7 In early March 1999, the Board of Directors of the Company appointed Terri B. Hobbs as Acting President of the Company. Previously, Ms. Hobbs served as Deputy Chief Executive Officer. On March 22, 1999, George W. Mathews submitted his resignation as a director of the Company. There were no disputes or disagreements with Mr. Mathews. In March 1999, the Company engaged a third-party consulting firm to assist the Company with its business planning, including enhancing its financial and management information and reporting systems. Products History. The Company originally marketed buses manufactured by third parties. These buses were designed and built based on recreational vehicle principles and standards using electrical and mechanical systems that overlapped and were dependent upon the chassis manufacturer's system. Additionally, the buses were equipped with light duty components designed for occasional recreational use. In 1984 and 1985, the Company designed a mid-size bus utilizing a "cutaway" cab chassis as well as electrical and mechanical engineering techniques that the Company believes had not been used in small and mid-size bus manufacturing. The Company began manufacturing its Classic line in 1986 based on its new designs. Design. During the Company's design process, the Company's design team emphasizes safety and quality over all other features. The Company's Classic and Legacy LJ by Metrotrans designs include 16-gauge steel tubing welded into a roll cage completely surrounding the passenger seating area. In addition there is a roll cage constructed in the cab of the Classic over the driver's head. The floor of the Classic and Legacy LJ by Metrotrans is constructed of 11 and 14- gauge steel cross-members and is gusseted full length on each side by 11-gauge steel tubing. The Company's Eurotrans product is built using similar engineering standards, including a 14- gauge steel roll cage surrounding the sides and top of the entire bus, modified to accommodate the larger size of the Eurotrans. Despite the fact that there are few safety standards specific to the mid- size bus industry, the Company's Classic line is designed and has been tested to exceed the strict safety standards established for school buses. The Company has certified the crash-worthiness of its vehicles and components with Atlanta Testing & Engineering Inc., an independent testing laboratory. The Classic line has been certified to withstand 200% of the vehicle's weight on the roof and sides without catastrophic failure in a roll-over. Federal standards require that a school bus withstand 150% of the vehicle's weight in a roll-over test. The Company has met the requirements of the Ford Motor Home and Transit Bus Qualified Vehicle Modifier Program to attain "FM-Fully Meets" status. In addition, certain of the Company's products have been tested at the Alatoona Bus Testing Center in order to qualify the vehicles for government funded purchasing. Description. The Company manufactures and markets shuttle and mid-size touring buses and mid-size and full-size coaches that can accommodate varying numbers of passengers at prices ranging from $30,000 to $360,000. The interior configuration of the Company's buses may be custom designed to accommodate the needs of the specific customer. For example, car rental agencies typically require that the bus or coach contain large, open racks for luggage storage while medical and retirement facilities often require a configuration that will accommodate one or more wheelchairs and a paratransit lift and door. Set forth below is information regarding each of the Company's current models. 8 The Classic Line The Classic. The Company introduced the Classic bus in 1986. The Classic was the Company's initial entry into mid-size bus manufacturing and continues to be the Company's leading seller. The Classic utilizes a dual rear wheel cutaway cab, engine, chassis and transmission manufactured by Ford Motor Company ("Ford") or General Motors Corporation ("GM"). During the period from the introduction of the Classic in 1986 to date, the Company made and continues to make modifications to the Classic in response to customer suggestions. For example, the Classic has been modified to include optional aircraft style positive closing interior overhead luggage compartments and a gull-wing type rear luggage and paratransit lift door which provides weather protection while open. The Classic II. The Company introduced the Classic II in 1992. The Classic II utilizes a single rear wheel cutaway chassis manufactured by Ford and is a smaller and less expensive alternative to the Classic seating up to 17 passengers. The Classic II is marketed primarily to parking lot operators, rental car agencies, churches and schools. The Classic II has virtually all of the standard features incorporated in the Classic and is available with similar options. The Classic II may be operated without a commercial operator's license. The Classic Commuter. The Company introduced the Classic Commuter in late 1993. The Classic Commuter, like the Classic II, utilizes a single rear wheel Ford cutaway chassis and can accommodate up to 17 passengers. The Classic Commuter is not as tall as the Classic II and is intended to provide an alternative to passenger vans by offering the interior comfort, styling and safety features of a mid-size bus, including a welded steel roll cage not available in passenger vans, at a price that is generally $5,000 to $8,000 higher than an average passenger van. The Classic XLT. The Company introduced the Classic XLT in mid-1998. The Classic XLT is built with the same basic body structure and attention to safety and detail as the other Classic products. The Classic XLT is built on a heavy- duty Navistar 3400 chassis and features an industry-exclusive 102 inch wide body (the Classic is 96 inches wide and the Classic II is 85 inches wide). This width enables the use of larger coach-style seats while still maintaining a maneuverable aisle. The Classic XLT accommodates up to 32 passengers and has been well received in the tour and charter market. The Legacy LJ by Metrotrans Line The Legacy LJ by Metrotrans. In 1995, the Company introduced the Legacy LJ by Metrotrans, a down-sized rear engine coach accommodating up to 33 passengers and built on a Spartan Motors Inc. ("Spartan") chassis designed exclusively for the Company. A product that fills a gap between a cutaway chassis shuttle bus and a full-size motor coach, the Legacy LJ by Metrotrans offers the image and reliability of a coach with the maneuverability of a shuttle bus featuring a 16 foot, 4 inch turning radius which allows operation in narrow streets or compact parking lots. In 1998, the Company and Spartan Motors redesigned the chassis to accommodate a diesel engine manufactured by Cummins Engine Company. 9 The Eurotrans Line The Eurotrans. The Company first introduced the Eurotrans in 1990. The Eurotrans seats up to 41 passengers and utilizes a rear mount turbo diesel engine manufactured by Cummins Engine Company, a four-speed automatic transmission manufactured by Allison Transmission Company and a chassis manufactured by Spartan. The Eurotrans superstructure is supported by a 14-gauge welded steel roll cage manufactured by the Company. The Eurotrans was redesigned in 1998 with chassis changes, a two-piece windshield and maintenance-friendly exterior hinged panels to appeal to the transit industry as well as various airport markets. The Eurotrans XLT. In late 1992, the Company introduced the Eurotrans XLT. The Eurotrans XLT features a raised platform chassis manufactured exclusively for the Company by Spartan allowing for full undercarriage luggage storage similar to that found in full-size motorcoaches. The Eurotrans XLT seats up to 41 passengers and utilizes a more powerful Cummins turbo diesel engine than that used in the standard Eurotrans and a six-speed electronic transmission manufactured by Allison Transmission Company. The Anthem Line The Anthem. The Company designed the Anthem in 1997 as an integral semi- monocoque coach seating up to 45 people with luggage storage capacity unhindered by chassis rails. The Anthem features as standard many of the amenities seen on the full-size Irizar Century with a moderate price structured to fill a niche between the largest Eurotrans XLT and the Irizar Century coach. The Irizar Century Line The Irizar Century. The Company established a relationship with Irizar S. Coop. during 1997 whereby the Company, given its substantial distribution system and industry expertise in the United States, is marketing and providing after- sale support for certain full-size Irizar motorcoaches in North America. The bus bodies of these motorcoaches are manufactured in Spain by Irizar on chassis supplied by the Company from the United States. The Century motorcoach, produced in either 40' or 45' lengths and seating up to 56 passengers, has been in production by Irizar for several years for other markets and has received a number of Coach of the Year awards in Europe. The Company-supplied chassis presently in use has been jointly developed by the Company, Irizar and Spartan Motors, Inc. and is manufactured by Spartan. The chassis utilizes American components, including either a Cummins M11 or Detroit Diesel Series 60 turbo diesel engine and an Allison B500 World transmission. 10 Sales and Marketing The Company markets its buses and coaches primarily through a number of Company operated sales centers in the United States. The Company's direct sales force only markets the Company's product. The Company advertises in industry trade journals and showcases vehicles in industry trade shows. The Company also has implemented a direct mail program targeted at specific markets identified by the Company. The Company currently markets its products domestically through sales centers in or near the following cities: Atlanta, Georgia Chicago, Illinois Cincinnati, Ohio Dallas, Texas Denver, Colorado Ft. Lauderdale, Florida Los Angeles, California Nashville, Tennessee Orlando, Florida Philadelphia, Pennsylvania San Francisco, California Washington, D.C. The Company currently utilizes approximately 25 full-time sales personnel operating out of the Company's sales and service centers. The Company's direct sales personnel are responsible for the performance of their respective sales centers and are compensated primarily on a commission basis. The commission earned on each sale is based on a percentage of the amount by which the actual sales price exceeds the "dealer" invoice price established by the Company. Customers The Company has a customer base comprised of companies in a number of different industries, including tour and charter companies, hotels, automobile rental companies, airport parking companies, medical and retirement facilities, limousine companies, intra-city and rural transit companies, and churches. During 1998, the Company's customers included ATE Management and Service Company, Inc. (a wholly owned subsidiary of Ryder Systems, Inc.) which operates public transportation systems in a number of areas in the United States, Budget Rent-A- Car Corp., Alamo Rent-A-Car, Inc., Hyatt Hotels Corp., Marriott Hotels, Inc., Dollar Rent-A-Car Corp, Holiday Management, Inc., Allright Parking, Pritzker Group, Essex Group Management and Emeritus Corporation. 11 Product Support and Customer Service The Company offers a free two-day service education program designed to teach the customer's mechanics and other service personnel about the mechanical and electrical systems used in the Company's buses and coaches. The Company also provides technical assistance on an as needed basis. The Company's buses and coaches are generally covered by a 13-month unlimited mileage warranty (excluding the chassis, engine, drivetrain, tires and certain other items that are covered by the manufacturer's standard warranty). The Company currently provides maintenance and service facilities at several of its sales centers and has approximately 40 authorized independent full-service centers. Additionally, the manufacturers of certain components of the Company's buses and coaches, including the chassis, engine and drivetrain, have service centers authorized to service their specific components in large population centers throughout the United States. Customers may choose to operate as an authorized service center (many fleet customers have these capabilities) and may recommend local facilities to become authorized service centers. In either case, the centers must be qualified and approved by the Company. All warranty repairs must be made at an authorized service center. The Company's customers may call the METROCARE toll free number to receive repair authorization and/or guidance on service and maintenance. The Company has an administration agreement with Automobile Protection Corporation ("APCO") whereby the Company offers extended service contracts to its bus customers. APCO administers and adjusts claims by working directly with the customer and the repair facility chosen by the customer once the initial Company or chassis manufacturer warranty has expired. Manufacturing and Purchasing The Company is a vertically integrated manufacturer that constructs the body framing and coach work, molds its own plastic and fiberglass, constructs the cabinets and assembles certain of the electrical circuitry for each of its buses and coaches. By manufacturing these items, the Company is able to maintain substantial control over product safety and quality, supply and scheduling. The vertical integration also allows the Company greater flexibility in its design and allows the customer to choose the design features and options that best meet the customer's needs. The Company also attempts to control costs by purchasing most of its parts and supplies on an as needed basis and manufacturing substantially all of its buses based on firm customer orders. The Company purchases from third party manufacturers pre-assembled chassis, including engines, transmission drivetrain and axle assemblies, for use in its buses and coaches. By purchasing the chassis from third party suppliers, the Company is able to offer to its customers the warranty programs of the suppliers. The Company is a participant in the Ford Motor Home and Transit Bus Qualified Vehicle Modifier Program and has attained "FM-Fully Meets" status. Ford established this program to assist manufacturers, such as the Company, in complying with Ford's strict engineering guidelines. As a participant in the program, the Company is able to make certain modifications to the Ford chassis used in most of its Classic line of buses, including lengthening the chassis without affecting the standard warranty covering the chassis. 12 During 1998, substantially all of the Company's manufacturing of its buses and coaches was conducted in a 100,000 square foot manufacturing facility in Griffin, Georgia, using three production lines. The production capacity for each of the lines could increase further with the addition of more work shifts. The Company's manufacturing facility has primary assembly lines with designated areas for body manufacturing, electrical harness installation, interior installation and finishing. Sub-assemblies (electrical harness, cabinet making, seating, upholstery and coachwork) occur adjacent to the assembly lines allowing for sub-assembled components to feed the lines at an optimum location minimizing line time on each unit. The Company contracts with a third party for the exterior painting of its vehicles. Currently, it takes approximately 15 days to build a Classic, Classic II, Classic Commuter or Classic XLT and approximately 24 days to build a Eurotrans, Eurotrans XLT or Legacy LJ by Metrotrans coach. The Company maintains a strict quality control program providing for a quality control inspection at each stage of the manufacturing process for each vehicle manufactured. Additionally, each vehicle undergoes a leak test, electrical testing, a complete systems test and two heating and cooling tests. Each vehicle also undergoes a complete road test by at least two inspectors so that problems can be identified and corrected prior to delivery of the vehicle to the customer. The Company purchases raw materials, supplies, parts and subcomponents from approximately 165 primary vendors. The Company attempts to minimize its level of inventory by ordering most parts on an as needed basis. As a result, the Company does not maintain substantial inventories of any of its parts and supplies. All of the chassis utilized in the Classic, Classic II and Classic Commuter buses are purchased fully assembled from Ford or General Motors Corporation. All of the chassis utilized in the Eurotrans, Eurotrans XLT, and Legacy LJ by Metrotrans coaches are currently manufactured for the Company by Spartan and currently are shipped to the Company with the engine and drivetrain in place. The chassis were designed in cooperation with the Company and are manufactured for the Company by Spartan. The Company believes that it has satisfactory relationships with these suppliers. The Company currently is in discussions with Spartan relating to delays in delivery of chassis and nonconformity of chassis to the Company's specifications and quality requirements. These issues have resulted in delayed delivery of rear engine buses to the Company's customers as well as increased warranty claims. Company Warranty The Company provides a 13-month, unlimited mileage, limited warranty on all of its buses and coaches that covers all parts of the vehicle except the chassis, engine, drivetrain, tires and certain other items that are covered under separate warranties by their manufacturers. The Company also provides an extended service agreement for an additional price. The service agreement is administered by APCO. See "Product Support and Customer Service" for additional information. Research and Development The Company is engaged in ongoing research and development devoted to enhancing its current product line as well as to the development of new products. The Company currently maintains an engineering department of approximately fifteen employees who continuously seek to improve upon the Company's products and to quickly respond to customer needs and comments. The Company also works closely with its strategic suppliers in the development process to maximize the economy and effectiveness of new products. 13 The Company's research and development have been driven by pro-active relationships with its customers as well as its suppliers. The direct sales method of distribution provided by the Company's sales force gives management and engineering immediate feedback on product areas that need improvement and on opportunities for new products and design enhancements of existing products. The Company's contact with its customers resulted in the development of the original Classic in 1986, the Eurotrans in 1990, the Eurotrans XLT and the Classic II in late 1992, the Classic Commuter in late 1993, the Legacy LJ by Metrotrans in 1996, the Anthem in 1997, the Irizar Century in 1997, and the Classic XLT in 1998. Used Vehicle Sales Many of the Company's fleet customers and potential customers rotate their fleet every two to four years. These fleet rotations, as well as lease maturities, have resulted in the development of an active market for previously- owned buses and coaches. The Company constructed a new 24,000 square foot facility during 1996 situated along Interstate 75 in McDonough, Georgia for the purpose of expanding its capabilities in the used coach refurbishing and resale markets. In connection with fleet sales in its direct distribution territories, the Company accepts "trade-in" vehicles of its own and other brands. The "trade-in" vehicles may be sold by the Company "as is," typically at approximately 15% to 35% of original value after four years use with average maintenance, or refurbished at the Company's manufacturing facility and sold for a greater percentage of their original value. Based on its marketing experience, the Company believes its "trade-in" policy increases new bus and coach purchases by fleet customers. The Company's and Bus Pro's sales personnel sell the used buses and coaches primarily to churches, start-up tour and charter operators and wholesalers who resell the buses and coaches to a variety of end- users. Backlog The Company's customers typically place orders for the Classic line for delivery within six to twelve weeks after the order and orders for the Eurotrans and Legacy LJ by Metrotrans lines for delivery within two to six months after the order. As of December 31, 1998 and 1997, the Company's backlog of orders for such product lines was approximately $24,100,000 and $25,500,000, respectively. At April 7, 1999, the Company's backlog of orders for such product lines was approximately $28,700,000. Delivery of the Irizar Century units are expected within three to six months after the order as a result of the overseas shipping time. As of December 31, 1998, the Company's backlog of Irizar orders was approximately $14,700,000. At April 7, 1999, the Company's backlog of Irizar orders was approximately $9,300,000. Competition The market for each of the Company's products is highly competitive. Competition in the markets for the Company's products is based on a number of factors, including product quality and reliability, safety, product features, driving performance, quality of product support and customer service, loyalty of customers and price. 14 The Company primarily competes with approximately ten competitors for sales of the Classic line and several competitors for sales of each of its Eurotrans, Legacy LJ by Metrotrans, Anthem, and Irizar Century lines. Some of the Company's competitors have greater financial resources than the Company. The Company believes that it must continue its research and development efforts to further enhance its products and to lower the cost of its products through manufacturing efficiencies and other cost saving measures in order to remain competitive. These efforts, together with the Company's continuing sales and marketing efforts, will be critical to the Company's future success. There can be no assurance that the Company will be able to maintain or improve its competitive position in the mid-size bus and coach market. The Company currently competes in the market for its shuttle and mid-size buses primarily with Eldorado National (a division of Thor Industries, Inc.) and with Champion Motorcoach which was acquired during 1997 by Thor Industries Inc. from Champion Industries, Inc. These competitors and some other existing and potential competitors are owned by substantially larger entities than the Company. Government Regulations The manufacture and operation of passenger buses are subject to a variety of federal, state and local regulations, including the National Traffic and Motor Vehicle Safety Act, administered by the National Highway Traffic Safety Administration ("NHTSA"), and safety standards for passenger vehicles and their components that have been promulgated by the Department of Transportation. These standards permit NHTSA to require a manufacturer to repair or recall vehicles with safety defects or vehicles that fail to conform to applicable safety standards. The Company's products meet or exceed all applicable vehicle safety regulations and standards imposed by NHTSA. Many states regulate the sale, transportation and marketing of passenger buses. Some states also legislate additional safety and construction standards for passenger buses. In the future, governmental laws and regulations may be adopted that impose stricter safety, environmental or operational standards on the Company's products. The Company is committed to meet or exceed all current and future applicable regulatory requirements. Proprietary Rights The names "Classic", "Legacy LJ by Metrotrans", "Anthem" and "Eurotrans" are registered trademarks of the Company. The Company also claims rights to a number of unregistered trademarks. Management believes, however, that the Company's competitive success will not depend on the ownership of intellectual property rights. Employees As of December 31, 1998, the Company had 376 full-time employees. Of the Company's total employees, approximately 80 were in sales and marketing, approximately 15 were engaged in engineering activities, including research and development, approximately 209 were in manufacturing, and approximately 72 were in administration. The Company's employees are not represented by a collective bargaining agreement and the Company has never experienced a work stoppage. Management believes the Company's relationship with its employees is good. 15 ITEM 2. PROPERTIES - ------------------ The Company's corporate headquarters and primary manufacturing, distribution and research and development facilities are located in approximately 113,000 square feet of leased space in Griffin, Georgia. The Company leases the facility from the Griffin-Spalding County Development Authority (the "Authority") which financed the purchase of the land and construction of the facility through the sale of tax exempt Industrial Revenue Bonds. The Company is obligated to purchase the land and facility from the Authority upon payment of nominal additional consideration upon the maturity of the Bonds in 2011. The Griffin facility is comprised of approximately 13,000 square feet of office space and approximately 100,000 square feet of manufacturing space. The Company's current manufacturing facility has the capacity to produce and provide inventory for approximately 50 buses and coaches per week. In August 1997 the Company purchased approximately 11 acres of land adjacent to the Company's manufacturing facility, and another 5.15 acres in the same business park in Griffin, Georgia. The property may be used for future expansion of the Company's manufacturing capabilities. The Company owns a 22,000 square foot facility located in Ellenwood, Georgia, in which the Company manufactures the fiberglass and plastic molded products used by the Company in its buses and coaches. The Company constructed a 24,000 square foot facility during 1996 for its used coach subsidiary, Bus Pro, Inc., in McDonough, Georgia, which is used for refurbishment and sale of used buses and coaches. The facility is comprised of approximately 21,000 square feet of shop area and 3,000 square feet of office space. The facility is bordered by a parking area capable of accommodating over 230 buses. The Company's sales centers are located in leased facilities ranging in size from 300 to 3,600 square feet. The Company primarily leases these facilities under short-term leases. See "Item 1. Business - Sales and Marketing." The Company purchased approximately five acres of land in Orlando, Florida in April 1998. This land was purchased to construct a sales and service center to help support the Irizar Century Motorcoach product. Construction began on a facility in October 1998, but was recently discontinued due to restrictions on capital expenditures imposed by the Company's credit facility. ITEM 3. LEGAL PROCEEDINGS - ------------------------- Jerry J. Schweiner v. Metrotrans Corporation, Superior Court for Spalding -------------------------------------------- County, 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. Mr. Schweiner is seeking compensatory damages in the amount of $375,000.00. The Company filed its Answer and Counterclaim against Mr. Schweiner on January 28, 1999. The parties have begun discovery. 