-----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, CXmTV/5iRv84PDfkYSWX4TOIR8FbHNv6IZsrEd6equj9fxDmN2SezuTjfLTql1hs GUMgcur5OQTmh9pLdZKkqg== 0000906196-01-500005.txt : 20010504 0000906196-01-500005.hdr.sgml : 20010504 ACCESSION NUMBER: 0000906196-01-500005 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010503 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOTOR COACH INDUSTRIES INTERNATIONAL INC CENTRAL INDEX KEY: 0000906196 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 860706940 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-12208 FILM NUMBER: 1621275 BUSINESS ADDRESS: STREET 1: 1700 E GOLF RD STREET 2: SUITE 300 CITY: SCHAUMBURG STATE: IL ZIP: 60173 BUSINESS PHONE: 8472999900 MAIL ADDRESS: STREET 1: 10 EAST GOLF ROAD CITY: DES PLAINES STATE: IL ZIP: 60016 EX-10 1 ex1027_10k00.txt THIRD AMENDMENT TO CREDIT AGREEMENT Exhibit 10.27 THIRD AMENDMENT AND WAIVER THIRD AMENDMENT AND WAIVER dated as of May 1, 2001 (the "Amendment and Waiver") to the CREDIT AGREEMENT (as defined below), among MCII HOLDINGS, INC., formerly known as Motor Coach Industries International, Inc. (the "Parent"), MOTOR COACH INDUSTRIES INTERNATIONAL, INC., formerly known as Transportation Manufacturing Operations, Inc. (the "Borrower"), the Guarantors referred to in the Credit Agreement (the "Guarantors"), CANADIAN IMPERIAL BANK OF COMMERCE, as a Lender and as Administrative Agent for the Lenders under the Credit Agreement (in such capacity, the "Administrative Agent"), GENERAL ELECTRIC CAPITAL CORPORATION, as a Lender and as Documentation Agent for the Lenders under the Credit Agreement (in such capacity, the "Documentation Agent"), THE BANK OF NOVA SCOTIA, as a Lender and as Syndication Agent for the Lenders under the Credit Agreement (in such capacity, the "Syndication Agent" and, together with the Administrative Agent and the Documentation Agent, the "Agents") and the other Lenders (as defined below) parties hereto. WITNESSETH: WHEREAS, the Parent, the Borrower, each of the financial institutions from time to time party thereto as lenders (together with their successors and assigns, the "Lenders") and the Agents are parties to that certain Credit Agreement dated as of June 16, 1999, as amended by First Amendment dated as of May 1, 2000 and by Second Amendment dated as of May 15, 2000 (as the same may be further amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"); and WHEREAS, an Event of Default has occurred and is continuing under Section 8 of the Credit Agreement as a result of the failure of the Parent and the Borrower to comply with the covenant set forth in Section 6.1(a) of the Credit Agreement in respect of the fiscal year ended December 31, 2001 (the "Existing Event of Default"); and WHEREAS, the Lenders have asserted that further Events of Default have occurred and are continuing under Section 8 of the Credit Agreement as a result of the failure by the Parent and the Borrower to comply with (i) the financial condition covenants set forth in Section 7.1(a), (b), (c) and (d) of the Credit Agreement during the fiscal quarter ended March 31, 2001 and (ii) the requirement set forth in Section 6.7 to provide the Administrative Agent with notice of the Events of Default specified in clause (i) hereof (all such Events of Default, the "Asserted Events of Default"); and WHEREAS, the Borrower has contested the existence of the Asserted Events of Default; and WHEREAS, the Parent and the Borrower have requested that the Lenders agree to waive the Existing Event of Default and the Asserted Events of Default and to suspend compliance with certain covenants through December 31, 2001; and WHEREAS, subject to the terms and conditions hereof, the Lenders are willing to grant a waiver, but only upon the terms and conditions set forth herein. NOW, THEREFORE, the parties hereto hereby agree as follows: SECTION 1. Definitions. Unless otherwise defined herein, all defined terms that are defined in the Credit Agreement shall have the same meanings when used herein. SECTION 2. Waiver. On the terms and subject to the conditions set forth in this Agreement and Waiver, the Agents and the Required Lenders hereby waive (i) permanently, the Existing Event of Default and the Asserted Events of Default and (ii) temporarily, compliance by the Borrower with Section 7.1(a), (b), (c) and (d), in each case commencing on the Effective Date (as hereinafter defined) through December 31, 2001, or such later date as may be agreed upon by the Administrative Agent and the Required Lenders (the "Waiver Termination Date"); provided that immediately following the Waiver Termination Date, all of the covenants and provisions of the Credit Agreement, including the covenants referred to in clause (ii) above, shall apply to and be effective against the Loan Parties, and all rights, privileges and remedies of the Administrative Agent and the Lenders relating thereto under the Credit Agreement or the other Loan Documents shall be fully effective and enforceable, as if the waiver set forth herein had never been granted. SECTION 3. Amendments to Credit Agreement. ------------------------------ (A) Section 1.1 of the Credit Agreement is hereby amended by adding thereto in the appropriate alphabetical order the following definitions: "Adjusted Consolidated EBITDA": for any period, Consolidated EBITDA for such period plus, without duplication and to the extent reflected as a charge in the statement of Consolidated Net Income for such period, the sum of the following charges: (a) Inventory Reserves, (b) Warranty and Product Liability Reserves, and (c) Receivables Reserves. "Assignment Agreement": that certain Assignment Agreement dated as of May 1, 2001 between the Funding Affiliate and the Tranche B Lender, as the same may be amended, supplemented, modified, renewed or replaced from time to time. "Consent and Acknowledgment": that certain Consent and Acknowledgment dated as of May 1, 2001 among the Tranche B Lender, the Administrative Agent, the Funding Affiliate and the Note Purchaser, as the same may be amended, supplemented, modified, renewed or replaced from time to time. "Consolidated Free Cash Flow": for any period, Consolidated Net Income for such period, plus the sum, without duplication, of (i) an amount equal to the amount of all non-cash charges (including depreciation and amortization) deducted in arriving at such Consolidated Net Income, (ii) an amount equal to the aggregate net non-cash loss on the Disposition of property by the Borrower and its Subsidiaries during such fiscal period (other than sales of inventory in the ordinary course of business), to the extent deducted in arriving at such Consolidated Net Income, (iii)the decreases in Consolidated Working Capital for such period, (iv) the aggregate amount actually received by the Borrower and its Subsidiaries in cash on the account of sales of fixed or capital assets, (v) the decreases in amounts for such period that would, in conformity with GAAP, be set forth opposite the caption "total long term assets" (or any like caption) on a consolidated balance sheet other than decreases related to fixed or capital assets or related to the amortization of goodwill and other related non-cash charges, (vi) the increases in amounts for such period that would, in conformity with GAAP, be set forth opposite the caption "total long term liabilities" (or any like caption) on a consolidated balance sheet other than an increase related to the borrowing of $32,000,000 of Revolving Loans in January 2001, (vii) an amount equal to actual cash payments of Consolidated Interest Expense, (viii) an amount equal to the amount of cash payments on account of taxes, and minus the sum, without duplication, of (i) an amount equal to the amount of all non-cash credits included in arriving at such Consolidated Net Income, (ii) an amount equal to the aggregate net non-cash gain on the Disposition of property by the Borrower and its Subsidiaries during such period (other than sales of inventory in the ordinary course of business), to the extent included in arriving at such Consolidated Net Income, (iii) the increases in Consolidated Working Capital for such period, (iv) an amount equal to cash receipts and refunds on account of taxes, (v) the aggregate amount actually paid by the Borrower and its Subsidiaries in cash on the account of Capital Expenditures (excluding the principal amount of Indebtedness Incurred in connection with such expenditures), and (ix) the increases in amounts for such period that would, in conformity with GAAP, be set forth opposite the caption "total long term assets" (or any like caption) on a consolidated balance sheet other than increases related to fixed or capital assets or related to the reversal of amortization of goodwill and other related non-cash credits, and (vi) decreases in amounts for such period that would, in conformity with GAAP, be set forth opposite the caption "total long term liabilities" (or any like caption) on a consolidated balance sheet, other than a decrease that arises as a result of the repayment of the $32,000,000 of Revolving Loans on the Third Amendment Date. "Deposit Pledge and Security Agreement": means the pledge agreement, lock-box agreement and/or blocked account letter agreement delivered pursuant to the Third Amendment to the Administrative Agent granting a lien on, and dominion and control over, the deposit accounts of the Borrower and its Subsidiaries, as the same may be amended, supplemented, modified, renewed and replaced from time to time. "Funding Affiliate": IWPTP, LLC. "Inventory Reserves": for any period, the amounts charged in the statement of Consolidated Net Income for such period that (a) are required to reflect inventory at the lower of cost or market value, and (b) result in an adjustment to the balance sheet account "Inventory Reserve Provision". "Note Purchase Agreement": that certain Note Purchase Agreement dated as of May 1, 2001 between the Note Purchaser and the Funding Affiliate, as the same may be amended, supplemented, modified, renewed or replaced from time to time. "Note Purchaser": Joseph Littlejohn & Levy III Fund, L.P. "Receivables Reserves": for any period, the amounts charged in the statement of Consolidated Net Income for such period that (a) are required to reflect receivables at their estimated recoverable value, and (b) result in an adjustment reflected in the Borrower's consolidated balance sheet account "Allowance for Doubtful Accounts". "Subordination and Participation Agreement": that certain Subordination and Participation Agreement dated as of May 1, 2001 among the Funding Affiliate (and other co-participants, if any, acceptable to the Administrative Agent and the Tranche B Lender, in their sole discretion), the Tranche B Lender, and the Administrative Agent, as the same may be amended, supplemented, modified, renewed or replaced from time to time. "Third Amendment": the Third Amendment and Waiver dated as of May 1, 2001 to the Credit Agreement among MCII Holdings, Inc., Motor Coach Industries International, Inc., the Guarantors, Canadian Imperial Bank of Commerce, as Administrative Agent, General Electric Capital Corporation, as Documentation Agent, The Bank of Nova Scotia, as Syndication Agent and the other Lenders parties thereto. "Third Amendment Date": the Effective Date, as such term is defined in the Third Amendment. "Tranche B Borrowing Date": as defined in Section 2.6. "Tranche B Commitment": as to the Tranche B Lender, the obligation to make the Tranche B Loan to the Borrower hereunder in a principal amount not to exceed $8,500,000. "Tranche B Lender": Canadian Imperial Bank of Commerce. "Tranche B Loan": as defined in Section 2.6. "Tranche B Maturity Date": as defined in Section 2.7. "Tranche B Commitment Termination Date": May 31, 2001. "Warranty and Product Liability Reserves": for any period, the amounts charged in the statement of Consolidated Net Income for such period that (a) are accruals or reserves recorded in anticipation of a cash disbursement to be made in a future period on account of a warranty or product liability claim, and (b) result in an adjustment to the Borrower's consolidated balance sheet accounts "Warranty and Insurance Reserves - Current" or "Warranty and Insurance Reserves - Long Term". (B) The definition of "Applicable Margin" in Section 1.1 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: "Applicable Margin": for each Type of Loan the rate per annum set forth under the relevant column heading below: ABR Loans Eurodollar Loans All Term Loans and Revolving Loans 3.00% 4.00% Tranche B Loan N/A 5.00% (C) The definition of "Commitment" in Section 1.1 of the Credit Agreement is hereby amended by inserting the phrase", Tranche B Commitment" after the phrase "Term Commitment" on the first line thereof. (D) The definition of "Consolidated EBITDA" in Section 1.1 of the Credit Agreement is hereby amended by deleting the reference to "Section 7.6(c)(i)" in the last line thereof and replacing it with the phrase "Section 7.6(b)(i); provided, that the corporate overhead expenses referred to in this clause (d) shall not be deducted in the calculation of Consolidated EBITDA in determining compliance with the financial covenants set forth in Sections 7.1(e) and 7.1(f)." (E) The definition of "Consolidated Interest Expense" in Section 1.1 of the Credit Agreement is hereby amended by adding at the end thereof the following: "; provided, that for purposes of calculating Consolidated Interest Expense for any period of four consecutive fiscal quarters (a "Calculation Period") to determine the Consolidated Interest Coverage Ratio or the Consolidated Fixed Charge Coverage Ratio, if during such Calculation Period any Loan Party shall have made any payments permanently reducing outstanding Loans, Consolidated Interest Expense shall be calculated for such Calculation Period after giving pro forma effect to such reductions as if such payments occurred on the first day of such Calculation Period." (F) The definitions of "Covenant Smoothing Date", "Covenant Smoothing Method" and "Measurement Period" in Section 1.1 of the Credit Agreement are hereby deleted in their entirety. In addition, each of the definitions of "Consolidated Fixed Charge Coverage Ratio", "Consolidated Interest Coverage Ratio", "Consolidated Senior Leverage Ratio" and "Consolidated Total Leverage Ratio" in Section 1.1 of the Credit Agreement shall be amended by deleting therefrom the following proviso at the end thereof: "; provided, that the Borrower shall have the option at one time during the term of this Agreement to elect that during the Measurement Period, Consolidated EBITDA for purposes of determining compliance with the covenants contained in Section 7.1 be computed in accordance with the Covenant Smoothing Method" (G) The definition of "Facility" in Section 1.1 of the Credit Agreement is hereby amended by adding the following at the end thereof: "and (c) the Tranche B Commitments and the Tranche B Loans made thereunder (the "Tranche B Facility")." (H) The definition of "Interest Payment Date" in Section 1.1 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: "Interest Payment Date": means as to any Loan, the last Business Day of each calendar month and the date of any required or optional repayment or prepayment thereof, in all cases without regard to the Interest Period selected. (I) The definition of "Interest Period" in Section 1.1 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: "Interest Period": means as to any Eurodollar Loan, (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending one or three months thereafter (provided, that the two and six-month Interest Periods in existence on the Third Amendment Date shall be permitted until the expiration thereof), as selected by the Borrower in its notice of borrowing or notice of conversion, as the case may be, given with respect thereto; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one or three months thereafter, as selected by the Borrower by irrevocable notice to the Administrative Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; provided that, all of the foregoing provisions relating to the Interest Period are subject to the following: (i) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period that would otherwise extend beyond the Scheduled Revolving Termination Date or beyond the date final payment is due on the Term Loans shall end on the Revolving Termination Date or such due date, as applicable; (iii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; and (iv) the Borrower shall select Interest Periods so as not to require a payment or prepayment of any Eurodollar Loan during an Interest Period for such Loan. (J) The definition of "L/C Fee Payment Date" set forth in Section 1.1 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: "L/C Fee Payment Date": means the last Business Day of each calendar month and the last day of the Revolving Commitment Period. (K) The definition of "Majority Facility Lenders" set forth in Section 1.1 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: "Majority Facility Lenders": with respect to any Facility, the holders of more than 50% of the aggregate unpaid principal amount of the Term Loans, the Tranche B Loan or the Total Revolving Extensions of Credit, as the case may be, outstanding under such Facility (or, in the case of the Revolving Facility, prior to any termination of the Revolving Commitments, the holders of more than 50% of the Total Revolving Commitments). (L) The definitions of "Refunded Swingline Loans", "Refunding Date", "Swingline Commitment", "Swingline Lender", "Swingline Loans" and "Swingline Participation Amount" set forth in Section 1.1 of the Credit Agreement are hereby deleted in their entirety. (M) The definition of "Responsible Officer" set forth in Section 1.1 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: "Responsible Officer": means the chief executive officer, president, chief financial officer, senior vice president of finance of the Borrower, Mr. Steven Clough or Mr. Thomas Sorrells, notwithstanding their respective titles or offices with the Borrower, but only for so long as their employment contracts remain in full force and effect. (N) Section 2.4 of the Credit Agreement is hereby amended by adding a new sentence at the end thereof as follows: "Notwithstanding anything to the contrary set forth in this Agreement or the other Loan Documents, commencing on the Third Amendment Date and continuing through and including the Revolving Termination Date, the Total Revolving Commitments of the Revolving Lenders shall be limited to $143,500,000 and the remaining $8,500,000 of the Total Revolving Commitments shall be unavailable to the Borrower without the prior written consent of the Majority Revolving Facility Lenders. For so long as such portion of the Total Revolving Commitment remains unavailable, the Borrower shall have no right, and shall not make any request, to borrow, and the Revolving Lenders shall have no obligation whatsoever to make, Revolving Loans in respect thereof. Such aggregate unavailable portion shall be applied ratably to the Revolving Commitments of all Revolving Lenders." (O) Sections 2.6 and 2.7 of the Credit Agreement are hereby deleted in their entirety, the Swingline Commitment of the Swingline Lender is hereby terminated, and all references in the Credit Agreement and the other Loan Documents to any of the defined terms set forth in Section 3(L) above are hereby deleted. A new Section 2.6 and Section 2.7 of the Credit Agreement are hereby inserted as follows: "2.6 Tranche B Commitments. Subject to the terms and conditions hereof, the Tranche B Lender agrees to make a single term loan (the "Tranche B Loan") to the Borrower on a Business Day occurring on or before the Tranche B Commitment Termination Date in an amount equal to the Tranche B Commitment. The Tranche B Loan shall be a Eurodollar Loan and shall bear interest at a rate per annum equal to the sum of the Eurodollar Rate in effect from time to time and the Applicable Margin for such Tranche B Loan. The Borrower shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 10:00 a.m. New York City time, one Business Day prior to the requested date of borrowing) requesting that the Tranche B Lender make the Tranche B Loan on the date specified therein (such date, the "Tranche B Borrowing Date"). Upon receipt of such notice, the Administrative Agent shall promptly notify the Tranche B Lender thereof. No later than 1:00 p.m., New York City time, on the Tranche B Borrowing Date, the Tranche B Lender shall make available to the Administrative Agent at the Funding Office an amount in immediately available funds equal to the Tranche B Loan; provided, that, on or before such time, the Funding Affiliate shall have transferred, or caused to be transferred, to the Administrative Agent for the account of the Tranche B Lender, pursuant to the Subordination and Participation Agreement, an amount in immediately available funds equal to the Tranche B Commitment." "2.7 Repayment of Tranche B Loans. The Tranche B Loan shall mature on June 17, 2006 (the "Tranche B Maturity Date"), on which date the entire outstanding principal balance of the Tranche B Loan, together with all accreted interest thereon, shall become due and payable." (P) Section 2.8(a) of the Credit Agreement is hereby deleted in its entirety and replaced with the following: "2.8 Commitment Fees, etc. (a) The Borrower agrees to pay to the Administrative Agent for the account of each Revolving Lender a commitment fee for the period from and including the Closing Date to the last day of the Revolving Commitment Period, computed at the Commitment Fee Rate on the average daily amount of the Available Revolving Commitment of such Revolving Lender (whether or not a portion of such Revolving Lender's Commitment is unavailable to the Borrower as a result of Section 2.4) during the period for which payment is made, payable monthly in arrears on the last Business Day of each calendar month and on the Revolving Termination Date, commencing on the first of such dates to occur after the date hereof." (Q) Section 2.9 of the Credit Agreement is hereby amended by adding at the end thereof the following new sentence: "Any request by the Borrower to reduce the Revolving Commitments may designate in the written notice to the Administrative Agent to apply such reduction to the unavailable portion of the Revolving Commitments described in Section 2.4. Any such permanent reduction of all or any portion of such unavailable Revolving Commitments shall reduce the Available Revolving Commitment upon which the commitment fee under Section 2.8 is calculated." (R) Section 2.10 of the Credit Agreement is hereby amended by inserting in the second line thereof after the word "Loans" the parenthetical phrase "(other than the Tranche B Loan)" and inserting as a new second sentence, after the first sentence thereof, the following: "Notwithstanding anything herein to the contrary, neither the outstanding principal balance of the Tranche B Loan nor any accreted interest thereon may be repaid or prepaid prior to the Tranche B Maturity Date." (S) Section 2.11(d) of the Credit Agreement is hereby deleted in its entirety. (T) Section 2.14(d) of the Credit Agreement is hereby deleted in its entirety and replaced with the following: "(d) Interest on all Loans (other than the Tranche B Loan) shall be payable in arrears on each Interest Payment Date; provided that interest accruing pursuant to paragraph (c) of this Section 2.14 shall be payable from time to time on demand. Interest on the Tranche B Loan shall not be paid in cash, but rather shall be added to the principal balance of the Tranche B Loan, quarterly, in arrears, on the last Business Day of each calendar quarter and on the Tranche B Maturity Date and paid on the Tranche B Maturity Date." (U) Section 2.17(a) of the Credit Agreement is hereby amended by adding at the end thereof the following: "; provided, that with respect to the Tranche B Loan, the borrowing of the Tranche B Loan shall be funded by, and all payments by the Borrower in respect thereof shall be made for the account of, the Tranche B Lender only." (V) Section 2.17(b) of the Credit Agreement is hereby amended by deleting the second sentence thereof in its entirety and inserting a new second sentence as follows: "The amount of each principal prepayment of the Term Loans shall be applied to reduce the then remaining installments of the Term Loans in the inverse order of maturity." (W) Section 3.3(a) of the Credit Agreement is hereby amended by deleting the word "quarterly" in each place where such word appears in such Section 3.3(a) and inserting in its place the word "monthly". (X) Section 4.8 of the Credit Agreement is hereby amended to include the following sentence at the end thereof: "Schedule 4.8 sets forth the leasehold interests of real property held by each Loan Party as of the Third Amendment Date." (Y) Section 4.15 of the Credit Agreement is hereby amended by adding a new sentence to the end thereof as follows: "Schedule 4.15 also depicts an organizational chart of the Loan Parties and all of the Subsidiaries of each such Loan Party on and as of the Third Amendment Date." (Z) Section 4.16 of the Credit Agreement is hereby amended by adding a new sentence to the end thereof as follows: "The proceeds of the Tranche B Loan shall be used to satisfy the scheduled interest payment due and payable on May 1, 2001 in respect of the Senior Subordinated Notes only and for no other purpose; provided, that if the Borrower shall have paid such scheduled interest payment prior to the Tranche B Borrowing Date (as demonstrated to the reasonable satisfaction of the Administrative Agent), such proceeds shall be retained by the Borrower as reimbursement for such payment." (AA) Section 4.19 (a) of the Credit Agreement is hereby amended to include the following sentence at the end thereof: "Schedule 4.19(a) also sets forth the location of the books and records of each Loan Party as of the Third Amendment Date." (BB) A new Section 4.25 is hereby added to the end of Section 4 of the Credit Agreement as follows: "4.25 Material Contracts. The contracts and other agreements listed on Schedule 4.25 constitute as of the Third Amendment Date all of the material contracts and agreements to which any Loan Party is a party, including without limitation, all material union contracts and material collective bargaining agreements." (CC) A new Section 4.26 is hereby added to the end of Section 4 of the Credit Agreement as follows: "4.26 Deposit Accounts. The deposit accounts listed on Schedule 4.26 constitute as of the Third Amendment Date all of the deposit accounts maintained by the Loan Parties." (DD) Section 5.2 of the Credit Agreement is hereby amended by deleting the first three lines thereof and replacing such language as follows: "5.2 Conditions to Each Extension of Credit. The agreement of each Lender to make any extension of credit requested to be made by it on any date (including, without limitation, its initial extension of credit) is subject to the receipt by the Administrative Agent of a certificate of the Borrower executed by a Responsible Officer certifying as follows:" (EE) Section 5.2 of the Credit Agreement is further amended by deleting in its entirety the last sentence thereof. (FF) A new Section 5.3 to the Credit Agreement is hereby added to the end of Section 5.2 as follows: "5.3 Conditions to Tranche B Loan. The agreement of the Tranche B Lender to make the Tranche B Loan is subject only to the receipt by the Administrative Agent of (a) the written request for such Tranche B Loan from the Borrower, as provided in Section 2.6, and (b) the entire $8,500,000 purchase price for the participation of the Tranche B Loan from or on behalf of the Funding Affiliate." (GG) Section 6.1(c) of the Credit Agreement is hereby amended by inserting at the end thereof the following: ", together with a statement of Consolidated EBITDA, Consolidated Adjusted EBITDA and Consolidated Free Cash Flow for the thirteen calendar week period ended as at the end of such month; and" (HH) Section 6.1 of the Credit Agreement is hereby amended by adding at the end thereof a new subsection (d): "(d) notwithstanding the provisions of subsection (b) of this Section 6.1 or of subsection (b) of Section 6.2, on or before April 25, 2002, the financial statements described in subsection (b) of this Section 6.1 and the related certificates and reports described therein and of subsection (b) in Section 6.2, in respect of the fiscal quarter ended March 31, 2002 only." (II) Section 6.2(c) of the Credit Agreement is hereby amended by adding the following phrase at the end thereof: "; provided that notwithstanding the foregoing, the detailed consolidated budget and Projections for fiscal year 2002 shall be delivered on or before December 3, 2001;" (JJ) Section 6.2(g) of the Credit Agreement is hereby deleted in its entirety and replaced with the following: "(g) promptly upon receipt thereof, copies of all management letters received by the Parent, the Borrower or any of their Subsidiaries from their independent certified public accountants, together with copies of all written responses thereto from management, within five days after such responses are sent." (KK) Section 6.2 of the Credit Agreement is further amended hereby by adding at the end thereof the following new subsections (i), (j) and (k): "(i) simultaneously with the delivery of the financial statements required to be delivered under Section 6.1, (i) a certificate of a Responsible Officer stating that, to the best of each such Responsible Officer's knowledge, each Loan Party during such monthly period has observed and performed all of its covenants and other agreements, and satisfied every condition, contained in this Agreement and the other Loan Documents to which it is a party to be observed, performed or satisfied by it, and that such Responsible Officer has no knowledge of any Default or Event of Default, except as specified in such certificate and (ii) an additional Certificate of a Responsible Officer setting forth all information required to determine, and demonstrating in reasonable detail, compliance by the Parent, the Borrower and its Subsidiaries with the provisions of the financial condition covenants set forth in Section 7.1(e), (f) and (g) and Section 7.7; provided, that when delivered with the monthly financial statements and reports to be furnished under Section 6.1(c), the Certificate of a Responsible Officer required under this clause (ii) need not certify or demonstrate compliance with any of those financial condition covenants described herein to the extent such covenants are not measured or tested on a monthly basis;" "(j) on or before September 15, 2001, a detailed business plan (the "September Plan") for Borrower and its Subsidiaries (together with all Projections through and including fiscal year 2005); and" "(k) on or before October 15, 2001, a detailed restructuring plan for the operations and capital structure of the Borrower and its Subsidiaries." (LL) Section 6.9(b) of the Credit Agreement is hereby amended by deleting the period at the end thereof and inserting the following proviso: "; provided, that, with respect to such real property interests having a value (together with improvements) of less than $1,000,000, the Parent, the Borrower and/or the Domestic Subsidiaries shall be entitled to own unencumbered, and shall not be required to comply with the terms of this Section 6.9(b), one or more of such real property interests provided the value of all such real property interests in the aggregate does not exceed $5,000,000." (MM) Section 6.10 of the Credit Agreement is hereby amended by deleting the reference to "$10,000,000" on the second line thereof and replacing it with the number of "$2,000,000". (NN) A new Section 6.11 of the Credit Agreement is hereby added to the end of Section 6.10: "6.11 Books and Records. Keep and maintain and cause to be kept and maintained, accurate books and records of the Loan Parties at the respective locations identified for such in Schedule 4.19(a) and shall not remove such books and records or change such location without the prior written consent of the Administrative Agent and furnishing to the Administrative Agent a revised Schedule 4.19(a) showing such new location." (OO) Section 7.1 of the Credit Agreement is hereby amended by adding at the end thereof new subsections (e), (f) and (g) as follows: "(e) Minimum Consolidated EBITDA. Permit cumulative Consolidated EBITDA for the period beginning January 1, 2001 and ending on the following dates to be less than the amounts set forth opposite such dates: Cumulative Fiscal Quarter Ended Consolidated EBITDA -------------------- ------------------- March 31, 2001 $6,300,000 June 30, 2001 $22,100,000 September 30, 2001 $ 32,000,000 December 31, 2001 $ 52,200,000" "(f) Minimum Consolidated Adjusted EBITDA. Permit cumulative Consolidated Adjusted EBITDA for the period beginning January 1, 2001 and ending on the following dates to be less than the amounts set forth opposite such dates: Cumulative Consolidated Fiscal Quarter Ended Adjusted EBITDA -------------------- ------------------- March 31, 2001 $13,200,000 June 30, 2001 $36,600,000 September 30, 2001 $55,400,000 December 31, 2001 $81,800,000" "(g) Minimum Consolidated Free Cash Flow. Permit cumulative Consolidated Free Cash Flow beginning January 1, 2001 and ending on the following dates to be less than the amounts set forth opposite such dates:" Cumulative Consolidated Fiscal Quarter Ended Free Cash Flow -------------------- ------------------- March 31, 2001 $-0- June 30, 2001 $-0- September 30, 2001 $7,100,000 December 31, 2001 $71,600,000 ; provided, that if such cumulative Consolidated Free Cash Flow from January 1, 2001 is less than the minimum required amount set forth above for any of the cumulative periods terminating at the end of the fiscal quarters described above, then, notwithstanding the terms of this sentence, the Borrower and the Parent shall nevertheless be in compliance with this Section 7.1(g) for such cumulative period if the cumulative Consolidated Free Cash Flow for the period commencing January 1, 2001 and ending on the last day of the calendar month immediately succeeding such fiscal quarter end equals or exceeds the minimum required amount set forth opposite the related month end date set forth below: Cumulative Consolidated Cumulative Period Ended Free Cash Flow ----------------------- -------------- April 30, 2001 $4,700,000 July 31, 2001 $17,300,000 October 31, 2001 $-0- January 31, 2002 $81,600,000 provided further, that the amounts set forth opposite the fiscal quarters ended June 30, September 30 and December 31, and the related months ended July 31, October 31 and January 31 set forth in the tables above in this Section 7.1(g) shall each be reduced by the Adjustment Amount, if the Borrower or one or more of its Subsidiaries shall fail to complete a sale of receivables in an amount not less than $11,600,000 into a Qualified Securitization Transaction after the Third Amendment Date but prior to June 30, 2001 (such period, the "Receivables Period"). The Borrower expressly acknowledges and agrees that it shall demonstrate its compliance with the foregoing Consolidated Free Cash Flow covenant in respect of each applicable month-end by delivery of a Certificate of a Responsible Officer within 30 days after the end of such month in accordance with Section 6.2(i). For purposes hereof, the "Adjustment Amount" shall mean the excess, if any, of the sum of $11,600,000, less the aggregate amount of receivables sold by the Borrower or one or more of its Subsidiaries into a Qualified Securitization Transaction during the Receivables Period." (PP) Section 7.2(c) of the Credit Agreement is hereby amended by deleting the reference to "$10,000,000" in the third line thereof and replacing it with "$2,000,000". (QQ) Section 7.2(i) of the Credit Agreement is hereby amended by deleting the phrase "the sum of (i) $10,000,000 and (ii) the then unused Permitted Expenditure Amount" in the third and fourth lines thereof and replacing such phrase with "the sum of (i) $2,000,000, (ii) the Indebtedness for insurance premium financing described on Schedule 7.2(i) and (iii) Indebtedness consisting of residual interest guaranties and first loss indemnities entered into in connection with customer financing, not to exceed $33,000,000 in the aggregate outstanding at any time". (RR) Section 7.7 of the Credit Agreement is hereby amended by deleting the proviso at the end thereof in its entirety and replacing it with the following:" ; provided, that if any amount of the permitted Base CapEx Amount shown above for any fiscal year is not expended in the fiscal year for which it is permitted, such unexpended amount may be carried over for expenditure in the next succeeding fiscal year only; provided further, that notwithstanding the foregoing, with respect to Capital Expenditures during the Borrower's fiscal year 2001, the Borrower will not make or commit to make, or permit any Subsidiary to make or commit to make, any Capital Expenditures otherwise permitted by the terms of this Section 7.7, if the effect thereof would cause the cumulative Capital Expenditures of the Borrower and its Subsidiaries from January 1, 2001 as at the end of each fiscal quarter set forth below to exceed the respective amounts set forth opposite such dates: Cumulative Capital Fiscal Quarter Ended Expenditures -------------------- ------------ March 31, 2001 $3,600,000 