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 contention 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. The Company also has filed a motion with the court seeking both leave to begin discovery immediately and expedited discovery. After 5:00 p.m., Easter Daylight Time, on April 14, 1999, the Company received a copy of Mayflower's Answer and Counterclaim to the Company's Complaint. Due to the timing of delivery, the Company did not have sufficient time to review and evaluate Mayflower's Answer and Counterclaim in advance of this filing. Additional information concerning the Company's agreements with the Defendants is set forth under the caption "Item 1. Business - Recent Developments." 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 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------- No matter was submitted by the Company to a vote of security holders during the fiscal quarter ended December 31, 1998. ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY - ------------------------------------------- Information relating to the directors and executive officers of the Company is set forth in the Company's definitive Proxy Statement for the 1999 Annual Meeting of Stockholders. Such information is incorporated herein by reference. Set forth below is certain information as of December 31, 1998 regarding the executive officers of the Company. D. MICHAEL WALDEN, age 48, has served as Chairman, President and Chief Executive Officer of the Company since its incorporation in 1982. In early March 1999, Mr. Walden began a medical leave of absence as an officer of the Company for an indefinite period of time. He remains a director and Chairman of the Board of the Company. HENRY J. MURPHY, age 63, was appointed by the Board of Directors of the Company in early March 1999 as Interim Chief Executive Officer of the Company. Mr. Murphy has agreed to remain with the Company until at least June 1999 subject to extension by mutual agreement of Mr. Murphy and the Company. Mr. Murphy is a former partner of Arthur Andersen LLP, having taken early retirement in March of 1996. He served as Interim Chief Executive Officer of Coastal Physician Inc., a publicly held health care company, from October 1997 to February 1998. He also has served as an independent consultant. 17 TERRI B. HOBBS, age 42, has served as Acting President of the Company since March 1999. She was Deputy Chief Executive Officer from April 1998 to March 1999 and Executive Vice President of the Company since July 1990. From 1987 until July 1990, Ms. Hobbs served as Director of Marketing for the Company and, from 1985 through 1987, Ms. Hobbs was engaged in sales and administration for the Company. Set forth below is certain information as of December 31, 1998, regarding certain significant employees of the Company who are not executive officers. J. DOUGLAS DUNN, age 44, has served as Vice President Sales Administration of the Company since October 1997. Prior to that time and for more than five years, he was owner and president of J.D. Dunn, Inc., d.b.a. Magnum Transportation, Inc., an independent distributor of buses for Eldorado National, a division of Thor Industries, Inc. BARRY HINES, age 40, has served as Director of Engineering of the Company since May 1997. From February 1999, he has served as Director of Operations and Engineering. Prior to May 1997, he served as Director of Engineering at Eldorado National, a division of Thor Industries, Inc. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED - ----------------------------------------------------------- STOCKHOLDER MATTERS - ------------------- The Company's Common Stock has been traded on The Nasdaq National Market under the symbol "MTRN" since the Company's initial public offering in June 1994. Prior to the initial public offering, there was no established trading market for the Company's Common Stock. The Company did not issue or sell any shares of its Common Stock that were not registered under the Securities Act of 1933, as amended. As of March 25, 1999, the number of stockholders of record of the Company's Common Stock was approximately 186. The following table sets forth, by fiscal quarter, the high and low sale prices of the Common Stock as reported by The Nasdaq National Market for the three years ended December 31, 1998. 18 - ------------------------------------------------------------------ Period High Low - ------------------------------------------------------------------ Fourth Quarter 1998 $ 8.75 $ 4.00 - ------------------------------------------------------------------ Third Quarter 1998 $12.88 $ 7.75 - ------------------------------------------------------------------ Second Quarter 1998 $11.00 $ 8.00 - ------------------------------------------------------------------ First Quarter 1998 $12.00 $ 7.00 - ------------------------------------------------------------------ Fourth Quarter 1997 $13.50 $10.25 - ------------------------------------------------------------------ Third Quarter 1997 $13.50 $ 9.25 - ------------------------------------------------------------------ Second Quarter 1997 $10.25 $ 7.25 - ------------------------------------------------------------------ First Quarter 1997 $15.25 $ 9.25 - ------------------------------------------------------------------ Fourth Quarter 1996 $14.75 $12.25 - ------------------------------------------------------------------ Third Quarter 1996 $14.63 $12.50 - ------------------------------------------------------------------ Second Quarter 1996 $15.25 $11.50 - ------------------------------------------------------------------ First Quarter 1996 $13.50 $ 8.25 - ------------------------------------------------------------------ The Company intends to retain all future earnings for the expansion and development of the Company's business and does not anticipate paying cash dividends in the foreseeable future. Future dividend policy and the payment of dividends, if any, will be determined by the Company's Board of Directors in light of circumstances then existing including the Company's earnings, financial condition, and other factors deemed relevant by the Board of Directors. 19 ITEM 6. SELECTED FINANCIAL DATA - -------------------------------- The following selected financial data for and as of the end of each of the years ended December 31, 1998, 1997, 1996, 1995, and 1994 are derived from the financial statements of the Company, which financial statements have been audited by Arthur Andersen LLP, independent public accountants. The selected financial data is qualified in its entirety by the more detailed information and financial statements, including the notes thereto, included elsewhere in this report. The financial statements of the Company as of December 31, 1998 and 1997 and for each of the years in the three year period ended December 31, 1998, and the report of Arthur Andersen LLP thereon, are included elsewhere in Item 8 of this report. YEARS ENDED DECEMBER 31, ------------------------- 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- INCOME STATEMENT DATA: Net revenue.......................... $76,114 $80,132 $77,482 $64,027 $52,271 Cost of sales........................ 69,026 66,153 62,814 50,914 42,494 ------- ------- ------- ------- ------- Gross profit......................... 7,088 13,979 14,668 13,113 9,777 Selling general, and administrative expenses............................ 13,568 9,823 8,477 7,458 6,900 ------- ------- ------- ------- ------- Operating income..................... 803 4,156 6,191 5,655 2,877 Other income......................... 803 0 0 0 105 Interest expense, net................ 1,237 1,330 736 711 498 ------- ------- ------- ------- ------- Income before income taxes (loss)... (6,914) 2,826 5,455 4,944 2,379 Income tax provision (benefit)/1/.... (2,575) 1,109 2,136 1,914 920 ------- ------- ------- ------- ------- Net income (loss).................... $(4,339) $ 1,717 $ 3,319 $ 3,030 $ 1,459 ------- ------- ------- ------- ------- Diluted weighted average number of shares/2/........................... 4,087 4,112 4,107 3,993 3,698 ------- ------- ------- ------- ------- Diluted net income per share......... (1.06) $0.42 $0.81 $0.76 $0.39 ------- ------- ------- ------- ------- - --------------------- /1/ The Company elected S Corporation status effective January 1, 1989. On May 31, 1994, the Company converted its status to a C Corporation and, accordingly, from June 1, 1994 has been subject to federal and state income taxes. Net income prior to June 1, 1994, includes federal and state income taxes as if the Company had been a C Corporation, based on the effective tax rates that would have been in effect during the periods reported. /2/ The weighted average number of shares outstanding prior to the third quarter of 1994 gives effect to the estimated number of shares of Common Stock that would be required to be sold (at the initial public offering price of $8.50 per share) to fund a $4.5 million S Corporation distribution to the S Corporation stockholders. YEARS ENDED DECEMBER 31, ------------------------- 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- BALANCE SHEET DATA: Working capital (deficit)... $21,318 $23,292 $13,508 $11,214 $ 6,723 Total assets................ 59,301 40,508 36,564 29,667 25,521 Long-term debt.............. 16,076 11,945 2,719 3,727 4,122 Stockholders' equity........ 14,891 19,029 17,096 13,663 9,637 OTHER DATA: Total units sold or leased.. 927 1,168 1,284 1,117 982 20 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------------------------------------------------------------------------- RESULTS OF OPERATIONS - --------------------- Forward Looking Statements In addition to historical information, this Annual Report on Form 10-K 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 Metrotrans Corporation to attract and retain qualified management, manufacturing and sales personnel; the ability to control manufacturing costs; the effects of competition; changes in accounting policies and practices; the ability of Metrotrans Corporation, its vendors, suppliers and customers to be Year 2000 compliant; the ability to complete the implementation of a manufacturing cost accounting system; and, the ability to obtain chassis on a timely basis on terms acceptable to the company. 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. In addition to historical information, this Annual Report on Form 10-K 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 and 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. 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. Among other things, these risks and uncertainties include: the ability of Metrotrans Corporation to attract and retain qualified management and manufacturing personnel; the ability to control manufacturing costs; and, the ability to obtain chassis on a timely basis on terms acceptable to the company. 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. Readers are cautioned not to place undue reliance on these forward- looking statements, which reflect management's opinion as of the date of this report. Metrotrans Corporation refers readers to the information set forth under the captions "Item 1. Business", "Item 3. Legal Proceedings" and "Item 5. Management's Discussion and Analysis of Financial Condition and Results of Operations" contained herein, for a more complete discussion of certain risk factors. 21 Overview The Company was incorporated in 1982 for the purpose of designing, manufacturing and marketing shuttle and mid-size buses. 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. Metrotrans began exclusive marketing of the Irizar Century in 1997 with the first deliveries occurring in the second quarter of 1998. 22 Results of Operations The following table sets forth selected financial information derived from the Company's income statements expressed as a percentage of net revenue for the periods indicated. Years Ended December 31, ----------------------------------------- 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Net revenue 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales 90.7 82.6 81.1 79.5 81.3 ------ ----- ----- ----- ----- Gross profit 9.3 17.4 18.9 20.5 18.7 Selling, general and adminis- trative expenses 17.8 12.2 10.9 11.7 13.2 ------ ----- ----- ----- ----- Operating (loss) income (8.5) 5.2 8.0 8.8 5.5 Other income, net 1.0 0.0 0.0 0.0 0.2 Interest expense 1.6 1.7 1.0 1.1 1.2 ------ ----- ----- ----- ----- (Loss) income before income taxes (9.1) 3.5 7.0 7.7 4.6 Income tax (benefit) provision (3.4) 1.4 2.7 3.0 1.8 ------ ----- ----- ----- ----- Net (loss) income (5.7)% 2.1% 4.3% 4.7% 2.8% ====== ===== ===== ===== ===== 23 The following table sets forth total unit sales and average revenue per unit for 1998, 1997 and 1996.
1998 1997 1996 ----------------- ------------------------- ------------------------ Average Average Average Revenue/ Revenue/ Revenue/ Units Unit Units Unit Units Unit ------ -------- ------- --------- -------- -------------- Classic 816 $ 48,958 1,017 $ 50,000 1,192 $ 48,000 Eurotrans 34 $145,676 68 $147,000 77 $147,000 Legacy LJ by Metrotrans 42 $ 73,930 83 $ 83,000 15 $ 79,000 Irizar Century(1) 35 $337,371 0 $ 0 0 $ 0 --- ----- ----- Total 927 1,168 1,284 === ===== =====
- -------------- (1) The Company's first deliveries of the Irizar occurred in the second quarter of 1998. 1998 Compared to 1997 Net Revenue. Net revenue decreased 5.0% to $76.1 million in 1998 from $80.1 million in 1997. The decrease in net revenue was caused by several factors. Finished goods inventory was at an all time high as of December 31, 1998 of approximately $19.9 million, resulting from several customers delaying delivery of multi-unit orders until subsequent to year end. Sales of all rear engine units manufactured by the Company were adversely affected by the inability of the Company's sole source vendor of rear engine chassis to deliver units in accordance with agreed delivery schedules. Revenues also were adversely impacted by a decline in the average sales price of vehicles. Production backlog at December 31, 1998 was approximately $38.8 million, including approximately $14.7 million orders for the Irizar Century full-size coach, compared with $25.5 million at the end of 1997. Sales of used buses by the Company's wholly-owned subsidiary, Bus Pro, increased 14.6% to $10.2 million in 1998 compared to $8.9 million in 1997. The increase in Bus Pro sales is a result of the greater capacity brought about by its relocation to a newly- constructed sales, refurbishment and service facility in 1997 and the Company's focus on reducing its investment in used vehicles. Cost of Sales And Gross Profit. Cost of sales increased in 1998 to $69.0 million from $66.2 in 1997. Cost of sales in 1998 was adversely affected by abnormal materials costs and production delays, which caused lower absorption of plant overhead. Materials costs increased from 29.7% of sales to 33.6% of sales as a result of price increases awarded numerous key vendors and inefficiencies created by a change of key personnel in the purchasing and materials control areas without implementation of succession planning and specialized training. Plant overhead increased 4.7% from $4.4 million in 1997 to $4.7 million in 1998 due to an increase in employees in engineering, plant maintenance and plant supervisory personnel. Also included in the plant overhead was extensive training necessary for the conversion of engineering design software from Auto-cad to the Pro E three-dimensional solid modeling system. As a percent of sales, plant overhead increased to 8.0% of sales from 6.4% of sales. 24 Also impacting cost of sales are sales of vehicles not manufactured at the Company's Griffin manufacturing facility. Cost of Irizar sales was $11.9 million or 80.3% of Irizar sales in 1998 versus $0 in 1997. Cost of used vehicles was $10.1 million or 98.6% of used vehicle sales in 1998 versus $8.0 million or 89.6% of sales in 1997. This increase was primarily due to a recent focus of reducing the Company's investment in used vehicles which has resulted in lower selling prices. During the fourth quarter of 1998, the Company increased its reserve against the carrying value of its used vehicles by $1.4 million. This adjustment was required due to a number of factors including market conditions, a substantial increase in buses purchased under the Company's lease guarantees, and the Company's desire to substantially reduce its investment in used vehicles. For the foregoing reasons, the Company's gross profit decreased 49.3% to $7.1 million in 1998 from $14.0 million in 1997. Gross profit as a percent of net revenue was 9.3% during 1998 versus 17.4% in 1997. Selling, General And Administrative Expenses And Operating Income. Selling, general and administrative expenses ("SG&A") increased 38.1% to $13.6 million in 1998 from $9.8 million in 1997. SG&A as a percentage of net revenue increased to 17.8% in 1998 from 12.2% in 1997. Increases in SG&A were due primarily to increased legal expenses, higher expenditures for advertising, promotion and sales software, higher travel expenses, employee signing bonuses and relocation expenses for secondary level managers and costs related to the new position of Chief Operating Officer. The services of the Chief Operating Officer were terminated in November 1998. See "Item 3. Legal Proceedings." Subsequent to December 31, 1998, the Company has taken steps to reduce the amount of SG&A expenses. The steps include additional personnel reductions, changes in advertising methodology and reductions in travel and entertainment expense. However, these reductions will be somewhat offset by increased consulting expenses. The Company has engaged a third party consulting firm to assist the Company with its business planning, including enhancing its financial and management information and reporting systems. The Company also has engaged an Interim Chief Executive Officer. See "Item 1. Business - Recent Developments." Other Income. Other income was $803,000 in 1998 compared to $0 in 1997. The 1998 other income related to the Company's sale of its airplane lease obligation in November 1998. The Company had an operating loss of $6.5 million for 1998 as compared to operating income of $4.2 million in 1997. Interest Expense. Interest expense of $1.2 million in 1998 decreased 7% from $1.3 million in 1997. The decrease for the year primarily was the net result of lower interest rates in 1998, offset by a higher average balance outstanding under the Company's revolving credit facility during the year as a result of higher inventory levels and higher accounts receivable, partially offset by a reduction in the amount of interest paid to Ford Motor Credit Corporation for chassis held under the consignment pool agreement due to the institution of procedures to better control chassis inventory levels. 1997 Compared to 1996 25 Net Revenue. Net revenue increased $2.7 million or 3.4% from $77.5 million in 1996 to $80.1 million in 1997. This increase results primarily from the net of increases of approximately $5.7 million in sales of Legacy LJ by Metrotrans units and $2.9 million in Bus Pro sales offset by reductions of approximately $6.0 million in Classic sales and $1.3 million in Eurotrans sales. An increase in parts sales and extended service agreement revenue accounted for the remainder of the increase in net revenue. The Legacy LJ by Metrotrans first full year of sales was 1997. The decline in Classic sales was affected by production difficulties in the first quarter and by a lower backlog of orders over the third and fourth quarter. The order backlog for Classics was influenced by the Company's sales focus on new product introductions rather than by any overall change in the market demand for shuttle buses. The 48.6% increase in net revenue from Bus Pro sales of used buses acquired by the Company from trade-ins and lease maturities, from $6.0 million in 1996 to $8.9 million in 1997, resulted from an increase in the used coach selling effort and the increased capability to perform refurbishment on used coaches available for sale. Order backlog for the Company at December 31, 1997 was $25 million, including $7.5 million in orders for the newly-introduced Irizar Century full- size motorcoach, compared with $22 million at December 31, 1996. Cost of Sales and Gross Profit. Gross profit declined from $14.7 million in 1996 to $14.0 million in 1997. As a percentage of net revenue, gross profit declined from 18.9% of sales to 17.4%. The Company experienced uneven production flow and cost inefficiencies during the first quarter and throughout the latter portion of 1997. This uneven flow and cost inefficiency resulted in higher than normal materials use and more labor and overhead cost per unit than in the prior year. The difficulties early in 1997 were a continuation of manufacturing issues that arose during the fourth quarter of 1996 and included the establishment of a new Legacy LJ by Metrotrans production line, an attempt to produce a record volume of Eurotrans, and a reorganization of manufacturing management. Each of these factors had a disruptive effect on the output of the Classic production line. In the latter portion of 1997, output of Legacy LJ by Metrotrans units was slowed when a planned conversion to a different drivetrain chassis was delayed due to late deliveries from the supplier and when a number of engineering redesign issues, such as a redesigned front cap, were implemented. Output of Classic units was negatively affected by the lower backlog of orders which resulted in shorter lead times for materials procurement. Isolated shortages of materials caused disruptions in production flow and resulted in higher than anticipated manufacturing costs. Selling, General and Administrative Expenses and Operating Income. Operating income declined to $4.2 million from $6.2 million in 1996. As a percentage of net revenue, operating income declined from 8.0% in 1996 to 5.2% in 1997. Selling, general and administrative expenses ("SG&A") were $9.8 million in 1997, up 15.9% from $8.5 million in 1996. As a percentage of net revenue, SG&A rose from 10.9% in 1996 to 12.2% in 1997. The increase in SG&A is attributable to a number of factors, including a number of senior management changes and additions during 1997 resulting in an increase in compensation expense, relocation and other employment-related costs and higher legal expenses incurred in connection with legal matters. Interest Expense. Net interest expense increased from $736,000 in 1996 to $1.3 million in 1997 and resulted primarily from an increase of approximately $4 million in the average level of borrowing under the Company's bank credit facility during 1997 over 1996 and from an approximate additional $200,000 in interest charges in 1997 over 1996 incurred under the Ford Motor Credit Corporation ("Ford Credit") pooled chassis agreement for chassis held on consignment beyond the 90-day interest-free period. 26 Fluctuations in Quarterly Operating Results The following table presents certain unaudited quarterly results prepared by the Company on a basis consistent with its audited financial statements and includes all adjustments, consisting only of normal recurring adjustments, that the Company considered necessary for a fair presentation of the data. Such quarterly results are not necessarily indicative of future results of operations. This information should be read in conjunction with the financial statements and the notes thereto included elsewhere in this report.
1998 1997 -------------------------------------- ---------------------------------- First Second Third Fourth First Second Third Fourth Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter -------------------------------------- ---------------------------------- (in thousands, except per share data) Net revenue $16,018 $22,899 $20,282 $16,915 $15,016 $21,969 $21,731 $21,416 Cost of sales 13,796 18,528 18,835 17,867 13,328 17,541 17,482 17,802 ------- ------- ------- ------- ------- ------- ------- ------- Gross Profit (loss) $ 2,222 $ 4,371 $ 1,447 $ (952) $ 1,688 $ 4,428 $ 4,249 $ 3,614 ======= ======= ======= ======= ======= ======= ======= ======= Operating income (loss) $ (686) $ 1,514 $(2,616) $(4,692) $ (193) $ 1,579 $ 1,823 $ 947 ======= ======= ======= ======= ======= ======= ======= ======= Income (loss) before income $ (965) $ 1,239 $(2,981) $(4,207) $ (616) $ 1,209 $ 1,567 $ 666 taxes ======= ======= ======= ======= ======= ======= ======= ======= Net income (loss) $ (586) $ 753 $(1,811) $(2,695) $ (374) $ 735 $ 952 $ 404 ======= ======= ======= ======= ======= ======= ======= ======= Diluted weighted average shares outstanding 4,084 4,121 4,085 4,091 4,109 4,109 4,109 4,121 ======= ======= ======= ======= ======= ======= ======= ======= Diluted net income per share $(.14) $.18 $(.44) $(.66) $(0.09) $0.18 $0.23 $0.10 ======= ======= ======= ======= ======= ======= ======= =======
The Company historically has experienced significant fluctuations in its financial results from quarter to quarter due to factors such as availability of cutaway chassis, the mix of buses and coaches sold, the timing of orders and delivery dates, the purchasing cycles of certain large customers that typically rotate their fleets every two to four years and the state of the economy. Furthermore, because of the relatively high selling prices of buses and coaches such as those manufactured by the Company, a small variation in the number and mix of buses and coaches sold in any quarter can have a significant effect on sales and operating results for that quarter. 27 Liquidity and Capital Resources Net cash used in operating activities during 1998 totaled $3.6 million compared with cash provided by operating activities of $52,000 in 1997. The net loss of $4.4 million was primarily responsible for the negative cash flow. An increase in inventories was substantially offset by a decrease in accounts receivable and an increase in accounts payable and accrued expenses. The increase in inventory resulted from an increase in finished goods, which includes inventory related to Irizar sales and production, an increase in work in process, an increase in used coach inventory related to 1997 lease defaults and litigation settlements, and an increase in Legacy LJ by Metrotrans demonstrator units. The Company has initiated steps to reduce its investment in inventory. In the first half of November 1998, the Company took positive steps to immediately reduce overhead which included the termination of the Chief Operating Officer and several mid-level management employees and the sale of the corporate airplane. Anticipated capital expenditures and increases in working capital are expected to be financed primarily through internally generated funds and through the Company's revolving credit facility. During 1998, the Company had a three-year unsecured credit facility that matured on December 31, 2000. The Company had both prime rate and LIBOR rate options that varied based on leverage. At December 31, 1998, the Company had approximately $14.5 million of borrowings outstanding under that facility. At March 31, 1999, the Company had approximately, $18.0 million of borrowings outstanding. Additionally, in accordance with the Mayflower Agreement and the Loan Agreement with Mayflower. Mayflower agreed to loan up to $15 million to the Company for a term of five years, of which $1.9 million was outstanding at December 31, 1998. Mayflower has refused to advance additional amounts and the Company does not expect to receive additional advances under the Mayflower facility in the near term. As a result of a loss in the third and fourth quarters of 1998, the Company was not in compliance with certain financial covenants contained in its unsecured revolving credit facility. However, effective April 12, 1999, the Company has entered into an amended secured revolving credit facility ("the Amended Facility"). Under the Amended Facility, the Company has obtained a waiver of all defaults which existed under the unsecured credit facility. In addition, the Amended Facility provides a commitment of up to $23 million, an increase of $3 million. Interest under the Amended Facility is at prime (7.75% at April 12, 1999). 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. Finally, 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. In connection with the Amended Facility, including the increased credit limit, the Company was required to grant to the lender a security interest in the assets of the Company. Notwithstanding the Company's position that Mayflower has breached the terms of the Loan Agreement, the Company repeatedly attempted to obtain Mayflower's consent to the grant of the security interest in accordance with the Loan Agreement. Mayflower refused to grant its consent. Accordingly, Mayflower may take the position that the Company's grant of the security interest violates the terms of the Loan Agreement. See "Item 3. Legal Proceedings." 28 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 has developed 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 delays in the implementation and integration of the new systems; however, the Company anticipates that the new systems will be operational prior to December 31, 1999. The Company also is conducting a review of other systems, which will be substantially completed by March 31, 1999, at a cost not material to its business, financial condition, or results of operations. As of March 31, 1999, the Company has incurred $15,500 and anticipates it will incur up to $50,000 in replacing and converting the Company's data processing and management information systems. The amount may increase as additional information is obtained to complete the replacement and conversion process. The Company believes that its most reasonably likely worst case year 2000 scenarios would relate to problems with the systems of third parties rather than with the Company's internal systems or its products. It is clear that the Company has the least ability to assess and remediate the year 2000 problems of third parties and the Company believes the risks are greatest with infrastructure (e. g. electricity supply, water and sewer service), telecommunications, transportation supply chains and suppliers of materials. While the Company is taking steps that it believes to be reasonable and prudent to assess the year 2000 readiness of third parties with whom the Company does business, the failure of any of these third parties to correct a material year 2000 problem could result in an interruption in, or a failure of, certain normal business activities or operations. Due to the general uncertainty inherent in the year 2000 problem, resulting in part from the uncertainty of the year 2000 readiness of third party suppliers and customers, the Company is unable to determine at this time whether the consequences of year 2000 failures will have a material impact on the Company's results of operations, liquidity, or financial condition. Readers are cautioned that forward-looking statements contained in this year 2000 update should be read in conjunction with the Company's disclosures regarding forward-looking statements. 29 Recent Accounting Pronouncements In June 1998, the FASB issued SFAS No. 133, "Accounting Derivative Instruments and Hedging Activities," which established accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value, and changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The Company plans to adopt SFAS No. 133 in the first quarter of fiscal 2000. Management does not believe the adoption of this statement will have a material effect on the consolidated financial statements of the Company. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Foreign Currency Risk Management A third party foreign vendor located in Spain manufactures the full-size Irizar Century motorcoach. Fluctuations in the value of the Spanish Peseta create exposure which can adversely affect the cost of the bus. The Company attempts to manage its foreign exchange exposure by entering into forward exchange contracts to hedge firm purchase commitments denominated in Pesetas. These contracts are for periods consistent with the exposure being hedged and have maturities of one year or less. Gains and losses on foreign exchange forward contracts are deferred and recognized in income in the same period as the hedged transaction. The Company's foreign exchange forward contracts do not subject the Company's results of operations to risk from exchange rate fluctuations because gains and losses on these contracts generally offset gains and losses on the exposure being hedged. The Company does not enter into any foreign exchange forward contracts for speculative trading purposes. At December 31, 1998 and 1997, the Company had foreign exchange forward contracts with gross notional amounts of $2,471,000 and $0, respectively. The deferred gains or losses from these contracts were not material at December 31, 1998 and 1997. The notional amounts of foreign exchange forward contracts do not represent amounts exchanged by the parties and therefore are not a measure of the Company's risk. The amounts exchanged are calculated on the basis of the notional amounts and other terms of the foreign exchange hedging contracts. The credit and market risks under these contracts are not considered to be significant. 30 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------- The following financial statements of the Company and the related report of independent public accountants thereon are set forth beginning on page F-1 immediately following the signature page of this Report. Report of Independent Public Accountants Consolidated Balance Sheets as of December 31, 1998 and 1997 Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997 and 1996 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------------------------------------------------------------------------ FINANCIAL DISCLOSURE - -------------------- Not Applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT - -------------------------------------------------------- Information relating to the directors of the Company, including directors who are executive officers of the Company is set forth in the Company's definitive Proxy Statement for the 1999 Annual Meeting of Stockholders. Such information is incorporated herein by reference. Pursuant to Instruction 3 of Item 401(b) of Regulation S-K and General Instruction G(3) of Form 10-K, information relating to the executive officers of the Company who are not directors and certain other significant employees of the Company is set forth in Item 4A of this report under the caption "Item 4A. Executive Officers of the Company." Such information is incorporated herein by reference. COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934, as amended, and regulations of the Securities and Exchange Commission thereunder require the Company's directors, officers and any persons who own more than 10% of the Company's Common Stock, as well as certain affiliates of such persons, to file initial reports with the Securities and Exchange Commission and the National Association of Securities Dealers, Inc. Directors, officers and persons owning more than 10% of the Company's Common Stock are required by Securities and Exchange Commission regulations to furnish the Company with copies of all Section 16(a) reports they file. Based solely on its review of the copies of such reports received by it and written representations that no other reports were required of those persons, the Company believes that during 1998, all filing requirements applicable to its directors and officers were complied with in a timely manner. ITEM 11. EXECUTIVE COMPENSATION - -------------------------------- Information required by this item is set forth under the captions "Election of Directors - Director Compensation" and "Executive Compensation" in the Company's definitive Proxy Statement for the 1999 Annual Meeting of Stockholders of the Company. Such information is incorporated herein by reference. 31 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF MANAGEMENT - ------------------------------------------------------------------------ Information required by this item is set forth under the caption "Voting - Principal Stockholders" in the Company's definitive Proxy Statement for the 1999 Annual Meeting of Stockholders of the Company. Such information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- Information required by this item is set forth under the caption "Certain Transactions" in the Company's definitive Proxy Statement for the 1999 Annual Meeting of Stockholders of the Company. Such information is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - -------------------------------------------------------------------------- (a) DOCUMENTS FILED AS PART OF THIS REPORT 1. Financial Statements The following financial statements of the Company and the related report of independent public accountants thereon are set forth beginning on page F-1 immediately following the signature page of this Report. Report of Independent Public Accountants Consolidated Balance Sheets as of December 31, 1998 and 1997 Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997 and 1996 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements 2. Financial Statement Schedules No financial statement schedules are required to be included in this report under the related instructions or because the information required is included in the consolidated financial statements or notes thereto. 3. Exhibits The following exhibits are filed with or incorporated by reference in this report. Where such filing is made by incorporation by reference to a previously filed registration statement or report, such registration statement or report is identified in parentheses. The Company will furnish any exhibit upon request to Terri B. Hobbs, 777 Greenbelt Parkway, Griffin, Georgia 30223. There is a charge of $.50 per page to cover expense for copying and mailing. 32 Exhibit Number Description - -------- ----------- 3.1 Amended and Restated Articles of Incorporation of the Company (Exhibit 3.1 to the Company's Registration Statement on Form S-1, No. 33-76492). 3.2 Amended and Restated Bylaws of the Company (Exhibit 3.2 to the Company's Registration Statement on Form S-1, No. 33-76492). 10.1 (a) Authorized Converter Pool Agreement dated July 10, 1990, by and between the Company and Ford Motor Company with respect to chassis purchases. (Exhibit 10.1(a) to the Company's Registration Statement on Form S-1, No. 33-76492). (b) FMCC Pool Company Wholesale Finance Plan - Application for Wholesale Financing and Security Agreement, dated June 26, 1990, by and between the Company and Ford Motor Credit Company with respect to Ford chassis financing (Exhibit 10.1(b) to the Company's Registration Statement on Form S-1, No. 33-76492). (c) Intercreditor Agreement dated June 26, 1990, by and between the Company, Ford Motor Credit Company and NationsBank of Georgia, N.A. (formerly known as The Citizens and Southern National Bank) ("NationsBank"), granting to FMCC a first priority lien on Ford chassis with respect to Ford chassis financing (Exhibit 10.1(c) to the Company's Registration Statement on Form S-1, No. 33-76492). 10.2 (a) Loan Agreement between Metrotrans Corporation and NationsBank, N.A. dated September 5, 1997 (Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q for the Quarter Ended September 28,1997). (b) Second Amendment to Loan Agreement dated as of August 21, 1998, by and between the Company and NationsBank N.A. (Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the Quarter Ended October 4, 1998). (c) Third Amendment to Loan Agreement dated as of September 15, 1998, by and between Metrotrans Corporation and NationsBank N.A. (Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the Quarter Ended October 4, 1998). (d) Fourth Amendment to Loan Agreement dated as of April 9, 1999, by and between Metrotrans Corporation and NationsBank, N.A. * 10.3 (a) Indenture of Trust dated as of December 1, 1991, between the Griffin- Spalding County Development Authority (the "Authority") and the First National Bank of Chicago, as trustee, with respect to the bond financing on the Company's manufacturing facility (Exhibit 10.5(a) to the Company's Registration Statement on Form S-1, No. 33-76492). (b) Lease Agreement dated December 1, 1991, between the Authority and EMS Properties, Inc., with respect to the Company's manufacturing facility (Exhibit 10.5(b) to the Company's Registration Statement on Form S-1, No. 33-76492). 33 (c) Assignment and Assumption of Lease dated as of January 1, 1994, by and between EMS Properties, Inc. and the Company with respect to the assignment of EMS Properties' leasehold interest to the Company (Exhibit 10.5(c) to the Company's Registration Statement on Form S-1, No. 33-76492). (d) Remarketing Agreement dated as of December 1, 1991, among the Authority, EMS Properties, Inc. and NationsBank, as Remarketing Agent, with respect to the industrial revenue bonds (Exhibit 10.5(d) to the Company's Registration Statement on Form S-1, No. 33-76492). 10.4**(a) Employment Agreement dated March 15, 1994, between D. Michael Walden and the Company (Exhibit 10.7 to the Company's Registration Statement on Form S-1, No. 33-76492). (b) Amended Employment Agreement dated as of April 1, 1998, between D. Michael Walden and the Company.* 10.5 1994 Employee Stock Incentive Plan (Exhibit 10.8 to the Company's Registration Statement on Form S-1, No. 33-76492). 10.6 1994 Directors Stock Incentive Plan (Exhibit 10.9 to the Company's Registration Statement on Form S-1, No. 33-76492). 10.7 Aircraft Lease Agreement dated December 20, 1996, between General Electric Credit Corporation and the Company (Exhibit 10.8 to the Company's Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1994). 10.8 Agreement dated August 21, 1998, among The Mayflower Corporation plc, Mayflower (U.S. Holdings), Inc., the Company, D. Michael Walden, Terri B. Hobbs, Randolph B. Stanley and M. Earl Meck (Exhibit 10 to the Company's Current Report on Form 8-K dated August 21, 1998). 10.9 Loan Agreement dated August 21, 1998, between The Mayflower Corporation plc and the Company (Exhibit 10.2 to the Company's Current Report on Form 8-K dated September 15, 1998). 10.10** Employment Agreement dated as of August 31, 1998, between Terri B. Hobbs and the Company.* 11 Computation of Earnings Per Share. * 21 Subsidiaries of the Company. * 23 Consent of Arthur Andersen LLP.* 27 Financial Data Schedule.* ______________ * Filed herewith ** The indicated exhibit is a management contract or compensatory plan. 34 (b) Reports on Form 8-K. No reports on Form 8-K have been filed by the Company during the quarter ended December 31, 1998. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized as of the 15th day of April, 1999. METROTRANS CORPORATION (Company) By/s/ Henry J. Murphy ------------------------------------ Henry J. Murphy Interim Chief Executive Officer Principal Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Company and in the capacities indicated on April 15, 1999. Chairman of the Board - ----------------------------- D. Michael Walden /s/ Patrick L. Flinn Director - ----------------------------- Patrick L. Flinn /s/ William C. Pitt III Director - ----------------------------- William C. Pitt III /s/ Terri B. Hobbs Acting President - ----------------------------- (Principal Financial and Accounting Officer) Terri B. Hobbs 35 Index of Financial Statements PAGE ---- Report of Independent Public Accountants...................... F-2 Consolidated Balance Sheets as of December 31, 1998 and 1997................................. F-3 Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997 and 1996............... F-4 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998, 1997 and 1996.............................................. F-5 Consolidated Statements of Cash Flows for the................. F-6 Years Ended December 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements.................... F-7 F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Metrotrans Corporation and Subsidiary: We have audited the accompanying consolidated balance sheets of METROTRANS CORPORATION (a Georgia corporation) AND SUBSIDIARY as of December 31, 1998 and 1997 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Metrotrans Corporation and subsidiary as of December 31, 1998 and 1997 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. Atlanta, Georgia April 14, 1999 F-2 Metrotrans Corporation and Subsidiary Consolidated Balance Sheets December 31, 1998 and 1997 (In Thousands, Except Share Amounts)
ASSETS 1998 1997 - -------------------------------------------------------- --------- --------- CURRENT ASSETS: Cash $ 0 $ 50 Accounts receivable, net of allowance for doubtful accounts of $134 and $77 in 1998 and 1997, respectively 6,047 9,151 Current portion of net investment in sales-type leases 256 877 Inventories 39,628 20,932 Refundable income taxes 2,229 0 Prepaid expenses and other 1,192 1,333 --------- --------- Total current assets 49,352 32,343 --------- --------- PROPERTY, PLANT, AND EQUIPMENT, net 8,902 6,922 --------- --------- OTHER ASSETS: Net investment in sales-type leases 130 405 Intangibles, net 502 536 Deposits and other 415 302 --------- --------- Total other assets 1,047 1,243 --------- --------- $59,301 $40,508 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997 - -------------------------------------------------------- --------- --------- current liabilities: Accounts payable and accrued expenses $24,587 $7,726 Current portion of long-term debt 2,236 1,087 Customer deposits 1,211 238 --------- --------- Total current liabilities 28,034 9,051 --------- --------- LONG-TERM DEBT, NET OF CURRENT PORTION 16,076 11,945 --------- --------- OTHER NONCURRENT LIABILITIES 300 300 --------- --------- DEFERRED INCOME TAXES 0 183 --------- --------- COMMITMENTS AND CONTINGENCIES (Note 7) STOCKHOLDERS' EQUITY: Preferred stock, no par value; 10,000,000 shares 0 0 authorized Common stock, $.01 par value; 20,000,000 shares authorized, 4,098,244 and 4,084,294 shares issued and outstanding in 1998 and 1997, respectively 41 41 Additional paid-in capital 10,673 10,577 Deferred compensation (105) (210) Retained earnings 4,282 8,621 --------- --------- 14,891 19,029 --------- --------- $59,301 $40,508 ========= =========