June 30, 2001 $6,300,000 September 30, 2001 $9,900,000 December 31, 2001 $11,000,000 (SS) Section 7.6 of the Credit Agreement is hereby amended by deleting in their entirety subsections (b), (c) and (d) thereof and inserting the following as a new subsection (b) at the end thereof:" "(b) the Borrower may pay dividends to the Parent to permit the Parent to (i) pay corporate overhead expenses incurred in the ordinary course of business in an annual amount not to exceed $1,000,000 in any fiscal year of the Borrower and (ii) pay any taxes that are due and payable by the Parent and the Borrower as part of a consolidated group and to make payments under the Tax Sharing Agreement; provided, that for purposes of calculating the amount of those dividends permitted under this Section 7.6(b) during the Borrower's fiscal year 2001, such calculation shall not take into account the amount of dividends made by the Borrower to the Parent during such fiscal year 2001 as set forth on Schedule 7.6(b) hereof." (TT) Section 7.8 of the Credit Agreement is hereby amended by deleting subsection (d) in its entirety and replacing it with the following: "(d) loans and advances to employees of the Parent, the Borrower or any of Borrower's Subsidiaries in connection with the relocation, recruitment or retention of such employees in the ordinary course of business, in an aggregate amount not to exceed $2,000,000 at any one time outstanding, plus $50,000 at any one time outstanding in the aggregate for employees in Mexico;" (UU) Section 7.8 of the Credit Agreement is further amended by (i) deleting in subsection (k) thereof the phrase "$15,000,000 and the then unused Permitted Expenditure Amount on the date upon which such Investment is made;" in the third and fourth lines thereof and replacing it with "$2,000,000;" and (ii) adding as a new subsection (l) the following: "(l) the Investments set forth in Schedule 7.8(l);" (VV) Section 7.8 is further amended by adding at the end thereof a new subsection (m) as follows: "(m) Investments existing as of the Third Amendment Date in Motor Coach Industries Mexico S.A. de C.V. ("Autobuses") by Motor Coach Industries Limited ("MCIL") arising as a result of conversion of debt owing by Autobuses to MCIL into equity up to but not exceeding U.S. $67,200,000; and (WW) Section 7.8 is further amended by adding at the end thereof a new subsection (n) as follows: "(n) Loans by the Borrower to fund temporary cash shortfalls in the collateral accounts established under the receivables securitization financing (SPARC) referenced in Schedule 7.8(l), in an amount not to exceed $2,000,000 at any one time outstanding; provided that any funding of such cash shortfall (for any month) by the Borrower shall be permitted only to the extent that (i) such funding relates to receivables which were uncollected during such month and (ii) the Borrower shall have provided the Administrative Agent with a Certificate of a Responsible Officer setting forth the amounts of such funding and the corresponding amount of the uncollected receivables in respect of which such funding was made." (XX) Section 7.8 of the Credit Agreement is further amended by adding at the end thereof the following proviso modifying each of subsections (a) through (n) thereof: "provided, that except to the limited extent described in subsection (n) only, nothing in this Section 7.8 shall permit, or be construed to allow, directly or indirectly, any loan to or Investment in the Parent or the Sponsor, which loans or Investments are expressly prohibited hereby." (YY) Section 7.10 of the Credit Agreement is hereby amended by deleting in its entirety clause (b) in the second sentence thereof and inserting at the end of such Section 7.10, the following: "Notwithstanding anything herein to the contrary, the Parent, the Borrower and the other Loan Parties agree that they shall not pay, or cause or permit to be paid, directly or indirectly, to the Sponsor or any of its Control Investment Affiliates or other Persons involved in the management of the Borrower any management or other fee pursuant to a management agreement or otherwise." (ZZ) Section 7 of the Credit Agreement is hereby further amended by adding a new Section 7.17, after the end of Section 7.16, as follows: "7.17 Deposit Accounts. Maintain or establish, or permit to be maintained or established, any deposit accounts in the name or on behalf of any Loan Party other than the deposit accounts identified on Schedule 4.26, nor permit any payment received or to be received by any Loan Party to be deposited into any account other than one of the deposit accounts shown on Schedule 4.26. The parties acknowledge and agree that the Borrower may establish and maintain, or permit the other Loan Parties to establish and maintain, other deposit accounts provided such other deposit accounts are pledged and made subject to the Deposit Pledge and Security Agreement and the Borrower delivers a revised Schedule 4.26 identifying all such other deposit accounts." (AAA) Section 8 of the Credit Agreement is hereby amended by adding the word "or" after the semicolon at the end of subsection (m) thereof and adding a new subsection (n) as follows: "(n) The Funding Affiliate shall fail to fund, or cause to be funded, in accordance with the terms of the Subordination and Participation Agreement, the purchase of a 100% participation interest in the Tranche B Loan on or prior to May 31, 2001, or if the Note Purchaser shall fail to keep or perform any covenant or undertaking on its part to be kept or performed, under or connection with the Note Purchase Agreement, the Assignment Agreement or the Consent and Acknowledgment." (BBB) Section 8 of the Credit Agreement is further amended by deleting the reference to "Supermajority Revolving Facility Lenders" in each place in subclause (i) of clause (B) in the last full paragraph of Section 8 and replacing it in each place with "Majority Revolving Facility Lenders". (CCC) Section 11.1 of the Credit Agreement is hereby amended by deleting the word "or" before the number "(vii)" on the ninth line from the bottom thereof and inserting on the eighth line from the bottom after the phrase "Issuing Lender" the following: "; or (viii) amend, modify or waive any provision of the Tranche B Loans or Tranche B Obligations without the consent of the Tranche B Lender". (DDD) Section 11.5 of the Credit Agreement is hereby amended by (i) inserting on the fifth line of subsection (a) thereof after the word "therewith," the phrase "(including without limitation, the out-of-pocket costs and expenses incurred by the Administrative Agent and the Tranche B Lender in preparing and executing the Subordination and Participation Agreement)," (ii) inserting at the end of subsection (b) thereof the phrase "and of the financial advisor to counsel to the Administrative Agent," and (iii) inserting on the sixth line of subsection (d) thereof after the phrase "Loan Documents" the phrase ", the Subordination and Participation Agreement." (EEE) Section 11.6(c) of the Credit Agreement is hereby amended by (i) deleting in its entirety the last sentence thereof and (ii) deleting in its entirety the first sentence thereof and replacing it with the following three sentences: "Any Lender (an "Assignor") may, in accordance with applicable law and with the consent of the Administrative Agent and, in the case of a transfer by any Revolving Lender of all or any part of its Revolving Commitment or Revolving Loans to a Person other than a Lender, an affiliate thereof or any Related Fund thereof, CIBC and, so long as the Securitization L/C shall be outstanding, The Bank of Nova Scotia (which consent shall not be unreasonably withheld or delayed), at any time and from time to time assign to any Lender, any affiliate thereof or any Related Fund thereof (any such party a "Related Party") or to an additional bank, financial institution or other entity (an "Assignee") all or any part of its rights and obligations under this Agreement pursuant to an Assignment and Acceptance, substantially in the form of Exhibit E, executed by such Assignee, such Assignor and the Administrative Agent, and delivered to the Administrative Agent for its acceptance and recording in the Register; provided that no such assignment to an Assignee (other than a Related Party) shall be in an aggregate principal amount of less than $5,000,000 (other than in the case of an assignment of all of a Lender's interests under this Agreement), unless otherwise agreed by the Administrative Agent. Upon the Borrower's written request, from time to time, the Administrative Agent shall provide to Borrower a list identifying the identity of all Lenders shown in the Register." (FFF) Section 11.6 of the Credit Agreement is hereby amended by adding new third, fourth and fifth sentences in subsection (b) immediately after the second sentence thereof as follows: "Notwithstanding the foregoing, no Participant of all or any portion of the Tranche B Loan shall have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure therefrom by any Loan Party or vote to exercise or to refrain from exercising any right, remedy or privilege under any Loan Document. Nothing in this Section 11.6(b) shall impair or affect the right of the Tranche B Lender to approve any amendment or waiver or consent in respect of the Tranche B Loan. The Tranche B Lender shall have no obligation to consult with or obtain the consent or approval of any Participant of all or any part of the Tranche B Loan with respect to any matters concerning the Tranche B Loan, it being expressly acknowledged and agreed that the Tranche B Lender shall have the sole discretion to make all decisions regarding or in respect of the Tranche B Loan." (GGG) Section 11.6 of the Credit Agreement is hereby further amended by adding, both in the fourteenth line from the bottom of subsection (b) immediately after the word "Participant" and in the eighth line from the bottom of subsection (b) after the word "Participant", the following parenthetical phrase: "(other than a Participant of all or any portion of the Tranche B Loan)" (HHH) Section 11.6(b) of the Credit Agreement is hereby further amended by adding at the end thereof a new sentence follows: "No Participant of all or any portion of the Tranche B Loan shall be entitled (i) to have any right of setoff in respect of its participating interests in the Tranche B Loan, or (ii) to have any of the benefits of Section 2.18, 2.19 or 2.20." SECTION 4. Amendments to Annexes, Schedules and Exhibits. --------------------------------------------- (A) Annex A to the Credit Agreement is hereby amended to delete each of the four columns in the table set forth thereon showing the range of Applicable Margins for Revolving Loans and Term Loans and to delete all references to the Applicable Margin in the paragraph shown under the table. (B) Schedule 1.1.A to the Credit Agreement is hereby amended to add the following table at the end thereof: Tranche B Lender Tranche B Commitment ---------------- -------------------- Canadian Imperial Bank of Commerce $8,500,000 (C) A new Schedule 4.8 is hereby added to the Credit Agreement in the form of Schedule 4.8 attached hereto. (D) Schedule 4.15 is hereby amended to add at the end thereof the chart depicted on Schedule 4.15 hereto. (E) Schedule 4.19(a) is hereby amended to include the information shown on the Form of Schedule 4.19(a) attached hereto. (F) A new Schedule 4.25 is hereby added to the Credit Agreement in the form of Schedule 4.25 attached hereto. (G) A new Schedule 4.26 is hereby added to the Credit Agreement in the form of Schedule 4.26 attached hereto. (H) A new Schedule 7.6(b) is hereby added to the Credit Agreement in the form of Schedule 7.6(b) attached hereto. (I) A new Schedule 7.2(i) is hereby added to the Credit Agreement in the form of Schedule 7.2(i) attached hereto. (J) A new Schedule 7.8(l) is hereby added to the Credit Agreement in the form of Schedule 7.8(l) attached hereto. SECTION 5. Extension Fee. The Borrower hereby agrees to pay to the Administrative Agent, for the ratable benefit of the Lenders which shall have executed and delivered counterparts of this Amendment and Waiver by or before 5:00 p.m. (New York City time) on the fifth Business Day occurring after the Effective Date (as hereinafter defined) (each such Lender, a "Consenting Lender"), by wire transfer of immediately available funds, a non-refundable fee (the "Extension Fee"). The Borrower agrees to pay to the Administrative Agent on the Effective Date the sum of $4,550,556. The Administrative Agent shall distribute the Extension Fee ratably to the Consenting Lenders in an amount for each Consenting Lender equal to 1.00% of the sum of (i) the outstanding principal balance of Term Loans held by such Consenting Lender and (ii) the Revolving Commitment of such Consenting Lender. The Administrative Agent shall return to the Borrower the excess, if any, of the Extension Fee paid less the amounts distributed to the Consenting Lenders pursuant to the preceding sentence, together with a list of all Consenting Lenders and the amount of the Extension Fee distributed to each. SECTION 6. Representations and Warranties. Each of the Loan Parties represents and warrants to the Agents and the Lenders that: (A) the execution, delivery and performance by the Loan Parties of this Amendment and Waiver and the performance by the Loan Parties of the Credit Agreement as modified by this Amendment and Waiver (i) have been duly authorized by all requisite corporate action on the part of the Loan Parties; and (ii) will not (x) violate (A) any provision of any statute, rule or regulation or the Certificate of Incorporation or By-laws (or similar governing documents) of the Loan Parties, (B) any applicable order of any court or any rule, regulation or order of any other agency of government or (C) any indenture, agreement or other instrument to which any of the Loan Parties is a party or by which any of the Loan Parties or any of their respective property is bound and (y) be in conflict with, result in a breach of or constitute (with notice or lapse of time or both) a default under any such indenture, agreement or other instrument; (B) upon the occurrence of the Effective Date (as hereinafter defined), this Amendment and Waiver will constitute the legal, valid and binding obligation of the Loan Parties, enforceable in accordance with its terms, except as the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting creditors' rights generally and by general equitable principles (regardless of whether the issue of enforceability is considered in a proceeding in equity or at law); and (C) after giving effect to this Amendment and Waiver, (i) no Default or Event of Default has occurred and is continuing; and (ii) all representations and warranties by the Borrower and the Guarantors pursuant to the Credit Agreement and the other Loan Documents to which each is a party are true, correct and complete in all material respects on and as of the date hereof with the same effect as if such representations and warranties had been made on and as of the date hereof. SECTION 7. Effective Date. This Amendment and Waiver shall not become effective until the date (the "Effective Date") on which the following conditions precedent shall have been satisfied: (A) The Agents shall have received fully executed counterparts of this Amendment and Waiver executed by the Loan Parties, the Agents and the Required Lenders. (B) The Administrative Agent shall have received, by wire transfer of immediately available funds, for the ratable benefit of the Revolving Lenders, a principal repayment of outstanding Revolving Loans in the amount of $32,000,000 together with all accrued and unpaid interest thereon and all amounts, if any, payable pursuant to Section 2.20 of the Credit Agreement. (C) The Administrative Agent shall have received, by wire transfer of immediately available funds, for the ratable benefit of the Consenting Lenders, the Extension Fee. (D) The Administrative Agent shall have received a fully executed counterpart of the amended and restated fee letter agreement from the Borrower (the "Amended Fee Letter"). (E) The Administrative Agent shall have received, by wire transfer of immediately available funds, all amounts payable to the Administrative Agent under the Amended Fee Letter. (F) The Administrative Agent shall have received copies of the fully executed employment contracts between the Borrower and Mr. Steven Clough and Mr. Thomas Sorrells, the terms of which shall be reasonably satisfactory to the Administrative Agent. (G) The Administrative Agent shall have received fully executed copies of all existing Interest Rate Protection Agreements entered into by the Borrower. (H) The Administrative Agent shall have received an executed copy of the Engagement Letter for E&Y Capital Advisors in form and substance satisfactory to the Administrative Agent. (I) The Administrative Agent and the Tranche B Lender shall have received fully executed counterparts of the Subordination and Participation Agreement. (J) The Administrative Agent shall have received, in a sufficient number for each Lender, the financial statements and related certificates and reports (including, without limitation, the Compliance Certificate) required to be delivered under Sections 6.1 and 6.2 of the Credit Agreement, including, without limitation, an opinion from Borrower's auditors without a going concern or other qualification (after giving effect to this Amendment and Waiver), and otherwise in form and substance satisfactory to the Administrative Agent. (K) The Agents, the Lenders, counsel for the Agents and the financial advisor to such counsel shall have received, by wire transfer of immediately available funds, the amounts invoiced to the Borrower and required to be paid to such parties under Section 10 of this Amendment and Waiver. (L) The Administrative Agent shall have received favorable written opinions from counsel to the Loan Parties, the Funding Affiliate and the Note Purchaser, in each case in form and substance satisfactory to counsel for the Administrative Agent. (M) No Default or Event of Default (which has not been waived hereunder) shall have occurred and be continuing. (N) All representations and warranties contained in this Amendment and Waiver shall be true and correct in all material respects. (O) The Administrative Agent and the Tranche B Lender shall have received fully executed counterparts of the Note Purchase Agreement, the Assignment Agreement and the Consent and Acknowledgment, in each case in form and substance satisfactory to the Administrative Agent and the Tranche B Lender. (P) The Administrative Agent and its counsel shall have received such other information, materials and documentation as either of the Administrative Agent or its counsel may reasonably request, which information, materials and documentation shall be satisfactory in form and substance to the Administrative Agent and its counsel. (Q) All legal matters incident to the effectiveness of this Amendment and Waiver shall be satisfactory to the Administrative Agent and its counsel. SECTION 8. Post Effective Date Conditions. Each of the following subsequent conditions shall have been satisfied on or before the respective dates set forth below, it being expressly acknowledged and agreed that any failure to keep, perform and satisfy the undertaking specified below shall cause the waiver granted in this Amendment and Waiver to cease to be in effect immediately, as specified in Section 11 of this Amendment and Waiver: (A) On or before June 15, 2001, and at such times thereafter as the Administrative Agent may reasonably request, each Loan Party shall (i) execute and deliver such UCC amendments and additional UCC-1 financing statements as the Administrative Agent may request in order to continue to perfect the Administrative Agent's security interest in the Collateral under the Uniform Commercial Code (including revised Article 9). (B) On or before June 15, 2001, a Mortgage, duly executed and delivered to a title insurance company for recording, encumbering each of the facilities in Louisville, Kentucky and Boggy Creek/Orlando, Florida, together with a marked lender's title insurance policy, ALTA survey, evidence of property damage and liability insurance coverage and information demonstrating the satisfactory environmental status of such facilities, in each case in form and substance reasonably satisfactory to the Administrative Agent; (C) On or before May 21, 2001, duly executed Deposit Pledge and Security Agreements encumbering each of the deposit accounts set forth on Schedule 4.26 and in form and substance reasonably satisfactory to the Administrative Agent; (D) On or before June 1, 2001, an opinion of Mexican counsel as to the perfection of the pledge and security interests granted under the Stock Pledge Agreement dated July 31, 2000, together with a new dated authorization letter in connection therewith, each in form and substance reasonably satisfactory to the Administrative Agent; (E) On or before June 1, 2001, the information requested in the letter dated as of the date hereof from the Administrative Agent to the Borrower, in each case in form and substance reasonably satisfactory to the Administrative Agent; and (F) On or before May 8, 2001, updated and revised Schedules to the Credit Agreement (other than those specifically amended or added pursuant to this Amendment and Waiver) together with a Certificate of a Responsible Officer that all of the information set forth on such updated and revised Schedules is true and correct and that all relevant representations are true and correct as if made on and as of the date of such Certificate, in each case in form and substance reasonably satisfactory to the Administrative Agent. The parties hereto agree that any one or more of the dates specified in this Section 8, by which the Borrower must perform or satisfy, or cause to be performed or satisfied, the conditions subsequent described herein, may be extended by the Administrative Agent, in its sole discretion, for an additional period not exceeding ninety (90) days, at the written request of the Borrower, without the affirmative vote or consent of the Lenders. SECTION 9. Confirmation and Acknowledgement of the Obligations: Release. The Borrower hereby (i) confirms and acknowledges to the Agents and the Lenders that it is validly and justly indebted to the Agents and the Lenders for the payment of all Obligations without offset, defense, cause of action or counterclaim of any kind or nature whatsoever and (ii) reaffirms and admits the validity and enforceability of the Credit Agreement and the Loan Documents and the Liens in the Collateral which were granted pursuant to the Loan Documents or otherwise. Each of the Sponsor and each Loan Party, on its own behalf and on behalf of its successors and assigns, hereby waives, releases and discharges the Agents and each Lender and all of the affiliates of the Agents and each Lender, and all of the directors, officers, employees, attorneys, agents, successors and assigns of each of the Agents, each Lender and such affiliates, from any and all claims, demands, actions or causes of action (known and unknown) arising out of or in any way relating to the Loan Documents and any documents, agreements, dealings or other matters connected with any of the Loan Documents, in each case to the extent arising (x) on or prior to the date hereof or (y) out of, or relating to, actions, dealings or matters occurring on or prior to the date hereof. The waivers, releases, and discharges in this Section 8 shall be effective regardless of whether the conditions to this Amendment and Waiver are satisfied and regardless of any other event that may occur or not occur after the date hereof. SECTION 10. Costs and Expenses. The Borrower agrees that its obligations set forth in Section 11.5 of the Credit Agreement shall extend to the preparation, execution and delivery of this Amendment and Waiver and any other documentation contemplated hereby (whether or not this Amendment and Waiver becomes effective or the transactions contemplated hereby are consummated), including, but not limited to, the reasonable fees and disbursements of Clifford Chance Rogers & Wells LLP, counsel for the Agents, and E&Y Capital Advisors LLC, financial advisor to Clifford Chance Rogers & Wells LLP. SECTION 11. Lapse of Waiver. The Borrower agrees that its failure to comply with any provision of this Amendment and Waiver shall cause the waiver granted hereby to cease to be in effect immediately, without the passage of any grace period and without the requirement of any prior notice from or further action on the part of any Lender or any Agent. SECTION 12. Limited Waiver; Ratification of Credit Agreement. (A) Except to the extent hereby waived or modified, the Credit Agreement and each of the Loan Documents remain in full force and effect and are hereby ratified and affirmed. (B) This Amendment and Waiver shall be limited precisely as written and shall not be deemed (i) to be a consent granted pursuant to, or a waiver or modification of, any other term or condition of the Credit Agreement or any of the instruments or agreements referred to therein or a waiver of any other Default or Event of Default under the Credit Agreement, whether or not known to any of the Agents or the Lenders or (ii) to prejudice any other right or rights which the Agents or the Lenders may now have or have in the future under or in connection with the Credit Agreement or any of the instruments or agreements referred to therein. Except to the extent hereby waived or modified, the Credit Agreement and each of the Loan Documents shall continue in full force and effect in accordance with the provisions thereof on the date hereof and the Credit Agreement as heretofore amended or modified and as modified by this Amendment and Waiver are hereby ratified and confirmed. As used in the Credit Agreement, the terms "Credit Agreement, "this Agreement," "herein," "hereafter," "hereto," "hereof," and words of similar import, shall, unless the context otherwise requires, mean the Credit Agreement as modified by this Amendment and Waiver. Reference to the terms "Agreement" or "Credit Agreement" appearing in the Exhibits or Schedules to the Credit Agreement or in the other Loan Documents shall, unless the context otherwise requires, mean the Credit Agreement as modified by this Amendment and Waiver. SECTION 13. Counterparts. This Amendment and Waiver may be executed in any number of counterparts and by the 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 taken together shall constitute but one and the same instrument. Delivery of an executed counterpart of a signature page of this Amendment and Waiver by facsimile shall be effective as delivery of a manually executed counterpart of this Amendment and Waiver. SECTION 14. Loan Document. This Amendment and Waiver is a Loan Document pursuant to the Credit Agreement and shall (unless expressly indicated herein) be construed, administered, and applied in accordance with all of the terms and provisions of the Credit Agreement. SECTION 15. GOVERNING LAW. THIS AMENDMENT AND WAIVER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. SECTION 16. Successors and Assigns. The provisions of this Amendment and Waiver shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. SECTION 17. Further Assurances. Each of the Loan Parties expressly acknowledges and agrees (i) to enter into such other or further documents, and to take such other or further actions that may be necessary or, in the opinion of the Administrative Agent, desirable to perfect, preserve or protect the liens and security interests created under the Security Documents and (ii) to grant liens on such other or further property or assets of the Loan Parties not currently encumbered to secure the Obligations as the Administrative Agent may require (including, but not limited to, the equity interests of any Inactive Subsidiaries, any Securitization Entity, any other Domestic or Foreign Subsidiary, foreign intellectual property, real property, chattel paper, and assets having a certificate of title); provided, that no Loan Party shall have any obligation to grant liens on any such other or further property to the extent that such Loan Party can demonstrate, to the reasonable satisfaction of the Administrative Agent, that the granting of such lien would have a material and adverse tax consequence to the Loan Parties. SECTION 18. Acknowledgement and Consent. (A) Each Guarantor hereby acknowledges that it has read this Amendment and Waiver and consents to the terms hereof and further confirms and agrees that, notwithstanding the effectiveness of this Amendment and Waiver, its obligations under (i) the Guarantee and Collateral Agreement, in respect of the Subsidiary Guarantors and (ii) Section 10 of the Credit Agreement, in respect of the Parent, shall not be impaired or affected and shall continue to be, in full force and effect and are hereby confirmed and ratified in all respects. (B) Each Guarantor hereby confirms and acknowledges that it is validly and justly indebted to the Agents and the Lenders for the payment of all of the Obligations which it has guaranteed, without offset, defense, cause of action or counterclaim of any kind or nature whatsoever. (C) Each Guarantor hereby reaffirms and admits the validity and enforceability of the Credit Agreement and the Loan Documents and the Liens in the Collateral which were granted pursuant to the Loan Documents or otherwise. SECTION 19. Headings. The headings of this Amendment and Waiver are for the purposes of reference only and shall not affect the construction of, or be taken into consideration in interpreting, this Amendment and Waiver. SECTION 20. Integration. This Amendment and Waiver represents the entire agreement of the parties hereto with respect to the amendment of the Credit Agreement and the terms of any letters and other documentation entered into between the parties prior to the execution of this Amendment and Waiver which related to the amendment of the Credit Agreement shall be replaced by the terms of this Amendment and Waiver. SECTION 21. Consultation with Advisors. The Loan Parties acknowledge that they have consulted with counsel and with such other experts and advisors as they have deemed necessary in connection with the negotiation, execution and delivery of this Amendment and Waiver. This Amendment and Waiver shall be construed without regard to any presumption or rule requiring that it be construed against the party causing this Amendment and Waiver or any part thereof to be drafted. SECTION 22. Severability. If any provisions of this Amendment and Waiver shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or enforceability without in any manner affecting the validity or enforceability of such provision in any other jurisdiction or the remaining provisions of this Amendment and Waiver in any jurisdiction. SECTION 23. Survival. All representations, warranties, covenants, agreements, undertakings, waivers and releases of each of the Loan Parties and the Sponsor contained herein shall survive the Waiver Termination Date and the indefeasible payment in full in cash of the Obligations. SECTION 24. Amendment. No amendment, modification, rescission, waiver or release of any provision of this Amendment and Waiver shall be effective unless the same shall be in writing and signed by the Loan Parties, the Administrative Agent, and the Required Lenders. SECTION 25. Intercreditor Arrangement. If on or before May 1, 2002, an Event of Default described in clauses (i) or (ii) of Section 8(f) of the Credit Agreement occurs (such date, the "Insolvency Date"), then the Revolving Lenders agree irrevocably to accept and purchase from the Term Lenders, and the Term Lenders agree to sell to the Revolving Lenders, an undivided participating interest in the outstanding Term Loans in an aggregate amount equal to the True-Up Amount (as hereinafter defined). The purchase price to be paid by each Revolving Lender shall be equal to such Revolving Lender's Revolving Percentage of the True-Up Amount. The Term Lenders shall share ratably in the True-Up Amount paid by the Revolving Lenders in accordance with the outstanding principal amount of the Term Loans then owing to each. For purposes hereof, (x) the "True-Up Amount" shall mean the product of the Proration Amount multiplied by the Revolving Commitment Reduction, (y) the "Revolving Commitment Reduction" shall mean on the Insolvency Date the amount of the Total Revolving Commitments then unavailable pursuant to Section 2.4 or pursuant to a voluntary reduction by the Borrower prior to the Insolvency Date, but in all events in an amount which shall not exceed $8,500,000 in the aggregate, and (z) the "Proration Amount" shall mean the percentage (expressed as a decimal) that the aggregate outstanding Term Loans on the Insolvency Date represent of the sum of (i) the aggregate outstanding Term Loans on the Insolvency Date, plus (ii) the amount of the Total Revolving Commitments on the Insolvency Date, less any portion thereof then unavailable pursuant to Section 2.4. [The remainder of this page intentionally left blank] IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Waiver to be duly executed as of the day and the year first above written. MCII HOLDINGS, INC., as Parent and a Guarantor By: --------------------------------------- Name: Title: MOTOR COACH INDUSTRIES INTERNATIONAL, INC., as the Borrower By: -------------------------------------------- Name: Title: BUSLEASE, INC., as a Guarantor By: ------------------------------------------- Name: Title: MCI SALES AND SERVICE, INC. (formerly known as Hausman Bus Sales, Inc.), as a Guarantor By: ------------------------------------------- Name: Title: MOTOR COACH INDUSTRIES, INC., as a Guarantor By: ------------------------------------------- Name: Title: TRANSIT BUS INTERNATIONAL, INC., as a Guarantor By: ------------------------------------------- Name: Title: MCI SERVICE PARTS, INC. (formerly known as Universal Coach Parts, Inc.), as a Guarantor By: ------------------------------------------- Name: Title: JOSEPH LITTLEJOHN & LEVY, INC., as Sponsor, solely in respect of Section 9 By: ------------------------------------------- Name: Title: MCII FINANCIAL SERVICES II, INC. By: ------------------------------------------- Name: Title: Schedule 4.8 Leasehold Interests Schedule 4.15 Organizational Chart Schedule 4.25 Material Contracts Schedule 4.19 (a) Schedule 4.26 Deposit Accounts Name Account No. Bank ---- ----------- ---- Schedule 7.2(i) Additional Indebtedness Indebtedness Purpose Amount ------------ ------- ------ AFCO Insurance Premium Loan Annual Financing of Director $2,055,000 and Officers Property & Casualty and Other Insurance Premiums Total Scheduled Additional Indebtedness $2,055,000 Schedule 7.6(b) 2001 Dividends to Parent Schedule 7.8(l) Other Investments Intercompany Account with MCI US Holdings Inc. Note Receivable related to Jim Bernacchi (Ex CEO) $259,711 Repurchase Equity of Former Officers Batchelder and Baker $100,000 ---------- Total MCI US Holding Intercompany $359,711 Structuring Fees $2,500,000 Membership Fee 10,000 Premium Letter 209,499 Legal Fees/Other 1,399,915 Interest Caps 1,015,200 S&P 100,000 ---------- SPARC Fees $5,234,614 ---------- Total Other Investments $5,594,325 EX-10 2 ex1024_10k00.txt CONSULTING AGREEMENT Exhibit 10.24 AGREEMENT This AGREEMENT (the "Agreement"), dated as of February 15, 2001, between Motor Coach Industries International, Inc., a Delaware corporation, and Tocatta, Inc., a Florida corporation (the "Consultant"). WHEREAS, Motor Coach Industries International, Inc. is desirous of retaining Consultant whereby the Consultant will provide the services of Stephen K. Clough and Thomas C. Sorrells, III, as interim Chief Executive Officer and interim Chief Operating Officer, respectively, of Motor Coach Industries International, Inc. and its subsidiaries and affiliates (individually and collectively referred to herein as "Company"); WHEREAS, Consultant is ready, willing, and able to provide the aforementioned services; WHEREAS, the parties desire to enter into this Agreement setting forth the terms and conditions of the services to be provided by the Consultant to the Company. NOW, THEREFORE, intending to be legally bound hereby, the parties agree as follows: 1. Services to be Provided. ----------------------- Effective as of February 15, 2001, the Company hereby agrees to engage the Consultant, and the Consultant hereby agrees to provide to Company, upon the terms and subject to the conditions set forth herein, the services of Stephen K. Clough and Thomas C. Sorrells, III, as interim Chief Executive Officer and interim Chief Operating Officer, respectively (each, an "Officer", and collectively, the "Officers"), as such duties may be defined and modified from time to time by the Company's board of directors ("Board"). In addition, Consultant shall cause the Chief Executive Officer to serve as a director on the Board, to serve at the pleasure of the Board. 2. Term. ---- Subject to Section 8 hereof, the term of this Agreement (the "Term") is for an initial period commencing on February 15, 2001, and terminating on February 15, 2002. Thereafter, the Term may be extended upon mutual written agreement of the Company and Consultant. 