The accompanying notes are an integral part of these consolidated balance sheets. F-3 Metrotrans Corporation and Subsidiary Consolidated Statements Of Operations For The Years Ended December 31, 1998, 1997, and 1996 (In Thousands, Except Per Share Data)
1998 1997 1996 -------- -------- -------- NET REVENUE $ 76,114 $ 80,132 $ 77,482 COST OF SALES 69,026 66,153 62,814 -------- -------- -------- Gross profit 7,088 13,979 14,668 SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 13,568 9,823 8,477 -------- -------- -------- Operating (loss) income (6,480) 4,156 6,191 OTHER INCOME 803 0 0 INTEREST EXPENSE, NET 1,237 1,330 736 -------- -------- -------- (LOSS) INCOME BEFORE INCOME TAXES (6,914) 2,826 5,455 INCOME TAX (BENEFIT) PROVISION (2,575) 1,109 2,136 -------- -------- -------- NET (LOSS) INCOME $ (4,339) $ 1,717 $ 3,319 ======== ======== ======== (LOSS) EARNINGS PER SHARE: Basic $ (1.06) $ 0.43 $ 0.83 ======== ======== ======== Diluted $ (1.06) $ 0.42 $ 0.81 ======== ======== ======== WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 4,087 4,040 4,015 ======== ======== ======== Diluted 4,087 4,112 4,107 ======== ======== ========
The accompanying notes are an integral part of these consolidated statements. F-4 Metrotrans Corporation and Subsidiary Consolidated Statements Of Stockholders' Equity For The Years Ended December 31, 1998, 1997, and 1996 (In Thousands, Except Share Data)
Common Stock Additional ------------------ Paid-In Deferred Retained Shares Amount Capital Compensation Earnings Total --------- ------- ---------- ------------ -------- -------- BALANCE, December 31, 1995 4,076,275 $41 $10,457 $(420) $3,585 $13,663 Net income 0 0 0 0 3,319 3,319 Compensation under restricted stock award 0 0 0 105 0 105 Issuance of stock grants to employees 108 0 2 0 0 2 Exercise of stock options and related tax benefit 1,000 0 7 0 0 7 --------- --- ------- ----- ------ ------- BALANCE, December 31, 1996 4,077,383 41 10,466 (315) 6,904 17,096 Net income 0 0 0 0 1,717 1,717 Compensation under restricted stock award and related tax benefit 0 0 63 105 0 168 Issuance of stock grants to employees 36 0 1 0 0 1 Exercise of stock options and related tax benefit 6,875 0 47 0 0 47 --------- --- ------- ----- ------ ------- BALANCE, December 31, 1997 4,084,294 41 10,577 (210) 8,621 19,029 Net loss 0 0 0 0 (4,339) (4,339) Compensation under restricted stock award and related tax benefit 0 0 0 105 0 105 Exercise of stock options and related tax benefit 13,950 0 96 0 0 96 --------- --- ------- ----- ------ ------- BALANCE, December 31, 1998 4,098,244 $41 $10,673 $(105) $4,282 $14,891 ========= === ======= ===== ====== =======
The accompanying notes are an integral part of these consolidated statements. F-5 Metrotrans Corporation and Subsidiary Consolidated Statements Of Cash Flows For The Years Ended December 31, 1998, 1997, and 1996 (In Thousands)
1998 1997 1996 --------- --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ (4,339) $ 1,717 $3,319 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization 793 708 575 Deferred taxes (183) (446) 532 Bad debt expense 57 (205) 22 Compensation under restricted stock award 105 105 105 Changes in assets and liabilities, net of acquired business: Accounts receivable 3,047 1,163 1,253 Inventories (18,696) (2,716) (5,132) Refundable income taxes (2,229) 0 0 Other assets 8 (460) (108) Accounts payable and accrued expenses 16,860 500 1,053 Customer deposits 973 (314) (52) -------- -------- ------- Total adjustments 735 (1,665) (4,258) -------- -------- ------- Net cash (used in) provided by operating activities (3,604) 52 (939) -------- -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (2,718) (2,197) (1,908) Purchase of Magnum Transportation 0 (449) 0 Net decrease (increase) in property held for lease 0 64 (56) Net decrease in investment in sales-type leases 896 626 728 -------- -------- ------- Net cash used in investing activities (1,822) (1,956) (1,236) -------- -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (repayments) borrowings under line of credit (410) (7,297) 3,128 Proceeds from refinancing of debt 4,000 10,000 0 Net (decrease) increase in collateralized borrowings (80) (45) 45 Proceeds from Mayflower note payable 1,900 0 0 Payments of long-term debt (130) (774) (1,008) Net proceeds from issuance of common stock 96 48 9 Net cash provided by financing activities 5,376 1,932 2,174 -------- -------- ------- Net (decrease) increase in cash (50) 28 (1) CASH AT BEGINNING OF YEAR 50 22 23 -------- -------- ------- CASH AT END OF YEAR $ 0 $ 50 $ 22 ======== ======== ======= CASH PAID FOR INTEREST $ 1,196 $ 1,323 $ 749 ======== ======== ======= CASH PAID FOR INCOME TAXES $ 75 $ 515 $ 2,670 ======== ======== =======
The accompanying notes are an integral part of these consolidated statements. F-6 Metrotrans Corporation and Subsidiary Notes To Consolidated Financial Statements December 31, 1998, 1997, and 1996 1. ORGANIZATION AND BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of Metrotrans Corporation and its wholly owned subsidiary (the "Company"). All significant intercompany transactions and accounts have been eliminated in consolidation. The Company manufactures and sells shuttle and midsize touring buses and distributes buses constructed by a foreign vendor. The Company markets its products in the United States, primarily through Company-operated sales centers and accepts trade-in vehicles of its own and other brands. Production of vehicles is generally not commenced until such time the customer has signed a sales contract and made a deposit, or agreed to the value of a trade-in vehicle. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Presentation The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition Revenue from bus sales is recognized upon shipment to the customer. Customer deposits for partial payment of vehicles are deferred and treated as current liabilities until the vehicles are shipped and recognized as revenue. Warranties The Company offers a 13-month unlimited mileage warranty (excluding the chassis, engine, drivetrain, tires and certain other items covered by the manufacturer's standard warranty) on all new vehicles and service plans that extend limited coverage for longer periods. The Company accrues a liability for its warranty coverage based on historical experience. F-7 Inventories Chassis inventories are valued at cost. Units taken in trade are valued on a specific identification basis and do not exceed estimated realizable value. Inventories of conversion materials and supplies and work in process are valued at the lower of average cost or market on a first-in, first-out basis. Inventories as of December 31, 1998 and 1997 consist of the following (in thousands):
1998 1997 --------- -------- Chassis awaiting conversion $ 3,958 $ 3,437 Raw materials 6,061 4,549 Work in process 2,937 1,524 Finished goods 19,888 6,287 Used vehicles 6,784 5,135 --------- ---------- $ 39,628 $ 20,932 ========= ==========
During the fourth quarter of 1998, the Company increased its reserve against the carrying value of its used vehicles by $1,429,000. This adjustment was required due to a number of factors including market conditions, a substantial increase in buses purchased under the Company's lease guarantees (Note 7), and the Company's desire to substantially reduce its investment in used vehicles. Property, Plant, and Equipment Property, plant, and equipment are stated at cost, less accumulated depreciation. Depreciation is provided using the straight-line method over the assets' estimated useful lives of 3 to 7 years, except for buildings, which have estimated useful lives of 30 years. The detail of property, plant, and equipment as of December 31, 1998 and 1997 is as follows (in thousands):
1998 1997 --------- -------- Land $ 1,283 $ 1,031 Buildings 3,910 3,891 Property held for lease 357 569 Machinery and equipment 2,894 1,958 Furniture and fixtures 437 581 Construction in progress 1,854 506 --------- ---------- 10,735 8,536 Less accumulated depreciation (1,833) (1,614) --------- ---------- $ 8,902 $ 6,922 ========= ==========
F-8 Intangibles Intangibles consist of goodwill and a noncompete agreement related to the Company's acquisition of Magnum Transportation. Intangibles are being amortized over periods ranging from 10 to 40 years. Accounts Payable Accounts payable include book overdrafts created by outstanding checks. At December 31, 1998 and 1997, the book overdrafts totaled $2,790,000 and $382,000, respectively. (Loss) Earnings Per Share The Company calculates and presents earnings per share in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." Basic earnings per share is based on the weighted average number of shares outstanding. Diluted earnings per share is based on the weighted average number of shares outstanding and the dilutive effect of outstanding stock options and unvested restricted stock. For the year ended December 31, 1998, outstanding options of 327,000 have been excluded from diluted weighted average shares outstanding, as their impact was antidilutive. For the years ended December 31, 1997 and 1996, outstanding options of 96,500, and 15,000, respectively, have been excluded from diluted weighted average shares outstanding as the exercise price exceeded the average stock price and thus, their impact was antidilutive. Concentrations of Credit Risk Concentrations of credit risk with respect to trade receivables are limited due to the wide variety of customers and markets for which the Company's products are provided, as well as their dispersion across many different geographic areas. As a result, as of December 31, 1998, the Company does not consider itself to have any significant concentrations of credit risk. Financial Instruments The book values of cash, trade accounts receivable, and trade accounts payable approximate their fair values principally because of the short-term maturities of these instruments. The fair value of the Company's long-term debt is estimated based on the current rates offered to the Company for debt of similar terms and maturities. Under this method, the Company's fair value of long-term debt was not significantly different than the stated value as of December 31, 1998. The Company enters into foreign exchange forward contracts to hedge the foreign currency exposure of certain payables and purchases. These contracts are for periods consistent with the exposure being hedged and have maturities of one year or less. Gains and losses on foreign exchange forward contracts are deferred and recognized in income in the same period as the hedged transaction. The Company's foreign exchange forward contracts do not subject the Company's results of operations to risk from exchange rate fluctuations because gains and losses F-9 on these contracts generally offset gains and losses on the exposure being hedged. The Company does not enter into any foreign exchange forward contracts for speculative trading purposes. At December 31, 1998 and 1997, the Company had foreign exchange forward contracts with gross notional amounts of $2,471,000 and $0, respectively. The deferred gains or losses from these contracts were not material at December 31, 1998 and 1997. The notional amounts of foreign exchange forward contracts do not represent amounts exchanged by the parties and therefore are not a measure of the Company's risk. The amounts exchanged are calculated on the basis of the notional amounts and other terms of the foreign exchange hedging contracts. The credit and market risks under these contracts are not considered to be significant. Long-Lived Assets The Company periodically reviews the values assigned to long-lived assets, such as property and equipment and intangibles, to determine whether any impairments are other than temporary. Management believes that the long-lived assets in the accompanying balance sheets are appropriately valued. Comprehensive Income In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 30, "Reporting Comprehensive Income," effective for fiscal years beginning after December 15, 1997. The Company has adopted the new pronouncement, which establishes new rules for the reporting and display of comprehensive income and its components; however, the Company has no other comprehensive income items as defined in SFAS No. 130. Recent Accounting Pronouncements In June 1998, the FASB issued SFAS No. 133, "Accounting Derivative Instruments and Hedging Activities," which established accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value, and changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The Company plans to adopt SFAS No. 133 in the first quarter of fiscal 2000. Management does not believe the adoption of this statement will have a material effect on the consolidated financial statements of the Company. 3. PRODUCT LEASES The Company leases its products to customers under various arrangements, with the leases recorded as either operating or sales-type leases, depending on the terms of the lease. For operating leases, rental revenue is recognized over the life of the lease, and the related equipment is depreciated over its estimated useful life. Net revenues recognized under operating leases during 1998, 1997, and 1996 were $459,000, $330,000, and $232,000, respectively. For sales-type leases, the discounted present value of lease revenues is F-10 recorded as sales, with related equipment cost (net of the discounted present value of any residual value) recorded as cost of sales. Financing income applicable to these leases is recognized over the life of the lease using the effective interest method. Net revenues recognized under sales- type leases during 1998, 1997, and 1996 were $0, $1,479,000, and $343,000, respectively. The components of the investment in sales-type leases as of December 31, 1998 and 1997 are as follows (in thousands):
1998 1997 ------ ------ Total minimum lease payments receivable $395 $1,335 Less unearned income 9 53 ---- ------ Net investment 386 1,282 Less current portion 256 877 ---- ------ $130 $ 405 ==== ======
Minimum lease payments receivable as of December 31, 1998 are as follows: Sales-Type Leases ---------- 1999 $262 2000 77 2001 11 2002 45 ---- $395 ==== 4. MAYFLOWER INVESTMENT In September 1998, the Mayflower Corporation ("Mayflower") purchased a total of 1,650,000 shares of the Company's common stock at a price of $15 per share from two nonmanagement directors of the Company. As a result of this transaction, Mayflower acquired 40.4% of the Company's outstanding common stock. In connection therewith, Mayflower agreed to loan up to $15,000,000 to the Company for a term of five years (Note 5) and to provide technical services to the Company. During 1998, the Company was invoiced approximately $114,000 related to technical services provided by Mayflower. In March 1999, the Company filed a lawsuit against Mayflower. The suit seeks compensatory damages in excess of $4,682,000, punitive damages, and specific performance under two agreements entered into in connection with the investment. The Company's complaint is based in part on the contention that Mayflower has refused to fund additional loans to the Company under the $15,000,000 loan agreement (Note 5) or to pay a fee related to certain performance by the Company. Mayflower has not yet answered the complaint. F-11 5. LONG-TERM DEBT The Company's long-term debt as of December 31, 1998 and 1997 consists of the following (in thousands): 1998 1997 ------- ------- Revolving credit facility, payable December 2000; interest payable monthly at prime (7.75% at December 31, 1998) or LIBOR plus a margin of .75% to 1.25%, depending on the Company's leverage ratio, as defined (7.1% at December 31, 1998), unsecured $14,486 $10,000 Industrial development revenue ("IDR") bonds, payable through quarterly mandatory sinking fund redemption payments varying from $15 to $40 from June 1992 through 2011; interest payable monthly at variable rates, as defined in the agreement, secured by real estate 1,540 1,620 Note payable to Mayflower, interest payable monthly at the rate of the revolving credit facility plus .50% (7.6% at December 31, 1998), principal due in full August 2003, unsecured 1,900 0 Notes payable to leasing companies for products sold under sales-type leases, secured by the leased equipment and customer notes receivable, payable in varying monthly installments, bearing interest at rates approximating 8% through 1999 63 349 Notes payable to leasing companies for products sold under sales-type leases, secured by the leased equipment, payable at the end of each lease through 2000, including interest at various rates approximating 8% 323 933 Note payable to a bank, bearing interest at prime plus 1% (9.5% at December 31, 1997), payable monthly, unpaid interest and principal, secured by property located in Orlando, Florida, paid in full August 1998 0 130 --------- -------- 18,312 13,032 Less amount due within one year 2,236 1,087 --------- -------- $16,076 $11,945 ========= ========
During May 1998, the Company restructured its revolving credit facility. The new facility provides for maximum borrowings of $20,000,000, of which $14,486,000 was outstanding F-12 at December 31, 1998 and $5,514,000 was available for future borrowings. The facility requires the Company to maintain certain financial ratio covenants, as defined. At December 31, 1998, the Company was not in compliance with certain financial covenants contained in its unsecured credit facility. However, in April 1999, the lender waived all defaults, amended the financial ratio covenants, increased the aggregate commitment, through December 31, 1999, to $23 million, and obtained a security interest in substantially all the Company's assets. The amended agreement matures May 31, 2000 and requires the Company to maintain certain financial covenants related to inventory levels, tangible net worth and net income (loss). The Company expects to comply with the revised covenants throughout fiscal 1999. Under the amended agreement, the Company has agreed that it will not make any payments on or with respect to the Mayflower debt agreement (see below). The IDR bonds were issued in December 1991, with a face value of $2,000,000. The proceeds were used in 1991 and 1992 to fund the construction of a new manufacturing facility. The rate on the IDR bonds (average rate of 3.8% in 1998) may vary as frequently as every seven days to maintain a rate on the IDR bonds necessary to retain a market value approximating par value. At the Company's option, the interest rate on the IDR bonds can be fixed at the minimum rate necessary to retain a market value approximating par value. In connection with the Mayflower investment, Mayflower agreed to loan up to $15,000,000 to the Company for a term of five years, of which $1,900,000 was outstanding as of December 31, 1998. The agreement contains similar default provisions as those contained in the revolving credit facility. Accordingly, at December 31, 1998, the Company was in default of the agreement and all amounts outstanding have been classified as current liabilities in the accompanying balance sheet. Upon the occurrence of certain events, as defined (none of which had occurred at December 31, 1998), Mayflower may convert amounts outstanding under the agreement into shares of common stock. Future maturities of long-term debt as of December 31, 1998 are as follows (in thousands): 1999 $ 2,236 2000 14,646 2001 111 2002 144 2003 and thereafter 1,175 ------- $18,312 ======= F-13 6. INCOME TAXES The provision for income taxes consists of the following (in thousands):
1998 1997 1996 -------- ------- -------- Current taxes: Federal $(2,285) $1,509 $1,417 State (269) 199 187 Deferred (21) (599) 532 ------- ------ ------ $(2,575) $1,109 $2,136 ======= ====== ======
The differences between the federal statutory income tax rate and the Company's effective tax rate were:
1998 1997 1996 -------- -------- -------- Federal statutory rate (34.0)% 34.0% 34.0% State income taxes, net of federal tax benefit (4.0) 4.5 4.5 Other, net 0.6 0.7 0.7 ----- ---- ---- (37.2)% 39.2% 39.2% ===== ==== ====
Components of the net deferred tax asset (liability) as of December 31, 1998 and 1997 are as follows (in thousands):
1998 1997 ------ ------- Deferred tax liabilities: Revenue recognition $(145) $(443) Leasing activities (119) 0 ----- ----- Total deferred tax liabilities (264) (443) ----- ----- Deferred tax assets: Inventories 369 234 Leasing activities 0 260 Liabilities not currently deductible 289 406 Allowance for doubtful accounts 129 45 ----- ----- Total deferred tax assets 787 945 ----- ----- Net deferred tax asset (liability) $ 523 $ 502 ===== =====