3. Insurance and Indemnity of the Officers. --------------------------------------- The Company shall maintain Directors' & Officers' liability insurance in such amount as the Board from time to time determines, and the Company shall cause the Officers to be included within the coverage of such insurance during the Term and any extension thereof. The Company shall indemnify the Officers to the maximum extent permitted under Delaware law and the Company's by-laws. The Company shall also obtain and maintain, during the Term and any extension thereof, life insurance for each of the Officers in the amount of at least $1 million for each Officer. 4. Independent Contractor. ---------------------- Nothing herein contained shall be construed to constitute the parties hereto as partners or as joint venturers, or either as agent of the other, or as employer and employee, and Consultant shall not present to third parties that any such relationships exist between the Company and the Consultant. Consultant shall perform consulting services hereunder as an independent contractor to the Company and, unless specifically authorized in writing, Consultant shall have no authority to obligate the Company or enter into any agreement on its behalf. 5. Fees. ---- (a) During the Term, in consideration of all of the services to be provided by the Consultant hereunder, the Company shall pay to the Consultant the sum of $8,000.00 per week, payable on a bi-weekly basis ("Base Fee"). Notwithstanding the preceding sentence, in the event that (i) the Company's independent auditing firm issues a qualified opinion in connection with its audit of the Company's financial statements, and (ii) the Consultant has elected not to terminate the Agreement in accordance with Section 8, the Company shall pay Consultant a $75,000.00 retention bonus within thirty (30) days of the issuance of the opinion. (b) In addition to the Base Fee, and in the event that Motor Coach Industries International, Inc. ("MCII") achieves a certain level of EBITDA for calendar year 2001 (as defined and determined in MCII's final audited financial statements for 2001) and this Agreement has not been terminated prior to the expiration of the Term, the Company shall pay to the Consultant the following performance-based fee(s): - ---------------- ----------------------------------- --------------------------- LEVELS 2001 EBITDA (in millions) PERFORMANCE FEE(S) - ---------------- ----------------------------------- --------------------------- 1 55 to 64.999 $400,000 - ---------------- ----------------------------------- --------------------------- 2 65 to 74.999 Level 1 plus $500,000 - ---------------- ----------------------------------- --------------------------- 3 75 to 84.999 Level 2 plus $600,000 - ---------------- ----------------------------------- --------------------------- 4 85 + Level 3 plus $700,000 - ---------------- ----------------------------------- --------------------------- Notwithstanding the foregoing, in the event that (i) the Company's independent auditing firm issues a qualified opinion in connection with its audit of the Company's financial statements, and (ii) the Consultant has elected not to terminate the Agreement in accordance with Section 8, the Company and the Consultant will negotiate mutually agreeable performance fee and 2001 EBITDA levels required to earn the performance fee(s). Any fees earned in accordance with this subsection shall be paid on or before April 15, 2002. 6. Business Expenses. ----------------- The Consultant shall be reimbursed by the Company for all reasonable and necessary business expenses incurred by the Officers in connection with their services (including, without limitation, reasonable expenses for travel and entertainment incurred in conducting or promoting business for the Company) upon timely submission by the Consultant of receipts and other documentation as required by the Internal Revenue Code of 1986, as amended (the "Code"), and in accordance with the Company's normal expense reimbursement policies. 7. Ownership of Intellectual Property. ---------------------------------- All intellectual property conceived or developed by the Consultant and/or either of the Officers during the Term which relate to the Company or any of its products or services shall belong to and constitute property of the Company. To the extent any such property is not considered to be a "work for hire," then Consultant hereby assigns all of its rights, title and interest in any such intellectual property to the Company. 8. Termination of Agreement. ------------------------ The services by the Consultant pursuant to this Agreement shall not be terminated prior to the end of the Term except as set forth in this Section 8. Consultant may terminate this Agreement immediately in the event that the Company's independent auditing firm issues a qualified opinion in connection with its audit of the Company's financial statements. In addition, this Agreement shall be terminated (a) by mutual written agreement of the Company and the Consultant; or (b) by the death or disability of the Officers; provided, however, that in the event of the death or disability of one of the Officers and the Agreement is not otherwise terminated, the Base Fee shall be reduced by 25% effective as of the date of death or disability of the Officer, and the performance fee(s) set forth in Section 5(b) shall be reduced by 25%; or (c) by the Company for Cause (as defined herein); or (d) by the Company without Cause. As used in this Agreement, "Cause" shall mean one or more of the following events: (i) either of the Officers has failed to perform his material duties in a reasonably satisfactory manner; or (ii) any reckless or grossly negligent act by either of the Officers having the effect of injuring the interest, business or reputation of the Company in any material respect; or (iii) the commission by either of the Officers of any felony (including entry of a nolo contendere plea); or (iv) any misappropriation or embezzlement by either of the Officers of any property of the Company. Upon termination of the Agreement pursuant to this Section 8, other than termination by the Company without Cause, the Company shall pay to the Consultant the Base Fee accrued through the effective date of termination. Upon termination of the Agreement by the Company without Cause, the Company shall pay the Consultant 50% of the Base Salary for the remainder of the Term. 9. Representations. --------------- (a) The Company represents and warrants that this Agreement has been authorized by all necessary corporate action of the Company; that this Agreement is a valid and binding agreement of the Company enforceable against it in accordance with the Agreement's terms; and that the Company is not a party to any agreement or instrument which would prevent it from performing its obligations in any way under this Agreement. (b) The Consultant represents and warrants that this Agreement has been authorized by all necessary corporate action of the Consultant; that this Agreement is a valid and binding agreement of the Consultant enforceable against it in accordance with the Agreement's terms; and that the Consultant is not a party to any agreement or instrument which would prevent it from entering into or providing its services in any way under this Agreement. 10. Assignment; Binding Agreement. ----------------------------- This Agreement is a personal contract and the rights and interests of the Consultant hereunder may not be sold, transferred, assigned, pledged, encumbered, or hypothecated by it, except as otherwise expressly permitted by the provisions of this Agreement. Moreover, Consultant may not delegate the performance of the services to be provided under this Agreement other than to Stephen K. Clough and Thomas C. Sorrells, III. This Agreement shall inure to the benefit of and be enforceable by the Consultant and its successors and permitted assigns. The Company may assign this Agreement to any of its subsidiaries or other affiliates. 11. Non-Competition Covenants. ------------------------- During the Term (and any extension thereof) and until the third anniversary of the expiration thereof, the Consultant shall not, and the Consultant shall cause each of the Officers not to, directly or indirectly, (a) participate in the ownership, management, operation or control of, or be connected with or employed by, or act as a consultant for, or have any financial interest in or aid or knowingly assist any other person or entity in the conduct of, any business or entity that (i) engages in any aspect of the designing, manufacturing, assembling and marketing of coaches of monocoque or unitized construction configuration, or the distribution of replacement parts which are exclusively for the use of intercity monocoque coaches and monocoque transit buses (the "Business"), (ii) is contemplating engaging in such Business, or (iii) provides any services that compete with those services provided in the Business by the Company, in the case of (i), (ii) and (iii), anywhere within the Western Hemisphere or (b) hire any officer or other employee of the Company or solicit or direct anyone else to solicit any officer or other employee of the Company (i) to terminate his or her employment or other relationship with the Company or (ii) to seek or accept employment or other affiliation with any other entity (other than any solicitation directed at the public in general in publications available to the public in general). 12. Confidentiality Covenant. ------------------------ The Consultant agrees that it will not, and the Consultant shall cause each of the Officers not to, at any time during the Term or at any time thereafter, directly or indirectly, use for its or his own account, or disclose to any person, firm or corporation, other than authorized officers, directors and employees of the Company, any Confidential Information (as defined herein) of the Company. As used herein, "Confidential Information" of the Company means information of any kind, nature, or description that is disclosed to or otherwise known to the Consultant and/or the Officers as a direct or indirect consequence of its, his, or their association with the Company, and which is not generally known to the public or in the businesses in which the Company is engaged, or which information relates to specific investment opportunities within the scope of the business of the Company which were considered by the Company during the Term. 13. Entire Agreement. ---------------- This Agreement contains all the understandings between the parties hereto pertaining to the matters referred to herein, and supersedes any other undertakings and agreements, whether oral or in writing, previously entered into by them with respect thereto. The Consultant represents that, in executing this Agreement, it does not rely and has not relied upon any representation or statement not set forth herein made by the Company with regard to the subject matter or effect of this Agreement or otherwise. 14. Amendment or Modification; Waiver. --------------------------------- No provision of this Agreement may be amended or waived, unless such amendment or waiver is agreed to in writing, signed by the Consultant and by a duly authorized officer of the Company. No waiver by any party hereto of any breach by another party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any subsequent time. 15. Notices. ------- Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier or facsimile or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice hereunder in writing: To the Consultant at: Tocatta, Inc. 1721 Allen Creek Drive Clearwater, FL 33764 ------------------ Facsimile: 727-535-6120 To the Company at: MCII Holdings (USA), Inc. 1700 East Golf Road Schaumburg, Illinois 60173 Facsimile: (847) 285-2095 Attention: Timothy J. Nalepka, Esq. Any notice delivered personally or by courier under this Section 15 shall be deemed given on the date delivered, and any notice sent by facsimile or registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date transmitted by facsimile or mailed. 16. Severability. ------------ If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable, shall not be affected thereby, and each provision hereof shall be validated and shall be enforced to the fullest extent permitted by law. Moreover, if any one or more of the provisions contained in this Agreement shall be held to be excessively broad as to duration, activity or subject, such provisions shall be construed by limiting and reducing them so as to be enforceable to the fullest extent permitted by law. 17. Survivorship. ------------ The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 18. Applicable Law. -------------- This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to the principles and conflicts of law thereof. THE PARTIES HERETO WAIVE THEIR RIGHT TO A JURY TRIAL WITH RESPECT TO DISPUTES HEREUNDER. The Company and the Consultant hereby agree and consent to the jurisdiction of the Chancery Court of and for New Castle County, Delaware (the "Court"). The Consultant hereby irrevocably consents to the service of any and all process in any such suit, action or proceeding by the delivery of such process to such party at the address and in the manner provided in Section 15. 19. Headings. -------- All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph. 20. Status of Payments to Consultant. -------------------------------- (a) The fees or any other amounts paid to Consultant hereunder shall not be considered salary for any purpose, and Consultant and the Officers will not be entitled to any of the fringe and supplemental benefits that the Company provides for its employees. The Company shall have no liability whatsoever to the Consultant hereunder on account of this Agreement, except payment to Consultant of the fee(s) provided for in Article 5 hereof. (b) Consultant has full responsibility for the payment of all federal, state, and local taxes or contributions imposed or required under unemployment insurance, social security, FICA, and income tax laws applicable to Consultant and/or the Officers in connection with this Agreement. 21. Counterparts. ------------ This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. MOTOR COACH INDUSTRIES INTERNATIONAL, INC. By: /s/Horst O. Sieben --------------------------------------------------------- Name: Horst O. Sieben Title: CFO TOCATTA, INC. By: /s/Tom Sorrells -------------------------------------------------------- Name: Tom Sorrells Title: COO EX-21 3 ex211_10k00.txt SUBSIDIARIES OF THE REGISTRANT Exhibit 21.1 SUBSIDIARY COMPANIES OF MOTOR COACH INDUSTRIES INTERNATIONAL, INC. As of April 30, 2001
Subsidiary Ownership % Incorporation Parent - ------------------------------------------------ ----------- --------------- --------------------------------------------- BusLease, Inc. 100% Delaware Motor Coach Industries International, Inc. MCI Sales and Service, Inc. 100% Delaware Motor Coach Industries International, Inc. MCI Service Parts, Inc. 100% Delaware Motor Coach Industries International, Inc. MCII Financial Services Inc. 100% Delaware Motor Coach Industries International, Inc. MCI Acceptance Corp. 100% Delaware MCII Financial Services Inc. MCII Funding Inc. 100% Delaware MCII Financial Services Inc. MCII Financial Services II, Inc. 100% Delaware Motor Coach Industries International, Inc. MCIL Holdings, Ltd. 100% Canada Motor Coach Industries International, Inc. Motor Coach Industries Limited 100% Canada MCIL Holdings, Ltd. Frank Fair Industries Ltd. 100% Manitoba Motor Coach Industries Limited Motor Coach Industries, Inc. 100% Delaware Motor Coach Industries International, Inc. Motor Coach Industries Mexico, S.A. de C.V. 99.99% Mexico Motor Coach Industries International, Inc. Motor Coach Industries Manufactura, S.A. de C.V. 99.99% Mexico Motor Coach Industries Mexico, S.A. de C.V. Servicios Administrativos Motor Coach Industries Mexico, S.A. de C.V. 99.99% Mexico Motor Coach Industries Mexico, S.A. de C.V. Servicios Sahagun, S.A. de C.V. 99.99% Mexico Motor Coach Industries Mexico, S.A. de C.V. TMO Holdings of Canada, Ltd. 100% Canada Motor Coach Industries International, Inc. Transit Bus International, Inc. 100% Delaware Motor Coach Industries International, Inc. Greyhound Overseas Service, Inc. 100% Virgin Islands Transit Bus International, Inc.
EX-10 4 ex1025_10k00.txt SETTLEMENT AGREEMENT AND RELEASE Exhibit 10.25 SETTLEMENT AGREEMENT AND RELEASE This Settlement Agreement and Release (this "Agreement"), dated as of April 24, 2001, is made and entered into by and among MCII HOLDINGS (USA), INC., a Delaware corporation (the "Company"), MOTOR COACH INDUSTRIES INTERNATIONAL, INC., a Delaware corporation and a wholly-owned subsidiary of the Company ("MCII"), MOTOR COACH INDUSTRIES MEXICO, S.A. de C.V., f.k.a Dina Autobuses, S.A. de C.V., a corporation organized under the laws of the United Mexican States ("Dina Autobuses"), JOSEPH LITTLEJOHN & LEVY FUND III L.P., a Delaware limited partnership ("JLL"), CIBC WG ARGOSY MERCHANT FUND 2, L.L.C. ("CIBC Argosy"), CO-INVESTMENT MERCHANT FUND 3, LLC ("CMF" and, together with JLL and CIBC Argosy, the "Investors") and CONSORCIO G GRUPO DINA, S.A. de C.V., a corporation organized under the laws of the United Mexican States ("Dina"), SISTEMAS Y SERVICIOS G, S.A. de C.V., a corporation organized under the laws of the United Mexican States ("Servicios") RECITALS WHEREAS, pursuant to the Investment Agreement (the "Investment Agreement") dated as of June 11, 1999, as amended, by and among the Investors and Dina, the Investors collectively acquired, among other things, an aggregate of 610,000 shares of voting common stock, par value $0.01 per share (the "Voting Common Stock") of the Company and convertible non-voting common stock, par value $0.01 per share (the "Non-Voting Common Stock" and, together with the Voting Common Stock, the "Common Stock") of the Company (collectively, the "Investment Shares") and, simultaneously therewith, the Company repurchased from Dina 610,000 shares of Voting Common Stock in exchange for cash and certain other consideration; and WHEREAS, upon consummation of the Investment, Dina owned 390,000 shares of Common Stock (the "Dina Shares") and Dina owns the Dina Shares as of the date hereof; and WHEREAS, pursuant to the Investment Agreement, the Investors, Dina and Mr. Rafael Gomez Flores ("RGF"), entered into a Stockholders Agreement (the "Stockholders Agreement") dated as of June 16, 1999, as amended, to memorialize certain agreements as to the corporate governance of the Company; and WHEREAS, pursuant to the Investment Agreement, RGF and MCII entered into an Employment Agreement (the "Employment Agreement") dated as of June 16, 1999, pursuant to which, among other things, RGF agreed to serve as Chairman of the Board of Directors of the Company and MCII; and WHEREAS, the Employment Agreement terminated in accordance with its terms upon the death of RGF on March 4, 2001; and WHEREAS, MCII acknowledges that RGF is entitled to receive $259,615 pursuant to the terms of the Employment Agreement (the "RGF Payment"), which funds have been placed in escrow for the benefit of the RGF Estate and will be distributed in accordance with the terms and subject to the conditions of the Escrow Agreement (as hereinafter defined); and WHEREAS, pursuant to the Investment Agreement, the Investors, Dina and the Company entered into an Omnibus Agreement (the "Omnibus Agreement") dated as of June 16, 1999, pursuant to which, among other things, the parties thereto memorialized certain agreements with respect to St. Matthews Equipment Disposition Rights (as defined therein); and WHEREAS, in connection with the Investment Agreement, Dina and certain of its affiliates, on the one hand, and the Company, MCII and certain of their affiliates, on the other hand, entered into a Master Long Term Purchase and Supply Agreement (the "Purchase and Supply Agreement"), dated as of June 15, 1999, to facilitate the purchase and sale of Goods (as defined in the Purchase and Supply Agreement) under mutually acceptable terms and conditions; and WHEREAS, in connection with the Investment Agreement, Dina and certain of its affiliates, on the one hand, and Dina Autobuses, on the other hand, entered into an Operations Agreement (the "Operations Agreement"), dated as of June 16, 1999, pursuant to which the parties thereto operate the facility located in Ciudad, Sahagun, Hidalgo, Mexico; and WHEREAS, in connection with the Investment Agreement, Servicios, on the one hand, and Dina Autobuses, on the other hand, entered into a Services Agreement (the "Services Agreement"), dated as of June 16, 1999, pursuant to which Servicios and certain of its affiliates provided certain services to Dina Autobuses; and WHEREAS, in connection with the Investment Agreement, Dina and the Company entered into a License Agreement (the "License Agreement"), dated as of June 16, 1999, pursuant to which Dina granted to the Company the right to use (i) the "Dina" trademark, trade name and service mark and (ii) certain patents owned by Dina, all on the terms and subject to the conditions set forth in the License Agreement; and WHEREAS, certain disputes and differences have arisen between the Investors and the Company, on the one hand, and Dina, on the other hand, pursuant to which, among other things, the Investors claim to have suffered damages of $45.6 million (the "Working Capital Deficiency") arising in connection with the covenants contained in Section 6.3 of the Investment Agreement; and WHEREAS, MCII maintains a Supplemental Executive Retirement Program ("SERP") pursuant to which the Company provides executives of MCII certain benefits; and WHEREAS, certain disputes and differences have arisen between Dina, on the one hand, and the Company, MCII and the Investors, on the other hand, pursuant to which, among other things, Dina claims to have suffered damages as a result of the Company withholding certain funds from the Cash Repurchase Amount (as defined in the Investment Agreement) in order to provide for obligations under the SERP (the "SERP Claim"); and WHEREAS, in light of the discrepancies regarding the Working Capital Claim and the SERP Claim, the parties agree to adjust the original percentage ownership of each party pursuant to the Investment Agreement to the percentage ownership and number of voting and non-voting shares for each Investor (collectively, the "Adjusted Investment Shares") set forth in Schedule I hereto; and WHEREAS, Dina desires that JLL provide its consent to Dina to transfer up to 302,250 shares of Common Stock (the "Adjusted Dina Shares") to or for the benefit of the holders (the "Bondholders") of the 8% Convertible Subordinated Debentures Due August 8, 2004 issued by Dina (the "Dina Bonds") pursuant to an Indenture dated August 8, 1994, under which Bankers Trust Company serves as trustee (the "Indenture"); and WHEREAS, the parties hereto wish to settle and otherwise resolve these disputes between them without the admission of fault by any of them and to make certain other agreements, all on the terms and conditions specified herein. NOW THEREFORE, in consideration of the above premises and the promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each of the parties hereby agree as follows: 1 ARTICLE SETTLEMENT 1.1 Amendment to Section 1.1 of Article I of the Investment Agreement. For purposes of the Investment Agreement and all other related agreements which employ the term "Business," the definition of "Business" in Section 1.1 of Article I of the Investment Agreement is hereby amended in its entirety to read as follows: "Business" shall mean the ownership or management of, or investment in, any business or Person engaged in (a) the designing, manufacturing, assembling or marketing of coaches of monocoque or unitized construction configuration or (b) the distribution of replacement parts which are for the use of intercity coaches or monocoque transit buses. 1.2 Transfer of Common Stock. (a) At the Closing (as defined herein), the Company shall cancel the stock certificates evidencing the Dina Shares and the Investment Shares. (b) At the Closing, the Company shall reissue to each Investor a stock certificate representing the corresponding Adjusted Investment Shares pursuant to Schedule I. Upon the issuance to the Investors of the Investor Shares, the Investor Shares will be duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights. (c) At the Closing, the Company shall issue to Dina a stock certificate representing the Adjusted Dina Shares to Dina. Upon the issuance to Dina of the Adjusted Dina Shares, the Adjusted Dina Shares will be duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights. 1.3 Amended and Restated Stockholders Agreement. At the Closing, the Company, the Investors, Dina and certain other parties shall enter into an amended and restated Stockholders Agreement, substantially in the form attached hereto as Exhibit A (the "Amended and Restated Stockholders Agreement"). 1.4 Sahagun Operations Agreement. At the Closing, certain affiliates of Dina, on the one hand, and certain affiliates of the Company and MCII, on the other hand, shall enter into the Sahagun Operations Agreements, substantially in the forms attached hereto as Exhibit B-1 and Exhibit B-2, (collectively, the "Sahagun Operations Agreements"). 1.5 Omnibus Agreement. The Company, Dina and the Investors agree that from and after the Closing, (a) Article I, Article II, Article III and Article V of the Omnibus Agreement shall be deleted in their entirety from the Omnibus Agreement and (b) Dina acknowledges that the St. Matthews Equipment (as defined in the Omnibus Agreement) was never acquired by Dina pursuant to Section 1.1 of the Omnibus Agreement and Dina hereby relinquishes any and all rights to acquire the St. Matthews Equipment pursuant to Section 1.1 of the Omnibus Agreement. The Company, Dina and the Investors acknowledge and agree that there are no outstanding obligations of Dina or its affiliates and that neither Dina nor any of its affiliates shall have any future obligations with respect to the St. Matthews Equipment. 1.6 License Agreement. Dina and the Company agree that from and after the Closing, Section 2(a) of the License Agreement shall be amended to provide that the right of the Company to use the Name (as defined in the License Agreement) shall terminate on the earlier of (a) 30 days after the date on which the Company fails to use the name within any six-month period, (b) 30 days after the date on which the Company fails to manufacture at least 25 coaches utilizing the Name within any twelve-month period and (c) the tenth anniversary of the date hereof. 1.7 Services Agreement. The Company, MCII and Dina Autobuses on their behalf and on behalf of their respective affiliates, on the one hand, and Dina and Servicios on their behalf and on behalf of their affiliates, on the other hand, agree that from and after the Closing, the Services Agreement shall be terminated and shall forthwith become void and there shall be no liability on the part of any party thereto or any of their respective affiliates, successors, representatives, agents and assigns. 1.8 Operations Agreement. The Company, MCII and Dina Autobuses on their behalf and on behalf of their respective affiliates, on the one hand, and Dina on its behalf and on behalf of its affiliates, on the other hand, agree that from and after the Closing, the Operations Agreement shall be terminated and shall forthwith become void and there shall be no liability on the part of any party thereto or any of their respective affiliates, successors, representatives, agents and assigns. 1.9 Master Long-Term Purchase and Supply Agreement. The Company and MCII on their behalf and on behalf of their respective affiliates, on the one hand, and Dina on its behalf and on behalf of its affiliates, on the other hand, agree that from and after the Closing, the Purchase and Supply Agreement shall be terminated and shall forthwith become void and there shall be no liability on the part of any party thereto or any of their respective affiliates, successors, representatives, agents and assigns. 1.10 Consent to Transfer. At the Closing, notwithstanding any of the restrictions set forth in Article IV of the Amended and Restated Stockholders Agreement restricting Dina's ability to transfer the Adjusted Dina Shares, JLL consents to, and agrees not to take any action that would prohibit Dina from selling, conveying, assigning, transferring and delivering the Adjusted Dina Shares to or for the benefit of the Bondholders in connection with Dina extinguishing its obligations under the Dina Bonds (the "Dina Exchange"); provided that the Bondholders take the Adjusted Dina Shares subject to, and agree to comply with, the provisions of the Amended and Restated Stockholders Agreement. Notwithstanding the foregoing, no transfer of Adjusted Dina Shares to the Bondholders shall be valid if, as a result of the Dina Exchange, more than 475 Bondholders would become stockholders of the Company. Notwithstanding any other provision contained herein the Company shall be under no obligation to make any filings under any applicable securities laws or regulations in connection with such transfer, including, without limitation, the filing of a registration statement under the Securities Act of 1933, as amended (the "Securities Act"). 1.11 Dina Release. Effective as of the Closing, Dina and each of Alfonzo Miguel Gomez Flores, Armando Gomez Flores, Guillermo Gomez Flores, Omar Raymundo Gomez Flores, Altagracia Flores Fletes, Graciela Gomez Flores, Claudia Gomez Flores and Monica Gomez Flores (collectively, the "Gomez Flores Family"), for themselves and their respective affiliates, successors, representatives, agents, employees, directors, officers and assigns, and each member of the Gomez Flores Family's respective heirs, administrators and executors, hereby expressly and unconditionally release, acquit and forever discharge the Investors and the Company, together with each of their respective affiliates, successors, representatives, agents, directors, officers and assigns, from any claims, demands, counterclaims, rights, obligations, causes of action, payments, accounts, debts, contracts, promises, agreements, controversies, liens, liabilities, losses, attorneys' fees or damages, whether known or unknown, foreseen or unforeseen, whether in law or in equity or in contract or in tort ("Claims"), arising at any time prior to the date of this Agreement arising out of or in any way relating to the ownership or operation of the Company or any of its subsidiaries or affiliates or any of their respective businesses, including, without limitation, with respect to (i) the Investment Agreement, (ii) the calculation of the Cash Repurchase Amount, (iii) the Transactions (as defined in the Investment Agreement), (iv) any other agreement that relates to the transactions contemplated by the Investment Agreement, (iv) the sale by the Company of an additional $50 million of Common Stock to the Investors on May 15, 2000, (v) the SERP Claim, (vi) the purchase by the Company of Autopartes Hidalguenses, S.A. de C.V., (vii) the Purchase and Supply Agreement, (viii) the Services Agreement, (ix) the Operations Agreement and (x) claims relating to taxes payable to Revenue Canada. Nothing contained herein shall be deemed to release any party from any Claims arising out of or relating to any of the agreements, arrangements or understandings set forth on Schedule II hereto or from its obligations hereunder. 1.12 Investor Release. Effective as of the Closing, the Investors and the Company, for themselves and their respective affiliates, successors, representatives, agents and assigns, shall expressly and unconditionally release, acquit and forever discharge Dina and each member of the Gomez Flores Family together with their affiliates, successors, representatives, agents, employees, directors, officers and assigns, and each member of the Gomez Flores Family's respective heirs, administrators and executors, from any Claims, arising at any time prior to the date of this Agreement arising out of or in any way relating to the ownership or operation of the Company or any of its subsidiaries or affiliates or any of their respective businesses, including, without limitation, with respect to (i) the Investment Agreement, (ii) the Working Capital Deficiency, (iii) the Transactions, (iv) the purchase by the Company of Autopartes Hidalguenses, S.A. de C.V., (v) the Purchase and Supply Agreement, (vi) the Services Agreement, (vii) the Operations Agreement and (viii) [claims relating to taxes payable to Revenue Canada and (ix) any other agreement that relates to the transactions contemplated by the Investment Agreement. Nothing contained herein shall be deemed to release any party from any Claims arising out of or relating to any of the agreements, arrangements or understandings set forth on Schedule III hereto or from its obligations hereunder. 1.13 Release from Third-Party Obligations. At the Closing, Dina shall deliver to the Company and MCII, in the form attached hereto as Exhibit C, a full and complete release of each of the Company, MCII and their respective affiliates from any and all obligations under each of the Joint Agreements (as hereinafter defined) and there shall be no liability on the part of the Company, MCII or their respective affiliates with respect to such Joint Agreements. Dina agrees to defend, indemnify and hold harmless the Company, MCII and their respective affiliates from any claims, demands, actions and liabilities arising under or relating to the Joint Agreements. As used herein, "Joint Agreements" shall mean each agreement, arrangement or understanding that is binding on Dina or any of its affiliates under which the Company, MCII, or any of their respective affiliates may be liable to a third party with a respect to any obligation of Dina or its affiliates, including, without limitation, the agreements, arrangements and understandings set forth on Schedule 1.13 hereto. 1.14 Payment. In connection with the execution and delivery of this Agreement, the Company shall deliver to the Escrow Agent, cash in an amount equal to $1.624 million, (the "Payment") calculated in accordance with Schedule IV hereto. The Payment will be held by the Escrow Agent in accordance with the Escrow Agreement, substantially in the form attached hereto as Exhibit D. 1.15 The parties acknowledge and agree that the release by the Gomez Flores Family is granted in consideration of the release granted to each of the members of the Gomez Flores Family by the Investors and the Company. Except as expressly provided herein, nothing in this Agreement or any other agreement related to the Investment Agreement or the Transactions shall be construed or deemed to create or impose any joint liability, suretyship or guarantee obligation between (a) any member of the Gomez Flores Family, on the one hand, and (b) Dina or any of its affiliates or subsidiaries, on the other hand. Except as expressly provided herein, the members of the Gomez Flores Family shall not be liable for the obligations or liabilities of Dina, its affiliates or subsidiaries. 2 ARTICLE CLOSING 2.1 Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place on the date hereof, at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 4 Times Square, New York, New York. All of the transactions contemplated hereby are intended by the parties to be consummated simultaneously; and if any transaction contemplated hereby is not consummated as provided herein, the parties shall take all actions necessary to dissolve and invalidate all other transactions contemplated hereby as if none of such transactions had been consummated. 2.2 Deliveries by the Company and MCII. At the Closing, the Company and/or MCII are delivering or causing to be delivered the following: (a) to each entity listed on Schedule I a certificate or certificates evidencing the number of Adjusted Investment Shares set forth opposite such entity's name on Schedule I and any other documents that are necessary to transfer good and valid title to such securities to the Investors, free and clear of any and all Liens; and (b) to Dina, a certificate or certificates evidencing the Adjusted Dina Shares; and (c) to the Investors and Dina, the Amended and Restated Stockholders Agreement, duly executed by the Company; (d) To Dina and the Escrow Agent, the Escrow Agreement, duly executed by the Company; (e) to the Escrow Agent, the Payment and the RGF Payment, by wire transfer of immediately available funds; and (f) all other documents, certificates, instruments and writings required to be delivered by the Company or MCII at or prior to the Closing pursuant to this Agreement or otherwise required in connection herewith. 2.3 Deliveries by the Investors. At the Closing, the Investors are delivering or causing to be delivered the following: (a) to the Company and Dina, the Amended and Restated Stockholders Agreement, duly executed by each of the Investors and any assignee thereof; and (b) to the Company, stock certificates evidencing the Investment Shares; and (c) all other documents, certificates, instruments and writings required to be delivered by the Investors at or prior to the Closing pursuant to this Agreement or otherwise required in connection herewith. 