7. COMMITMENTS AND CONTINGENCIES Suppliers The Company has a supply agreement with a major motor-vehicle chassis manufacturer. Under the agreement, the Company is shipped chassis on consignment and is obligated to pay interest at prime on consigned chassis during any portion of the consignment period which extends beyond 90 days. The consignment period is the period from delivery of the F-14 chassis to the date the chassis is placed in production by the Company. During the consignment period, the vehicle manufacturer retains title to the chassis and has the right to redistribute the chassis to its other customers. Similarly, the Company has the right to return the chassis within the consignment period and must make full payment at the end of the consignment period if it desires to retain the chassis. At December 31, 1998, chassis on hand accounted for as consigned inventory was approximately $4,259,000. Interest paid on consigned chassis amounted to $88,000, $531,000, and $339,000 in 1998, 1997, and 1996, respectively. The Company currently purchases all of its chassis, including the engine and drivetrain, from three major suppliers. Although the Company believes other sources for these components are available, any significant interruption or delay in the supply of chassis from the three suppliers could have a material adverse effect on the financial condition and results of operations of the Company. Leases As discussed in Note 3, 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 agreements with a financial institution 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 by the customers or certain other defined conditions. When notified of a lessee default, the Company has the option of honoring its guarantee (which is generally less than the debt obligation) or purchasing the buses for the outstanding debt obligation. During 1998 and 1997, the Company purchased buses totaling $4,714,000 and $1,900,000, respectively related to the above guarantees and in 1996 purchased an insignificant amount of buses. As of December 31, 1998, approximately $2,444,000 of the repossessed buses remained in used vehicle inventory. Due to the significant increase in the amount of repossessed used vehicles, the Company may be required to sell the vehicles below their repurchase price. As noted in Note 2, during the fourth quarter of 1998 the Company recorded a reduction in the carrying value of used vehicles, of which $642,000 related to repossessed vehicles. As of December 31, 1998, the Company's aggregate potential liability under the above arrangements was $15,033,000. In the opinion of management, the Company's obligation under the above arrangements will not have a material adverse impact on the Company's financial position or results of operations. The Company leases certain office space and equipment under operating leases. Future minimum lease payments under these agreements as of December31, 1998 are as follows (in thousands): F-15 1999 $ 402 2000 278 2001 196 2002 153 2003 24 ------ $1,053 ====== Rental expense for 1998, 1997, and 1996 totaled $740,000, $710,000, and $287,000, respectively. In November 1998 the Company sold its operating lease obligation associated with an airplane. In connection therewith, the Company recorded a gain of $803,000, which has been classified as other income in the accompanying statement of operations. Litigation In November 1998, the Company gave notice of termination of employment of its President and Chief Operating Officer. In December 1998, the former officer filed a complaint against the Company seeking damages of $375,000 for wrongful termination. The Company is involved in certain other 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. Employee Benefit Plan The Company has a 401(k) profit-sharing plan (the "Plan") available to all employees of the Company who have completed six months of service and have attained age 21. The Plan includes a salary deferral arrangement pursuant to which employees may contribute a maximum of 15% of their salary on a pretax basis. The Company may make both matching and additional contributions at the discretion of the Company's board of directors. During 1998, 1997, and 1996 the Company made contributions of $187,000, $130,000, and $129,000, respectively to the Plan. 8. STOCKHOLDERS' EQUITY Preferred Stock The board of directors has authorized 10,000,000 shares of preferred stock with no par value. The board of directors has the authority to issue these preferred shares and to fix dividends, voting and conversion rights, redemption provisions, liquidation preferences, and other rights and restrictions. Incentive Stock Plans In March 1994, the Company adopted long-term incentive plans which allow the issuance of grants or awards of incentive stock options, nonqualified stock options, and restricted F-16 stock to employees and directors of the Company to acquire up to 601,500 shares of the Company's common stock. Options generally become exercisable over three to four years and expire ten years after the date of grant. At December 31, 1998, 254,675 shares were reserved for future grants under the incentive plans. During 1998 and 1997, the Company issued 0 and 5,000, respectively, nonqualified stock options outside of the above incentive plans. The options were issued at fair market value at the date of grant and become exercisable over three to four years. Stock option activity during each of the three years ended December 31, 1998 is summarized as follows:
Weighted Number Average of Exercise Shares Price ---------- ---------- Outstanding at December 31, 1995 197,000 $ 7.28 Granted 141,000 13.46 Exercised 0 0.00 Canceled (16,000) 7.41 ---------- Outstanding at December 31, 1996 322,000 10.33 Granted 147,000 10.05 Exercised (6,875) 6.89 Canceled (76,125) 10.87 ---------- Outstanding at December 31, 1997 386,000 9.85 Granted 0 0.00 Exercised (13,950) 6.88 Canceled (45,050) 10.16 ---------- Outstanding at December 31, 1998 327,000 8.51 ========== Exercisable at December 31, 1998 161,375 9.43 ==========
The weighted average remaining life of the options outstanding at December 31, 1998 was 7.7 years. In February 1995, the Company awarded 50,000 shares of restricted stock under the plans to each of two employees. Each of these grants vests 2,500 shares upon grant, with the remaining 47,500 shares vesting 2,500 per quarter through 1999. Unearned compensation of $525,000 was charged on the date of the grant, which represented the market value on such date, and is being amortized to expense over the vesting period. The Company accounts for the stock option plans under Accounting Principles Board ("APB") Opinion No. 25, which requires compensation costs to be recognized only when the option price differs from the market price at the grant date. SFAS No. 123 "Accounting for Stock-Based Compensation," allows a company to follow APB Opinion No. 25 with additional disclosure that shows what the Company's net income and earnings per share would have been using the compensation model under SFAS No. 123. F-17 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions used for grants in 1997 and 1996:
1997 1996 -------- ------- Risk-free interest rate 5.8% 6.4% Expected dividend yield 0.0% 0.0% Expected lives Six years Six years Expected volatility 51.0% 45.0%
The total values of the options granted during the years ended December 31, 1998, 1997, and 1996 were computed as approximately $0, $661,000, and $808,000, respectively, which would be amortized over the vesting period of the options. If the Company had accounted for these plans in accordance with SFAS No. 123, the Company's net (loss) income and net (loss) income per share would have been reduced to the following pro forma amounts:
1998 1997 1996 ---------- --------- -------- Net (loss) income: As reported $(4,339) $1,717 $3,319 Pro forma (4,658) 1,478 3,167 Basic (loss) earnings per share: As reported $ (1.06) $ 0.43 $ 0.83 Pro forma (1.14) 0.37 0.79 Diluted (loss) earnings per share: As reported $ (1.06) $ 0.42 $ 0.81 Pro forma (1.14) 0.36 0.77
9. ACQUISTION In October 1997, the Company purchased substantially all of the assets of J.D. Dunn, Inc. d/b/a Magnum Transportation for $427,000 in cash and $450,000 in seller obligations. The seller obligations are payable in three payments of $150,000. The first payment in January 1998 was payable in cash. The second and third payments are payable in the form of common stock in January 1999 and January 2000, respectively, and have been included in other noncurrent liabilities in the accompanying consolidated balance sheets. Total consideration, including transaction costs of $22,000, was $899,000. The transaction was accounted for as a purchase. The excess of purchase price over the fair value of net assets purchased of $536,000 was allocated to goodwill and a noncompete agreement. 10. BUSINESS SEGMENT INFORMATION The Company operates in one business segment, the manufacturing and selling of shuttle and midsize touring buses. The Company accepts trade-in vehicles of its own and other brands. The Company distributes new vehicles through Company owned dealers. Used F-18 buses are sold through the Company's wholly owned subsidiary, Bus Pro. The Company has no significant long-lived assets located outside the United States. Revenues by product grouping are as follows: 1998 1997 1996 ------- ------- ------- New vehicles $61,196 $67,698 $70,082 Used vehicles 10,242 8,939 6,015 Parts and other 4,676 3,495 1,385 -------- ------- ------- Total $76,114 $80,132 $77,482 ======== ======= =======
F-19 INDEX OF EXHIBITS Exhibit Number Description - -------- ----------- 3.1 Amended and Restated Articles of Incorporation of the Company (Exhibit 3.1 to the Company's Registration Statement on Form S-1, No. 33-76492). 3.2 Amended and Restated Bylaws of the Company (Exhibit 3.2 to the Company's Registration Statement on Form S-1, No. 33-76492). 10.1 (a) Authorized Converter Pool Agreement dated July 10, 1990, by and between the Company and Ford Motor Company with respect to chassis purchases. (Exhibit 10.1(a) to the Company's Registration Statement on Form S-1, No. 33-76492). (b) FMCC Pool Company Wholesale Finance Plan - Application for Wholesale Financing and Security Agreement, dated June 26, 1990, by and between the Company and Ford Motor Credit Company with respect to Ford chassis financing (Exhibit 10.1(b) to the Company's Registration Statement on Form S-1, No. 33-76492). (c) Intercreditor Agreement dated June 26, 1990, by and between the Company, Ford Motor Credit Company and NationsBank of Georgia, N.A. (formerly known as The Citizens and Southern National Bank) ("NationsBank"), granting to FMCC a first priority lien on Ford chassis with respect to Ford chassis financing (Exhibit 10.1(c) to the Company's Registration Statement on Form S-1, No. 33-76492). 10.2 (a) Loan Agreement between Metrotrans Corporation and NationsBank, N.A. dated September 5, 1997 (Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q for the Quarter Ended September 28,1997). (b) Second Amendment to Loan Agreement dated as of August 21, 1998, by and between the Company and NationsBank N.A. (Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the Quarter Ended October 4, 1998). (c) Third Amendment to Loan Agreement dated as of September 15, 1998, by and between Metrotrans Corporation and NationsBank N.A. (Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the Quarter Ended October 4, 1998). (d) Fourth Amendment to Loan Agreement dated as of April 9, 1999, by and between Metrotrans Corporation and NationsBank, N.A. * 10.3 (a) Indenture of Trust dated as of December 1, 1991, between the Griffin- Spalding County Development Authority (the "Authority") and the First National Bank of Chicago, as trustee, with respect to the bond financing on the Company's manufacturing facility (Exhibit 10.5(a) to the Company's Registration Statement on Form S-1, No. 33-76492). 36 (c) Lease Agreement dated December 1, 1991, between the Authority and EMS Properties, Inc., with respect to the Company's manufacturing facility (Exhibit 10.5(b) to the Company's Registration Statement on Form S-1, No. 33-76492). (c) Assignment and Assumption of Lease dated as of January 1, 1994, by and between EMS Properties, Inc. and the Company with respect to the assignment of EMS Properties' leasehold interest to the Company (Exhibit 10.5(c) to the Company's Registration Statement on Form S-1, No. 33-76492). (d) Remarketing Agreement dated as of December 1, 1991, among the Authority, EMS Properties, Inc. and NationsBank, as Remarketing Agent, with respect to the industrial revenue bonds (Exhibit 10.5(d) to the Company's Registration Statement on Form S-1, No. 33-76492). 10.4** (a) Employment Agreement dated March 15, 1994, between D. Michael Walden and the Company (Exhibit 10.7 to the Company's Registration Statement on Form S-1, No. 33-76492). (b) Amended Employment Agreement dated as of April 1, 1998, between D. Michael Walden and the Company.* 10.5 1994 Employee Stock Incentive Plan (Exhibit 10.8 to the Company's Registration Statement on Form S-1, No. 33-76492). 10.6 1994 Directors Stock Incentive Plan (Exhibit 10.9 to the Company's Registration Statement on Form S-1, No. 33-76492). 10.7 Aircraft Lease Agreement dated December 20, 1996, between General Electric Credit Corporation and the Company (Exhibit 10.8 to the Company's Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1994). 10.8 Agreement dated August 21, 1998, among The Mayflower Corporation plc, Mayflower (U.S. Holdings), Inc., the Company, D. Michael Walden, Terri B. Hobbs, Randolph B. Stanley and M. Earl Meck (Exhibit 10 to the Company's Current Report on Form 8-K dated August 21, 1998). 10.9 Loan Agreement dated August 21, 1998, between The Mayflower Corporation plc and the Company (Exhibit 10.2 to the Company's Current Report on Form 8-K dated September 15, 1998). 10.10** Employment Agreement dated as of August 31, 1998, between Terri B. Hobbs and the Company.* 11 Computation of Earnings Per Share. * 21 Subsidiaries of the Company. * 23 Consent of Arthur Andersen LLP.* 37 27 Financial Data Schedule.* ______________ * Filed herewith ** The indicated exhibit is a management contract or compensatory plan. 38 EX-10.2(D) 2 FOURTH AMENDMENT TO LOAN AGREEMENT FOURTH AMENDMENT TO LOAN AGREEMENT This FOURTH AMENDMENT TO LOAN AGREEMENT (this "Amendment") is made and entered into as of the 12th day of April, 1999, between 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, certain Events of Default exist under the Loan Agreement and the other Loan Documents; and WHEREAS, the Borrower has requested that the Lender waive such Events of Default and increase the Commitment under the Loan Agreement; and WHEREAS, in consideration of such waiver and such increase in the Commitment, the Borrower has agreed to grant to the Lender a lien on and security interest in all assets, real and personal, of the Borrower. 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 Borrower hereby acknowledges that it has failed to comply with Sections 6.1, 7.9, 7.10 and 7.12 of the Loan Agreement. The Lender waives any Event of Default arising from such noncompliance with the foregoing provisions of the Loan Agreement (the "Specified Defaults"). Such waiver shall not apply to any other Default or Event of Default under the Loan Agreement or any of the other Loan Documents, whether now existing or hereafter arising, it being understood that the Lender is hereby retaining all of its rights and remedies under the Loan Agreement and the other Loan Documents with respect to any Default or Event of Default other than the Specified Defaults. The Borrower also acknowledges that such waiver by the Lender has not created and does not create any course of dealing between the Borrower and the Lender or any obligation on the part of the Lender with respect to any future restructuring or modification of the Loan Agreement or any of the other Loan Documents, or any future or additional fundings or extensions of credit by the Lender thereunder. Other than the Specified Defaults, the Lender is aware of no other Events of Default under the Loan Agreement. 3. The Loan Agreement is hereby amended as follows: (a) Insert the following definitions of "Account Debtor", "Amended and Restated Note", "Collateral", "Inventory", "Inventory Value", "Lockbox", "Lockbox Agreement", "Mortgages", "Pledge Agreement", "Receivables", "Trademark Assignments", "Security Agreements" and "Uniform Commercial Code" in SECTION 1.1 in appropriate alphabetical order as follows: "Account Debtor" shall mean a Person who is obligated on a -------------- Receivable. "Amended and Restated Note" shall mean that certain promissory -------------------- ---- note dated as of April __, 1999 in the original principal amount of Twenty-Three Million Dollars ($23,000,000) issued to the Lender by the Borrower, in form and substance acceptable to the Lender, and any other notes executed and delivered by the Borrower to the Lender with respect to the Loans, and any amendments, renewals or extensions of the foregoing. "Collateral" shall have the meaning ascribed to such term in the ---------- Security Agreements, and shall include, without limitation, all Inventory and Receivables of the Borrower and its Subsidiaries, and all proceeds thereof. "Inventory" shall mean all inventory of the Borrower and its --------- Subsidiaries as such term is defined in the Uniform Commercial Code and shall include, without limitation, (a) all goods intended for sale or lease by the Borrower or any of its Subsidiaries, or for display or demonstration, and other products intended for sale by the Borrower or any of its Subsidiaries to its customers, (b) all work in process, (c) all raw materials and other materials and supplies of every nature and description used or which might be used in connection with the manufacture, packing, shipping, advertising, selling, leasing or furnishing of such goods or otherwise used or consumed in the Borrower's business, and (d) all documents evidencing and general intangibles relating to any of the foregoing. "Inventory Value" shall mean the value of the Inventory of the --------------- Borrower and its Subsidiaries, calculated in accordance with GAAP consistently applied. "Lockbox" shall mean the U.S. Post Office Box established with ------- the Lender for the receipt of payments relating to or constituting proceeds of the Receivables of the Borrower and its Subsidiaries or of any other Collateral. -2- "Lockbox Agreement" shall mean that certain Lockbox Agreement by ----------------- and between the Borrower and the Lender, in form and substance satisfactory to the Lender, concerning the collection of payments which represent the proceeds of the Receivables of the Borrower or any of its Subsidiaries or any other Collateral. "Mortgages" shall mean any and all of the mortgages, leasehold --------- mortgages, deeds of trust, deeds to secure debt, assignments and other instruments executed and delivered by the Borrower or any of its Subsidiaries to or for the benefit of the Lender by which the Lender acquires a Lien on all of the Borrower's or such Subsidiary's real estate or a collateral assignment of the Borrower's or any of its Subsidiaries' interest under leases of real estate, and all amendments, modifications and supplements thereto. "Pledge Agreement" shall mean the Stock Pledge Agreement pursuant ---------------- to which the Borrower grants to the Lender a first priority security interest in all of the capital stock of each Subsidiary of the Borrower, as the same may be amended, modified or supplemented from time to time. "Receivables" shall mean (a) any and all rights to the payment of ----------- money or other forms of consideration of any kind (whether classified under the Uniform Commercial Code as accounts, contract rights, chattel paper, general intangibles, or otherwise) including, but not limited to, accounts receivable, letters of credit and the right to receive payment thereunder, chattel paper, tax refunds, insurance proceeds, contract rights, notes, drafts, instruments, documents, acceptances, and all other debts, obligations and liabilities in whatever form from any Person, (b) all guarantees, security and liens for payment thereof, (c) all goods, whether now owned or hereafter acquired, and whether sold, delivered, undelivered, in transit or returned, which may be represented by, or the sale or lease of which may have given rise to, any such right to payment or other debt, obligation or liability, and (d) all proceeds of any of the foregoing. "Security Agreements" shall mean those certain Security ------------------- Agreements by the Borrower and each of its Subsidiaries, respectively, in favor of the Lender, as the same may be amended, modified or supplemented from time to time, pursuant to which the Borrower and each such Subsidiary grant to the Lender a first- priority Lien on and security interest in all personal property of the Borrower and each such Subsidiary. "Trademark Assignments" shall mean those certain Conditional --------------------- Assignment and Trademark Security Agreements executed by the Borrower and each of its Subsidiaries, respectively, in favor of the Lender, -3- as the same may be amended, modified or supplemented from time to time. "Uniform Commercial Code" shall mean the Uniform Commercial Code ----------------------- as in effect from time to time in the State of Georgia. (b) Delete the definitions of "Commitment", "Default Rate", "Maturity Date", "Note", "Obligations", "Prime Rate Basis", "Restricted Payment" and "Security Documents" set forth in SECTION 1.1 and replace them with the following: "Commitment" shall mean, subject to the mandatory reductions set ---------- forth in Section 2.5, the obligation of the Lender to make Advances to, or issue Letters of Credit on behalf of, the Borrower from time to time, pursuant to the terms hereof in the aggregate amount outstanding of Twenty-Three Million Dollars ($23,000,000). "Default Rate" shall mean the rate of interest otherwise in ------------ effect under this Agreement plus three (3) percentage points. "Maturity Date" shall mean May 31, 2000, or such earlier date as ------------- payment of the remaining outstanding principal amount of the Loans or of all remaining outstanding Obligations shall be due (whether by acceleration or otherwise). "Obligations" shall mean (a) all payment and performance ----------- obligations of every kind, nature and description of the Borrower, its Subsidiaries and any other obligors to the Lender under this Agreement and the other Loan Documents (including any interest, fees and other charges on the Loans or otherwise under the Loan Documents that would accrue but for the filing of a bankruptcy action with respect to the Borrower or any of its Subsidiaries or any other such obligor, whether or not such claim is allowed in such bankruptcy action), as they may be amended from time to time, or as a result of making the Loans, whether such obligations are direct or indirect, absolute or contingent, due or not due, contractual or tortious, liquidated or unliquidated, arising by operation of law or otherwise, now existing or hereafter arising; (b) the obligation to pay an amount equal to the amount of any and all damage which the Lender may suffer by reason of a breach by the Borrower, any of its Subsidiaries, or any other obligor, of any obligation, covenant or undertaking with respect to this Agreement or any other Loan Document; (c) any obligation to the Lender in respect of the Letters of Credit; (d) all indebtedness, liabilities, obligations, covenants and duties of the Borrower or any of its Subsidiaries to the Lender of any kind, nature and description arising under or in respect of checking and operating account relationships between the Borrower or any of its Subsidiaries and the -4- Lender; and (e) all other indebtedness, liabilities, obligations, covenants and duties of the Borrower or any of its Subsidiaries to the Lender or any Affiliate of the Lender of any kind, nature and description. "Prime Rate Basis" shall mean a simple rate of interest equal to: ---------------- (a) through and including August 31, 1999, (i) with respect to the first Twenty Million Dollars ($20,000,000) of Obligations outstanding, the Prime Rate; and (ii) with respect to all outstanding Obligations in excess of Twenty Million Dollars ($20,000,000), the Prime Rate plus two percent (2%); and (b) from September 1, 1999 and thereafter, the Prime Rate plus two percent (2%). "Restricted Payment" shall mean (a) any direct or indirect ------------------ distribution, dividend, or