2.4 Deliveries by Dina. At the Closing, Dina is delivering or causing to be delivered the following: (a) to the Company, a stock certificate evidencing the Dina Shares; and (b) to the Company and the Investors, the Amended and Restated Stockholders Agreement, duly executed by Dina; and (c) to the Company, MCII and the Investors, evidence of the appointment of the Dina Authorized Agent (as defined herein); and (d) to the Company and the Escrow Agent, the Escrow Agreement, duly executed by the Company; (e) to the Company, MCII and the Investors, evidence of the Dina Stockholder Approval; and (f) all other documents, certificates, instruments and writings required to be delivered by Dina at or prior to the Closing pursuant to this Agreement or otherwise required in connection herewith. 3 ARTICLE REPRESENTATIONS AND WARRANTIES 3.1 Company and MCII Representations and Warranties. The Company and MCII, jointly and severally, make the following representations and warranties with respect to the transactions set forth in Article I: (a) Each of the Company and MCII is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and corporate authority to enter into this Agreement, and to consummate the transactions contemplated hereby. (b) The execution, delivery and performance by each of the Company and MCII of this Agreement, and the consummation of the transactions contemplated hereby have been authorized by all necessary corporate action. This Agreement has been duly executed and delivered by each of the Company and MCII and, assuming that this Agreement constitutes a valid and binding obligation of the other parties hereto, constitutes a valid and binding obligation of each of the Company and MCII, enforceable against each of the Company and MCII in accordance with its terms. (c) The execution and delivery by each of the Company and MCII of this Agreement does not, and the consummation of the transactions contemplated hereby and compliance with the terms hereof will not, conflict with, or result in any violation of or default under, (i) any provision of the organizational documents of either the Company or MCII, (ii) any judgment, order, injunction or decree (an "Order"), or statute, law, ordinance, rule or regulation ("Applicable Law"), applicable to either the Company or MCII or (iii) any note, bond, mortgage, indenture, license, agreement, lease or other instrument or obligation ("Contracts") to which either the Company or MCII is a party. No consent, approval, order or authorization of, notice to, or registration, declaration or filing ("Governmental Approval") of any court, administrative agency or commission or other governmental entity, authority or instrumentality, domestic or foreign ("Governmental Authority"), is required to be obtained or made by or with respect to either the Company or MCII in connection with the execution and delivery of this Agreement or the consummation by either the Company or MCII of the transactions contemplated hereby. 3.2 Investor Representations and Warranties. Each of the Investors, severally and not jointly, makes the following representations and warranties solely with respect to itself in connection with the transactions set forth in Article I above: (a) The execution, delivery and performance by such Investor of this Agreement, and the consummation of the transactions contemplated hereby, have been authorized by all necessary action, corporate or otherwise on behalf of such Investor. This Agreement has been duly executed and delivered by such Investor, and, assuming that this Agreement constitutes a valid and binding obligation of the other parties hereto, constitutes a valid and binding obligation of such Investor, enforceable against such Investor in accordance with its terms. (b) The execution and delivery by such Investor of this Agreement does not, and the consummation of the transactions contemplated hereby and compliance with the terms hereof will not, conflict with, or result in any violation of or default under, (i) any provision of the organizational documents of such Investor, (ii) any Order, or Applicable Law, applicable to such Investor or (iii) any Contracts to which such Investor is a party. No Governmental Approval of any Governmental Authority is required to be obtained or made by or with respect to such Investor in connection with the execution and delivery of this Agreement or the consummation by such Investor of the transactions contemplated hereby. 3.3 Dina Representations and Warranties. Dina makes the following representations and warranties in connection with the transactions set forth in Article I above: (a) The execution, delivery and performance by Dina of this Agreement, and the consummation of the transactions contemplated hereby, have been authorized by all necessary action, corporate or otherwise on behalf of Dina, other than the Dina Stockholder Approval (as hereinafter defined), including authorization and approval of the members of the Gomez Flores Family that directly or indirectly own securities of Dina. This Agreement has been duly executed and delivered by Dina, and, assuming that this Agreement constitutes a valid and binding obligation of the other parties hereto, constitutes a valid and binding obligation of Dina, enforceable against Dina in accordance with its terms, subject to receipt of the Dina Stockholder Approval. (b) The execution and delivery by Dina of this Agreement does not, and the consummation of the transactions contemplated hereby and compliance with the terms hereof will not, conflict with, or result in any violation of or default under, (i) any provision of the organizational documents of Dina, (ii) any Order, or Applicable Law, applicable to Dina or (iii) any Contracts to which Dina is a party. No Governmental Approval of any Governmental Authority is required to be obtained or made by or with respect to Dina in connection with the execution and delivery of this Agreement or the consummation by Dina of the transactions contemplated hereby. (c) Dina has good and valid title to the Dina Shares, free and clear of all Liens, and the Dina Shares are the only securities of the Company that Dina or any of its affiliates or associates own beneficially or of record as of the date hereof (as each such term is used under the regulations promulgated under the Securities Exchange Act of 1934, as amended). (d) The affirmative vote of the holders of a majority of the outstanding shares of common stock of Dina (the "Dina Common Stock") is the only vote required to approve the transactions contemplated hereby, including with Release set forth in Section 1.11 (the "Dina Stockholder Approval"). No other vote of the stockholders of Dina is required by law, the charter or by-laws of Dina or otherwise in order for Dina to consummate the transactions contemplated hereby. The shares of Dina Common Stock, are the only outstanding equity interests of Dina which have voting rights. (e) The Dina Stockholder Approval was obtained on March 2, 2001. Jose Gamaliel Garcia Cortes, Mauricio G. Mendoza Silva and Juan Jamie Petersen Farah were granted the power and authority to execute this Agreement on behalf of Dina pursuant to the Power of Attorney attached hereto as Exhibit E. The Power of Attorney is the valid and binding obligation of Dina, enforceable against Dina in accordance with its terms. 4 ARTICLE MISCELLANEOUS 4.1 Admissions. By entering into this Agreement, no party hereto intends to make, nor shall they be deemed to have made, any admission of any kind. 4.2 Third Party Beneficiary. Unless specifically provided herein, this Agreement is not intended to create, and shall not create, any rights in any person or entity that is not a party to this Agreement. 4.3 Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein, and there are no restrictions, promises, representations, warranties, covenants, conditions or undertakings with respect to the subject matter hereof, other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties hereto with respect to the subject matter hereof. This Agreement constitutes the entire understanding of the parties concerning its subject matter and may not be modified, altered, or discharged except by a writing signed by all of the parties. No representations or promises except those set forth herein have been made to induce any party to enter into this Agreement. 4.4 Successors and Assigns. This Agreement shall be binding on each of the parties hereto and on their respective successors and assigns. 4.5 Representations and Warranties. The representations and warranties set forth in Article III hereof shall survive indefinitely following the execution of this Agreement and the consummation of the transactions contemplated hereby. 4.6 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without giving effect to the principles and conflicts of law thereof. THE PARTIES HERETO WAIVE THEIR RIGHT TO A JURY TRIAL WITH RESPECT TO DISPUTES HEREUNDER; ALL SUCH DISPUTES SHALL BE SETTLED BY BINDING ARBITRATION PURSUANT TO THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION IN NEW YORK, NEW YORK AND THE ORDER OF SUCH ARBITRATORS SHALL BE FINAL AND BINDING ON ALL PARTIES HERETO AND MAY BE ENTERED AS A JUDGMENT IN A COURT HAVING JURISDICTION OVER THE PARTIES. Subject to the foregoing, each party hereby agrees and consents to the jurisdiction of the United States District Court for the Southern District of New York and the jurisdiction of the courts of the State of New York located in the Borough of Manhattan in the City of New York (collectively the "Courts"). Dina hereby irrevocably consents to the service of any and all process in any such suit, action or proceeding by the delivery of such process to such party at the address and in the manner provided in Section 4.7. Dina has appointed The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801, as its authorized agent (the "Dina Authorized Agent") upon which process may be served in any suit, action or proceeding based on this Agreement which may be instituted in any Court, by or by any party hereto, and Dina expressly accepts the jurisdiction of any such Court in respect of any such suit, action or proceeding. Such appointment shall be irrevocable. Dina represents and warrants that the Dina Authorized Agent, has agreed to act as said agent, respectively, for service of process, and Dina agrees to take any and all action, including the filing of any and all documents and instruments, which may be necessary to continue such appointment in full force and effect. Service of process upon the Dina Authorized Agent and written notice of such service to Dina shall be deemed, in every respect, effective service of process upon Dina. 4.7 Notices. All notices and other communications hereunder shall be in writing and shall be delivered personally or by next-day courier or telecopied, with confirmation of receipt, to the parties at the addresses specified below (or at such other address for a party as shall be specified by like notice; provided that notices of change of address shall be effective only upon receipt thereof). Any such notice shall be effective upon receipt, if personally delivered or telecopied, or one day after delivery to a courier for next-day delivery. If to the Company or MCII, to: MCII Holdings (USA), Inc. c/o Motor Coach Industries International, Inc. 1700 East Golf Road Schaumburg, Illinois 60173 Attention: General Counsel Facsimile: (847) 285-2095 with copies to: Joseph Littlejohn & Levy Fund III, LP 450 Lexington Avenue, Suite 3350 New York, New York 10017 Attention: Mr. Jeffrey C. Lightcap Facsimile: (212) 286-8626 and Skadden, Arps, Slate, Meagher & Flom LLP One Rodney Square Wilmington, Delaware 19801 Attention: Robert B. Pincus, Esquire Facsimile: (302) 651-3001 If to JLL, to: Joseph Littlejohn & Levy Fund III, LP 450 Lexington Avenue, Suite 3350 New York, New York 10017 Attention: Mr. Jeffrey C. Lightcap Facsimile: (212) 286-8626 with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP One Rodney Square Wilmington, Delaware 19801 Attention: Robert B. Pincus, Esquire Facsimile: (302) 651-3001 If to CIBC Argosy or CMF, to: c/o CIBC World Markets Corp. 425 Lexington Avenue New York, New York 10017 Attention: Stephen A. Flyer, Esquire Facsimile: (212) 885-4946 with a copy to: Cahill Gordon & Reindel 80 Pine Street New York, New York 10005-1702 Attention: Roger Meltzer, Esquire Facsimile: (212) 269-5420 If to Dina, to: Consorcio G Grupo Dina, S.A. de C.V. Tlacoquemecatl No. 41 Colonia Del Valle 03100, Mexico D.F., Mexico Attention: Mr. Gamaliel Garcia Cortes Facsimile: 011-525-420-3977 with a copy to: Gibson, Dunn & Crutcher, LLP 200 Park Avenue New York, New York 10166 Attention: Blake T. Franklin, Esquire Facsimile: (212) 351-4035 4.8 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 4.9 Specific Performance. Each of the parties hereto acknowledges and agrees that in the event of any breach of this Agreement, the non-breaching party or parties would be irreparably harmed and could not be made whole by monetary damages. The parties hereby agree that in addition to any other remedy to which they may be entitled at law or in equity, they shall be entitled to compel specific performance of this Agreement in any action instituted in any court of the United States or any state thereof having subject matter jurisdiction for such action. 4.10 Severability. The invalidity, illegality or unenforceability of one or more of the provisions of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of this Agreement, including any such provision, in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law. 4.11 Amendments. This Agreement may not be amended, modified or supplemented unless such modification is in writing and signed by each of the parties hereto. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF , the parties have executed this Settlement Agreement and Release as of the date first above written. MCII HOLDINGS (USA), INC. By: _______________________________ Name: Title: MOTOR COACH INDUSTRIES INTERNATIONAL, INC. By: _______________________________ Name: Title: JOSEPH LITTLEJOHN & LEVY FUND III L.P. By: JLL ASSOCIATES III, LLC, its General Partner By: ___________________________________ Managing Member CIBC WG ARGOSY MERCHANT FUND 2, L.L.C. By: _________________________________ Stephen A. Flyer, authorized signatory CO-INVESTMENT MERCHANT FUND 3, LLC By: ___________________________________ Stephen A. Flyer, authorized signatory CONSORCIO G GRUPO DINA, S.A. de C.V. By: ___________________________________ Name: Title: ___________________________________ Alfonzo Miguel Gomez Flores ___________________________________ Armando Gomez Flores ___________________________________ Guillermo Gomez Flores ___________________________________ Omar Raymundo Gomez Flores ___________________________________ Altagracia Flores Fletes ___________________________________ Graciela Gomez Flores ___________________________________ Claudia Gomez Flores ___________________________________ Monica Gomez Flores MOTOR COACH INDUSTRIES MEXICO, S.A. de C.V. By: ___________________________________ Name: Title: SISTEMAS Y SERVICIOS G, S.A. de C.V. By: ___________________________________ Name: Title:
Shares of Common Stock Issued Total Shares of Name of the Terms of Common Stock Percentage Stockholder This Agreement Each Investor Ownership ----------- -------------- ------------- --------- Joseph Littlejohn & Levy Fund III, L.P. 73,634.5 587,489.9 58.7 Coaches, LLC 1,579.5 11,339.5 1.1 CIBC WG Argosy Merchant Fund 2, L.L.C 11,282 89,712.14 8.97 Co-Investment Merchant Fund 3, LLC 1,254 9,967.46 1.0
SCHEDULE II 1. any and all obligations under the Promissory Agreement for the Transfer of Real Estate among Dina Autobuses, and Ingeniera En Diseno Dina, S.A. de C.V. 2. any and all obligations under the Promissory Agreement for the Transfer of Real Estate among Dina Autobuses and Plasticos Automotrices de Sahagun, S.A. de C.V. 3. any and all obligations under the Promissory Agreement for the Transfer of Real Estate among Dina Autobuses and Raices del Sur, S.A. de C.V. 4. any and all obligations under the License Agreement, dated as of June 16, 1999, by and between Dina and the Company, as amended, arising from and after the date hereof 5. any and all obligations under the Agreement, dated as of June 16, 1999, by and among the Investors and the Gomez Flores Family, arising from and after the date hereof 6. any and all obligations under the Amended and Restated Stockholders Agreement 7. any and all obligations under the Sahagun Operations Agreement SCHEDULE III 1. any and all obligations under Section 7.3 of the Investment Agreement or any other provision of the Investment Agreement relating to Dina's covenant not to compete with the Company or its affiliates from and after the date hereof 2. any and all obligations under the Promissory Agreement for the Transfer of Real Estate among Dina Autobuses, and Ingeniera En Diseno Dina, S.A. de C.V. 3. any and all obligations under the Promissory Agreement for the Transfer of Real Estate among Dina Autobuses and Plasticos Automotrices de Sahagun, S.A. de C.V. 4. any and all obligations under the Promissory Agreement for the Transfer of Real Estate among Dina Autobuses and Raices del Sur, S.A. de C.V. 5. any and all obligations under the License Agreement, dated as of June 16, 1999, by and between Dina and the Company, as amended, arising from and after the date hereof 6. any and all obligations under the Agreement, dated as of June 16, 1999, by and among the Investors and the Gomez Flores Family, arising from and after the date hereof 7. any and all obligations under the Amended and Restated Stockholders Agreement 8. any and all obligations under the Sahagun Operations Agreement EX-10 5 ex1026_10k00.txt ESCROW AGREEMENT Exhibit 10.26 ESCROW AGREEMENT THIS ESCROW AGREEMENT, dated as of April 24, 2001 (the "Escrow Agreement"), by and among MCII Holdings (USA), Inc., a Delaware corporation (the "Company"), Consorcio G Grupo Dina, S.A. de C.V., a corporation organized under the laws of the United Mexican States ("Dina") and The Chase Manhattan Bank (the "Escrow Agent"). W I T N E S S E T H WHEREAS, the Company, Motor Coach Industries International, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company ("MCII"), Motor Coach Industries Mexico, S.A. de C.V., f.k.a Dina Autobuses, S.A. de C.V., a corporation organized under the laws of the United Mexican States ("MCII Mexico"), Joseph Littlejohn & Levy Fund III L.P., a Delaware limited partnership ("JLL"), CIBC WG Argosy Merchant Fund 2, L.L.C. ("CIBC Argosy"), Co-Investment Merchant Fund 3, LLC ("CMF" and, together with JLL and CIBC Argosy, the "Investors"), Dina and Sistemas y Servicios G, S.A. de C.V., a corporation organized under the laws of the United Mexican States ("Servicios"), are parties to a Settlement Agreement and Release, dated as of April 24, 2001 (the "Settlement Agreement"), pursuant to which, among other things, the parties settled certain disputes between them (capitalized terms used and not otherwise defined herein shall have the respective meanings assigned to such terms in the Settlement Agreement); and WHEREAS, the Settlement Agreement provides, among other things, that the Company shall deposit $1.624 million into escrow (the "Settlement Escrow Amount") on the date hereof for the purpose of securing certain obligations of Dina relating to the transfer of certain real estate to the Company, subject to the terms and conditions contained therein and in this Escrow Agreement; and WHEREAS, Mr. Rafael Gomez Flores ("RGF") and MCII entered into an Employment Agreement (the "Employment Agreement") dated as of June 16, 1999, pursuant to which, among other things, RGF agreed to serve as Chairman of the Board of Directors of the Company and MCII; and WHEREAS, the Employment Agreement terminated in accordance with its terms upon the death of RGF on March 4, 2001; and WHEREAS, MCII acknowledges that the estate of RGF (the "RGF Estate") is entitled to receive $259,615 (the "Employment Agreement Payment") pursuant to the terms of the Employment Agreement; and WHEREAS, MCII and Dina agree that the Company shall deposit the Employment Agreement Payment into escrow on the date hereof (the "Employment Agreement Payment Escrow Amount") for the purpose of securing certain obligations of Dina relating to the transfer of certain real estate to the Company, subject to the terms and conditions contained therein and in this Escrow Agreement; and WHEREAS, this Escrow Agreement sets forth the terms and conditions upon which the Escrow Fund (as defined below) shall be held and disbursed by the Escrow Agent. NOW, THEREFORE, in consideration of the mutual representations, warranties and covenants herein contained, and on the terms and subject to the conditions herein set forth, the parties to this Escrow Agreement hereby agree as follows: 1. Escrow. ------ 1.1 Escrow Agent. The Company and Dina hereby appoint the Escrow Agent, and the Escrow Agent agrees to serve, as the escrow agent hereunder for purposes of receiving, holding, investing and disbursing the Escrow Fund in accordance with the terms and conditions hereof. 1.2 Establishment of Escrow Fund. Concurrently with the execution and delivery of this Escrow Agreement by the parties hereto, the Company is delivering to the Escrow Agent, the Settlement Escrow Amount and the Employment Agreement Payment Escrow Amount, each by wire transfer of immediately available funds. As used in this Agreement, "Escrow Fund" shall mean the Settlement Escrow Amount and the Employment Agreement Payment Escrow Amount, including all proceeds and income derived (directly or indirectly) from them. 1.3 Receipt of Escrow Amount. The Escrow Agent hereby acknowledges receipt of the Settlement Escrow Amount and the Employment Agreement Payment Escrow Amount and agrees to hold, invest and disburse the Escrow Fund in accordance with the terms and conditions set forth herein. 1.4 Investments. The Escrow Fund shall be held by the Escrow Agent in (i) separate interest bearing accounts at the Escrow Agent or (ii) such other manner as the Company and Dina shall mutually agree in writing. The Escrow Agent shall hold in trust and disburse any interest or other earnings on the Escrow Fund (the "Earnings") in accordance with this Escrow Agreement. The Escrow Agent shall have the right to liquidate any investments held, in order to provide funds necessary to make required distributions of the Escrow Fund under this Escrow Agreement. The Escrow Agent in its capacity as escrow agent hereunder shall not have any liability for any loss sustained as a result of any investment made pursuant to the instructions of the parties hereto or as a result of any liquidation of any investment prior to its maturity or for the failure of the parties to give the Escrow Agent instructions to invest or reinvest the Escrow Fund or any earnings thereon. 2. Delivery of Escrow Fund by Escrow Agent. The Escrow Agent shall hold the Escrow Fund in escrow until authorized hereunder to deliver the same or any portion thereof, as follows: 2.1 Distribution of Settlement Escrow. The Settlement Escrow Amount shall be distributed as follows: (a) Dina Initial Distribution. Subject to the terms and conditions of this Escrow Agreement, the Escrow Agent shall deliver to Dina, cash in the amount of $1,391,615 (the "Dina Initial Distribution Amount") if, on or prior to May 7, 2001, subject to extension (the "Initial Distribution Date"), Dina has obtained from the Department of Treasury of the United Mexican States (the "Mexican Treasury"), a full and complete release (the "Raices Release") of the lien of the Mexican Treasury on certain land (the "Raices Land") owned by Raices del Sur, S.A. de C.V. ("Raices"), as described in the Promissory Agreement for the Transfer of Real Estate among Dina Autobuses S.A. de C.V. and Raices, in form and substance reasonable satisfactory to the Company and transferred to the Company or its affiliate to the Raices Land, free and clear of all liens, mortgages and other encumbrances. Notwithstanding the foregoing, the Initial Distribution Date shall automatically be extended for one additional month at a time for so long as (i) Dina, in good faith, is attempting to obtain the Raices Release and (ii) the amount of the Raices Tax Payment does not exceed the Company Initial Distribution Amount (as hereinafter defined). Upon receipt of a joint written notice (a "Disbursement Notice") from Dina and the Company of the receipt of the Raices Release, the Escrow Agent shall promptly disburse to Dina from the Settlement Escrow the Dina Initial Distribution Amount, by wire transfer of immediately available funds. (b) Company Initial Distribution. In the event that the Raices Release has not been obtained on or prior to the Initial Distribution Date, the Escrow Agent shall, subject to the terms and conditions of this Escrow Agreement, deliver to the Company, cash in the amount of $1.85 million (the "Company Initial Distribution Amount"). The Company shall use the Company Initial Distribution Amount to pay to the Mexican Treasury, all currently due and outstanding obligations of Dina to the Mexican Treasury relating to the lien of the Mexican Treasury on the Raices Land and pursuant to the Agreement between Dina and the Mexican Treasury (the "Raices Tax Payment"); provided, however, that the Company shall only be required to pay such Company Initial Distribution Amount to the Mexican Treasury if, after such payment, the Mexican Treasury grants the Raices Release. If the Company does not pay such Company Initial Distribution Amount to the Mexican Treasury, any and all obligations of Dina regarding the Raices Land shall be considered fulfilled and Dina shall not longer have the obligation to transfer the Raices Land to the Company or its affiliates. Upon receipt of a written notice (a "Company Disbursement Notice") from the Company after the Initial Distribution Date that the Raices Release has not been received, the Escrow Agent shall promptly disburse to the Company from the Settlement Escrow the Company Initial Distribution Amount, by wire transfer of immediately available funds. (c) Company Second Distribution. Subject to the terms and conditions of this Escrow Agreement, the Escrow Agent shall disburse to the Company, cash from the Settlement Escrow and, thereafter cash, to the extent that the Settlement Escrow is insufficient to pay the Transfer Expenses (as hereinafter defined), from the Employment Agreement Payment Escrow, to compensate the Company for any and all reasonable costs and expenses, including recording fees, notary fees and attorneys', accountants', and other professional advisor's fees and expenses incurred by the Company or any of its affiliates in connection with the transfer to affiliates of the Company of (i) the Raices Land, (ii) certain land (the "PADSA Land") owned by Plasticos Automotrices de Sahagun, S.A. de C.V. ("PADSA"), as described in the Promissory Agreement for the Transfer of Real Estate among Dina Autobuses and PADSA, and (iii) certain land (the "IDSA Land") owned by Ingeniera En Diseno Dina, S.A. de C.V. ("IDSA"), as described in the Promissory Agreement for the Transfer of Real Estate among Dina Autobuses and IDSA (collectively, the "Transfer Expenses"). Upon receipt of a Company Disbursement Notice from the Company of the incurrence of any Transfer Expenses, the Escrow Agent shall promptly disburse to the Company from the Settlement Escrow, and to the extent applicable, from the Employment Agreement Payment Escrow, cash in the amount set forth in the Company Disbursement Notice, by wire transfer of immediately available funds. (d) Dina Second Distribution. In the event that after obtaining the Raices Release, including payment of the Raices Tax Payment, if applicable, and the payment of any and all Transfer Expenses, any funds remain in the Settlement Escrow, the Escrow Agent shall, upon receipt of a Disbursement Notice from Dina and the Company of the receipt of the Raices Release and the payment of any and all Transfer Expenses, disburse to Dina any and all funds remaining in the Settlement Escrow, by wire transfer of immediately available funds. 2.2 Distribution of Employment Agreement Payment Escrow. The Employment Agreement Payment Escrow Amount shall be distributed as follows: (a) Company Distribution. In the event that the Settlement Escrow is insufficient to reimburse the Company for the Raices Tax Payment, if applicable, and any and all Transfer Expenses, the Escrow Agent shall disburse to the Company, cash from the Employment Agreement Payment Escrow, to compensate the Company for the Raices Tax Payment and any and all Transfer Expenses incurred by the Company or any of its affiliates. Upon receipt of a Company Disbursement Notice from the Company of the incurrence of any Transfer Expenses, the Escrow Agent shall promptly disburse to the Company from the Employment Agreement Payment Escrow, to the extent that there are insufficient funds in the Settlement Escrow, cash in the amount set forth in the Company Disbursement Notice, by wire transfer of immediately available funds. (b) RGF Estate Distribution. In the event that after obtaining the Raices Release, including payment of the Raices Tax Payment, if applicable, and the payment of any and all Transfer Expenses, any funds remain in the Employment Agreement Payment Escrow, the Escrow Agent shall, upon receipt of a Disbursement Notice from the RGF Estate and the Company of (i ) the receipt of the Raices Release and the payment of any and all Transfer Expenses and (ii) the execution by the RGF Estate of the Release, in the form attached hereto as Exhibit A, disburse to the RGF Estate any and all funds remaining in the Employment Agreement Payment Escrow, by wire transfer of immediately available funds. 2.3 Additional Escrow Deposit. In the event that the Raices Release has not been obtained by the Initial Distribution Date, then upon the transfer of title to the properties describe as House No. 3 and House No. 7 located on the facilities of Dina and the Company in Sahagun Mexico (collectively, the "Properties") to the Company or an affiliate of the Company, free and clear of any and all liens, mortgages and other encumbrances, the Company shall deliver to the Escrow Agent, cash in the amount of $180,0000 ("Additional Deposit"), by wire transfer of immediately available funds, which Additional Deposit shall constitute part of the Settlement Escrow. If the Raices Release has been obtained, the Additional Deposit shall be paid to Dina by wire transfer of immediately available funds upon the transfer of title to the Properties to the Company or an affiliate of the Company, free and clear of any and all liens, mortgages and other encumbrances. 2.4 Earnings Distribution. All Earnings on the Settlement Escrow Amount and the Employment Agreement Payment Escrow Amount shall be held in trust by the Escrow Agent and disbursed only upon the termination of the Escrow Fund, in accordance with a Disbursement Notice from the Company and Dina. In the event that amounts remain in the Escrow Fund after payment of the Raices Tax Payment, if applicable and payment of any and all Transfer Expenses, the Company, Dina and the RGF Estate, respectively, shall be entitled to receive the percentage of the earnings on the Escrow Fund as is equal to the percentage of the Escrow Fund disbursed to each of the Company, Dina, and the RGF Estate in accordance with a Distribution Notice from the Company and Dina. 2.5 RGF Benefits. The Company hereby represents and warrants that RGF was entitled only to the benefits listed on Exhibit D attached hereto as an employee of the Company and as a director of the Company and its affiliates. 2.6 Tax Forms. Upon execution of this agreement, each party shall provide the Escrow Agent with a fully executed W-8 or W-9 Internal Revenue Service form, which shall include their Tax Identification Number (TIN) as assigned by the Internal Revenue Service. All interest or other income earned under the Escrow Agreement shall be allocated and paid as provided herein and reported by the recipient to the Internal Revenue Service as having been so allocated and paid. 3. General Provisions. 3.1 Termination. This Escrow Agreement shall continue in force until the final distribution of the Escrow Fund in accordance with the terms hereof, unless earlier terminated by order of a court of competent jurisdiction. 3.2 Compensation. Upon execution of this Escrow Agreement, the Escrow Agent shall be entitled to compensation for its services hereunder as set forth on Exhibit B hereto, one-half of which shall be paid by the Company and one-half of which shall be paid by Dina. In addition, the Escrow Agent shall be reimbursed for all reasonable out-of-pocket expenses, disbursements and advancements, including reasonable attorneys' fees, actually incurred at such law firm's then standard billing rates, incurred or made by it in connection with resolution of any disputes arising under this Escrow Agreement, one-half of which shall be paid by the Company and one-half of which shall be paid by Dina. 3.3 Expenses. Subject to Section 3.2 hereof, the Company and Dina shall each be responsible for its own expenses incurred in connection with any provision of this Escrow Agreement. 3.4 Transfer Instructions. (a) In the event funds transfer instructions are given (other than in writing at the time of execution of this Escrow Agreement), whether in writing, by telecopier or otherwise, the Escrow Agent is authorized to seek confirmation of such instructions by telephone call-back to the person or persons designated on Exhibit C hereto, and the Escrow Agent may rely upon the confirmations of anyone purporting to be the person or persons so designated. The persons and telephone numbers for call-backs may be changed only in a writing actually received and acknowledged by the Escrow Agent. The parties to this Escrow Agreement acknowledge that such security procedure is commercially reasonable. (b) It is understood that the Escrow Agent and Dina's bank or the RGF Estate's bank or the Company's bank, as the case may be, in any funds transfer may rely solely upon any account numbers or similar identifying number provided by (1) the Company to identify (A) the Company, (B) the Company's bank, or (C) an intermediary bank, (2) Dina to identify (i) Dina, (ii) Dina's bank, or (iii) an intermediary bank or (3) Dina to identify (x) the RGF Estate, (y) the RGF Estate's bank or (z) an intermediary bank. The Escrow Agent may apply any of the Escrow Funds for any payment order it executes using any such identifying number, even where its use may result in a person other than the Company, Dina or the RGF Estate being paid, or the transfer of funds to a bank other than the Company's bank, Dina's bank or the RGF Estate's bank, or an intermediary bank designated. (c) The Escrow Agent shall not incur any liability for following the instructions herein contained or expressly provided for, or written instructions given by the parties hereto. 3.5 Obligations of Escrow Agent. The obligations of the Escrow Agent under this Escrow Agreement are subject to the following terms and conditions: (a) The Escrow Agent is not a party to and is not bound by any agreement other than this Escrow Agreement. (b) The Escrow Agent acts hereunder as a depository only and is not responsible for or liable in any manner whatsoever for the sufficiency, correctness, genuineness or validity of any funds, shares, documents or other materials deposited with it. Each of the Company and Dina agree to and hereby do waive any suit, claim, demand or cause of action of any kind which they may have or may assert against the Escrow Agent arising out of or relating to the execution or performance by the Escrow Agent of this Escrow Agreement, unless such suit, claim, demand or cause of action is based upon the willful misconduct, gross negligence or bad faith of the Escrow Agent or any of its officers, employees, agents or representatives. (c) The Escrow Agent shall not have any responsibility for the genuineness or validity of any notice, evidence or other document or item delivered to it, and the Escrow Agent shall be entitled to rely upon and shall be protected in acting upon any written notice, waiver, consent, receipt or other evidence or paper document which the Escrow Agent reasonably believes to be genuine and to be signed by the proper person. The Escrow Agent shall not have any responsibility to solicit funds for deposit pursuant to this Escrow Agreement. (d) The Escrow Agent shall not be liable for any error of judgment or for any acts done or steps taken or omitted or admitted by it or for any mistake of facts or law or for anything which the Escrow Agent may do or refrain from doing in connection herewith except for the Escrow Agent's own willful misconduct, gross negligence or bad faith or that of its officers, employees, agents or representatives. (e) As to any legal questions arising in connection with the administration of this Escrow Agreement, the Escrow Agent may rely absolutely upon the opinions given to it by its counsel (provided such counsel is not also counsel to the Company, Dina or the RGF Estate) and shall be free of liability for acting in reliance on such opinions. In the administration of the Escrow Funds pursuant to this Escrow Agreement, the Escrow Agent may execute any of its powers and perform its duties hereunder directly or through its employees or attorneys. (f) In the event that the Escrow Agent shall be uncertain as to its duties or rights hereunder or shall receive instructions, claims or demands from any party hereto which, in its opinion, conflict with any of the provisions of this Escrow Agreement, it shall be entitled to refrain from taking any action and its sole obligation shall be to keep safely all property held in escrow until it shall be directed otherwise in writing by the Company and Dina or by a final order or judgment of a court of competent jurisdiction. (g) It is the intention of the parties hereto that the Escrow Agent shall never be required to use or advance its own funds or otherwise incur personal financial liability in its performance of its duties or the exercise of any of its rights and powers hereunder. (h) The duties and responsibilities of the Escrow Agent hereunder shall be determined solely by the express provisions of this Escrow Agreement, and no other or further duties or responsibilities shall be implied. The Escrow Agent shall not have any liability under, nor duty to inquire into the terms and provisions of, any agreement or instructions, other than outlined in the Escrow Agreement. (i) The Company and Dina agree, jointly and severally, to indemnify and hold harmless the Escrow Agent from any costs, damages, expenses or claims, including reasonable attorneys' fees, actually incurred at such law firm's then standard billing rates, which the Escrow Agent may incur or sustain as a result of or arising out of this Escrow Agreement or the Escrow Agent's duties relating thereto; and the Escrow Agent is hereby given a lien upon, and security interest in, the Escrow Fund, to secure the Escrow Agent's rights to such payment or reimbursement. Anything in this Agreement to the contrary notwithstanding, in no event shall the Escrow Agent be liable for special, indirect or consequential loss or damage of any kind whatsoever (including, but not limited to, lost profits), even if the Escrow Agent has been advised of the likelihood of such loss or damage and regardless of the form of such action. 3.6 Successor Escrow Agent. (a) The Escrow Agent agrees that the Company and Dina may, by mutual agreement at any time, remove the Escrow Agent as escrow agent hereunder, and substitute another therefor. In such event, the Escrow Agent shall, upon receipt of written notice of such removal, account for and deliver to such substituted escrow agent the Escrow Fund after deducting payment for all monies owing to it in accordance with the terms hereof and the Escrow Agent shall thereafter be discharged of all liability hereunder. (b) The Company and Dina agree that the Escrow Agent may resign and be discharged from its duties hereunder at any time by giving notice of such resignation to the Company and Dina, which shall specify a date (not less than thirty (30) days following the date of such notice) when such resignation shall take effect. Upon such notice, a successor escrow agent shall be selected by the Company and Dina, such successor escrow agent to become the Escrow Agent hereunder upon the resignation date specified in such notice and the Escrow Agent shall account for and deliver to such substituted escrow agent the Escrow Funds after deducting payment for all monies owing to it in accordance with the terms hereof and the Escrow Agent shall thereafter be discharged of all liability hereunder. If the Company and Dina are unable to agree upon a successor escrow agent within fifteen (15) days after the date of such notice, the Escrow Agent shall be entitled to appoint its successor, which shall be a state or national bank or trust company having combined capital and surplus of at least $100,000,000. The Escrow Agent shall continue to serve hereunder until its successor accepts the escrow and acknowledges receipt of the Escrow Funds. 3.7 Notices. All notices or other communications required or permitted to be given hereunder shall be in writing and shall be delivered by hand or sent by telecopy, or sent, postage prepaid by registered, certified or express mail, or reputable overnight courier service and shall be deemed given when so delivered by hand, telecopied (provided that the telecopy is promptly confirmed by electronic confirmation of the receipt thereof) or, if mailed, three (3) days after mailing (one (1) business day in the case of express mail or overnight courier service) to the person at the address set forth below, or such other address as may be designated in writing hereafter in the same manner as follows except with respect to the Escrow Agent as to which date shall be deemed to have been given on the date received by the Escrow Agent: (a) If to the Company, to: MCII Holdings (USA), Inc. 1700 East Golf Road Schaumburg, Illinois 60173 Attention:Timothy Nalepka, Esq. Facsimile: (847) 285-2095 with a copy (which shall not constitute notice) to: Skadden, Arps, Slate, Meagher & Flom LLP One Rodney Square P.O. Box 636 Wilmington, Delaware 19899 Attention:Robert B. Pincus, Esq. Facsimile: (302) 651-3001 (b) If to Dina, to: Consorcio G Grupo Dina, S.A. de C.V. Tlacoquemecatl No. 41 Colonia Del Valle 03100, Mexico D.F., Mexico Attention: Mr. Gamaliel Garcia Cortes Facsimile: 011-525-42-3977 with a copy (which shall not constitute notice) to: Gibson Dunn & Crutcher, LLP 200 Park Avenue New York, NY 10166 Attention:Blake T. Franklin, Esq. Facsimile: (212) 351-4035 (c) If to the Escrow Agent, to: The Chase Manhattan Bank 450 West 33rd Street New York, New York 10001 Attention:Escrow Administration, 10th Floor Facsimile: (212) 946-8156 3.8 Assignment. (a) This Escrow Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns, but neither this Escrow Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties without the prior written consent of the other parties. (b) Notwithstanding the foregoing, any corporation into which the Escrow Agent in its individual capacity may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Escrow Agent in its individual capacity shall be a party, or any corporation to which substantially all the corporate trust business of the Escrow Agent in its individual capacity may be transferred, shall be the Escrow Agent under this Escrow Agreement without further act. 3.9 Third-Party Beneficiary. The RGF Estate is an intended third-party beneficiary to this Agreement. Dina assumes all responsibility to the RGF Estate for the use of the Employment Agreement Payment Escrow Amount in accordance with the terms hereof. Dina shall indemnify and hold harmless the Company and the Escrow Agent for any claims by the RGF Estate relating to the use of the Employment Agreement Payment Escrow Amount in accordance with the terms hereof. 3.10 Governing Law. This Escrow Agreement and any claim related directly or indirectly to this Escrow Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to the principles of conflicts of law. 3.11 Amendment. Subject to applicable law, this Escrow Agreement may be amended, modified and supplemented by written agreement of the Company, Dina and the Escrow Agent with respect to any of the terms contained herein. 3.12 Counterparts; Execution. This Escrow Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. All signatures of the parties to this Agreement may be transmitted by facsimile, and such facsimile will, for all purposes, be deemed to be the original signature of such party whose signature it reproduces and will be binding upon such party. 3.13 Waiver. No waiver of any past agreement or condition hereunder by any party hereto shall operate as a continuing waiver of any agreement or condition under this Escrow Agreement. Each party to this Escrow Agreement shall have the right to waive and/or nullify, in writing, any condition or term of this Escrow Agreement which is for the benefit of such party. 3.14 Severability. If any provision or clause in this Escrow Agreement or application thereof to any person or circumstances is held invalid or unenforceable, such invalidity or unenforceability shall not affect other provisions or applications of this Escrow Agreement which can be given effect without the invalid or unenforceable provision or application, and to this end the provisions of this Escrow Agreement are declared to be severable. 3.15 Force Majeure. In the event that any party to this Escrow Agreement is unable to perform its obligations under the terms of this Escrow Agreement because of acts of God, strikes, equipment or transmission failure or damage reasonably beyond its control, or other cause reasonably beyond its control, such party shall not be liable for damages to the other parties for any unforeseeable damages resulting from such failure to perform or otherwise from such causes. Performance under this Escrow Agreement shall resume when the affected party is able to perform substantially that party's duties. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the parties have caused this Escrow Agreement to be executed and delivered as of the day and year first above written. MCII HOLDINGS (USA), INC. By: Name: Title: CONSORCIO G GRUPO DINA, S.A. DE C.V. By: Name: Title: By: Name: Title: THE CHASE MANHATTAN BANK as Escrow Agent By: Name: Title: Exhibit A to Escrow Agreement MUTUAL RELEASE This MUTUAL RELEASE (the "Release") executed this [ ] day of [ ] 2001 is entered into by and between [ ], as the authorized representative of the Estate of Rafael Gomez Flores (the "RGF Estate"), MCII Holdings (USA), Inc. ("the Company"), Joseph Littlejohn & Levy Fund III L.P. ("JLL"), CIBC WG Argosy Merchant Fund 2, L.L.C. ("CIBC"), CO-Investment Merchant Fund 3, LLC ("CMF"). In consideration of the releases contained herein and, for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: Assuming that the representation set forth in Section 2.6 of the Escrow Agreement is true and correct as of the date hereof, the RGF Estate for itself and its heirs, administrators and executors (the "RGF Releasees"), hereby expressly and unconditionally releases, acquits and forever discharges the Company Releasees (as hereinafter defined) from any claims, demands, counterclaims, rights, obligations, causes of action, payments, accounts, debts, contracts, promises, agreements, controversies, liens, liabilities, losses, attorneys' fees or damages, whether known or unknown, foreseen or unforeseen, whether in law or in equity or in contract or in tort ("Claims"), arising at any time prior to the date of this Agreement arising out of or in any way relating to the ownership or operation of the Company or any of its subsidiaries or affiliates or any of their respective businesses, including, without limitation, with respect to (i) the Transactions (as defined in the Investment Agreement, dated as of June 11, 1999) and (ii) the Employment Agreement, dated as of June 16, 1999, between the Company and Mr. Rafael Gomez Flores. Nothing contained herein shall be deemed to release any party from any Claims arising out of or relating to the Non-Qualified Stock Option Agreement, dated as of June 16, 1999. Each of the Company, JLL, CIBC, CMF together with each of their respective affiliates, successors, representatives, agents, directors, officers and assigns (the "Company Releasees"), hereby expressly and unconditionally releases, acquits and forever discharges the RGF Releasees, from any Claims, arising at any time prior to the date hereof and arising out of or in any way relating to the ownership or operation of the Company or any of its subsidiaries or affiliates or any of their respective businesses including, without limitation, with respect to (i) the Transactions (as defined in the Investment Agreement, dated as of June 11, 1999 and (ii) the Employment Agreement, dated as of June 16, 1999, between the Company and Mr. Rafael Gomez Flores. Nothing contained herein shall be deemed to release any party from any Claims arising out of or relating to the Non-Qualified Stock Option Agreement, dated as of June 16, 1999. [SIGNATURE PAGES FOLLOW] IN WITNESS WHEREOF, each of parties hereto have caused this instrument to be duly executed as of the date first above written. The Estate of Mr. Rafael Gomez Flores By: __________________________________ Name: Title: MCII Holdings (USA), Inc. By: __________________________________ Name: Title: Joseph Littlejohn & Levy Fund III L.P. By: JLL ASSOCIATES III, LLC, its General Partner By: __________________________________ Managing Member CIBC WG Argosy Merchant Fund 2, L.L.C. By: ___________________________________ Stephen A. Flyer, authorized signatory Co-Investment Merchant Fund 3, LLC By: ___________________________________ Stephen A. Flyer, authorized signatory EXHIBIT B to Escrow Agreement COMPENSATION OF THE ESCROW AGENT See Attached Sheet EXHIBIT C to Escrow Agreement TELEPHONE NUMBER(S) FOR CALL-BACKS AND PERSON(S) DESIGNATED TO CONFIRM FUNDS TRANSFER INSTRUCTIONS If to the Company: Name Telephone Number 1. Horst Sieben (847) 285-2030 2. Tim Nalepka (847) 285-2085 If to Dina or the RGF Estate: 1. Mr. Gamaliel Garcia Cortes 011-525-42-4686 Telephone call-backs shall be made to each of the Company, Dina and the RGF Estate, as applicable, if joint instructions are required pursuant to this Escrow Agreement. EXHIBIT D to Escrow Agreement BENEFITS PAYABLE TO RGF Salary payable under the Employment Agreement, dated as of June 16, 1999 between RGF and the Company Health benefits including, medical, dental, vision and basic life Vacation in accordance with the Company's policies Use of two company cars EX-10 6 ex1020_10k00.txt EMPLOYMENT AGREEMENT Exhibit 10.20 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement") dated as of April 27, 2001, by and between Motor Coach Industries International, Inc., a Delaware corporation (the "Company"), and Barry Melnkovic (the "Executive"). WHEREAS, the Company, through its subsidiaries and affiliates, is engaged in the business of (i) designing, manufacturing, assembling, and marketing of coaches of monocoque or unitized construction configuration, and (ii) distribution of replacement parts to the intercity coach and transit bus markets (the "Business"); and WHEREAS, the Company desires that the Executive serve as Vice President, Human Resources of the Company and the Executive desires to hold such position under the terms and conditions of this Agreement; and WHEREAS, the parties desire to enter into this Agreement setting forth the terms and conditions of the employment relationship of the Executive with the Company. NOW, THEREFORE, intending to be legally bound hereby, the parties agree as follows: 1. Employment. The Company hereby employs the Executive, and the Executive hereby accepts employment with the Company, upon the terms and subject to the conditions set forth herein. 2. Term. Subject to earlier termination pursuant to Section 10 hereof, the term of the employment by the Company of the Executive pursuant to this Agreement (the "Term") shall commence on April 27, 2001, (the "Effective Date"), and terminate on the first anniversary thereof. 3. Position. During the Term, the Executive shall serve as the Vice President, Human Resources of the Company, and shall perform such other duties as the Board of Directors of the Company (the "Company Board"), the Company's Chief Executive Officer (CEO) or Chief Operating Officer (COO) shall from time to time determine. 4. Duties. During the Term, the Executive shall devote his full time and attention during normal business hours to the business and affairs of the Company, except for vacations in accordance with the Company's policies and for illness or incapacity, in accordance with Section 9 hereof. 5. Salary and Bonus. (a) During the Term, the Company shall pay to the Executive a Base Salary at the rate of $225,000 per year. The Base Salary shall be payable to the Executive in substantially equal installments in accordance with the Company's normal payroll practices. (b) For the Company's fiscal year ending December 31, 2001, and for each fiscal year thereafter during the Term, the Executive shall be eligible to receive an annual cash bonus at the discretion of the Company Board , CEO or COO in accordance with the [Executive Bonus Program] or other incentive compensation plan established by the Company Board for the Company's executive officers. 6. Stock Option Plan. During the Term, the Executive shall be eligible to participate in the MCII Holdings (USA), Inc. Management Stock Option Plan or other stock option plan established by the Company Board for the Company's executive officers and may be granted options thereunder at the discretion of the Board. 7. Vacation, Holidays and Sick Leave. During the Term, the Executive shall be entitled to paid vacation, paid holidays and sick leave in accordance with the Company's standard policies for its senior executive officers. 8. Business Expenses. The Executive shall be reimbursed for all reasonable and necessary business expenses incurred by him in connection with his employment (including, without limitation, expenses for travel and entertainment incurred in conducting or promoting business for the Company) upon timely submission by the Executive of receipts and other documentation as required by the Internal Revenue Code of 1986, as amended (the "Code"), and in accordance with the Company's normal expense reimbursement policies. 9. Other Benefits. During the Term, the Executive shall be eligible to participate fully in all health and other employee benefit arrangements available to senior executive officers of the Company generally. 10. Termination of Agreement. The Executive's employment by the Company pursuant to this Agreement shall not be terminated prior to the end of the Term hereof except as set forth in this Section 10. (a) By Mutual Consent. The Executive's employment pursuant to this Agreement may be terminated at any time by the mutual written agreement of the Company and the Executive. (b) Death. The Executive's employment by the Company pursuant to this Agreement shall be terminated upon the death of the Executive, in which event the Executive's spouse or heirs shall receive, when the same would have been paid to the Executive, (i) all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination (as defined in Section 10(f) hereof) and (ii) the Base Salary and health benefits to be paid or provided to the Executive under this Agreement until the earlier of (x) six months following the Date of Termination and (y) the expiration of the Term. (c) Disability. The Executive's employment by the Company pursuant to this Agreement may be terminated by written notice to the Executive by the Company or to the Company by the Executive in the event that (i) the Executive becomes unable to perform his normal duties by reason of physical or mental illness or accident for any six (6) consecutive month period, or (ii) the Company receives written opinions from both a physician for the Company and a physician for the Executive that the Executive will be so disabled. In the event that this Agreement is terminated pursuant to this Section 10(c), the Executive shall be entitled to receive, when the same would have been paid to the Executive, (i) all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination and (ii) the Base Salary and health benefits to be paid or provided to the Executive under this Agreement until the earlier of (x) six months following the Date of Termination and (y) the expiration of the Term. (d) By the Company for Cause. This Agreement may be terminated by the Company by written notice to the Executive ("Notice of Termination") upon the occurrence of any of the following events (each of which shall constitute "Cause" for termination): (i) the Executive commits any act of gross negligence, incompetence, fraud or willful misconduct causing harm to the Company, (ii) the conviction of the Executive of a felony that could adversely affect the Company or its reputation, (iii) the Executive intentionally obtains personal gain, profit or enrichment at the expense of the Company or from any transaction in which the Executive has an interest which is adverse to the interest of the Company unless the Executive shall have obtained the prior written consent of the Company Board, (iv) the Executive acts in a manner which is materially detrimental or damaging to the Company's reputation, business operations or relations with its employees, suppliers or customers, or (v) any material breach by the Executive of this Agreement, including, without limitation, a material breach of Section 13 hereof, which breach remains uncorrected for a period of fifteen (15) days after receipt by the Executive of written notice from the Company setting forth the breach. In the event the Executive's employment by the Company is terminated pursuant to this Section 10(d), the Executive shall be entitled to receive all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination. (e) By the Company Without Cause. The employment by the Company of the Executive pursuant to this Agreement may be terminated by the Company at any time without Cause by delivery of a Notice of Termination to the Executive. In the event that the employment by the Company of the Executive pursuant to this Agreement is terminated by the Company without Cause pursuant to this Section 10(e), the Executive shall continue to be paid his base salary and benefits for 12 months after Date of Termination. (f) Date of Termination. The Executive's Date of Termination shall be (i) if the Executive's employment by the Company is terminated pursuant to Section 10(b), the date of his death, (ii) if the Executive's employment by the Company is terminated pursuant to Section 10(c), the last day of the six-month period referred to in Section 10(c), (iii) if the Executive's employment by the Company is terminated pursuant to Section 10(d), the date on which a Notice of Termination is given, and (iv) if the Executive's employment is terminated pursuant to Section 10(e), the date set forth in the Notice of Termination. 11. Representations. (a) The Company represents and warrants that this Agreement has been authorized by all necessary corporate action of the Company and is a valid and binding agreement of the Company enforceable against it in accordance with its terms. (b) The Executive represents and warrants that he is not a party to any agreement or instrument which would prevent him from entering into or performing his duties in any way under this Agreement. 12. Assignment; Binding Agreement. This Agreement is a personal contract and the rights and interests of the Executive hereunder may not be sold, transferred, assigned, pledged, encumbered, or hypothecated by him, except as otherwise expressly permitted by the provisions of this Agreement. This Agreement shall inure to the benefit of and be enforceable by the Executive and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to him hereunder had the Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to his devisee, legatee, or other designee or, if there is no such designee, to his estate. 13. Confidentiality; Non-Competition; Ownership of Works. (a) Executive acknowledges that: (i) the Business is intensely competitive and that Executive's employment by the Company will require that Executive have access to and knowledge of confidential information of the Company, including, but not limited to, the identity of the Company's customers, the identity of the representatives of customers with whom the Company has dealt, the kinds of services provided by the Company to customers and offered to be performed for potential customers, the manner in which such services are performed or offered to be performed, the service needs of actual or prospective customers, pricing information, information concerning the creation, acquisition, or disposition of products and services, creative ideas and concepts, computer software applications and other programs, research data, personnel information and other trade secrets (the "Confidential Information"); (ii) the direct or indirect disclosure of any such Confidential Information would place the Company at a competitive disadvantage and would do damage, monetary or otherwise, to the Company's business; and (iii) the engaging by Executive in any of the activities prohibited by this Section 13 may constitute improper appropriation and/or use of such Confidential Information. Executive expressly acknowledges the trade secret status of the Confidential Information and that the Confidential Information constitutes a protectable business interest of the Company. Accordingly, the Company and Executive agree as follows: (b) For purposes of this Section 13, the Company shall be construed to include the Company and its parents and subsidiaries engaged in the Business, including any divisions managed by Executive. (c) During Executive's employment with the Company, and at all times after the termination of Executive's employment by expiration of the Term or otherwise, Executive shall not, directly or indirectly, whether individually, as a director, stockholder, owner, partner, employee, principal, or agent of any business, or in any other capacity, make known, disclose, furnish, make available, or utilize any of the Confidential Information, other than in the proper performance of the duties contemplated herein, or as expressly permitted herein, or as required by a court of competent jurisdiction or other administrative or legislative body; provided that, prior to disclosing any of the Confidential Information as required by a court or other administrative or legislative body, Executive shall promptly notify the Company so that the Company may seek a protective order or other appropriate remedy. Executive agrees to return all documents or other materials containing Confidential Information, including all photocopies, extracts and summaries thereof, and any such information stored electronically on tapes, computer disks or in any other manner, to the Company at any time upon request by the Company and immediately upon the termination of his employment for any reason. (d) During Executive's employment with the Company, Executive shall not engage in "Competition" with the Company. For purposes of this Agreement, Competition by Executive shall mean Executive's engaging in, or otherwise directly or indirectly being employed by or acting as a consultant or lender to, or being a director, officer, employee, principal, agent, stockholder, member, owner or partner of, or permitting his name to be used in connection with the activities of, any other business or organization anywhere in the Western Hemisphere which competes, directly or indirectly, with the Business of the Company. (e) For a period of one (1) year following the termination of Executive's employment, whether upon expiration of the Term or otherwise, Executive shall not engage in Competition, as defined above, with the Company in any locality or region of the Western Hemisphere in which the Company had operations at the time of, or within six (6) months prior to, Executive's termination, or in which, during the six (6) month period prior to Executive's termination, the Company had made substantial plans with the intention of establishing operations in such locality or region; provided that, it shall not be a violation of this sub-paragraph for Executive to become the registered or beneficial owner of up to one percent (1%) of any class of the capital stock of a competing corporation registered under the Securities Exchange Act of 1934, as amended, provided that Executive does not actively participate in the business of such corporation until such time as this covenant expires. (f) For a period of one (1) year after he ceases to be employed hereunder by the Company, whether upon expiration of the Term or otherwise, Executive agrees that he will not, directly or indirectly, for his benefit or for the benefit of any other person, firm or entity, do any of the following: i solicit from any customer doing business with the Company as of Executive's termination, business of the same or of a similar nature to the business of the Company with such customer; ii solicit from any known potential customer of the Company business of the same or of a similar nature to that which has been the subject of a known written or oral bid, offer, or proposal by the Company, or of substantial preparation with a view to making such a bid, proposal, or offer, within six (6) months prior to Executive's termination; iii recruit or solicit the employment or services of, or hire, any person who was known to be employed by the Company upon termination of Executive's employment, or within six (6) months prior thereto; or iv otherwise knowingly interfere with the business or accounts of the Company. (g) The Executive will make full and prompt disclosure to the Company of all inventions, improvements, formulas, data, programs, processes, ideas, concepts, discoveries, methods, developments, software, and works of authorship, whether or not copyrightable, trademarkable, or patentable, which are created, made, conceived, or reduced to practice by the Executive, either alone, under his direction or jointly with others during the period of his employment with the Company, whether or not during normal working hours or on the premises of the Company, which (i) relate to the actual or anticipated business, activities, or research of the Company, or (ii) result from or are suggested by work performed by the Executive for the Company, or (iii) result, to any extent, from use of the Company's premises or property (all of which are collectively referred to in this Agreement as "Works"). All Works shall be the sole property of the Company, and, to the extent that the Company is not already considered the owner thereof as a matter of law, the Executive hereby assigns to the Company, without further compensation, all his right, title, and interest in and to such Works and any and all related intellectual property rights (including, but not limited to, patents, patent applications, copyrights, copyright applications, and trademarks) in the Western Hemisphere and elsewhere. Notwithstanding the foregoing, this Agreement does not apply to any invention for which no equipment, supplies, facility, or trade secret information of the Company was used and which was developed entirely on the Executive's own time, unless: (A) the invention relates (X) to the Business of the Company, or (Y) to the Company's actual demonstratively anticipated research or development; or (B) the invention results from any work performed by the Executive for the Company. (h) Executive acknowledges that the services to be rendered by him to the Company are of a special and unique character, which gives this Agreement a peculiar value to the Company, the loss of which may not be reasonably or adequately compensated for by damages in an action at law, and that a breach or threatened breach by him of any of the provisions contained in this Section 13 will cause the Company irreparable injury. Executive therefore agrees that the Company shall be entitled, in addition to any other right or remedy, to a temporary, preliminary, and permanent injunction, without the necessity of proving the inadequacy of monetary damages or the posting of any bond or security, enjoining or restraining Executive from any such violation or threatened violations. (i) Executive further acknowledges and agrees that due to the uniqueness of his services and confidential nature of the information he will possess, the covenants set forth herein are reasonable and necessary for the protection of the business and goodwill of the Company. (j) If any one or more of the provisions contained in this Agreement shall be held to be excessively broad as to duration, activity, or subject, such provisions shall be construed by limiting and reducing them so as to be enforceable to the fullest extent permitted by law. 144 Entire Agreement. This Agreement contains all the understandings between the parties hereto pertaining to the matters referred to herein, and supersedes any other undertakings and agreements, whether oral or in writing, previously entered into by them with respect thereto. The Executive represents that, in executing this Agreement, he does not rely and has not relied upon any representation or statement not set forth herein made by the Company with regard to the subject matter or effect of this Agreement or otherwise. 155 Amendment or Modification, Waiver. No provision of this Agreement may be amended or waived, unless such amendment or waiver is agreed to in writing, signed by the Executive and by a duly authorized officer of the Company. No waiver by any party hereto of any breach by another party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time, or any subsequent time. 166 Notices. Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier or facsimile or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice hereunder in writing: To the Executive at: Barry Melnkovic To the Company at: Motor Coach Industries International, Inc. 1700 East Golf Road Schaumburg, Illinois 60173 Attention: Chief Operating Officer Any notice delivered personally or by courier under this Section 16 shall be deemed given on the date delivered and any notice sent by facsimile or registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date transmitted by facsimile or mailed. 177 Severability. If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable, shall not be affected thereby, and each provision hereof shall be validated and shall be enforced to the fullest extent permitted by law. 188 Survivorship. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 19 Governing Law. This Agreemnt will be governed by and construed in accordance with the laws of the State of Illinois, without regard to the principles of conflicts of law thereof. 190 Headings. All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph. 201 Withholding. All payments to the Executive under this Agreement shall be reduced by all applicable withholding required by federal, state, or local law. 212 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement on _____________, 2001, to be effective as of the Effective Date. MOTOR COACH INDUSTRIES INTERNATIONAL, INC. By: _____________________________________ Name: Title: _____________________________________ BARRY MELNKOVIC EX-10 7 ex1021_10k00.txt EMPLOYMENT AGREEMENT Exhibit 10.21 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement") dated as of April 27, 2001, by and between Motor Coach Industries International, Inc., a Delaware corporation (the "Company"), and Timothy J. Nalepka (the "Executive"). WHEREAS, the Company, through its subsidiaries and affiliates, is engaged in the business of (i) designing, manufacturing, assembling, and marketing of coaches of monocoque or unitized construction configuration, and (ii) distribution of replacement parts to the intercity coach and transit bus markets (the "Business"); and WHEREAS, the Company desires that the Executive serve as Vice President & General Counsel of the Company and the Executive desires to hold such position under the terms and conditions of this Agreement; and WHEREAS, the parties desire to enter into this Agreement setting forth the terms and conditions of the employment relationship of the Executive with the Company. NOW, THEREFORE, intending to be legally bound hereby, the parties agree as follows: 1. Employment. The Company hereby employs the Executive, and the Executive hereby accepts employment with the Company, upon the terms and subject to the conditions set forth herein. 2. Term. Subject to earlier termination pursuant to Section 10 hereof, the term of the employment by the Company of the Executive pursuant to this Agreement (the "Term") shall commence on April 27, 2001 (the "Effective Date"), and terminate on the first anniversary thereof. 3. Position. During the Term, the Executive shall serve as the Vice President & General Counsel of the Company, and shall perform such other duties as the Board of Directors of the Company (the "Company Board"), the Company's Chief Executive Officer (CEO) or Chief Operating Officer (COO) shall from time to time determine. 4. Duties. During the Term, the Executive shall devote his full time and attention during normal business hours to the business and affairs of the Company, except for vacations in accordance with the Company's policies and for illness or incapacity, in accordance with Section 9 hereof. 5. Salary and Bonus. (a) During the Term, the Company shall pay to the Executive a Base Salary at the annualized rate of $225,000 per year. The car allowance paid to the Executive will end May 1, 2001. The Base Salary shall be payable to the Executive in substantially equal installments in accordance with the Company's normal payroll practices. (b) For the Company's fiscal year ending December 31, 2001, and for each fiscal year thereafter during the Term, the Executive shall be eligible to receive an annual cash bonus at the discretion of the Company Board, CEO or COO in accordance with the [Executive Bonus Program] or other incentive compensation plan established by the Company Board, CEO or COO for the Company's executive officers. 6. Stock Option Plan. During the Term, the Executive shall be eligible to participate in the MCII Holdings (USA), Inc. Management Stock Option Plan or other stock option plan established by the Company Board for the Company's executive officers and may be granted options thereunder at the discretion of the Board. 7. Vacation, Holidays and Sick Leave. During the Term, the Executive shall be entitled to paid vacation, paid holidays and sick leave in accordance with the Company's standard policies for its senior executive officers. 8. Business Expenses. The Executive shall be reimbursed for all reasonable and necessary business expenses incurred by him in connection with his employment (including, without limitation, expenses for travel and entertainment incurred in conducting or promoting business for the Company) upon timely submission by the Executive of receipts and other documentation as required by the Internal Revenue Code of 1986, as amended (the "Code"), and in accordance with the Company's normal expense reimbursement policies. 