other payment to any Person on account of any shares of capital stock or other securities of the Borrower (other than dividends payable solely in shares of the Borrower's capital stock), and (b) any payment of management, consulting or similar fees payable by the Borrower to any Person who is an Affiliate of the Borrower. "Security Documents" shall mean the Security Agreements, the ------------------ Mortgages, each Subsidiary Guaranty, the Trademark Assignments, the Pledge Agreement, all Uniform Commercial Code financing statements, the Lockbox Agreement, and each other writing executed and delivered by the Borrower or any other Person securing the Obligations. (c) Delete SECTION 2.4 in its entirety. (d) Delete SECTION 2.5 in its entirety and insert a new SECTION 2.5 as follows: Section 2.5 Reduction of Commitment. ----------------------- (a) On August 18, 1999, November 17, 1999, April 1, 2000, and May 16, 2000, the Commitment shall automatically reduce in an amount equal to thirty percent (30%) of the decrease in the Inventory Value for the Borrower's fiscal quarter most recently ended from the Inventory Value for the immediately preceding fiscal quarter. In addition to and without limiting the foregoing, the Commitment shall automatically reduce to Twenty Million Dollars ($20,000,000) on December 31, 1999. On each of the dates set forth in this Section 2.5(a), the Borrower shall pay the amount necessary to reduce the amount of the Loans outstanding under the Commitment to not more than the amount of the Commitment as so reduced, together with accrued interest on the amounts so repaid. (b) Without limiting the mandatory reductions set forth in Section 2.5(a), the Borrower shall have the right, at any time and from time -5- to time prior to the Maturity Date, upon at least thirty (30) days' prior irrevocable, written notice to the Lender, to cancel or reduce permanently all or a portion of the Commitment, provided that any such partial reduction shall be made in increments of not less than $500,000. As of the date of cancellation or reduction set forth in such notice, the Commitment shall be permanently reduced to the amount stated in the Borrower's notice for all purposes herein, and the Borrower shall pay the amount necessary to reduce the amount of the Loans outstanding under the Commitment to not more than the amount of the Commitment as so reduced, together with accrued interest on the amounts so prepaid. (e) Insert a new SECTION 2.9(E) as follows: (e) The Borrower will cause all moneys, checks, notes, drafts and other payments relating to or constituting proceeds of Receivables of the Borrower or any of its Subsidiaries, or of any other Collateral, to be forwarded to a Lockbox, and in particular the Borrower will (i) advise each Account Debtor with respect to sales made on credit to address all remittances with respect to amounts payable on account of any Receivables to the Lockbox, and (ii) cause all invoices relating to any such amounts to indicate that payment is to be made to the Borrower via the Lockbox at Post Office Box 281833, Atlanta, Georgia 30384-1833. So long as no Event of Default exists and is continuing, the funds on deposit with the Lender in the Lockbox Account (as such term is defined in the Lockbox Agreement) shall be subject to the Borrower's control. Any moneys, checks, notes, drafts or other payments referred to in this SECTION 2.9(E) which are received by or on behalf of the Borrower or any of its Subsidiaries will be held in trust for the Lender and will be delivered to the Lender as promptly as possible in the exact form received, together with any necessary endorsements. (f) Delete SECTION 4.1(R) in its entirety. (g) Delete the last sentence of SECTION 4.1(U) and replace it with the following: All of the tangible personal property of the Borrower and its Subsidiaries, other than mobile goods, is located as specified in Schedule 5. ---------- (h) Insert a new SECTION 4.1(BB) as follows: (bb) Year 2000 Compliance. The Borrower has (a) initiated a review and--------------------assessment of all areas within its and each of its Subsidiaries' business and operations (including those affected by suppliers, vendors and customers) that could be adversely affected by the "Year 2000 Problem" (that is, the risk that computer applications used by the Borrower -6- or any of its Subsidiaries (or suppliers, vendors and customers) may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999), (b) developed a plan and timeline for addressing the Year 2000 Problem on a timely basis, and (c) to date, implemented that plan substantially in accordance with that timetable. Based on the foregoing, the Borrower believes that all computer applications (including those of its suppliers, vendors and customers) that are material to its or any of its Subsidiaries' business and operations are reasonably expected on a timely basis to be able to perform properly date-sensitive functions for all dates before and after January 1, 2000 (that is, be "Year 2000 compliant"). (i) Delete SECTION 5.7 in its entirety and insert a new SECTION 5.7 as follows: Section 5.7 Visits and Inspections. The Lender (by any of ---------------------- its officers, employees or agents) shall have the right at any time or times to (a) visit the properties of the Borrower and its Subsidiaries, inspect the Collateral and the other assets of the Borrower and its Subsidiaries and inspect and make extracts from the books and records of the Borrower and its Subsidiaries, including, but not limited to, management letters prepared by independent accountants, all during customary business hours at such premises, (b) discuss the Borrower's business, assets, liabilities, financial condition, results of operations and business prospects, insofar as the same are reasonably related to the rights of the Lender hereunder or under any of the Loan Documents, with the Borrower's and its Subsidiaries' (i) principal officers, (ii) independent accountants and other professionals providing services to the Borrower or any of its Subsidiaries, and (iii) any other Person (except that any such discussion with any third parties shall be conducted only in accordance with the Lender's standard operating procedures relating to the maintenance of confidentiality of confidential information of borrowers), and (c) verify the amount, quantity, value and condition of, or any other matter relating to, any of the Collateral and in this connection to review, audit and make extracts from all records and files related to any of the Collateral. The Borrower and each of its Subsidiaries will deliver to the Lender any instrument necessary to authorize an independent accountant or other professional to have discussions of the type outlined above with the Lender or for the Lender to obtain records from any service bureau maintaining records on behalf of the Borrower or any of its Subsidiaries. (j) Insert a new SECTION 5.17 and a new SECTION 5.18 as follows: Section 5.17 Year 2000 Compliance. The Borrower will -------------------- promptly notify the Lender in the event the Borrower discovers or determines that any computer application (including those of its suppliers, -7- vendors and customers) that is material to its or any of its Subsidiaries' business and operations will not be Year 2000 compliant (as defined in Section 4.1(bb)). Section 5.18 Certificates of Title. Promptly upon request --------------------- by the Lender, and in any event within five (5) Business Days after any such request, the Borrower will, and will cause its Subsidiaries to, provide to the Lender all certificates of title and certificates of origin with respect to any vehicles or other Collateral for which such certificates exist and take all steps requested by the Lender to have the Lender's Lien noted thereon. (k) Delete SECTION 6.3 in its entirety and replace it with the following: Section 6.3 Performance Certificates. At the time the financial ------------------------ statements are furnished pursuant to Sections 6.1, 6.2 and 6.8, a certificate of the president or chief financial officer of the Borrower as to its financial performance: (a) setting forth as and at the end of the applicable period the arithmetical calculations required to establish whether or not the Borrower was in compliance with the requirements of Section 7.9; and (b) stating that no Default or Event of Default has occurred as at the end of such period, or, if a Default or Event of Default has occurred, whether it is continuing and the steps being taken by the Borrower with respect to such Default or Event of Default. (l) Insert the following sentence at the end of SECTION 6.5(A): In addition to and without limiting the foregoing, the Borrower shall promptly inform the Lender in writing of all material developments with respect to any such proceedings, investigations and actions, including, but not limited to, any action, litigation or dispute between the Borrower and Mayflower. (m) Insert a new SECTION 6.7 and a new SECTION 6.8 as follows: Section 6.7 Weekly Financial Statements and Information. In ------------------------------------------- addition to the annual, quarterly and monthly financial statements provided for in Sections 6.1, 6.2 and 6.8, respectively, not later than the third Business Day of any calendar week, the following financial information, in each case on a consolidated and consolidating basis with its Subsidiaries: (a) a thirteen-week rolling cash flow projection, (b) an accounts payable aging, (c) an accounts receivable aging, and (d) a schedule of Inventory. Such -8- schedule of Inventory shall include as much of the Inventory of the Borrower and its Subsidiaries as the Borrower can reasonably provide, and in any event shall include the following: (v) all new finished bus Inventory located in Griffin, Georgia; (w) all buses used as demonstrator models; (x) all bus Inventory of Bus Pro, Inc.; (y) all Irizar Inventory; and (z) the number of buses that then constitute work-in-process Inventory, sorted by those in the raw body, painting, and finishing stages. The Borrower shall deliver schedules of parts and raw materials Inventory as often as is reasonably feasible, but in any event, Borrower shall deliver such information along with the quarterly financial statements provided for in Section 6.2. Section 6.8 Monthly Financial Statements and Information. -------------------------------------------- In addition to the annual, monthly and weekly financial information provided for in Sections 6.1, 6.2 and 6.7, respectively, within fifteen (15) days after the last day of each calendar month, beginning with the calendar month of October, 1999, the balance sheets of the Borrower on a consolidated and consolidating basis with its Subsidiaries, as at the end of such calendar month and as of the end of the preceding fiscal year, and the related statements of cash flows of the Borrower on a consolidated and consolidating basis with its Subsidiaries, for such calendar month and for the elapsed portion of the year ended with the last day of such calendar month, which shall set forth in comparative form such figures as at the end of and for such calendar month and appropriate prior calendar period, shall provide consolidated and consolidating figures with respect to Acquisitions consummated during such calendar period, and shall be certified by the chief financial officer of the Borrower to have been prepared in accordance with GAAP and to present fairly in all material respects the financial position of the Borrower on a consolidated and consolidating basis with its Subsidiaries, as at the end of such calendar month, and the results of operations for such calendar month, and for the elapsed portion of the year ended on the last day of such calendar month, subject only to normal year-end and audit adjustments. (n) Delete SECTION 7.1(I) in its entirety and replace it with the following: (i) Indebtedness under deferred compensation plans in an aggregate principal amount outstanding at any time not to exceed the amount outstanding as of March 31, 1999; (o) Delete SECTION 7.4(A) in its entirety and replace it with the following: (a) Disposition of Assets. The Borrower shall not, and --------------------- shall not permit any of its Subsidiaries to, at any time sell, lease, abandon, transfer, assign, swap, or otherwise dispose of any asset without the prior written -9- consent of the Lender other than (i) sales of Inventory in the ordinary course of business; (ii) obsolete or immaterial assets disposed of in the ordinary course of business; (iii) dispositions by the Borrower to a Subsidiary or between two (2) Subsidiaries (so long as any such Subsidiary has executed a Subsidiary Guaranty, a Security Agreement, a Trademark Assignment and such other documentation as the Lender may reasonably request to create and perfect the Lender's first-priority Lien on and Security Interest in the assets of such Subsidiary); (iv) dispositions of Inventory owned by Bus Pro, Inc. as of April __, 1999; (v) Inventory consisting of demonstrator models owned by the Borrower or any of its Subsidiaries as of April ___, 1999; and (vi) other dispositions by the Borrower and its Subsidiaries in an aggregate amount not to exceed $250,000 in any fiscal year. (p) Insert the following new SECTION 7.5(D): or (d) any Guaranty of the Obligations by any Subsidiary of the Borrower. (q) Delete SECTIONS 7.8, 7.9, 7.10, 7.11 and 7.12 in their entirety and replace them with the following: Section 7.8 Restricted Payments and Purchases. The --------------------------------- Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly declare or make any Restricted Payment or Restricted Purchase, or set aside any funds for any such purpose, except that any of the Borrower's wholly-owned Subsidiaries may pay dividends solely to the Borrower. Section 7.9 Financial Ratios ---------------- (a) Minimum Tangible Net Worth. The Borrower shall not -------------------------- permit its Tangible Net Worth, as of the fiscal quarters ending July 4, 1999 and October 3, 1999, and as of any fiscal month end thereafter, to be less than (i) the Borrower's Tangible Net Worth as of April 4, 1999, minus (ii) $500,000. For purposes of this Section 7.9(a), Tangible Net Worth shall be calculated by adding back to net income for the applicable period (i) any fees or costs actually paid or outstanding under Section 10. of this Agreement and (ii) professional fees actually paid or outstanding, but not to exceed: (A) $650,000 for the Borrower's second fiscal quarter of its 1999 fiscal year; and (B) $500,000 for each fiscal quarter thereafter. For purposes of this Section 7.9, the term "professional fees" shall mean and include fees incurred by the Borrower or any of its Subsidiaries to attorneys, accountants, consultants or other professionals in a similar capacity, but shall not include any fees or costs owed to the Lender by the Borrower under Section 10. of this Agreement. -10- (b) Maximum Inventory. The Borrower shall not permit the ----------------- Inventory Value, as of the fiscal quarters ending July 4, 1999 and October 3, 1999, and as of any calendar month end thereafter, to be greater than (A) the Inventory Value as of April 4, 1999, plus (B) $250,000. (c) Minimum Net Income. The Borrower shall not permit its ------------------ Net Income, as of the fiscal quarter ending July 4, 1999 and as of any fiscal quarter end thereafter, to be less than negative $500,000 for any such fiscal quarter. For purposes of this Section 7.9(c), Net Income shall be calculated by adding back to net income for the applicable period (i) any fees or costs actually paid or outstanding under Section 10 of this Agreement and (ii) professional fees actually paid or outstanding, but not to exceed: (A) $650,000 for Borrower's second fiscal quarter of its 1999 fiscal year, and (B) $500,000 for each fiscal quarter thereafter. Section 7.10 Capital Expenditures. The Borrower and its -------------------- Subsidiaries shall not make or incur Capital Expenditures in excess of $500,000, in the aggregate, in any calendar year. (r) Delete SECTION 8.1(B) in its entirety and replace it with the following: (b) The Borrower shall default in the payment of (i) any interest under any of the Notes or fees or other amounts payable to the Lender under any of the Loan Documents, or any of them, when due, and such default shall be unremedied for ten (10) days, or (ii) any principal under the Notes when due; or (s) Delete SECTION 8.1(E) in its entirety and replace it with the following: (e) There shall occur any default in the performance or observance of any agreement or covenant or breach of any representation or warranty contained in any of the Loan Documents (other than this Agreement or as otherwise provided in Section 8.1 of this Agreement) by the Borrower, any of its Subsidiaries, or any other obligor thereunder, which shall not be cured within a period of thirty (30) days from the occurrence of such default (without duplication of any cure period contained in any such Loan Document); provided, however, that such thirty-day cure period shall not apply to any default or breach (i) of Section 5 of any Security Agreement; (ii) that constitutes a material violation of the Lockbox Agreement; (iii) of Section 5 of any Trademark Assignment; or (iv) of Section 6 of the Pledge Agreement. (t) Delete SECTION 8.1(K) in its entirety and replace it with the following: (k) There shall occur (i) any default under any other document, instrument or agreement, other than any of the Mayflower Subordinated Loan Documents, relating to any Indebtedness of the Borrower or any of the Borrower's Subsidiaries having an aggregate principal amount exceeding $500,000; or (ii) any event which directly or indirectly causes the Borrower -11- or any of its Subsidiaries to be required to offer to prepay any Indebtedness, except for the Mayflower Subordinated Debt, or which directly or indirectly gives any holder of any Indebtedness, other than the Mayflower Subordinated Debt, of the Borrower or any of its Subsidiaries the right to require the Borrower or any of its Subsidiaries to prepay any such Indebtedness under any other document, instrument or agreement relating to any Indebtedness of the Borrower or any of the Borrower's Subsidiaries having an aggregate principal amount exceeding $500,000, other than the Mayflower Subordinated Loan Documents; or (iii) any default under any Interest Rate Hedge Agreement having a notional principal amount of $250,000 or more; or (u) Insert new SECTIONS 8.1(N), (O), (P), (Q) and (R) as follows: (n) Any of the Pledged Collateral (as such term is defined in the Pledge Agreement) shall be attached or levied upon or seized in any legal proceedings, or held by virtue of any Lien or distress; (o) There shall occur any termination or withdrawal of any Guaranty of any of the Obligations; or (p) Any third party shall seize any of the Collateral with an aggregate fair market value of $50,000 or more; (q) Hank Murphy shall cease to be an officer of the Borrower and be involved in the day-to-day management of the Borrower, and a replacement reasonably satisfactory to the Lender shall not be appointed within thirty (30) days; provided, however, that any individual with qualifications which are reasonably similar to the qualifications of chief executive officers of similarly situated companies shall be deemed to be satisfactory to the Lender; (r) The Borrower shall cease to employ Arthur Andersen & Co. (or one of its Affiliates) as a turnaround or crisis- management consultant, and a replacement consulting firm reasonably satisfactory to the Lender shall not be employed within thirty (30) days; provided, however, that a replacement consulting firm shall be deemed to be satisfactory to the Lender if its qualifications with respect to turnarounds and crisis management are reasonably similar to those of Arthur Anderson & Co. (v) Delete SECTION 10.13 and replace it with the following: Section 10.13 Arbitration. ----------- -12- (a) 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 AGREEMENT 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 AGREEMENT 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. (b) SPECIAL RULES. ANY ARBITRATION SHALL BE CONDUCTED IN ------------- THE COUNTY OF THE BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS AGREEMENT, 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 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 -13- ARBITRABLE SHALL BE DETERMINED BY THE ARBITRATOR. THE ARBITRATOR SHALL HAVE THE POWER TO AWARD LEGAL FEES PURSUANT TO THE TERMS OF THIS AGREEMENT. (c) RESERVATION OF RIGHTS. NOTHING IN THIS SECTION 10.13 --------------------- SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (II) BE A WAIVER BY THE LENDER 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 AGREEMENT. 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. (d) 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. (w) Delete each of the Schedules to the Loan Agreement and replace them with the Schedules attached hereto. 4. The effectiveness of this Amendment is expressly conditioned upon the execution and/or delivery by the Borrower of the following documents, each of which shall be acceptable to the Lender and its counsel in form and substance: -14- (a) this Amendment; (b) the Amended and Restated Note; (c) the Security Agreements; (d) the Mortgages, together with all other instruments, certificates, affidavits and other documents requested by the Lender in connection therewith; (e) the Pledge Agreement, together with all original stock certificates of each Subsidiary of the Borrower and blank stock powers for each such Subsidiary; (f) the Trademark Assignments; (g) the Lockbox Agreement; (h) Uniform Commercial Code financing statements naming the Borrower and each of its Subsidiaries as debtor and the Lender as secured party for filling in each jurisdiction which the Lender deems necessary or appropriate in its sole discretion; (i) certificates or binders of insurance relating to each of the policies of insurance covering any of the Collateral, together with loss payable clauses naming the Lender as an additional insured and loss payee as its interests may appear, and providing that (i) all proceeds thereunder shall be payable to the Lender, (ii) no such insurance shall be affected by any act or neglect of the insured or owner of the property described in such policy, and (iii) such policy and loss payable clauses may not be canceled, amended or terminated unless at least 30 days' prior written notice is given to the Lender; (j) a signed opinion of legal counsel to the Borrower and its Subsidiaries opining as to such matters in connection with this Amendment as the Lender or its counsel may reasonably request; (k) landlord's waiver and consent agreements duly executed on behalf of each landlord of real property on which any Collateral is located; and (l) certified copies of the articles of incorporation and by-laws of the Borrower and each of its Subsidiaries as in effect on the date of this Amendment; (m) certified copies of all corporate action, including stockholder approval, if necessary, taken by the Borrower and its Subsidiaries to authorize the execution, delivery and performance of this Agreement and the other Loan Documents and the borrowings under this Agreement; -15- (n) certificates of incumbency and specimen signatures with respect to each of the officers of the Borrower and its Subsidiaries who is authorized to execute and deliver this Agreement or any other Loan Document on behalf of the Borrower or any Subsidiary or any document, certificate or instrument to be delivered in connection with this Agreement or the other Loan Documents and to request borrowings under this Agreement; (o) such other documents, instruments, certificates or agreements as the Lender or its counsel may reasonably request. 