9. Other Benefits. During the Term, the Executive shall be eligible to participate fully in all health and other employee benefit arrangements available to senior executive officers of the Company generally. 10. Termination of Agreement. The Executive's employment by the Company pursuant to this Agreement shall not be terminated prior to the end of the Term hereof except as set forth in this Section 10. (a) By Mutual Consent. The Executive's employment pursuant to this Agreement may be terminated at any time by the mutual written agreement of the Company and the Executive. (b) Death. The Executive's employment by the Company pursuant to this Agreement shall be terminated upon the death of the Executive, in which event the Executive's spouse or heirs shall receive, when the same would have been paid to the Executive, (i) all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination (as defined in Section 10(f) hereof) and (ii) the Base Salary and health benefits to be paid or provided to the Executive under this Agreement until the earlier of (x) six months following the Date of Termination and (y) the expiration of the Term. (c) Disability. The Executive's employment by the Company pursuant to this Agreement may be terminated by written notice to the Executive by the Company or to the Company by the Executive in the event that (i) the Executive becomes unable to perform his normal duties by reason of physical or mental illness or accident for any six (6) consecutive month period, or (ii) the Company receives written opinions from both a physician for the Company and a physician for the Executive that the Executive will be so disabled. In the event that this Agreement is terminated pursuant to this Section 10(c), the Executive shall be entitled to receive, when the same would have been paid to the Executive, (i) all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination and (ii) the Base Salary and health benefits to be paid or provided to the Executive under this Agreement until the earlier of (x) six months following the Date of Termination and (y) the expiration of the Term. (d) By the Company for Cause. This Agreement may be terminated by the Company by written notice to the Executive ("Notice of Termination") upon the occurrence of any of the following events (each of which shall constitute "Cause" for termination): (i) the Executive commits any act of gross negligence, incompetence, fraud or willful misconduct causing harm to the Company, (ii) the conviction of the Executive of a felony that could adversely affect the Company or its reputation, (iii) the Executive intentionally obtains personal gain, profit or enrichment at the expense of the Company or from any transaction in which the Executive has an interest which is adverse to the interest of the Company unless the Executive shall have obtained the prior written consent of the Company Board, (iv) the Executive acts in a manner which is materially detrimental or damaging to the Company's reputation, business operations or relations with its employees, suppliers or customers, or (v) any material breach by the Executive of this Agreement, including, without limitation, a material breach of Section 13 hereof, which breach remains uncorrected for a period of fifteen (15) days after receipt by the Executive of written notice from the Company setting forth the breach. In the event the Executive's employment by the Company is terminated pursuant to this Section 10(d), the Executive shall be entitled to receive all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination. (e) By the Company Without Cause. The employment by the Company of the Executive pursuant to this Agreement may be terminated by the Company at any time without Cause by delivery of a Notice of Termination to the Executive. In the event that the employment by the Company of the Executive pursuant to this Agreement is terminated by the Company without Cause pursuant to this Section 10(e), the Executive shall continue to be paid his Base Salary and benefits for twelve months after Date of Termination. (f) Date of Termination. The Executive's Date of Termination shall be (i) if the Executive's employment by the Company is terminated pursuant to Section 10(b), the date of his death, (ii) if the Executive's employment by the Company is terminated pursuant to Section 10(c), the last day of the six-month period referred to in Section 10(c), (iii) if the Executive's employment by the Company is terminated pursuant to Section 10(d), the date on which a Notice of Termination is given, and (iv) if the Executive's employment is terminated pursuant to Section 10(e), the date set forth in the Notice of Termination. 11. Representations. (a) The Company represents and warrants that this Agreement has been authorized by all necessary corporate action of the Company and is a valid and binding agreement of the Company enforceable against it in accordance with its terms. (b) The Executive represents and warrants that he is not a party to any agreement or instrument which would prevent him from entering into or performing his duties in any way under this Agreement. 12. Assignment; Binding Agreement. This Agreement is a personal contract and the rights and interests of the Executive hereunder may not be sold, transferred, assigned, pledged, encumbered, or hypothecated by him, except as otherwise expressly permitted by the provisions of this Agreement. This Agreement shall inure to the benefit of and be enforceable by the Executive and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to him hereunder had the Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to his devisee, legatee, or other designee or, if there is no such designee, to his estate. 13. Confidentiality; Non-Competition; Ownership of Works. (a) Executive acknowledges that: (i) the Business is intensely competitive and that Executive's employment by the Company will require that Executive have access to and knowledge of confidential information of the Company, including, but not limited to, the identity of the Company's customers, the identity of the representatives of customers with whom the Company has dealt, the kinds of services provided by the Company to customers and offered to be performed for potential customers, the manner in which such services are performed or offered to be performed, the service needs of actual or prospective customers, pricing information, information concerning the creation, acquisition, or disposition of products and services, creative ideas and concepts, computer software applications and other programs, research data, personnel information and other trade secrets (the "Confidential Information"); (ii) the direct or indirect disclosure of any such Confidential Information would place the Company at a competitive disadvantage and would do damage, monetary or otherwise, to the Company's business; and (iii) the engaging by Executive in any of the activities prohibited by this Section 13 may constitute improper appropriation and/or use of such Confidential Information. Executive expressly acknowledges the trade secret status of the Confidential Information and that the Confidential Information constitutes a protectable business interest of the Company. Accordingly, the Company and Executive agree as follows: (b) For purposes of this Section 13, the Company shall be construed to include the Company and its parents and subsidiaries engaged in the Business, including any divisions managed by Executive. (c) During Executive's employment with the Company, and at all times after the termination of Executive's employment by expiration of the Term or otherwise, Executive shall not, directly or indirectly, whether individually, as a director, stockholder, owner, partner, employee, principal, or agent of any business, or in any other capacity, make known, disclose, furnish, make available, or utilize any of the Confidential Information, other than in the proper performance of the duties contemplated herein, or as expressly permitted herein, or as required by a court of competent jurisdiction or other administrative or legislative body; provided that, prior to disclosing any of the Confidential Information as required by a court or other administrative or legislative body, Executive shall promptly notify the Company so that the Company may seek a protective order or other appropriate remedy. Executive agrees to return all documents or other materials containing Confidential Information, including all photocopies, extracts and summaries thereof, and any such information stored electronically on tapes, computer disks or in any other manner, to the Company at any time upon request by the Company and immediately upon the termination of his employment for any reason. (d) During Executive's employment with the Company, Executive shall not engage in "Competition" with the Company. For purposes of this Agreement, Competition by Executive shall mean Executive's engaging in, or otherwise directly or indirectly being employed by or acting as a consultant or lender to, or being a director, officer, employee, principal, agent, stockholder, member, owner or partner of, or permitting his name to be used in connection with the activities of, any other business or organization anywhere in the Western Hemisphere which competes, directly or indirectly, with the Business of the Company. (e) For a period of one (1) year following the termination of Executive's employment, whether upon expiration of the Term or otherwise, Executive shall not engage in Competition, as defined above, with the Company in any locality or region of the Western Hemisphere in which the Company had operations at the time of, or within six (6) months prior to, Executive's termination, or in which, during the six (6) month period prior to Executive's termination, the Company had made substantial plans with the intention of establishing operations in such locality or region; provided that, it shall not be a violation of this sub-paragraph for Executive to become the registered or beneficial owner of up to one percent (1%) of any class of the capital stock of a competing corporation registered under the Securities Exchange Act of 1934, as amended, provided that Executive does not actively participate in the business of such corporation until such time as this covenant expires. (f) For a period of one (1) year after he ceases to be employed hereunder by the Company, whether upon expiration of the Term or otherwise, Executive agrees that he will not, directly or indirectly, for his benefit or for the benefit of any other person, firm or entity, do any of the following: i solicit from any customer doing business with the Company as of Executive's termination, business of the same or of a similar nature to the business of the Company with such customer; ii solicit from any known potential customer of the Company business of the same or of a similar nature to that which has been the subject of a known written or oral bid, offer, or proposal by the Company, or of substantial preparation with a view to making such a bid, proposal, or offer, within six (6) months prior to Executive's termination; iii recruit or solicit the employment or services of, or hire, any person who was known to be employed by the Company upon termination of Executive's employment, or within six (6) months prior thereto; or iv otherwise knowingly interfere with the business or accounts of the Company. (g) The Executive will make full and prompt disclosure to the Company of all inventions, improvements, formulas, data, programs, processes, ideas, concepts, discoveries, methods, developments, software, and works of authorship, whether or not copyrightable, trademarkable, or patentable, which are created, made, conceived, or reduced to practice by the Executive, either alone, under his direction or jointly with others during the period of his employment with the Company, whether or not during normal working hours or on the premises of the Company, which (i) relate to the actual or anticipated business, activities, or research of the Company, or (ii) result from or are suggested by work performed by the Executive for the Company, or (iii) result, to any extent, from use of the Company's premises or property (all of which are collectively referred to in this Agreement as "Works"). All Works shall be the sole property of the Company, and, to the extent that the Company is not already considered the owner thereof as a matter of law, the Executive hereby assigns to the Company, without further compensation, all his right, title, and interest in and to such Works and any and all related intellectual property rights (including, but not limited to, patents, patent applications, copyrights, copyright applications, and trademarks) in the Western Hemisphere and elsewhere. Notwithstanding the foregoing, this Agreement does not apply to any invention for which no equipment, supplies, facility, or trade secret information of the Company was used and which was developed entirely on the Executive's own time, unless: (A) the invention relates (X) to the Business of the Company, or (Y) to the Company's actual demonstratively anticipated research or development; or (B) the invention results from any work performed by the Executive for the Company. (h) Executive acknowledges that the services to be rendered by him to the Company are of a special and unique character, which gives this Agreement a peculiar value to the Company, the loss of which may not be reasonably or adequately compensated for by damages in an action at law, and that a breach or threatened breach by him of any of the provisions contained in this Section 13 will cause the Company irreparable injury. Executive therefore agrees that the Company shall be entitled, in addition to any other right or remedy, to a temporary, preliminary, and permanent injunction, without the necessity of proving the inadequacy of monetary damages or the posting of any bond or security, enjoining or restraining Executive from any such violation or threatened violations. (i) Executive further acknowledges and agrees that due to the uniqueness of his services and confidential nature of the information he will possess, the covenants set forth herein are reasonable and necessary for the protection of the business and goodwill of the Company. (j) If any one or more of the provisions contained in this Agreement shall be held to be excessively broad as to duration, activity, or subject, such provisions shall be construed by limiting and reducing them so as to be enforceable to the fullest extent permitted by law. 144 Entire Agreement. This Agreement contains all the understandings between the parties hereto pertaining to the matters referred to herein, and supersedes any other undertakings and agreements, whether oral or in writing, previously entered into by them with respect thereto. The Executive represents that, in executing this Agreement, he does not rely and has not relied upon any representation or statement not set forth herein made by the Company with regard to the subject matter or effect of this Agreement or otherwise. 155 Amendment or Modification, Waiver. No provision of this Agreement may be amended or waived, unless such amendment or waiver is agreed to in writing, signed by the Executive and by a duly authorized officer of the Company. No waiver by any party hereto of any breach by another party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time, or any subsequent time. 166 Notices. Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier or facsimile or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice hereunder in writing: To the Executive at: Timothy J. Nalepka To the Company at: Motor Coach Industries International, Inc. 1700 East Golf Road ~ Suite 300 Schaumburg, Illinois 60173 Facsimile: (847) 285-2079 Attention: Chief Operating Officer Any notice delivered personally or by courier under this Section 16 shall be deemed given on the date delivered and any notice sent by facsimile or registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date transmitted by facsimile or mailed. 177 Severability. If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable, shall not be affected thereby, and each provision hereof shall be validated and shall be enforced to the fullest extent permitted by law. 188 Survivorship. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 19 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Illinois, without regard to the principles of conflicts of law thereof. 190 Headings. All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph. 201 Withholding. All payments to the Executive under this Agreement shall be reduced by all applicable withholding required by federal, state, or local law. 212 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement on _____________, 2001, to be effective as of the Effective Date. MOTOR COACH INDUSTRIES INTERNATIONAL, INC. By: _____________________________________ Name: Title: _____________________________________ Timothy J. Nalepka EX-10 8 ex1022_10k00.txt EMPLOYMENT AGREEMENT EXHIBIT 10.22 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement") dated as of April 17, 2000, by and between Motor Coach Industries International, Inc., a Delaware corporation (the "Company"), and Pedro Ferro (the "Executive"). WHEREAS, the Company, through its subsidiaries and affiliates, is engaged in the business of (i) designing, manufacturing, assembling, and marketing of coaches of monocoque or unitized construction configuration, and (ii) distribution of replacement parts to the intercity coach and transit bus markets (the "Business"); and WHEREAS, the Company desires that the Executive serve as Vice President and General Manager, Customer Support Business, of the Company and the Executive desires to hold such position under the terms and conditions of this Agreement; and WHEREAS, the parties desire to enter into this Agreement setting forth the terms and conditions of the employment relationship of the Executive with the Company. NOW, THEREFORE, intending to be legally bound hereby, the parties agree as follows: 1. Employment. The Company hereby employs the Executive, and the Executive hereby accepts employment with the Company, upon the terms and subject to the conditions set forth herein. 2. Term. Subject to earlier termination pursuant to Section 10 hereof, the term of the employment by the Company of the Executive pursuant to this Agreement (the "Term") shall commence on April 17, 2000 (the "Effective Date"), and terminate on the second anniversary thereof. 3. Position. During the Term, the Executive shall serve as the Vice President and General Manager, Customer Support Business, of the Company, and shall perform such other duties as the Board of Directors of the Company (the "Company Board") or the Company's Chief Executive Officer shall from time to time determine. 4. Duties. During the Term, the Executive shall devote his full time and attention during normal business hours to the business and affairs of the Company, except for vacations in accordance with the Company's policies and for illness or incapacity, in accordance with Section 9 hereof. 5. Salary and Bonus. (a) During the Term, the Company shall pay to the Executive a Base Salary at the rate of $250,000.00 per year. Commencing on the first anniversary of the Effective Date, the Company Board shall review the Base Salary annually and shall make such adjustments from time to time as it may deem advisable. The Base Salary shall be payable to the Executive in substantially equal installments in accordance with the Company's normal payroll practices. (b) For the Company's fiscal year ending December 31, 2000, and for each fiscal year thereafter during the Term, the Executive shall be eligible to receive an annual cash bonus at the discretion of the Company Board in accordance with the [Management Bonus Program] or other incentive compensation plan established by the Company Board for the Company's executive officers. 6. Stock Option Plan. During the Term, the Executive shall be eligible to participate in the MCII Holdings (USA), Inc. Management Stock Option Plan or other stock option plan established by the Company Board for the Company's executive officers and may be granted options thereunder at the discretion of the Board and in accordance with Exhibit A hereto. 7. Vacation, Holidays and Sick Leave. During the Term, the Executive shall be entitled to paid vacation, paid holidays and sick leave in accordance with the Company's standard policies for its senior executive officers. 8. Business Expenses. The Executive shall be reimbursed for all reasonable and necessary business expenses incurred by him in connection with his employment (including, without limitation, expenses for travel and entertainment incurred in conducting or promoting business for the Company) upon timely submission by the Executive of receipts and other documentation as required by the Internal Revenue Code of 1986, as amended (the "Code"), and in accordance with the Company's normal expense reimbursement policies. 9. Other Benefits. During the Term, the Executive shall be eligible to participate fully in all health and other employee benefit arrangements available to senior executive officers of the Company generally. 10. Termination of Agreement. The Executive's employment by the Company pursuant to this Agreement shall not be terminated prior to the end of the Term hereof except as set forth in this Section 10. (a) By Mutual Consent. The Executive's employment pursuant to this Agreement may be terminated at any time by the mutual written agreement of the Company and the Executive. (b) Death. The Executive's employment by the Company pursuant to this Agreement shall be terminated upon the death of the Executive, in which event the Executive's spouse or heirs shall receive, when the same would have been paid to the Executive, (i) all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination (as defined in Section 10(f) hereof) and (ii) the Base Salary and health benefits to be paid or provided to the Executive under this Agreement until the earlier of (x) six months following the Date of Termination and (y) the expiration of the Term. (c) Disability. The E xecutive's employment by the Company pursuant to this Agreement may be terminated by written notice to the Executive by the Company or to the Company by the Executive in the event that (i) the Executive becomes unable to perform his normal duties by reason of physical or mental illness or accident for any six (6) consecutive month period, or (ii) the Company receives written opinions from both a physician for the Company and a physician for the Executive that the Executive will be so disabled. In the event that this Agreement is terminated pursuant to this Section 10(c), the Executive shall be entitled to receive, when the same would have been paid to the Executive, (i) all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination and (ii) the Base Salary and health benefits to be paid or provided to the Executive under this Agreement until the earlier of (x) six months following the Date of Termination and (y) the expiration of the Term. (d) By the Company for Cause. This Agreement may be terminated by the Company by written notice to the Executive ("Notice of Termination") upon the occurrence of any of the following events (each of which shall constitute "Cause" for termination): (i) the Executive commits any act of gross negligence, incompetence, fraud or wilful misconduct causing harm to the Company, (ii) the conviction of the Executive of a felony that could adversely affect the Company or its reputation, (iii) the Executive intentionally obtains personal gain, profit or enrichment at the expense of the Company or from any transaction in which the Executive has an interest which is adverse to the interest of the Company unless the Executive shall have obtained the prior written consent of the Company Board, (iv) the Executive acts in a manner which is materially detrimental or damaging to the Company's reputation, business operations or relations with its employees, suppliers or customers, or (v) any material breach by the Executive of this Agreement, including, without limitation, a material breach of Section 13 hereof, which breach remains uncorrected for a period of fifteen (15) days after receipt by the Executive of written notice from the Company setting forth the breach. In the event the Executive's employment by the Company is terminated pursuant to this Section 10(d), the Executive shall be entitled to receive all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination. (e) By the Company Without Cause. The employment by the Company of the Executive pursuant to this Agreement may be terminated by the Company at any time without Cause by delivery of a Notice of Termination to the Executive. In the event that the employment by the Company of the Executive pursuant to this Agreement is terminated by the Company without Cause pursuant to this Section 10(e), the Executive shall be entitled to receive, when the same would have been paid to the Executive, the greater of (i) the Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Term, and (ii) the Base Salary and benefits to be paid or provided to the Executive under this Agreement for twelve (12) months after the Date of Termination. (f) Date of Termination. The Executive's Date of Termination shall be (i) if the Executive's employment by the Company is terminated pursuant to Section 10(b), the date of his death, (ii) if the Executive's employment by the Company is terminated pursuant to Section 10(c), the last day of the six-month period referred to in Section 10(c), (iii) if the Executive's employment by the Company is terminated pursuant to Section 10(d), the date on which a Notice of Termination is given, and (iv) if the Executive's employment is terminated pursuant to Section 10(e), the date set forth in the Notice of Termination. 11. Representations. (a) The Company represents and warrants that this Agreement has been authorized by all necessary corporate action of the Company and is a valid and binding agreement of the Company enforceable against it in accordance with its terms. (b) The Executive represents and warrants that he is not a party to any agreement or instrument which would prevent him from entering into or performing his duties in any way under this Agreement. 12. Assignment; Binding Agreement. This Agreement is a personal contract and the rights and interests of the Executive hereunder may not be sold, transferred, assigned, pledged, encumbered, or hypothecated by him, except as otherwise expressly permitted by the provisions of this Agreement. This Agreement shall inure to the benefit of and be enforceable by the Executive and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to him hereunder had the Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to his devisee, legatee, or other designee or, if there is no such designee, to his estate. 13. Confidentiality; Non-Competition; Ownership of Works. (a) Executive acknowledges that: (i) the Business is intensely competitive and that Executive's employment by the Company will require that Executive have access to and knowledge of confidential information of the Company, including, but not limited to, the identity of the Company's customers, the identity of the representatives of customers with whom the Company has dealt, the kinds of services provided by the Company to customers and offered to be performed for potential customers, the manner in which such services are performed or offered to be performed, the service needs of actual or prospective customers, pricing information, information concerning the creation, acquisition, or disposition of products and services, creative ideas and concepts, computer software applications and other programs, research data, personnel information and other trade secrets (the "Confidential Information"); (ii) the direct or indirect disclosure of any such Confidential Information would place the Company at a competitive disadvantage and would do damage, monetary or otherwise, to the Company's business; and (iii) the engaging by Executive in any of the activities prohibited by this Section 13 may constitute improper appropriation and/or use of such Confidential Information. Executive expressly acknowledges the trade secret status of the Confidential Information and that the Confidential Information constitutes a protectable business interest of the Company. Accordingly, the Company and Executive agree as follows: (b) For purposes of this Section 13, the Company shall be construed to include the Company and its parents and subsidiaries engaged in the Business, including any divisions managed by Executive. (c) During Executive's employment with the Company, and at all times after the termination of Executive's employment by expiration of the Term or otherwise, Executive shall not, directly or indirectly, whether individually, as a director, stockholder, owner, partner, employee, principal, or agent of any business, or in any other capacity, make known, disclose, furnish, make available, or utilize any of the Confidential Information, other than in the proper performance of the duties contemplated herein, or as expressly permitted herein, or as required by a court of competent jurisdiction or other administrative or legislative body; provided that, prior to disclosing any of the Confidential Information as required by a court or other administrative or legislative body, Executive shall promptly notify the Company so that the Company may seek a protective order or other appropriate remedy. Executive agrees to return all documents or other materials containing Confidential Information, including all photocopies, extracts and summaries thereof, and any such information stored electronically on tapes, computer disks or in any other manner, to the Company at any time upon request by the Company and immediately upon the termination of his employment for any reason. (d) During Executive's employment with the Company, Executive shall not engage in "Competition" with the Company. For purposes of this Agreement, Competition by Executive shall mean Executive's engaging in, or otherwise directly or indirectly being employed by or acting as a consultant or lender to, or being a director, officer, employee, principal, agent, stockholder, member, owner or partner of, or permitting his name to be used in connection with the activities of, any other business or organization anywhere in the Western Hemisphere which competes, directly or indirectly, with the Business of the Company. (e) For a period of two (2) years following the termination of Executive's employment, whether upon expiration of the Term or otherwise, Executive shall not engage in Competition, as defined above, with the Company in any locality or region of the Western Hemisphere in which the Company had operations at the time of, or within six (6) months prior to, Executive's termination, or in which, during the six (6) month period prior to Executive's termination, the Company had made substantial plans with the intention of establishing operations in such locality or region; provided that, it shall not be a violation of this sub-paragraph for Executive to become the registered or beneficial owner of up to one percent (1%) of any class of the capital stock of a competing corporation registered under the Securities Exchange Act of 1934, as amended, provided that Executive does not actively participate in the business of such corporation until such time as this covenant expires. (f) For a period of two (2) years after he ceases to be employed hereunder by the Company, whether upon expiration of the Term or otherwise, Executive agrees that he will not, directly or indirectly, for his benefit or for the benefit of any other person, firm or entity, do any of the following: i solicit from any customer doing business with the Company as of Executive's termination, business of the same or of a similar nature to the business of the Company with such customer; ii solicit from any known potential customer of the Company business of the same or of a similar nature to that which has been the subject of a known written or oral bid, offer, or proposal by the Company, or of substantial preparation with a view to making such a bid, proposal, or offer, within six (6) months prior to Executive's termination; iii recruit or solicit the employment or services of, or hire, any person who was known to be employed by the Company upon termination of Executive's employment, or within six (6) months prior thereto; or iv otherwise knowingly interfere with the business or accounts of the Company. (g) The Executive will make full and prompt disclosure to the Company of all inventions, improvements, formulas, data, programs, processes, ideas, concepts, discoveries, methods, developments, software, and works of authorship, whether or not copyrightable, trademarkable, or patentable, which are created, made, conceived, or reduced to practice by the Executive, either alone, under his direction or jointly with others during the period of his employment with the Company, whether or not during normal working hours or on the premises of the Company, which (i) relate to the actual or anticipated business, activities, or research of the Company, or (ii) result from or are suggested by work performed by the Executive for the Company, or (iii) result, to any extent, from use of the Company's premises or property (all of which are collectively referred to in this Agreement as "Works"). All Works shall be the sole property of the Company, and, to the extent that the Company is not already considered the owner thereof as a matter of law, the Executive hereby assigns to the Company, without further compensation, all his right, title, and interest in and to such Works and any and all related intellectual property rights (including, but not limited to, patents, patent applications, copyrights, copyright applications, and trademarks) in the Western Hemisphere and elsewhere. Notwithstanding the foregoing, this Agreement does not apply to any invention for which no equipment, supplies, facility, or trade secret information of the Company was used and which was developed entirely on the Executive's own time, unless: (A) the invention relates (X) to the Business of the Company, or (Y) to the Company's actual demonstratively anticipated research or development; or (B) the invention results from any work performed by the Executive for the Company. (h) Executive acknowledges that the services to be rendered by him to the Company are of a special and unique character, which gives this Agreement a peculiar value to the Company, the loss of which may not be reasonably or adequately compensated for by damages in an action at law, and that a breach or threatened breach by him of any of the provisions contained in this Section 14 will cause the Company irreparable injury. Executive therefore agrees that the Company shall be entitled, in addition to any other right or remedy, to a temporary, preliminary, and permanent injunction, without the necessity of proving the inadequacy of monetary damages or the posting of any bond or security, enjoining or restraining Executive from any such violation or threatened violations. (i) Executive further acknowledges and agrees that due to the uniqueness of his services and confidential nature of the information he will possess, the covenants set forth herein are reasonable and necessary for the protection of the business and goodwill of the Company. (j) If any one or more of the provisions contained in this Agreement shall be held to be excessively broad as to duration, activity, or subject, such provisions shall be construed by limiting and reducing them so as to be enforceable to the fullest extent permitted by law. 14. Entire Agreement. This Agreement contains all the understandings between the parties hereto pertaining to the matters referred to herein, and supersedes any other undertakings and agreements, whether oral or in writing, previously entered into by them with respect thereto. The Executive represents that, in executing this Agreement, he does not rely and has not relied upon any representation or statement not set forth herein made by the Company with regard to the subject matter or effect of this Agreement or otherwise. 15. Amendment or Modification, Waiver. No provision of this Agreement may be amended or waived, unless such amendment or waiver is agreed to in writing, signed by the Executive and by a duly authorized officer of the Company. No waiver by any party hereto of any breach by another party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time, or any subsequent time. 16. Notices. Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier or facsimile or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice hereunder in writing: To the Executive at: Pedro Ferro ================ To the Company at: Motor Coach Industries International, Inc. 10 East Golf Road Des Plaines, Illinois 60016 Facsimile: (847) 299-6773 Attention: Vice President & General Counsel Any notice delivered personally or by courier under this Section 16 shall be deemed given on the date delivered and any notice sent by facsimile or registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date transmitted by facsimile or mailed. 17. Severability. If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable, shall not be affected thereby, and each provision hereof shall be validated and shall be enforced to the fullest extent permitted by law. 18. Survivorship. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 19. Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Illinois, without regard to the principles of conflicts of law thereof. 20. Headings. All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph. 21. Withholding. All payments to the Executive under this Agreement shall be reduced by all applicable withholding required by federal, state, or local law. 22. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. [SIGNATURE PAGE FOLLOWS] 9 IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement on April 17, 2000, to be effective as of the Effective Date. MOTOR COACH INDUSTRIES INTERNATIONAL, INC. By: /s/R. Roberto Cordaro ----------------------------------- Name: R. Roberto Cordaro Title: Chief Executive Officer /s/ Pedro Ferro --------------- PEDRO FERRO EXHIBIT A Executive will be granted a number of stock options with an exercise price of $204.918 per share which, based upon the current three-five year projections for the Company are intended to provide Executive with $1-$2 million of equity value over the same period. Company will revisit the number of options granted to Executive in connection with its 2001 Budget and long-term forecast process, with the intention of confirming that the options granted to Executive are still expected to reasonably yield the aforementioned value is such long-term forecasts are achieved. The options will vest ratably over five years. Company will loan to Executive up to the amount of one annual Base Salary to purchase shares of common stock of the Company, at a purchase price of $204.918 per share. The loan will be full recourse to Executive, secured by the stock purchased with the proceeds thereof, and payable in full at the end of five years from the issuance or 90 days after termination of Executive's employment, whichever is earlier (except in the event of termination as a result of Executive's death or disability, in which event the loan will be due at the end of five years from issuance). Interest on the loan will be payable annually at The Applicable Federal Rate (currently around 6%). Executive shall use 50% of his annual bonus payments to re-pay the loan until paid in full. All shares of common stock purchased by Executive (including shares issued upon exercise of options) will be subject to transfer restrictions contained in the Stockholder Agreement. In the event of any conflict between any of the foregoing provisions and the terms and conditions of the MCII Holdings (USA), Inc. Management Stock Option Plan, as the same may be amended from time to time, the latter will control. 10-K405 9 form10k2000.txt FORM 10-K ________________________________________________________________________________ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ________________________________________________________________________________ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Fiscal Year Ended December 31, 2000 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NO. 01-12208 ______________________________ MOTOR COACH INDUSTRIES INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 86-0706940 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1700 East Golf Road, Schaumburg, Illinois 60173 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (847) 285-2000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant: None as of April 30, 2001. The number of shares outstanding of the registrant's Common Stock: 1,000 shares as of April 30, 2001. DOCUMENTS INCORPORATED BY REFERENCE None ________________________________________________________________________________ TABLE OF CONTENTS