5. The Borrower hereby covenants and agrees that, until the Obligations have been indefeasibly paid in full and the Commitment has been terminated, it will not make any payments on or with respect to the Mayflower Subordinated Debt, whether principal, interest or otherwise, and any such payment made by the Borrower shall constitute an Event of Default under the Loan Agreement, each Security Document and all other Loan Documents. 6. The Borrower hereby acknowledges and agrees that the Borrower shall have no right to request LIBOR Advances under the Loan Agreement, and any currently outstanding LIBOR Advances may not be renewed or reborrowed as LIBOR Advances. Additionally, the Borrower agrees that, notwithstanding anything to the contrary contained in the Loan Agreement, the Note or any other Loan Document, interest on all presently outstanding LIBOR Advances shall be due and payable on April 12, 1999 and on the first day of each calendar month, commencing May 1, 1999. Further, any LIBOR Advances outstanding as of the date of this Amendment shall, as of the date of this Amendment, bear interest at the Prime Rate Basis rather than the LIBOR Basis and shall, for all purposes under the Loan Agreement, the Note and the other Loan Documents, be deemed to be Prime Rate Advances. 7. 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. 8. 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. 9. The Borrower acknowledges and agrees that, solely as an accommodation to the Borrower and at the Borrower's request, this Amendment has been executed on an expedited basis and prior to the completion of due diligence by the Lender and its counsel. Accordingly, the Borrower acknowledges that the Lender will conduct such lien searches, title searches and other investigations and due diligence which the Lender deems necessary or appropriate in its sole discretion, and that the Borrower, its Subsidiaries, its directors, officers and other employees will cooperate fully with the Lender and its counsel to complete such due diligence. Further, the Borrower and such Subsidiaries will, beginning within five (5) Business Days (and continuing -16- diligently thereafter) following the Lender's request, take any action necessary to resolve any issues discovered during such due diligence to the Lender's reasonable satisfaction, including, without limitation, taking any action and executing any documents necessary to create, establish and perfect the Lender's first-priority Security Interest in all assets, real and personal, of the Borrower and its Subsidiaries. Any failure by the Borrower or any of its Subsidiaries to comply with the terms of this paragraph shall constitute an Event of Default under the Loan Agreement, the Security Documents and the other Loan Documents. 10. 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 fees and out-of-pocket expenses of legal counsel to the Lender. 11. To induce the Lender to enter into this Amendment, the Borrower hereby (a) represents and warrants that, as of the date hereof, and after giving effect to the terms hereof, there exists no Default or Event of Default under the Loan Agreement or any of the other Loan Documents, and (b) acknowledges and agrees that no right of offset, defense, counterclaim, claim or objection in favor of the Borrower against the Lender exists arising out of or with respect to any of the Obligations. 12. As a further material inducement to the Lender to enter into this Amendment, to make additional Loans to the Borrower and to grant concessions to the Borrower, all in accordance with and subject to the terms and conditions of this Amendment, all of which are to the direct advantage and benefit of the Borrower and its Subsidiaries, the Borrower, together with all of its successors and assigns: (a) does hereby remise, release, acquit, satisfy and forever discharge the Lender, and all of the respective past, present and future officers, directors, employees, agents, attorneys, representatives, participants, heirs, successors and assigns of the Lender from any and all manner of debts, accountings, bonds, warranties, representations, covenants, promises, contracts, controversies, agreements, liabilities, obligations, expenses, damages, judgments, executions, actions, claims, demands and causes of action of any nature whatsoever, whether at law or in equity, either now accrued or hereafter maturing or whether known or unknown, which the Borrower now has or hereafter can, shall or may have by reason of any manner, cause or things, from the beginning of the world to and including the date of this Amendment, including specifically, but without limitation, matters arising out of, in connection with or related to: (i) any and all obligations owed or owing to the Lender under any document evidencing financial arrangements by, among and between the Lender and the Borrower, including the Loan Agreement, and including, but not limited to, the administration or funding thereof; -17- (ii) the Loan Agreement, the Security Documents and all other Loan Documents, and the Indebtedness evidenced and secured thereby; or (iii) any other agreement or transaction between the Borrower and the Lender or any Subsidiary or Affiliate of Lender; (b) does hereby covenant and agree never to institute or cause to be instituted or continued prosecution of any suit or other form of action or proceeding of any kind or nature whatsoever against the Lender or any Subsidiaries or Affiliates of the Lender or any of their respective past, present or future officers, directors, employees, agents, attorneys, representatives, participants, heirs, successors or assigns, by reason of or in connection with any of the foregoing matters, claims or causes of action; provided, however, that the foregoing release and covenant not to sue shall not apply to any claims arising after the date of this Amendment with respect to acts, occurrences or events after the date of this Amendment; and (c) expressly acknowledges and agrees that the waivers, estoppels and releases in favor of the Lender contained in this Amendment shall not be construed as an admission of any wrongdoing, liability or culpability on the part of the Lender or as any admission by the Lender of the existence of claims by the Borrower against the Lender. The Borrower further acknowledges and agrees that, to the extent any such claims exist, they are of a speculative nature so as to be incapable of objective evaluation and that, to the extent that any such claims may exist and may have value, such value would constitute primarily "nuisance" value or "leverage" value in adversarial proceedings between the Borrower and the Lender. In any event, the Borrower and the Lender, and each of them, acknowledge and agree that the value to the Borrower of the covenants and agreements on the part of the Lender contained in this Amendment substantially and materially exceed any and all value of any kind or nature whatsoever of any claims or other liabilities waived or released by the Borrower. 13. 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 of 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. -18- 14. The Borrower agrees to take such further action as the Lender shall reasonably request in connection herewith to evidence the amendments herein contained to the Loan Agreement and the other Loan Documents. 15. 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. 16. This Amendment shall be binding upon and inure to the benefit of the successors and permitted assigns of the parties hereto. 17. This Amendment shall be governed by, and construed in accordance with, the laws of the State of Georgia. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -19- IN WITNESS WHEREOF, the Borrower and the Lender have caused this Amendment to be duly executed under seal, all as of the date first above written. METROTRANS CORPORATION By:_______________________________ Name:___________________________ Title:__________________________ [CORPORATE SEAL] NATIONSBANK, N.A. By:_______________________________ Name:___________________________ Title:__________________________ -20- ACKNOWLEDGMENT OF GUARANTOR The undersigned acknowledges the foregoing Fourth Amendment and agrees that its Subsidiary Guaranty remains in full force and effect, subject to no right of offset, defense, claim or counterclaim. The undersigned does hereby remise, release, acquit, satisfy and forever discharge the Lender, and all of the respective past, present and future officers, directors, employees, agents, attorneys, representatives, participants, heirs, successors and assigns of the Lender from any and all manner of debts, accountings, bonds, warranties, representations, covenants, promises, contracts, controversies, agreements, liabilities, obligations, expenses, damages, judgments, executions, actions, claims, demands and causes of action of any nature whatsoever, whether at law or in equity, either now accrued or hereafter maturing or whether known or unknown, which the undersigned now has or hereafter can, shall or may have by reason of any manner, cause or things, from the beginning of the world to and including the date of this Amendment. The undersigned does hereby covenant and agree never to institute or cause to be instituted or continued prosecution of any suit or other form of action or proceeding of any kind or nature whatsoever against the Lender or any Subsidiaries or Affiliates of the Lender or any of their respective past, present or future officers, directors, employees, agents, attorneys, representatives, participants, heirs, successors or assigns, by reason of or in connection with any of the foregoing matters, claims or causes of action; provided, however, that the foregoing release and covenant not to sue shall not apply to any claims arising after the date of this Amendment with respect to acts, occurrences or events after the date of this Amendment. The undersigned expressly acknowledges and agrees that the waivers, estoppels and releases in favor of the Lender contained in this Amendment shall not be construed as an admission of any wrongdoing, liability or culpability on the part of the Lender or as any admission by the Lender of the existence of claims by the undersigned against the Lender. The undersigned further acknowledges and agrees that, to the extent any such claims exist, they are of a speculative nature so as to be incapable of objective evaluation and that, to the extent that any such claims may exist and may have value, such value would constitute primarily "nuisance" value or "leverage" value in adversarial proceedings between the undersigned and the Lender. In any event, the undersigned and the Lender, and each of them, acknowledge and agree that the value to the undersigned of the covenants and agreements on the part of the Lender contained in this Amendment substantially and materially exceed any and all value of any kind or nature whatsoever of any claims or other liabilities waived or released by the undersigned. -21- BUS PRO, INC. By:_________________________ Name:______________________ Title:_____________________ [CORPORATE SEAL] -22- [UPDATED SCHEDULES TO THE LOAN AGREEMENT TO BE PROVIDED BY THE BORRWER AND ITS COUNSEL] -23- EX-10.4(B) 3 AMENDED EMPLOYMENT AGREEMENT FOR M. WALDEN AMENDED EMPLOYMENT AGREEMENT THIS AGREEMENT is made effective as of this 1/st/ day of April, 1998, by and between Metrotrans Corporation (the "Company"), a Georgia corporation and D. Michael Walden ("Employee"); WHEREAS, Employee is the Chairman of the Board and Chief Executive Officer of the Company; WHEREAS, the Company and Employee wish to provide for the terms and conditions of Employee's continued employment with the Company; NOW, THEREFORE, in consideration of the promises and the mutual covenants and agreements set forth herein, the parties hereby agree as follows: 1. EMPLOYMENT AND DUTIES (a) The Company hereby employs Employee as Chairman of the Board and Chief Executive Officer of the Company to perform such services and duties as the Board of Directors may, from time to time, designate during the term hereof. Subject to the terms and conditions hereof, Employee will perform such duties and exercise such authority as are customarily performed and exercised by persons holding such office. Employee also agrees to serve during the term hereof, subject to election by the shareholders of the Company, as a director of the Company. (b) Employee accepts such employment and shall devote his full time, attention and efforts to the diligent performance of his duties herein specified and as an officer of the Company and will not accept employment with any other individual, corporation, partnership, governmental authority or other entity, or engage in any other venture for profit which the Company or any of its subsidiaries may consider to be in conflict with its best interests or to be in competition with the business of the Company or its subsidiaries, or which may interfere in any way with Employee's performance of his duties hereunder. 2. TERMS OF EMPLOYMENT Employee's employment with the Company commenced under an employment agreement dated March 15, 1994 as of the closing of the Company's initial public offering and continues under this amended agreement in accordance with the terms hereof. Unless earlier terminated pursuant to the terms hereof, the term of employment under this agreement shall continue until the Company provides notice of termination at least two (2) years and eleven (11) months prior thereto, or the Employee provides notice of termination at least six (6) months prior thereto (unless such notice is waived by the other party in writing). The term previously stated notwithstanding, this agreement shall be terminated automatically upon the occurrence of any of the following: (a) the death of Employee; (b) the complete disability of Employee ("complete disability" as used herein shall mean the inability of Employee, due to illness, accident or any other physical or mental incapacity to perform the services provided for hereunder for an aggregate of sixty (60) days within any period of 120 consecutive days during the term hereof); or (c) the discharge of Employee by the Company for cause. "Cause" as used herein shall mean (i) such negligence or misconduct as shall constitute, as a matter of law, a breach of the covenants and obligations of Employee hereunder, (ii) failure or refusal of Employee to comply with the provisions of this agreement, or (iii) Employee being convicted or the subject of an indictment for a felony. Disability because of illness or accident or any other physical or mental disability shall not constitute a basis for discharge for cause. In the event that the Company notifies the Employee of termination of his employment hereunder as provided above, then during the interim period (of two years and eleven months) from such notice until actual termination, the Employee shall not be responsible for any duties other than those specified in Section 6 hereof. On and after the date of a change in control of the Company, the Employee shall, upon the constructive discharge of the Employee, be entitled to give notice within thirty (30) days of such constructive discharge, that he desires to terminate employment with the Company as noted above, except that such termination shall not actually occur for a period of two (2) years and eleven (11) months following the date the Employee gives notice, and during the interim period, the Employee shall not be responsible for any duties other than those specified in Section 6 hereof. "Change in control" as used herein shall mean the acquisition by a person on or after the execution date hereof (including "affiliates" and "associates" of such person, but excluding the Company, any "parent" or "subsidiary" of the Company, or any employee benefit plan of the Company or of any "parent" or "subsidiary" of the Company) of a sufficient number of shares of the common stock, or securities convertible into the common stock, and whether through direct acquisition of shares or by merger, consolidation, share exchange, reclassification of securities or recapitalization of or involving the Company or any "parent" or "subsidiary" of the Company, to constitute the person the actual or beneficial owner of thirty percent (30%) or more of the common stock of the Company. "Constructive discharge" as used herein shall mean any action by the Company which results in (i) a breach of this Agreement, (ii) a reduction in the pension, welfare or fringe benefits provided to the Employee which is both significant and substantial when expressed as a dollar amount or when expressed as a percentage of the individual's dollar compensation, and (iii) the transfer of the Employee's site of employment to a location which is further than fifty (50) miles from the current site of the Employee's employment. For purposes of the foregoing, the determination of whether Employment Agreement Page 2 a reduction in pension, welfare or fringe benefits is significant and substantial shall be made on the basis of all pertinent facts and circumstances, including the entire benefit package provided to the Employee; provided, however, any amendment, modification or elimination of benefits which results solely from the provision of differing benefits to the Employee where such differing benefits are identical to the benefits provided to similarly situated employees of the Company shall not be deemed a significant and substantial reduction in benefits. 3. COMPENSATION For all services which Employee has and will render to the Company during the term hereof, the Company shall pay to Employee, subject to such deductions as may be required by law, the following: (a) Base Salary. As full compensation for Employee's services hereunder and in consideration of the restrictions set forth in Section 6 herein, the Company shall pay to Employee an aggregate base annual salary (the "Base Salary") of Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) payable in equal weekly installments and subject to such deductions as may be required by law. Any increases in the Base Salary of Employee during the term of this agreement shall be made at the discretion of the Board of Directors of the Company. (b) Performance Bonus. For the term of this agreement, all performance bonuses, if any, will be determined and paid at the discretion of the Compensation Committee of the Board of Directors. The Employee shall be eligible to participate in the Management Incentive Compensation Plan. 4. OTHER BENEFITS (a) General Benefits. During the term of Employee's employment hereunder, Employee shall be entitled to such additional benefits as are generally available to other Employees of the Company as a whole. The benefits provided to Employee under this Section 4(a) shall be provided on the same terms and subject to the same conditions as such benefits are provided to other employees of the Company generally. (b) Automobile. The Company shall provide to Employee an automobile in keeping with his position as Chairman of the Board and Chief Executive Officer of the Company for use by Employee in the conduct of Employee's performance under this agreement. (c) Vacation. Employee shall be entitled to six weeks of paid vacation during each calendar year during the term of this agreement. Employment Agreement Page 3 (d) Disability Benefits. The Company shall obtain for the benefit of Employee long-term disability insurance coverage that shall provide to Employee long-term disability benefits equal to 70% of Employee's Base Salary subject to such conditions and exclusions as are typically found in such coverage. Notwithstanding the foregoing, in the event the Company provides long-term disability coverage to other employees of the Company as a whole, the Company's obligations under this subsection (d) shall be satisfied by providing to Employee long-term disability coverage on the same terms and subject to the same conditions as such benefits are provided to other employees of the Company generally. (e) Physical Examination. The Company shall pay for an annual physical examination of Employee to be performed by a physician selected by Employee. (f) Indemnification Agreement. The Terms of the Indemnification Agreement between the Employee and the Company shall continue in full force and effect in accordance with its terms, without regard to any termination of this Agreement. 5. EXPENSES Upon presentment to the Company of expense reports in sufficiently detailed form to comply with standards for deductibility of business expenses established from time to time by the Internal Revenue Service, the Company will reimburse Employee for such reasonable business expenses incurred by Employee in connection with the performance of his duties hereunder. 