Page ---------- PART I Item 1. Business 1 Item 2. Properties 7 Item 3. Legal Proceedings 9 Item 4. Submission of Matters to a Vote of Security Holders 10 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 11 Item 6. Selected Financial Data 11 Item 7. Management's Discussion and Analysis of Results of Operations and 14 Financial Condition Item 8. Financial Statements and Supplementary Data 22 Item 9. Changes in and Disagreements With Accountants on Accounting and 57 Financial Disclosure PART III Item 10. Directors and Executive Officers of the Registrant 57 Item 11. Executive Compensation 60 Item 12. Security Ownership of Certain Beneficial Owners and Management 62 Item 13. Certain Relationships and Related Transactions 65 PART IV Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K 68
FORWARD-LOOKING STATEMENTS We make "forward-looking statements" throughout this form 10-K. Whenever you read a statement that is not simply a statement of historical fact, such as when we describe what we "believe", "expect", or "anticipate" will occur, and other similar statements, you must remember that our expectations may not be correct, even though we believe they are reasonable. You are cautioned not to put undue reliance on any forward-looking statement. You should understand that a number of factors, in addition to those discussed herein, could affect us and could cause results to differ materially from those expressed in such forward-looking statements. Among these factors are: (1) uncertainties associated with the general economic conditions in our markets (2) our substantial leverage and uncertainties associated with servicing our debt , (3) dependence on the inter-city coach and transit bus industries, (4) increased competition in our markets, (5) interest rate fluctuations, (6) changes in product demand, (7) risks associated with Mexican operations, (8) dependence on suppliers, (9) changes in customer concentration, (10) foreign currency risks and (11) changes in laws or regulations and approvals and decisions of courts, regulators and governmental bodies. Further, we operate in an industry sector where securities' values may be volatile and may be influenced by economic and other factors beyond our control. We do not intend, and undertake no obligation, to update these forward-looking statements. PART I ITEM 1. BUSINESS A. General Motor Coach Industries International, Inc. ("MCII"), through its subsidiaries (collectively, the "Company"), is a leading designer, manufacturer and marketer of inter-city coaches and related replacement parts for the North American market. We began manufacturing inter-city coaches and distributing replacement parts in 1933. Our established market position and product longevity have led to an industry-wide fleet of inter-city coaches operating in the United States and Canada. We believe that strong brand name recognition under the MCI(R) logo and a reputation for quality products have led to our large installed customer base. As discussed in Note 2 to the Consolidated Financial Statements, on June 16, 1999 MCII Holdings (USA), Inc. ("MCII Holdings" or " Parent Company") completed a previously announced plan to financially restructure and reorganize itself. As a result of the reorganization an investment group led by Joseph Littlejohn & Levy Fund III, L.P. ("JLL Fund III) acquired a majority equity interest in Parent Company and the former sole stockholder, Consorcio G Grupo Dina, S.A. de C.V. ("Grupo Dina") retained a minority interest in the common stock of Parent Company. B. Financial Information About Segments Our principal lines of business are: Coach Sales. We design, manufacture and market new coaches in the United States, Canada and Mexico. In the United States and Canada, we sell our coaches under the MCI(R) name and in Mexico and Latin America we sell under the Dina(R) name. Our broad product lines and comprehensive option offerings target each level of the inter-city coach market, ranging from high-end charter coaches to lower-cost line-haul coaches. In addition, through our broad sales network, we provide used coach brokerage and dealership services. Due to our large installed base of coaches, our extensive maintenance and repair capabilities, longstanding customer relationships and industry knowledge, we are able to further support our customers by purchasing and reselling used coaches. Coach sales represented 78% of our revenues during 2000. Customer Support Business. We manufacture and/or distribute throughout North America more than 60,000 replacement parts for inter-city coaches, of which many are our proprietary products. Besides our OEM products, we also distribute non-OEM replacement parts under our Coach Guard(R) and Diesel Guard(R) brand names. In addition, we have one of the largest coach service center networks, with five centers located throughout the United States and Canada. We believe our dedicated sales, parts and service network enhances the high residual values enjoyed by our coaches, which in turn is a major selling point when marketing new coaches. The customer support business represented 21% of our revenues during 2000. Finance. To further support our sales efforts, we offer a comprehensive package of leasing and financing services to our customers. Our leasing and financing services allow us to generate incremental sales and provide us with an additional competitive advantage due to our ability to assist customers in financing their coach purchases. For further information on these business segments please see Note 24 to the Consolidated Financial Statements entitled Business and Geographical Data. C. Narrative Description of Business Principal Products Inter-City Coaches Our current product offerings include six inter-city coach models. The majority of our coaches are built to order with over 2,000 options available. We also have the ability to custom engineer our products to meet the specific design needs of our customers. Options include engine and transmission alternatives, specified seating configurations, interior appointments, driver ergonomics, exterior paint schemes, safety features, handicap accessibility packages, a global positioning satellite navigation system and various audio/video systems. D-Series. The D-Series, designed for both the line-haul and tour and charter markets, consists of a 40-foot long, 102-inch wide, three-axle coach and is also available in a 45-foot long version. Our deliveries for the D-Series models in 2000 constituted approximately 66% of the Company's gross new coach units delivered in the United States and Canada. Seating capacity ranges from 36 to 61 passengers depending on the model and configuration. The increased seating capacity on the 45-foot version allows for lower per passenger operating costs than the 40-foot version. The units generally have a standard twenty-four month limited warranty. Once again, the 45-foot version was the most popular and the 40-foot version was the sixth most popular seated coach model in the United States and Canada in 2000 according to National Bus Trader. E-Series. The E-Series, also known as the Renaissance(R) coach, was developed for the tour and charter market. The E-Series is a 45-foot long, 102-inch wide, three-axle coach. In developing the E-Series, we utilized customer input to include standard features desired by tour and charter operators, such as more window glass for improved viewing, as well as extensive option packages. The E-Series represents the top of our product line in terms of comfort and styling. The seating capacity totals 54 to 56 passengers. The E-Series accounted for approximately 31% of the Company's gross new coach units delivered in 2000 in the United States and Canada. The units have a standard thirty-month limited warranty. The E-Series was the third most popular seated coach model in the United States and Canada in 2000 according to National Bus Trader. F-Series. The F11 and F12 coaches are popular two-axle coaches designed primarily for the Latin American and Mexican marketplaces. A larger version, called the F14, utilizes much of the F12 design but is a three axle coach with additional seating capacity. The F14 began limited production during 1999 and is expected to continue to grow in volume this year. All the F-Series coach models are manufactured in our Sahagun, Mexico facility utilizing MCII technology. All products are sold through our existing sales force. Replacement Parts We have one of the broadest product lines in the industry with more than 60,000 OEM and non-OEM parts. We believe that the current strength of our parts business is in providing a broad array of OEM parts that are either manufactured by us or acquired from the original equipment manufacturer. In an effort to leverage further the competitive strength of our replacement parts business and distribution facilities, we have developed our own brand of alternate, non-OEM parts under the Coach Guard(R) name. We also market diesel engine parts under the name Diesel Guard(R). In addition, we have developed a line of remanufactured parts and components. We believe that the availability of remanufactured parts will permit us to access new markets that are currently served by local and regional parts rebuilders. A portion of the parts supply business to certain transit bus fleets has weakened due to the retirement of aging buses and our inability to continue purchasing certain aftermarket parts in 2000. New Products New coach products that we are currently developing include: G-Series. The G-Series is being introduced into the US and Canadian marketplace in 2001. It is designed for all segments of the market and will include 102-inch wide, 41-foot and 45-foot long versions. Like the E-Series, we sought input from our customers. The G-Series, developed after consultation with Greyhound Lines, Inc., is expected to replace older models over time. This coach is being designed to have European styling, lower operating costs, and improved fuel economy. The G-Series will have a warranty package similar to the one offered by the Company on the D-Series. J-Series. The J-Series is being introduced into the US and Canadian marketplace in 2001. Designed for all segments of the market, the J-Series is a 45-foot long, 102-inch wide, three-axle coach built on the same frame as our top-of-the-line E-Series coach. The J-Series incorporates many proven features of the traditional D-Series and is designed to complement the E-Series. 2 As is common with major new product launches, we could experience manufacturing problems or delays, which could be material. We cannot predict the extent of manufacturing problems or duration of delays that may occur. Introducing new products could result in a decrease in revenues from our existing products or otherwise adversely affect our business, financial condition or results of operations. Raw Materials We have multiple vendors for most of the raw material and component inventory sourced for both the new coach and replacement part businesses. We often find it more economical to rely on a single component provider. Although we use additional alternate suppliers, our customers often demand the component parts which are currently assembled into their coaches. An interruption in the supply of or a significant increase in the price of any raw material, component part or the termination of any design technology agreement could adversely affect our ability to obtain and fulfill orders or our profitability. In manufacturing new coaches, raw materials, including steel, aluminum, and wiring, are sourced from multiple vendors for use in manufacturing the coach shell. Once the shell is completed, component inventory, including axles, drive trains, seating, electronics, and air conditioning units, are sourced from multiple vendors whenever possible. Trademarks and Patents We manufacture and sell our coaches under the MCI(R) and Renaissance(R) trademarks and manufacture and sell replacement parts under the Coach Guard(R), Diesel Guard(R), and Flxible(R) trademarks. In addition, we own patents on several products used in components of our coaches. Through a license agreement we sell certain coaches under the Dina(R) trademark and have the right to use certain patents owned by Grupo Dina. Seasonality By focusing our efforts on various market segments, we try to balance our customer delivery requirements to maximize our production capacity. Our independent customer base generally prefers delivery of their equipment in the months of March, April and May. In recent years, we have expanded our efforts in the public sector, which spreads our deliver requirements throughout the year. Our third quarter deliveries have been adversely affected by a 3-4 week vacation/plant shutdown required under our collective bargaining agreement in Winnipeg. Historically, we have experienced increased deliveries of new coaches during the fourth quarter because there are certain tax incentives to customers for purchasing capital equipment prior to year-end. Working Capital The Company's total working capital at December 31, 2000 and 1999 totaled $198.7 and $261.0 million, respectively. The Company's working capital is defined as the Company's current assets, less current liabilities, excluding short-term debt and the current portion of long-term debt. The Company's current assets consist primarily of receivables and inventories, while its current liabilities consist primarily of accounts payable, accrued expenses and a current portion of warranty and insurance reserves. For a further discussion of changes in working capital, please see the discussion of Liquidity and Capital Resources in the Management's Discussion and Analysis of Financial Condition and Results of Operations included in Item No. 7 of this report on Form 10-K. Reliance on Major Customers The customer base in the inter-city coach market in the United States and Canada is highly diversified. The primary customers include independent coach operators, national coach fleet operators, including Greyhound and Coach USA, and government agencies that use coaches for public transit services, including the New Jersey Transit Corporation and the New York City Transit Authority. In the United States and Canada, independent regional operators of regular route or tour and charter operations (i.e., operators other than Greyhound and Coach USA) accounted for approximately 3 50% of our 2000 new coach unit sales. Our largest customer is Greyhound, which represented 19.9%, 21.7% and 17.2% of United States and Canadian gross new coach units delivered in 2000, 1999 and 1998, respectively. In Mexico, our principal customers are line-haul operators, including Greyhound affiliates in Mexico, and operators of transit buses. Backlog As of December 31, 2000, our backlog of firm orders, scheduled for delivery in the next twelve months, for our coach manufacturing operations was approximately $330 million, as compared to a backlog of approximately $180 million at December 31, 1999. Orders are included in backlog upon receipt from our customers of a signed purchase contract and deposit (if applicable). The increase in backlog at December 31, 2000 as compared to December 31, 1999 is attributable to a significant public sector order. Competitive Conditions In the inter-city coach market, we compete on the basis of the quality of our products, features, services and price. We offer our customers a full product array of both new and used coaches, leasing and financing packages, the nationwide presence of our replacement parts business (which gives us the ability to supply customers with replacement parts in a timely fashion, generally within 24 hours) and a network of five service centers located throughout the U.S. and Canada.. In the replacement parts market, we compete on the basis of availability of product, speed of delivery and price. We have refined our replacement parts delivery system with a single centralized parts distribution center that feeds our service centers and customers directly. Significant competitors within the coach market include: (1) Prevost Car, a subsidiary of Volvo Bus Corporation; (2) Van Hool, one of the leading European coach manufacturers; (3) NEOPLAN USA Corporation, a U.S. manufacturer of coaches and transit buses; and (4) Setra, another leading European coach manufacturer. Van Hool distributes its products through ABC Bus, Inc. Setra, the brand name for Evobus GmbH, was formed through the merger of Kassbohrer Fahrzeugwerke GmbH and Mercedes-Benz AG. Although Setra has not historically had a strong North American presence, the new business combination could potentially strengthen the financial and/or competitive position of Setra. We operate in a highly cyclical industry. The inter-city coach industries in the U.S., Canada and Mexico are all highly dependent on economic and tourism conditions. Slowdowns in tourism and economic recessions have negatively impacted our business in the past. Additionally, coach purchases by independent operators are adversely affected by increases in interest rates and fuel costs. We cannot predict the scope of any future tourism slowdown or economic recession, or the total impact it would have on us. Competitors within the replacement parts market include both OEMs and parts distributors. OEM participants include Prevost (Prevost and Novabus), Neopart (Neoplan) and BIA in the inter-city segment. Distributors include International Coach Parts (a division of ABC), the representative for Van Hool in both the coach and the replacement parts business, and Mohawk. Competitors in the transit parts market include Neopart, North American Bus Industries, and Prevost Parts (Novabus). Government Regulation and Environmental Matters As a manufacturer of coaches and replacement parts, our operations and products are subject to many laws and regulations applicable in the United States, Canada, and other countries, including environmental laws, motor vehicle safety standards, laws governing access for the disabled, and local content laws. Our failure to comply with one or more regulations could result in the imposition of sanctions. Such sanctions could include the closing of all or a portion of our facilities for an indeterminate period of time or the recall of products that were improperly manufactured, either of which could have a material adverse effect on us and our results of operations. Likewise, we cannot predict with any degree of certainty the cost of compliance in the future, and such future costs could significantly affect our operations and financial results. Our facilities, operations, and products are subject to a wide variety of increasingly complex and stringent United States federal, state, local, and foreign environmental laws and agency regulations, including those governing the 4 use, storage, handling, generation, treatment, emission, release, discharge and disposal of certain materials and wastes, the remediation of contaminated soil and groundwater, damage to natural resources, and the health and safety of employees. In the United States, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, and similar state laws, provide for responses to and liability for releases of certain hazardous materials into the environment. Such liability may be imposed on the current and prior owners or operators of property or businesses, among others, without regard to fault or knowledge of the condition or action causing the liability, and may be joint and several. Certain federal environmental laws, including the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Safe Drinking Water Act, the Emergency Planning and Community Right to Know Act, each as amended, and similar state and local environmental laws, regulate air emissions, water discharges, hazardous materials and wastes, and require public disclosure related to the use of various hazardous materials. Our operations are also governed by environmental laws relating to workplace safety and worker health, primarily pursuant to the Occupational Safety and Health Act. Similar regulatory schemes exist in Canada and Mexico, where we also have facilities. Compliance with environmental laws may require the acquisition of permits or other authorizations for certain activities and compliance with various standards or procedural requirements. We believe our facilities and operations are in material compliance with current environmental laws. The environmental laws are subject to frequent amendment and have historically become increasingly stringent. The sanction for failure to comply with such environmental laws can include significant civil and criminal penalties, injunctive relief and denial or loss of, or imposition of significant restrictions on, environmental permits. In addition, we could be subject to suit by third parties in connection with violations of or liability under environmental laws. For each of the last three fiscal years, our environmental capital expenditures have not been material, and we currently estimate that environmental capital expenditures for fiscal years 2001 and 2002 will also not be material. However, because environmental laws have historically become increasingly more stringent, costs and expenses relating to environmental control and compliance may increase in the future. The nature of our current and former operations, and those of our predecessors in interest, expose us to the risk of claims with respect to environmental matters and there can be no assurance that material costs or liabilities will not be incurred in connection with such claims. Based upon our experience to date, we believe that the future cost of compliance with existing environmental laws, and liability for known environmental claims pursuant to such laws, will not have a material adverse effect on our business, financial condition or results of operation. However, future events, such as new information, changes in existing environmental laws or their interpretation, and more vigorous enforcement policies of regulatory agencies, may give rise to additional expenditures or liabilities that could be material. Handicapped Accessibility Standards for Coaches We are subject to the Americans with Disabilities Act's handicapped accessibility standards for coaches, as promulgated by the Department of Transportation. On September 28, 1998, the Department of Transportation issued final regulations regarding coach accessibility requirements. The rules require, among other things, that all new coaches delivered to large line-haul operators beginning October 2000 must be handicapped accessible. Further, the rules also contain certain other requirements concerning accessible fleet percentages and providing accessible service. The final regulations became effective for operators with larger fleets in October 2000 and will be effective for operators with smaller fleets in October 2001. We cannot predict with any degree of certainty the effect these regulations may have on our business, financial condition, and operating results. Number Of Employees We had approximately 4,200 employees as of December 31, 2000. Approximately 75% of our total work force is represented by labor unions. The largest contracts are with the International Association of Machinists and Aerospace Workers at Winnipeg, Manitoba, and Pembina, North Dakota. Our labor agreements with the Machinists Union covering substantially all of our Canadian and United States employees at our Winnipeg, Manitoba and Pembina, North Dakota 5 manufacturing facilities run through September 2003. The Independent Union of Workers in the Automotive and Related Industries represents approximately 800 Mexican employees of Autobuses. Generally, labor agreements in Mexico have economic terms and non-economic terms for one-year and two-years, respectively. We negotiated both economic and non-economic terms in February 2001. We experienced a five-day and four-day labor strike in Mexico in February 2000 and February 1999, respectively, that resulted in a loss of production. These strikes were resolved when we entered into collective bargaining agreements with the automotive workers union. Work stoppages could occur again in the future in connection with labor agreement negotiations and we cannot predict the financial impact of such a stoppage. Currently, we believe that relations with the unions are good. 6 ITEM 2. DESCRIPTION OF PROPERTY We own manufacturing and assembly plants and own or lease various replacement parts and repair facilities in the United States, Canada, and Mexico. Coach Manufacturing Facilities Winnipeg, Manitoba. We own or lease several facilities in Winnipeg that are utilized for the conversion of raw materials into the proprietary coach bodies or "shells." The manufacturing process entails shaping, welding and riveting raw metal into an exterior shell and then attaching a limited number of preliminary components, including the front windshield, interior carpeting, and portions of the lavatory. Production of the shells takes approximately four to five days, after which they are shipped to Pembina, North Dakota, a distance of approximately 90 miles. The D-Series and E-Series shells are manufactured at the Winnipeg location. Pembina, North Dakota. We own an assembly facility in Pembina, which totals approximately 189,000 square feet and is ISO 9002 certified. This facility is responsible for completing the coach manufacturing process. Once the shells are delivered to the Pembina facility, they enter the production line where they are integrated with component materials supplied by outside vendors. This process yields a semi-monocoque, or one-piece, coach body that is more durable than a body-on-chassis design within the inter-city coach market. Once the body of the coach is assembled, the interior is installed, including all necessary electrical wiring, electronics, seating, air conditioning, parcel racks, and lavatory units as stipulated by the customer in the purchase order or, in the case of units produced without purchase orders, to a standard option package frequently requested by customers. Once this process is completed, the units are either painted to customer specifications or, in the case of coaches built for inventory, plain white. We outsource some painting and final delivery preparation functions when necessary. Sahagun, Mexico. Our Sahagun facility is ISO 9001 certified and is approximately 1,088,100 square feet, of which approximately 710,000 square feet is used for manufacturing. This facility is responsible for all aspects of new coach manufacturing, including the manufacturing of the shells and the assembly of the interior. The majority of the coaches currently manufactured in this facility are produced to specifications. We currently manufacture the F-Series models in this facility. The Sahagun facility currently has excess manufacturing capacity. However, as we introduce the G-Series coach and possibly increase our manufacturing of the F-Series coaches for sale in the United States and Canada, the facility will become integral to our future operations. Other Properties We distribute products from locations strategically located across the United States, Canada and Mexico, with sites in Edison, New Jersey; Louisville, Kentucky; Loudonville, Ohio; and Newcastle, Ontario. In addition, we have parts manufacturing locations in Canada and Loudonville, Ohio, corporate offices in Schaumburg, Illinois, and divisional offices in Des Plaines, Illinois. We believe that our facilities are adequate for our present needs and that our properties are generally in good condition, well maintained and suitable for their intended use. The following table is a summary of our primary facilities and the approximate square footage of such facilities as of March 1, 2001.
Building/ space Manufacturing/Assembly/R&D Plants: Status sq. ft. Segment - ------------------------------------- -------- --------- --------------------------------------------------- 1475 Clarence Ave Owned 391,000 Shell assembly/research and development Winnipeg, Manitoba 552 W. Stutsman Ave Owned 189,000 Final coach assembly Pembina, ND Sahagun, Mexico (1) Owned 1,088,100 Coach manufacturing, warehousing and offices Sahagun, Mexico (2) Leased 130,840 Parts manufacturing, warehousing and office space 7 Building/ space Manufacturing/Assembly/R&D Plants: Status sq. ft. Segment - ------------------------------------- -------- --------- --------------------------------------------------- 150 S. 5th Street Owned 35,400 Final paint facility Pembina, ND 1149 St. Matthews Ave. Owned 117,000 Parts manufacturing Winnipeg, Manitoba 841 & 850 Erin Street Owned 78,000 Parts manufacturing Winnipeg, Manitoba 140 Otter Street Owned 144,000 Warehousing/parts manufacturing Winnipeg, Manitoba Building 1081 RHC Leased 66,000 Research and development engineering Roswell, NM 350 Archibald Street Leased 28,000 Parts manufacturing Winnipeg, Manitoba 400 Archibald Street Owned 26,000 Parts manufacturing Winnipeg, Manitoba 422 W. Stutsman Ave. Owned 3,200 Service response center Pembina, ND 553 W. Stutsman Ave. Leased 6,000 Warehousing/warranty parts storage Pembina, ND Modification Or Repair Facilities: - ---------------------------------- 10 E. Golf Rd. Owned 55,000 Sales/used coach/service center Des Plaines, IL 10850 Portal Drive Leased 50,000 Used coach/service center Los Alamitos, CA Boggy Creek Dr., (3) Owned 49,000 Used coach/service center Orlando, FL 14 Harmon Dr. Leased 28,000 Used coach/service center Blackwood, NJ 3530 Richelieu Street Leased 8,162 Used coach/service center St. Hubert, Quebec 9787 Clifford Drive Leased 36,000 Used coach/service center Dallas, TX Replacement Parts Facilities: - ----------------------------- 105 E. Oakton Leased 36,000 MCI Service Parts Office Des Plaines, IL 108 Northfield Leased 27,000 Parts distribution Edison, NJ (4) 260 Toronto Street Owned 44,000 Parts distribution warehouse. Newcastle, Ontario 8 Building/ space Replacement Parts Facilities: Status sq. ft. Segment - ------------------------------------- -------- --------- --------------------------------------------------- 520 North Spring Drive Owned 356,000 Parts distribution/manufacturing/coach body shop Loudonville, OH 7001 Universal Coach Drive(5) Owned 365,000 Parts distribution warehouse Louisville, KY Corporate Headquarters: 1700 E. Golf Rd., Suite 300 Leased 21,299 Corporate Headquarters Schaumburg, IL ------------------------- (1) Consists of property owned by Motor Coach Industries Mexico, S.A. de C.V. and property owned by Grupo Dina entities that will be transferred to Motor Coach Industries Mexico under existing contracts. (2) Consists of property leased by Motor Coach Industries Mexico, S.A. de C.V. from a Grupo Dina subsidiary for a term of three years. (3) Our subsidiary, MCI Sales and Service, Inc. has purchased approximately 10 acres of vacant land in order to build the listed facility. (4) This is a temporary facility. The Company intends to relocate to a permanent facility in New Jersey. (5) This facility was completed in October 1999. Des Plaines and Dayton warehouse operations have been moved and the remaining parts distribution operations at Loudonville will be discontinued on a phased basis.
ITEM 3. LEGAL AND ADMINISTRATIVE PROCEEDINGS In the ordinary course of business, we are party to various employment and other legal actions as plaintiff or defendant. We are also subject to various product liability lawsuits in the United States and Canada for personal injuries and property damage, allegedly relating to the use of products manufactured or sold by us. We consider litigation of this nature to be in the ordinary course of business and, while we maintain product liability insurance in customary amounts to cover such matters, we cannot be assured that insurance will be available in the future or on terms acceptable to us. While we cannot determine with certainty the ultimate outcome of such lawsuits, we believe that we are not involved in any current litigation or arbitration proceedings which, if determined adversely to us, either individually or in the aggregate, would have a material adverse effect on our financial condition or results of operations. We have filed a complaint in arbitration against Novabus of America, Inc. and Novabus Parts, Inc. (collectively "Novabus") in which we contend, among other things, that Novabus breached its agreement with us by instructing third-party suppliers of RTS aftermarket parts to discontinue selling such parts to us. The arbitration hearing on the liability phase of our claims began the week of February 26, 2001, and is scheduled to resume on May 1, 2001. 9 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS None. 10 PART II ITEM 5. MARKET DATA N/A ITEM 6. SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA The selected consolidated financial data as of and for the three years ended December 31, 2000 are derived from our audited consolidated financial statements included elsewhere in this Form 10-K. Those financial statements have been audited by Arthur Andersen LLP, our independent public accountants. The selected consolidated financial data for the year ended December 31, 1997 are derived from our consolidated financial statements audited by Arthur Andersen LLP. The selected consolidated financial data for the year ended December 31, 1996 are derived from our consolidated financial statements audited by PricewaterhouseCoopers LLP, our predecessor independent accountants. 11 The following selected consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes included in this form 10-K. Certain information presented for the four years ended December 31, 1999, has been reclassified to conform with the December 31, 2000 presentation.