6. NON-COMPETITION, SOLICITATION OF CUSTOMERS, SOLICITATION OF EMPLOYEES (a) Employee agrees that, during the period of his employment with the Company and for a period of three years following the termination of such employment, he shall not, directly or indirectly, engage in competition with the Company or any subsidiary of the Company within the Territory (as hereinafter defined) in any manner or capacity (including but not limited to a consultant, principals, partner, officer, director, shareholder or employee of an entity that competes with the Company or any subsidiary of the Company) in any phase of the Company's or any subsidiary's business of developing, designing, manufacturing, marketing, leasing, or selling any of the products of the type which the Company or any subsidiary of the Company is in the business of developing, designing, manufacturing, distributing, marketing, leasing or selling during the term of this agreement or which the Company or any of its subsidiaries has definitive plans to develop, manufacture or market. Ownership by Employee, as a passive investment, of less than one percent of the outstanding shares of capital stock of any corporation listed on a national securities exchange or publicly traded in the over-the-counter market shall not constitute a breach of this Section 6. Employment Agreement Page 4 (b) Employee agrees that during his employment by the Company and for the three year period following the termination of such employment, he will not, without the prior written consent of the Company, within the Territory, either directly or indirectly, on his own behalf or in the service or on behalf of others, solicit, divert or appropriate, or attempt to solicit, divert or appropriate, to any competing business any person or entity that was a customer of the Company or any subsidiary of the Company during the term of this agreement. (c) Employee agrees that during his employment by the Company and for the three year period following the termination of such employment, he will not, either directly or indirectly, on his own behalf or in the service or on behalf of others, solicit, divert or hire away, or attempt to solicit, divert or hire away any person then employed by the Company or any of its subsidiaries. (d) The term "Territory" shall be that area within a fifty (50) mile radius of each location throughout the State of Georgia and North America where the Company maintains an office. This agreement shall be deemed automatically amended without the need of further action by any party to add new countries or parts thereof where after the date hereof and prior to the termination of Employee's employment the Company or any of its subsidiaries begins to market its products and to delete any countries or parts thereof after the Company or any of its subsidiaries ceases to market its products for a period of at least six months. (e) Employee acknowledges and agrees that because of his employment, the Employee does and will continue to have access to "Proprietary Information" concerning the business of the Company, including information about and related to the Company's products, customers, prices and other material non-public and Proprietary Information. The Employee acknowledges that any and all information made available to the Employee during the term of this Agreement concerning or relative to the business of the Company, including, without limitation, all customer data, billing information, service data, product data and information, pricing data and information and other technical materials of the Company, is and shall always remain the proprietary property of the Company. 7. WAIVER OF PROVISIONS Failure of any of the parties to insist, in one or more instances, on performance by the other party in strict accordance with the terms and conditions of this agreement shall not be deemed a waiver or relinquishment of any right granted hereunder or of the future performance of any such term or condition or of any other term or condition of this agreement, unless such waiver is contained in a writing signed by or on behalf of all the parties. 8. GOVERNING LAW This agreement shall be governed by and construed and enforced in accordance with the laws of the State of Georgia. If for any reason any Employment Agreement Page 5 provision of this agreement shall be held by a court of competent jurisdiction to be void or unenforceable, the same shall not affect the remaining provisions thereof. 9. ENTIRE AGREEMENT; MODIFICATION AND AMENDMENT This agreement contains the sole and entire agreement among the parties hereto and supersedes and replaces all prior discussions and agreements among the parties and any such prior agreements shall, from and after the date hereof, be null and void. This agreement shall not be modified or amended except by an instrument in writing signed by or on behalf of the parties hereto. 10. COUNTERPARTS AND HEADINGS This agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. The headings set out herein are for convenience of reference and shall not be deemed a part of this agreement. 11. CONTRACT NONASSIGNABLE This agreement may not be assigned or transferred by any party hereto, in whole or in part, without the prior written consent of the other. 12. INJUNCTIVE RELIEF In the event of a breach or threatened breach by Employee of any of the provisions of Sections 2 or 6 hereof and notwithstanding any other provision in this agreement, the Company, in addition to any other available right or remedies, shall be entitled to a temporary restraining order and a permanent injunction to restrain such breach by Employee and/or any persons directly or indirectly acting for or with him. Employee's obligations under paragraph 6 hereof shall remain binding and enforceable according to its terms notwithstanding expiration or termination of the other terms of this agreement or the termination of Employee's employment relationship with the Company. Employment Agreement Page 6 IN WITNESS WHEREOF, the parties hereto have executed this agreement under seal as of the date first above written. EMPLOYEE (SEAL) ______________________________________ D. Michael Walden METROTRANS CORPORATION By: ________________________________________ Terri B. Hobbs Deputy Chief Executive Officer Employment Agreement Page 7 EX-10.10 4 EMPLOYMENT AGREEMENT FOR T. HOBBS EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into as of this 31st day of August, 1998, by and between Metrotrans Corporation (the "Company"), a Georgia corporation and Terri B. Hobbs ("Employee"); WHEREAS, Employee is the Deputy Chief Executive Officer of the Company; WHEREAS, the Company and Employee wish to provide for the terms and conditions of Employee's continued employment with the Company; NOW, THEREFORE, in consideration of the promises and the mutual covenants and agreements set forth herein, the parties hereby agree as follows: 1. EMPLOYMENT AND DUTIES (a) The Company hereby employs Employee as Deputy Chief Executive Officer of the Company to perform such services and duties Chairman of the Board and Chief Executive Officer may, from time to time, designate during the term hereof. Subject to the terms and conditions hereof, Employee will perform such duties and exercise such authority as are customarily performed and exercised by persons holding such office and in accordance with the Bylaws of the Company. (b) Employee accepts such employment and shall devote her full time, attention and efforts to the diligent performance of her duties herein specified and as an officer of the Company and will not accept employment with any other individual, corporation, partnership, governmental authority or other entity, or engage in any other venture for profit which the Company or any of its subsidiaries may consider to be in conflict with its best interests or to be in competition with the business of the Company or its subsidiaries, or which may interfere in any way with Employee's performance of her duties hereunder. 2. TERMS OF EMPLOYMENT Employee's employment with the Company shall commence under this employment agreement as of the date first above written. Unless earlier terminated pursuant to the terms hereof, the term of employment under this agreement shall continue until the Company provides notice of termination at least two (2) years and eleven (11) months prior thereto, or the Employee provides notice of termination at least six (6) months prior thereto (unless such notice is waived by the other party in writing). The term previously stated notwithstanding, this agreement shall be terminated automatically upon the occurrence of any of the following: (a) the death of Employee; (b) the complete disability of Employee ("complete disability" as used herein shall mean the inability of Employee, due to illness, accident or any other physical or mental incapacity to perform the services provided for hereunder for an aggregate of sixty (60) days within any period of 120 consecutive days during the term hereof); or (c) the discharge of Employee by the Company for cause. "Cause" as used herein shall mean (i) such negligence or misconduct as shall constitute, as a matter of law, a breach of the covenants and obligations of Employee hereunder, (ii) failure or refusal of Employee to comply with the provisions of this agreement, or (iii) Employee being convicted or the subject of an indictment for a felony. Disability because of illness or accident or any other physical or mental disability shall not constitute a basis for discharge for cause. In the event that the Company notifies the Employee of termination of her employment hereunder as provided above, then during the interim period (of two years and eleven months) from such notice until actual termination, the Employee shall not be responsible for any duties other than those specified in Section 6 hereof. On and after the date of a change in control of the Company, the Employee shall, upon the constructive discharge of the Employee, be entitled to give notice within thirty (30) days of such constructive discharge, that she desires to terminate employment with the Company as noted above, except that such termination shall not actually occur for a period of two (2) years and eleven (11) months following the date the Employee gives notice, and during the interim period, the Employee shall not be responsible for any duties other than those specified in Section 6 hereof. "Change in control" as used herein shall mean the acquisition by a person on or after the execution date hereof (including "affiliates" and "associates" of such person, but excluding the Company, any "parent" or "subsidiary" of the Company, or any employee benefit plan of the Company or of any "parent" or "subsidiary" of the Company) of a sufficient number of shares of the common stock, or securities convertible into the common stock, and whether through direct acquisition of shares or by merger, consolidation, share exchange, reclassification of securities or recapitalization of or involving the Company or any "parent" or "subsidiary" of the Company, to constitute the person the actual or beneficial owner of thirty percent (30%) or more of the common stock of the Company. "Constructive discharge" as used herein shall mean any action by the Company which results in (i) a breach of this Agreement, (ii) a reduction in the pension, welfare or fringe benefits provided to the Employee which is both significant and substantial when expressed as a dollar amount or when expressed as a percentage of the individual's dollar compensation, and (iii) the transfer of the Employee's site of employment to a location which is further than fifty (50) miles from the current site of the Employee's employment or a change in or reduction of the Employee's duties and responsibilities or position. For purposes of the foregoing, the determination of whether a reduction in pension, welfare or fringe benefits is significant and substantial shall be made on the basis of all pertinent facts and circumstances, including the entire benefit package provided to the Employee; provided, however, any amendment, modification or elimination of benefits which results solely Employment Agreement Page 2 from the provision of differing benefits to the Employee where such differing benefits are identical to the benefits provided to similarly situated employees of the Company shall not be deemed a significant and substantial reduction in benefits. 3. COMPENSATION For all services which Employee has and will render to the Company during the term hereof, the Company shall pay to Employee, subject to such deductions as may be required by law, the following: (a) Base Salary. As full compensation for Employee's services hereunder and in consideration of the restrictions set forth in Section 6 herein, the Company shall pay to Employee an aggregate base annual salary (the "Base Salary") of Two Hundred Thousand Dollars ($200,000.00) payable in equal weekly installments and subject to such deductions as may be required by law. Any increases in the Base Salary of Employee during the term of this agreement shall be made at the discretion of the Board of Directors of the Company. (b) Performance Bonus. For the term of this agreement, all performance bonuses, if any, will be determined and paid at the discretion of the Compensation Committee of the Board of Directors. The Employee shall be eligible to participate in the Management Incentive Compensation Plan. 4. OTHER BENEFITS (a) General Benefits. During the term of Employee's employment hereunder, Employee shall be entitled to such additional benefits as are generally available to other Employees of the Company as a whole. The benefits provided to Employee under this Section 4(a) shall be provided on the same terms and subject to the same conditions as such benefits are provided to other employees of the Company generally. (b) Automobile. The Company shall provide to Employee an automobile in keeping with her position as Deputy Chief Executive Officer of the Company for use by Employee in the conduct of Employee's performance under this agreement. (c) Vacation. Employee shall be entitled to six weeks of paid vacation during each calendar year during the term of this agreement. (d) Disability Benefits. The Company shall obtain for the benefit of Employee long-term disability insurance coverage that shall provide to Employee long-term disability benefits equal to Employment Agreement Page 3 ___% of Employee's Base Salary subject to such conditions and exclusions as are typically found in such coverage. Notwithstanding the foregoing, in the event the Company provides long-term disability coverage to other employees of the Company as a whole, the Company's obligations under this subsection (d) shall be satisfied by providing to Employee long-term disability coverage on the same terms and subject to the same conditions as such benefits are provided to other employees of the Company generally. (e) Physical Examination. The Company shall pay for an annual physical examination of Employee to be performed by a physician selected by Employee. (f) Indemnification Agreement. The Terms of the Indemnification Agreement between the Employee and the Company shall continue in full force and effect in accordance with its terms, without regard to any termination of this Agreement. 5. EXPENSES Upon presentment to the Company of expense reports in sufficiently detailed form to comply with standards for deductibility of business expenses established from time to time by the Internal Revenue Service, the Company will reimburse Employee for such reasonable and necessary business expenses incurred by Employee in connection with the performance of her duties hereunder and in performance of the business of the Company. 6. NON-COMPETITION, SOLICITATION OF CUSTOMERS, SOLICITATION OF EMPLOYEES (a) Employee agrees that, during the period of her employment with the Company and for a period of three years following the termination of such employment, she shall not, directly or indirectly, engage in competition with the Company or any subsidiary of the Company within the Territory (as hereinafter defined) in any manner or capacity (including but not limited to a consultant, principals, partner, officer, director, shareholder or employee of an entity that competes with the Company or any subsidiary of the Company) in any phase of the Company's or any subsidiary's business of developing, designing, manufacturing, marketing, leasing, or selling any of the products of the type which the Company or any subsidiary of the Company is in the business of developing, designing, manufacturing, distributing, marketing, leasing or selling during the term of this agreement or which the Company or any of its subsidiaries has definitive plans to develop, manufacture or market. Ownership by Employee, as a passive investment, of less than one percent of the outstanding shares of capital stock of any corporation listed on a national securities exchange or publicly traded in the over-the-counter market shall not constitute a breach of this Section 6. Employment Agreement Page 4 (b) Employee agrees that during her employment by the Company and for the three year period following the termination of such employment, she will not, without the prior written consent of the Company, within the Territory, either directly or indirectly, on her own behalf or in the service or on behalf of others, solicit, divert or appropriate, or attempt to solicit, divert or appropriate, to any competing business any person or entity that was a customer of the Company or any subsidiary of the Company during the term of this agreement. (c) Employee agrees that during her employment by the Company and for the three year period following the termination of such employment, she will not, either directly or indirectly, on her own behalf or in the service or on behalf of others, solicit, divert or hire away, or attempt to solicit, divert or hire away any person then employed by the Company or any of its subsidiaries. (d) The term "Territory" shall be that area within a fifty (50) mile radius of each location throughout the State of Georgia and North America where the Company maintains an office. This agreement shall be deemed automatically amended without the need of further action by any party to add new countries or parts thereof where after the date hereof and prior to the termination of Employee's employment the Company or any of its subsidiaries begins to market its products and to delete any countries or parts thereof after the Company or any of its subsidiaries ceases to market its products for a period of at least six months. (e) Employee acknowledges and agrees that because of her employment, the Employee does and will continue to have access to "Proprietary Information" concerning the business of the Company, including information about and related to the Company's products, customers, prices and other material non-public and Proprietary Information. The Employee acknowledges that any and all information made available to the Employee during the term of this Agreement concerning or relative to the business of the Company, including, without limitation, all customer data, billing information, service data, product data and information, pricing data and information and other technical materials of the Company, is and shall always remain the proprietary property of the Company. 7. WAIVER OF PROVISIONS Failure of any of the parties to insist, in one or more instances, on performance by the other party in strict accordance with the terms and conditions of this agreement shall not be deemed a waiver or relinquishment of any right granted hereunder or of the future performance of any such term or condition or of any other term or condition of this agreement, unless such waiver is contained in a writing signed by or on behalf of all the parties. Employment Agreement Page 5 8. GOVERNING LAW This agreement shall be governed by and construed and enforced in accordance with the laws of the State of Georgia. If for any reason any provision of this agreement shall be held by a court of competent jurisdiction to be void or unenforceable, the same shall not affect the remaining provisions thereof. 9. ENTIRE AGREEMENT; MODIFICATION AND AMENDMENT This agreement contains the sole and entire agreement among the parties hereto and supersedes and replaces all prior discussions and agreements among the parties and any such prior agreements shall, from and after the date hereof, be null and void. This agreement shall not be modified or amended except by an instrument in writing signed by or on behalf of the parties hereto. 10. COUNTERPARTS AND HEADINGS This agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. The headings set out herein are for convenience of reference and shall not be deemed a part of this agreement. 11. CONTRACT NONASSIGNABLE This agreement may not be assigned or transferred by any party hereto, in whole or in part, without the prior written consent of the other. 12. INJUNCTIVE RELIEF In the event of a breach or threatened breach by Employee of any of the provisions of Sections 2 or 6 hereof and notwithstanding any other provision in this agreement, the Company, in addition to any other available right or remedies, shall be entitled to a temporary restraining order and a permanent injunction to restrain such breach by Employee and/or any persons directly or indirectly acting for or with him. Employee's obligations under paragraph 6 hereof shall remain binding and enforceable according to its terms notwithstanding expiration or termination of the other terms of this agreement or the termination of Employee's employment relationship with the Company. Employment Agreement Page 6 IN WITNESS WHEREOF, the parties hereto have executed this agreement under seal as of the date first above written. EMPLOYEE (SEAL) __________________________________________ Terri B. Hobbs METROTRANS CORPORATION By: ________________________________________ D. Michael Walden Chairman and Chief Executive Officer Employment Agreement Page 7 EX-11 5 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE (in Thousands, Except Per Share Data) For the Years Ended December 31, -------------------------------- 1998 1997 1996 ------ ------ ------ NET INCOME (LOSS) $(4,339) $ 1,717 $ 3,319 ====== ====== ====== BASIC EARNINGS (LOSS) PER SHARE Weighted average common shares outstanding 4,087 4,040 4,015 ====== ====== ====== Basic earnings (LOSS) per share $ (1.06) $ 0.43 $ 0.83 ====== ====== ====== DILUTED EARNINGS (LOSS) PER SHARE Weighted average common shares outstanding 4,087 4,040 4,015 Add - Dilutive effect of outstanding options (as determined by the application of the treasury stock method) 0 72 92 ------ ------ ------ Adjusted weighted average common shares outstanding 4,087 4,212 4,107 ====== ====== ====== Diluted earnings (loss) per share $ (1.06) $ 0.42 $ 0.81 ====== ====== ====== EX-23 6 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23 [LETTERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE] CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statement on Form S-8 (File No. 33-83678). /s/ ARTHUR ANDERSEN LLP Atlanta, Georgia April 14, 1999 EX-27 7 ARTICLE 5 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 0 0 6,047 134 39,628 49,352 8,092 1,833 59,301 28,034 0 0 0 41 14,850 59,301 0 76,114 69,026 82,594 0 0 1,237 (6,914) (2,575) (4,339) 0 0 0 (4,339) (1.06) (1.06)
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