2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (dollars in thousands) Income Statement Data: Total revenues $ 692,437 $ 911,113 $ 931,727 $ 739,783 $ 667,084 ------------------------------------------------------------- Operating expenses: Cost of sales (1) 563,462 699,415 726,920 545,126 504,879 Depreciation and amortization 30,453 25,092 26,084 23,516 18,938 Research and development expenses 10,472 10,648 9,722 6,655 7,346 Other operating expenses (2) 97,714 98,637 82,432 83,639 72,483 ------------------------------------------------------------- Total operating expenses 702,101 833,792 845,158 658,936 603,646 ------------------------------------------------------------- Operating income (loss) (9,664) 77,321 86,569 80,847 63,438 ------------------------------------------------------------- Interest expense, net 60,155 47,250 22,750 24,253 19,634 Interest expense pushed down from related party (3) -- 11,601 25,194 21,635 19,550 Loss on sale of notes through securitization 4,549 -- -- -- -- Other expenses (income) 1,018 4,197 (7,814) (2,835) (2,344) ------------------------------------------------------------- Income (loss) before income taxes (75,386) 14,273 46,439 37,794 26,598 Income taxes (benefit) (22,027) (1,936) 31,790 21,268 18,474 ------------------------------------------------------------- Income loss) from continuing operations (53,359) 16,209 14,649 16,526 8,124 Loss from discontinued operations -- -- -- -- 5,000 ------------------------------------------------------------- Income (loss) before extraordinary item (53,359) 16,209 14,649 16,526 3,124 Extraordinary charge for early retirement of debt -- 2,614 -- -- 851 ------------------------------------------------------------- Net income (loss) $ (53,359) $ 13,595 $ 14,649 $ 16,526 $ 2,273 ============================================================= Other Data (unaudited): EBITDA (4) $ 36,489 $ 120,245 $ 112,653 $ 104,363 $ 82,376 Capital expenditures 18,195 28,204 11,740 32,096 25,609 Ratio of earnings to fixed charges (5) -- 1.2x 1.9x 1.8x 1.7x Coverage deficiency (75,386) -- -- -- -- Ratio of earnings to fixed charges excluding effect of push down debt (5) -- 1.5x 4.0x 3.3x 3.2x Coverage deficiency (75,386) -- -- -- -- Net cash provided by (used in): Operating activities $ 54,607 $ (23,204) $ 73,732 $ (52,585) $ 44,320 Investing activities 5,868 (48,117) (14,683) (71,170) (30,338) Financing activities (34,333) 62,913 (49,008) 128,349 (35,254) Balance Sheet Data (at end of period): Cash and cash equivalents $ 41,772 $ 15,630 $ 24,038 $ 13,997 $ 9,403 Working capital (6) 198,726 261,031 227,278 275,093 176,082 Total assets 815,740 891,274 801,755 820,673 642,780 Total debt, excluding pushed down debt 453,475 536,534 267,965 313,251 210,668 Long-term debt pushed down from related party (3) -- -- 206,500 184,225 162,588 Stockholder's equity 140,102 155,117 102,921 147,693 144,539
12 Notes to Selected Consolidated Historical Financial Data (1) Cost of sales for the year ended December 31, 2000 includes a $15.7 million non-cash inventory charge to adjust the carrying value of used coach inventories to reflect the changing dynamics of the marketplace. Cost of sales for the year ended December 31, 1999 includes a $21.0 million non-cash inventory charge comprised of $15.0 million to adjust used coach inventories to reflect a change in asset management strategy implemented by new management brought in by the equity investors, and $6.0 million to rationalize replacement parts inventories in connection with a revised plan, developed during the second quarter of 1999, to consolidate the replacement parts distribution activities into a single location. (2) Other operating expenses are comprised of selling, general and administrative expenses and other miscellaneous operating expenses. Other operating expenses were offset by $8.5 million for business insurance recoveries in 1998 and $3.2 for a net curtailment gain in 1999. (3) As proceeds from the financial restructuring were used to repay the $206.5 million of Grupo Dina's senior secured discount notes, our consolidated financial statements have been adjusted to include the "push down" of the senior secured discount notes, and the related interest expense, in order to comply with applicable Securities and Exchange Commission accounting policies. (4) EBITDA represents income before the fourth quarter 2000 non-cash inventory charge, the second quarter 1999 non-cash inventory charge, the 2000 loss on sale of notes through securitization, the fourth quarter 1999 net curtailment gain, interest expense, income taxes, discontinued operations, extraordinary items, depreciation and amortization and other non-operating income and expenses, each of which can significantly affect our results of operations and liquidity and should be considered in evaluating our financial performance. EBITDA is included because we understand that such information is considered to be an additional basis on which to evaluate our ability to pay interest, repay debt and make capital expenditures. EBITDA is not intended to represent and should not be considered more meaningful than, or as an alternative to, measures of performance, profitability or liquidity determined in accordance with generally accepted accounting principles. (5) For the purpose of this calculation, earnings are defined as income from continuing operations before income taxes, plus fixed charges. Fixed charges include interest expense on all indebtedness (including amortization of deferred financing costs) and the portion of operating lease rental expense which management believes is representative of the interest factor of rent expense (approximately one-third of rent expense). In addition, we have calculated the ratio of earnings to fixed charges excluding the effect of the long-term debt pushed down from Grupo Dina. (6) Working capital is defined as current assets, less current liabilities (excluding short-term debt and current portion of long-term debt). 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion supplements the information found in our historical financial statements and related notes. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 2000, we had long-term debt outstanding of approximately $453.5 million and an additional $50.3 million available under our senior secured credit facility. Principal on the term loans issued under our senior secured credit facility is required to be repaid quarterly in annual amounts of $3.1 million through March 31, 2006, with a final payment of $289.8 million payable on June 30, 2006. We made an optional $20.0 million prepayment on the term loan in September 2000. Additionally, we made an optional $5.0 million prepayment on the term loan in December 2000 and elected, in accordance with provisions of the senior secured credit facility to apply this prepayment against quarterly payments due in 2001. Our intention is to fund future quarterly payments through the senior secured credit facility. Our principal liquidity requirements are for debt service requirements under the notes and our senior secured credit facility and for working capital and capital expenditures. Historically, we have funded our capital and operating requirements with a combination of cash on hand, operating cash flow, proceeds from asset sales and proceeds from credit facilities and other debt borrowings. We expect to rely on internally generated funds and, to the extent necessary, borrowings under our senior secured credit facility to meet our liquidity needs in the foreseeable future. See discussion on "Status of Credit Facilities" below for recent developments relating to our senior secured credit facility. Our cash and cash equivalents increased $26.1 million to $41.8 million at December 31, 2000. Operating activities and investing activities provided cash flows of $54.6 million and $5.8 million, respectively. Financing activities used $34.3 million of cash flows. Cash Flows Operating Activities During 2000 our operating activities provided cash flows of $54.6 million. Cash provided by changes in accounts receivable and customer deposits were partially offset by decreases in accounts payable and accrued liabilities. The net loss of $53.4 million included non-cash expenses totaling $50.7 million for depreciation and amortization, an inventory valuation charge and loss on securitization of notes receivable and financing leases. Investing Activities We realized $116.0 million in proceeds from the securitization of our qualifying notes receivable and finance leases and invested proceeds of $79.6 million, net of collections, to finance customer coach purchases. Our capital expenditures during 2000 totaled $18.2 million. We invested in new systems and distribution equipment at our Louisville, Kentucky parts distribution warehouse, in equipment additions in the Canadian new coach manufacturing facility and in tooling for our new G-Series coach. We also invested $11.1 million in assets held for lease. Financing Activities We used net proceeds from a $50.0 million equity investment by Parent Company and a portion of the proceeds realized from the asset securitizations to pay off all outstanding borrowings under our revolving credit facility and $25.0 million of voluntary prepayments in addition to the regularly scheduled payments on our term loans. In accordance with provisions of the term loan agreement, we applied a $5.0 million December prepayment against quarterly term loan payments due during 2001. Our working capital decreased from $261.0 million at the end of 1999 to $198.7 million at the end of 2000, primarily due to a reduction of trade accounts receivable resulting from the decrease in sales volume. Our total debt to equity ratio decreased from 78% as of December 31, 1999 to 76% at December 31, 2000 primarily due to Parent Company capital contribution and related debt paydowns, partially offset by our current year net loss. 14 Status of Credit Facilities As of December 31, 2000, we had outstanding borrowings of $303.1 million under our senior secured credit facility and approximately $152 million of 11.25 % senior subordinated notes due 2009. Our senior secured credit facility initially consisted of $333 million variable rate term loans due in 2006 and a revolving credit facility due in 2005. In addition to the scheduled quarterly principal payments, at September and December 2000 we made voluntary term loan prepayments of $20.0 million and $5.0 million, respectively. In accordance with provisions of the term loan agreement, we applied the $5.0 million December prepayment against quarterly term loan payments due during 2001. During the second quarter of 2000, we executed two amendments to our senior secured credit facility. These amendments provided us the opportunity to complete an asset securitization on our long-term receivables and finance leases, increased the revolving credit line by $20.0 million, allowed us to increase the revolving credit line by up to an additional $40.0 million, and redefined certain loan covenant provisions contained in the senior secured credit facility. In conjunction with the execution of the amendments, Parent Company issued additional shares of its common stock to the investment group led by JLL Fund III in exchange for $50.0 million in cash, Parent Company subsequently made an additional capital contribution of $50.0 million in the Company through MCII Holdings, Inc. See Item 12 for current beneficial ownership of Parent Company. During the third quarter of 2000, we increased our revolving credit line by an additional $20.0 million to a total of $152.0 million at December 31, 2000. At December 31, 2000, we had no outstanding borrowings under the revolving credit line and had letters of credit totaling $101.7 million drawn against the revolving credit line. We had the ability to borrow an additional $50.3 million under the revolving line of credit at December 31, 2000. In January 2001, we borrowed $32.0 million under the revolving credit line. The senior secured credit agreement contains financial covenants that do not permit us to exceed certain leverage ratios or fall below certain interest coverage ratios as specified in the agreement. As of December 31, 2000 we were in compliance with all such covenants. However, based upon our business plan, we did not expect to be in compliance with all the financial covenants of the agreement during the period ending March 31, 2001. Accordingly, effective May 1, 2001, we obtained an amendment to the credit facility which waived any existing conditions of non-compliance with the facility. The amendment, among other things, suspended our current financial covenants through the period ending December 31, 2001 and provided for additional financial covenants requiring minimum levels of EBITDA, adjusted EBITDA and minimum excess cash flow, as defined. The revised covenants were based upon our business plan for the year ending December 31, 2001. In addition, the amendment provides for the funding of an additional $8.5 million term loan (the " Tranche B Loan") on or prior to May 31, 2001. The Tranche B Loan bears interest 5% over the adjusted Eurodollar rate, which interest is payable in kind or equity. Our majority equity holder, an investment group led by JLL Fund II, has agreed to purchase a 100% equity interest in the Tranche B Loan. As a result of the amendment, the loans (other than the Tranche B Loan) will bear interest at the adjusted Eurodollar rate plus 4% per annum or the adjusted base rate plus 5%. Securitization Transaction During the second quarter of 2000, we completed the asset securitization transaction permitted under terms of the amendments to our senior secured credit facility. We executed several agreements in conjunction with this asset securitization transaction (together referred to as "Asset Securitization Agreement"), allowing us to sell qualifying receivables and financing leases to a qualified securitization entity up to an aggregate outstanding amount of $250 million. Under the terms of the Asset Securitization Agreement, we sold a substantial portion of our portfolio to MCII Funding II, Inc., an unconsolidated affiliated company, at 97% of the remaining principal balance. MCII Funding II, Inc., then sold these receivables and leases at 100% of the remaining principal balance to the Special Purpose Accounts Receivable Corporation ("SPARC"). We recognized losses on the sale of notes to MCII Funding II, Inc. while MCII Funding II, Inc. recognized gains on the sale of the notes to SPARC. We recognized net proceeds from the initial securitization of $55.7 million, which were primarily used to pay down our revolving credit line. Through December 31, 2000, we completed additional securitization transactions resulting in net proceeds of $60.3 million. 15 RESULTS OF OPERATIONS Year Ended December 31, 2000 Compared With Year Ended December 31, 1999 OVERVIEW Revenues Revenues for the year ended December 31, 2000 were $692.4 million, a decrease of $218.7 million, or 24.0% from $911.1 million for the comparable period of 1999. Revenues from coach sales decreased $177.4 in 2000 from the comparable period of 1999 primarily due to a decline in unit deliveries to the independent tour and charter market and an overall reduction in new coach expenditures by a national coach fleet operator. Revenues from our Customer Support business decreased $40.1 million in 2000 from the comparable period of 1999 due to a combination of product availability issues, first quarter 2000 backlog problems associated with the 1999 consolidation of our warehouse activities and to the contribution of our former Mexican parts subsidiary to Grupo Dina in conjunction with our 1999 financial restructuring. Gross Profit Gross profit for the year ended December 31, 2000, was $129.0 million, a decrease of $82.7 million or 39.1% from $211.7 million from the comparable period of 1999. Included in gross profit were non-cash inventory charges of $15.7 million and $21.0 million in the fourth quarter of 2000 and the second quarter of 1999, respectively. Our gross profit margin, excluding the non-cash inventory charges, decreased to 20.9% in 2000 as compared to 25.5% in 1999. The decrease in gross profit and gross profit margin, excluding the non-cash inventory charges, is primarily due to the impact of our lower sales volume, new product startup costs, and unabsorbed fixed costs at the Mexican manufacturing facility. Operating Expenses Depreciation and amortization expense during the year ended December 31, 2000 of $30.4 million increased by $5.3 million, or 21.4% over the comparable period of 1999. Depreciation costs relating to our new parts distribution center and computer systems in Louisville, Kentucky, new manufacturing equipment in Winnipeg, Canada and our investment in assets held for lease contributed to the increase in depreciation and amortization in 2000. Selling, general and administrative expenses for the year ended December 31, 2000 of $97.7 million decreased 4.0% from $101.8 million over the comparable period of 1999. Contributing to the decrease in selling, general and administrative expenses is approximately $2.4 million in royalty and management fees charged by Grupo Dina during 1999 that did not reoccur during the comparable period of 2000 as a result of the financial restructuring. The balance of the decrease is primarily due to a reduction in selling costs as a result of lower sales volume and lower benefit costs as a result of cost improvement initiatives implemented in late 1999 and 2000. Operating Income (Loss) Operating loss for the year ended December 31, 2000 totaled $9.7 million, a decrease of $87.0 million from the $77.3 million earned during the comparable period of 1999. The decrease in operating income is primarily due to the impact of our lower sales volume, new product startup costs, and unabsorbed fixed costs at the Mexican manufacturing facility. Included in 2000 operating loss is the impact of a $15.7 million non-cash inventory charge. Included in 1999 operating earnings is the impact of the $21.0 million non-cash inventory charge. Excluding the impact of the two non-cash inventory charges, our operating income margin declined from 10.8% in 1999 to 0.9% in 2000. Other Income (Expense) Interest expense for the year ended December 31, 2000 of $60.2 million increased $1.3 million from $58.9 million over the comparable period of 1999. Included in 1999 was $11.6 million of interest expense pushed down from a related party. The effect of higher average interest rates incurred during 2000 was partially offset by a reduction in overall borrowings. 16 During the year ended December 31, 2000, we entered into a series of asset securitization transactions and realized losses on the securitization of notes receivable of $4.5 million. These losses arise from the sale of receivables to an unconsolidated affiliated company at 97% of the principal. Foreign currency gains were $0.7 million for the year ended December 31, 2000 as compared to a $3.8 million loss for the year ended December 31, 1999. In 2000, we experienced favorable peso fluctuations against the US dollar, favorable changes in the monetary position of the Company's Mexican subsidiary and transaction gains at our Canadian subsidiary. Other expense in 2000 increased to $1.8 million as compared to $0.4 million in 1999 primarily due to certain non-recurring expenses incurred at our Mexican operating facility. Income Taxes The income tax benefit for the year ended December 31, 2000 was $22.0 million as compared to an income tax benefit of $1.9 million for the year ended December 31, 1999. The income tax benefit increase between the two years was the result of a $75.4 million loss before income taxes in 2001, as compared to income before income taxes of $14.3 million in 1999, partially offset by the impact of non-deductible interest associated with the push down of debt from Parent Company in 1999 and the establishment of a valuation allowance for the 2000 net operating loss of our Mexican subsidiary. Extraordinary Loss Our 1999 extraordinary loss of $2.6 million (net of tax benefit of $1.6 million) resulted from the early extinguishment of debt associated with the June 1999 financial restructuring and reorganization. This charge consisted of redemption premiums and other financing costs partially offset by a gain resulting from the recognition of unamortized swap accretion credits. The following table presents revenues, gross profit and operating income (loss) for each of the Company's business segments for the three years in the period ended December 31, 2000. 2000 1999 1998 --------- --------- --------- (dollars in thousands) Revenues: Coach sales $ 542,965 $ 720,369 $ 723,720 Customer Support Business 141,970 182,103 198,568 Finance 7,502 8,641 9,439 --------- --------- --------- $ 692,437 $ 911,113 $ 931,727 ========= ========= ========= Gross profit: Coach sales $ 97,569 $ 167,692 $ 155,352 Customer Support Business 27,022 35,788 40,565 Finance 4,384 8,218 8,890 --------- --------- --------- $ 128,975 $ 211,698 $ 204,807 ========= ========= ========= Operating income (loss): Coach sales $ (5,865) $ 66,992 $ 61,354 Customer Support Business (2,200) 10,868 20,110 Finance (1,599) (539) 5,105 --------- --------- --------- $ (9,664) $ 77,321 $ 86,569 ========= ========= ========= COACH SALES Revenues from Coach Sales of $543.0 million for the year ended December 31, 2000, decreased by $177.4 million or 24.6% from $720.4 during the comparable period of 1999. Revenue from sales of new coaches decreased by $159.6 million or 17 24.1% as compared to the comparable period of 1999. A decline in coach deliveries to the independent tour and charter market, attributable to softening market conditions and increased competition and a reduction in new coach expenditures by a national coach fleet operator, were partially offset by increased coach deliveries to the public sector. Pre-owned coach revenue during the year ended December 31, 2000 decreased $17.8 million or 30.1% over the comparable period of 1999. Softening market conditions resulted in a significant decrease in the number of used coaches sold. Our gross profit from Coach Sales of $97.6 million for the year ended December 31, 2000, decreased $70.1 million or 41.8% from the comparable period of 1999. Included in gross profit were non-cash inventory charges of $15.7 and $15.0 million in the fourth quarter of 2000 and the second quarter of 1999, respectively. The non-cash inventory charge in 1999 reflected a change in asset management strategy in response to the changing dynamics of the marketplace. The 2000 non-cash inventory charge was in response to an additional softening of the market for used coaches. Coach Sales gross profit margin, excluding the non-cash inventory charges, decreased to 20.9% in 2000 from 25.5% in 1999. The decrease in gross profit, excluding the non-cash inventory charges, is primarily due to the impact of the lower sales volume, new product startup costs, and unabsorbed fixed costs at the Mexican manufacturing facility. Our operating loss from Coach Sales was $5.9 million for year ended December 31, 2000 as compared to operating income of $67.0 million during the comparable period of 1999. Excluding the $15.7 million and $15.0 million non-cash inventory charge incurred during 2000 and 1999, respectively, operating income margins decreased to 1.8% during the year ended December 31, 2000 from 11.4% for the comparable period of 1999. Our 2000 operating loss is primarily attributable to the decline in sales volume and related gross margin, partially offset by the elimination of the Grupo Dina royalty and management fees charged in 1999, a reduction in selling costs as a result of lower sales volume and lower benefit costs as a result of cost improvement initiatives implemented in late 1999 and 2000. CUSTOMER SUPPORT BUSINESS Revenues from our Customer Support Business of $142.0 million for the year ended December 31, 2000, decreased by $40.1million or 22.0% from $182.1 during the comparable period of 1999. Our 2000 revenue decrease is due to a number factors. In 2000 we experienced product availability problems due to the acquisition of a component parts supplier by a major competitor. See Legal Proceedings. The consolidation of our parts distribution operations at a centralized warehouse in Louisville, Kentucky and a general decline in market demand for our products also contributed to the 2000 decrease in customer support business revenues. Additionally, as part of our June 1999 financial restructuring, we contributed our Mexican parts company to Grupo Dina. Our former Mexican parts company provided revenues of $8.4 million in 1999. The gross profit from our Customer Support Business for the year ended December 31, 2000 was $27.0 million, a decrease of $8.8 million or 24.5% from $35.8 million for the comparable period of 1999. Our 1999 gross profit was decreased by a $6.0 million non-cash inventory rationalization charge in connection with the consolidation of our parts distribution operations to a centralized warehouse in Louisville, Kentucky. Excluding the impact of this charge, gross margins decreased to 19.0% in 2000 from 22.9% in 1999. The decrease in the gross margin percentage is attributable to the revenue decline and to costs incurred in 2000 to complete consolidation of our parts distribution business. Our operating loss from our Customer Support Business was $2.2 million for year ended December 31, 2000 as compared to operating income of $10.9 million during the comparable period of 1999. Our operating loss for 2000 is due primarily to the revenue decline and to costs incurred in 2000 to complete consolidation of our parts distribution business. FINANCE OPERATIONS Revenues from our Finance Operations of $7.5 million for year ended December 31, 2000 decreased $1.1 million or 13.2% from the comparable period of 1999. The decrease in revenues is due to a change in business strategy implemented during the second quarter of 2000 when we completed an asset securitization transaction as permitted under amended terms of our senior secured credit facility. We executed several agreements in conjunction with this asset securitization transaction allowing us to sell qualifying receivables and financing leases to a qualified securitization entity. As permitted, we now sell qualifying notes instead of holding them to maturity. 18 Operating losses from our Finance Operations for year ended December 31, increased by $1.1 million due primarily to the revenue decrease resulting from the asset securitization. Year Ended December 31, 1999 Compared With Year Ended December 31, 1998 OVERVIEW Revenues Revenues for the year ended December 31, 1999 were $911.1 million, a decrease of $20.6 million from $931.7 million in 1998. Included in 1998 revenues were approximately $8.5 million realized from June 16, 1998 through December 31, 1998 from subsidiary operations that were contributed to Grupo Dina, as part of the financial restructuring plan completed on June 16, 1999. The year-over-year revenue decline excluding this 1998 revenue, would have been $12.1 million or 1.3%. Gross Profit Gross profit for the year ended December 31, 1999, was $211.7 million, an increase of $6.9 million or 3.4% from $204.8 million in 1998. The 1999 gross profit includes the impact of a $21.0 million non-cash inventory charge taken during the second quarter of 1999. The Company's gross profit margin, excluding the non-cash inventory charge, increased to 25.5% in 1999 from 22.0% in 1998. The 1999 gross profit increase is primarily due to certain production efficiencies and the implementation of other cost improvement initiatives at our North American coach manufacturing facilities. Operating Expenses Business insurance recoveries of $8.5 million were realized in 1998 from the settlement of insurance claims seeking recovery of various out-of-pocket costs and business interruption losses at the Company's Pembina, North Dakota and Winnipeg, Manitoba facilities as a result of the 1997 flooding along the Red River. Selling, general and administrative expenses for the year ended December 31, 1999 of $101.8 million increased 12.0% from $90.9 million for 1998. The increase in selling, general and administrative expenses is largely due to an increase in sales promotion expenses and employee related expenses due to an increase in the number of employees. Higher costs associated with the financial restructuring transaction and computer system upgrades were partially offset by lower royalty and management fees charged by Grupo Dina. Operating Income Operating income for the year ended December 31, 1999 totaled $77.3 million, a decrease of $9.3 million from the $86.6 million earned during the comparable period of 1998. Included in operating income was the impact of a $21.0 million non-cash inventory charge taken during the second quarter of 1999 and the 1998 business insurance recoveries of $8.5 million. Other Income (Expense) Interest expense for the year ended December 31, 1999 of $58.9 million increased $10.9 million or 22.7% over the comparable period of 1999 due primarily to higher average effective interest rates associated with new borrowings. Foreign currency translation losses were $3.8 million for the year ended December 31, 1999 as compared to a $3.3 million gain for the year ended December 31, 1998. In 1999, we experienced unfavorable peso and Canadian dollar fluctuations against the US dollar and unfavorable changes in the monetary position of our Mexican subsidiary. In 1998 we recognized a $5.0 million gain on sale of investment was the result of a gain on the sale of our ownership interest in Mexicana de Autobuses, S.A. de C.V. ("MASA"). 19 Income Taxes Income taxes in 1999 decreased by $33.7 million from 1998 as we recorded an income tax benefit of $1.9 million in 1999 compared to an income tax expense of $31.8 million in 1998. The decrease in income taxes is primarily due to a reduction of pre-tax income, a reduction in the income tax valuation allowance attributable to Mexican operations as a result of the financial restructuring and the impact of a reduction of $13.6 million in non-deductible interest expense associated with the pushdown of debt from Parent Company. Extraordinary Loss Our 1999 extraordinary loss of $2.6 million (net of tax benefit of $1.6 million) resulted from the early extinguishment of debt associated with the June 1999 financial restructuring and reorganization. This charge consisted of redemption premiums and other financing costs partially offset by a gain resulting from the recognition of unamortized swap accretion credits. COACH SALES Revenues from coach sales of $720.4 million for the year ended December 31, 1999 decreased $3.4 million as compared to $723.7 million during the year ended December 31, 1998. A $25.5 million decrease in used coach revenue during 1999, due primarily to used coach pricing and product mix, was partially offset by a $22.1 million increase in revenue from the sale of new coaches during 1999. Our gross profit from coach sales of $167.7 million for 1999 increased $12.3 million or 7.9% over 1998. Gross profit for 1999 includes a non-cash inventory charge of $15.0 million taken during the second quarter to adjust used coach inventories to reflect a change in asset management strategy implemented by the new management brought in by the equity investors in response to the changing dynamics of the marketplace. Exclusive of this charge, gross profit increased by $27.3 million or 17.6% during 1999 as the gross profit margins increased to 23.3% in 1999 from 21.5% in 1998. The increase in the gross margins is primarily attributed to a significant reduction in the labor hours per coach produced on the new E-Series coach, which was in a start-up phase during early 1998, and the implementation of other cost improvement initiatives offset partially by the impact of the lower used coach pricing. Our operating income from coach operations of $67.0 million for 1999 increased $5.6 million or 9.2% from 1998 as operating income margins increased to 9.3% in 1999 from 8.5% in 1998. Operating income in 1998 was favorably impacted by approximately $8.5 million in business insurance recoveries realized from the 1997 flooding along the Red River. Operating income margins, exclusive of the $15.0 non-cash inventory charge in 1999 and the $8.5 of business insurance recoveries realized in 1998 increased to 11.4% in 1999 from 7.3% in 1998. CUSTOMER SUPPORT BUSINESS Revenues from our Customer Support Business of $182.1 million for the year ended December 31, 1999, decreased by $16.5 million or 8.3% from $198.6 during the comparable period of 1998. Our 1999 revenue decrease is primarily due to lower demand for replacement parts by a number of transit bus authorities in light of a declining fleet of older buses and the contribution of our Mexican parts company to Grupo Dina, which resulted in a decrease in revenue of approximately $6.6 million from the comparable period of 1998. The gross profit from our Customer Support Business was $35.8 million, a decrease of $4.8 million or 11.8% from $40.6 million over the comparable period of 1998. Our 1999 gross profit was decreased by a $6.0 million non-cash inventory rationalization charge in connection with the consolidation of our parts distribution operations to a centralized warehouse in Louisville, Kentucky. Excluding the impact of this charge, gross profit would have increased $1.2 million or 3.0%. Gross margins increased to 22.9% in 1999 from 20.4% in 1998. The improvement in gross margin is largely due to higher costs in 1998 incurred by our Mexico distribution operations which were in a start-up phase in early 1998 and other benefits realized from cost improvement initiatives undertaken by the Company. Operating income from our Customer Support Business for year ended December 31, 1999 was $10.9 million or 46.0% below 1998 as operating income margins declined to 6.0% in 1999 from 10.1% for 1999. Our operating income 20 margin for 1999, exclusive of the $6.0 million non-cash inventory charge discussed above was 9.3%. Our 1999 operating margin decrease was due largely to higher selling, general and administrative expenses caused primarily by the implementation of a new computer system and the relocation of its distribution operations from Des Plaines, IL to Louisville, KY. FINANCE OPERATIONS Revenues from our Finance Operations of $8.6 million for year ended December 31, 1999 decreased $0.8 million or 8.5% from the comparable period of 1998. The decrease in revenues is a direct result of our effort to reduce the total lease and loan portfolio in order to generate cash for working capital needs. Operating losses our Finance Operations were $0.5 million for year ended December 31, 1999 as compared to operating income of $5.1 million for 1998. A change in estimate of the reserves needed for the prior year sales of notes receivable with recourse is the largest factor contributing to the decline in operating income. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk represents the risk of loss that may impact the financial position, results of our operations or cash flows due to adverse changes in financial and commodity market prices and rates. We are exposed to market risk in the area of change in U.S. interest rates and foreign exchange currency rates. This exposure is directly related to our normal operating and funding activities. Additionally, coach purchases by certain customers are adversely affected by increases in interest rates and fuel costs. Our obligations under the senior secured credit facility include interest at floating rates, based on certain quoted rates. We are sensitive to changes in prevailing interest rates. An increase of 1% in the applicable base interest rates, based upon $303.1 million of borrowings under the facility as of December 31, 2000, would result in additional annual interest expense of approximately $3.0 million ($1.8 million after tax) to us and would not be material to our cash flow or financial position. As a company with multi-national operations, certain of our transactions are denominated in foreign currencies. We use financial instruments to hedge or reduce our overall exposure to the effects of currency fluctuations in our cash flows. These derivative instruments are used for firmly committed or forecasted transactions. These transactions allow us to further reduce our overall exposure to exchange rate movements, since the gains and losses on these contracts offset losses and gains on the transactions being hedged. Our policy is not to speculate in such financial instruments for profit or gain. 21 ITEM 8 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. Consolidated Financial Statements And Related Notes 22 Report of Independent Public Accountants To the Stockholder of Motor Coach Industries International, Inc.: We have audited the accompanying consolidated balance sheets of Motor Coach Industries International, Inc., and its subsidiaries (the "Company") as of December 31, 2000 and December 31, 1999 and the related consolidated statements of income, stockholder's equity and cash flows for the years ended December 31, 2000, 1999 and 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2000 and December 31, 1999, and the consolidated results of their operations and cash flows for the years ended December 31, 2000, 1999 and 1998 in conformity with accounting principles generally accepted in the United States. Arthur Andersen LLP Chicago, Illinois May 3, 2001 23 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998 --------- --------- --------- (dollars in thousands) Revenues $ 692,437 $ 911,113 $ 931,727 --------- --------- --------- Operating costs and expenses: Cost of sales (exclusive of items shown 547,762 678,415 726,920 separately below) Cost of sales, non-cash inventory charge 15,700 21,000 -- Depreciation and amortization 30,453 25,092 26,084 Research and development expenses 10,472 10,648 9,722 Business insurance recoveries -- -- (8,462) Selling, general and administrative expenses 97,714 101,805 90,894 Curtailment gain, net -- (3,168) -- --------- --------- --------- Total operating costs and expenses 702,101 833,792 845,158 --------- --------- --------- Operating income (loss) (9,664) 77,321 86,569 --------- --------- --------- Other income and (expense): Interest income (60,155) (47,250) (22,750) Interest expense pushed down from related party -- (11,601) (25,194) Loss on sale of notes receivable through securitization (4,549) -- -- Foreign currency translation gain (loss) 734 (3,758) 3,325 Gain on sale of investments -- -- 5,000 Other expense (1,752) (439) (511) --------- --------- --------- Total other income and (expense) (65,722) (63,048) (40,130) --------- --------- --------- Income (loss) before income taxes (75,386) 14,273 46,439 Income tax provision (benefit) (22,027) (1,936) 31,790 --------- --------- --------- Income (loss) before extraordinary item (53,359) 16,209 14,649 Extraordinary loss (net of tax of $1,568) -- (2,614) -- --------- --------- --------- Net income (loss) $ (53,359) $ 13,595 $ 14,649 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 24 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS
December 31, December 31, 2000 1999 --------- --------- (dollars in thousands except per share info) ASSETS Current assets: Cash and cash equivalents $ 41,772 $ 15,630 Trade accounts receivable, net of allowance of $6,998 and $8,560 51,141 118,982 Current portion of notes receivable net of allowance of $1,919 and $1,820 17,693 24,099 Other receivables, including amounts due from affiliates of $5,484 and $267 19,534 11,271 Inventories 226,615 217,083 Deferred income taxes 15,954 25,489 Other current assets 6,800 4,751 --------- --------- 379,509 417,305 Property, plant and equipment, net 112,919 110,470 Notes receivable 39,938 66,593 Investments in affiliates -- 23,820 Intangible assets, net 206,683 212,723 Deferred income taxes, non-current 48,658 19,975 Other non-current assets 28,033 40,388 --------- --------- Total assets $ 815,740 $ 891,274 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable $ 69,869 $ 90,183 Accrued compensation 8,099 9,149 Accrued warranties 15,112 13,365 Accrued income taxes 18,659 4,695 Self insurance reserves 3,021 3,101 Customer deposits 47,327 952 Other current liabilities 18,696 34,829 --------- --------- Total current liabilities 180,783 156,274 Long-term debt 453,475 536,534 Pensions and other benefits 18,454 16,689 Deferred income taxes 6,789 11,893 Other deferred items and self insurance reserves 16,137 14,767 --------- --------- Total liabilities 675,638 736,157 --------- --------- Stockholder's equity: Common stock ($.01 par value, 1,000 shares authorized, issued and outstanding) and additional capital 386,596 341,813 Accumulated deficit (220,609) (167,250) Accumulated other comprehensive loss (25,885) (19,446) --------- --------- Total stockholder's equity 140,102 155,117 --------- --------- Total liabilities and stockholder's equity $ 815,740 $ 891,274 ========= =========
The accompanying notes are an integral part of these statements. 25 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998 -------- --------- -------- (dollars in thousands) Cash flows provided by (used in) operating activities Net income (loss) $(53,359) $ 13,595 $ 14,649 Adjustments to reconcile net income (loss) to net cash provided by (used in) operations: Depreciation and amortization 30,453 25,092 26,084 Deferred income taxes (24,327) (19,073) (4,754) Extraordinary loss on early retirement of debt -- 4,182 -- Gain on sale of property and notes receivable -- -- (1,188) Loss on sale of investment -- -- (5,000) Loss on sale of notes receivable through securitizaton 4,549 -- -- Noncash interest expense pushed down from related party -- -- 25,194 Noncash inventory valuation charge 15,700 21,000 -- Other non-cash interest expense 3,235 6,543 1,689 Other non-cash items (3,029) (2,361) 5,650 Net curtailment gain -- (3,168) -- All other operating activities 81,385 (69,014) 11,408 -------- --------- -------- Net cash provided by (used in) operating activities 54,607 (23,204) 73,732 -------- --------- -------- Cash flows provided by (used in) investing activities Capital expenditures (18,195) (28,204) (11,740) Proceeds from sale of property and investments 370 18,629 1,247 Net proceeds from initial sale of notes receivable through securitization 55,719 -- -- Net proceeds from other sale of notes receivable through securitization 60,279 -- -- Other changes in notes receivable (79,644) (29,306) 762 Investment in unconsolidated affiliate -- -- 5,000 Purchase of and investment in business, net of cash received (1,580) -- (7,860) Investments in assets held for lease (11,081) (9,543) (4,279) Other -- 307 2,187 -------- --------- -------- Net cash provided by (used in) investing activities 5,868 (48,117) (14,683) -------- --------- -------- Cash flows provided by (used in) financing activities Proceeds from issuance of term B loans -- 333,000 -- Proceeds from issuance of 11.25% senior sub notes -- 150,080 -- Payment of term B loan principal (28,279) (1,665) -- Payment of 9.02% senior notes -- (105,321) -- Payment of senior secured discount notes -- (206,500) -- Debt issuance costs (1,050) (22,503) -- Payment of parent company senior notes -- (35,574) -- Net change in other long-term borrowings -- (22,371) (37,573) Net change in related party receivables, payables -- (22,792) -- Dividends paid to parent company -- (71,751) (3,500) Net change in line of credit facilities (55,000) (90,594) (7,935) Capital investment, net of transaction costs 49,996 158,904 -- -------- --------- -------- Net cash provided by (used in) financing activities (34,333) 62,913 (49,008) -------- --------- -------- Net increase (decrease) in cash 26,142 (8,408) 10,041 Cash and cash equivalents at beginning of period 15,630 24,038 13,997 -------- --------- -------- Cash and cash equivalents at end of period $ 41,772 $ 15,630 $ 24,038 ======== ========= ========
The accompanying notes are an integral part of these statements. 26 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Accumulated Other Comprehensive Income (Loss) Common Stock -------------------------- and Unfunded Cumulative Total Comprehensive Additional Accumulated Pension Translation Stockholder's Income Capital Deficit Loss Adjustment Equity ----------- -------- --------- ------ ---------- --------- (dollars in thousands) Balance December 31, 1997 $ 288,509 $(119,800) $ (577) $(20,439) $ 147,693 Comprehensive income 1998: Net income $ 14,649 -- 14,649 -- -- 14,649 Other comprehensive income (loss): Unfunded pension gain 61 -- -- 61 -- 61 Unrealized translation loss (10,161) -- -- -- (10,161) (10,161) --------- Comprehensive income $ 4,549 ========= Net receivable from affiliate (Note 8) (42,907) -- -- -- (42,907) Adjustment (Note 21) (4,327) (443) -- 1,856 (2,914) Dividends on common stock -- (3,500) -- -- (3,500) --------- -------- ------ --------- ------- Balance December 31, 1998 241,275 (109,094) (516) (28,744) 102,921 Comprehensive income 1999: Net income $ 13,595 -- 13,595 -- -- 13,595 Other comprehensive income: Unfunded pension gain 509 -- -- 509 -- 509 Unrealized translation gain 9,305 -- -- -- 9,305 9,305 --------- Comprehensive income $ 23,409 ========= Net receivable from affiliate (Note 8) (58,366) -- -- -- (58,366) Dividends on common stock -- (71,751) -- -- (71,751) Capital contribution 158,904 -- -- -- 158,904 --------- -------- -------- --------- --------- Balance December 31, 1999 341,813 (167,250) (7) (19,439) 155,117 Comprehensive loss 2000: Net loss $ (53,359) -- (53,359) -- -- (53,359) Other comprehensive loss: Unrealized translation loss (6,439) -- -- -- (6,439) (6,439) --------- Comprehensive loss $ (59,798) ========= Net receivable from affiliate (Note 8) (5,213) -- -- -- (5,213) Capital contribution 49,996 -- -- -- 49,996 --------- -------- ------- --------- --------- Balance December 31, 2000 $ 386,596 $(220,609) $ (7) $ (25,878) $ 140,102 ========= ======== ======= ========= =========
The accompanying notes are an integral part of these statements. 27 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Nature of Business The Company is a leading designer, manufacturer and marketer of new inter-city coaches and related replacement parts primarily for the North American market. To support these activities, the Company also sells and services used coaches and offers a comprehensive package of leasing and financing services to its customers. The Company has manufacturing facilities in the United States, Canada and Mexico. Sales are predominately to a diversified customer base, including independent operators, national fleet operators and government agencies. Note 2. Basis of Presentation The accompanying consolidated financial statements include the accounts of Motor Coach Industries International, Inc. and Subsidiaries ("MCII" or the "Company"), which is an indirect, wholly owned subsidiary of MCII Holdings (USA), Inc. ("MCII Holdings" or "Parent Company"). All significant intercompany accounts and transactions have been eliminated. On June 16, 1999, MCII Holdings completed a plan to financially restructure and reorganize itself. Parent Company received $175 million from an investment group led by Joseph Littlejohn &Levy Fund III, L.P. ("JLL Fund III"), in exchange for a 61% equity investment in Parent Company (currently a 60.92% equity interest in Parent Company, see Item 12 for current beneficial ownership of Parent Company), $50 million in Senior Notes of Parent Company due 2010 and warrants to purchase additional shares of Parent Company's common stock. As a result of the transactions, Consorcio G Grupo Dina, S.A. de C.V. ("Grupo Dina"), a Mexican corporation, Parent Company's former sole stockholder, retained a minority interest in Parent Company. Parent Company then made an additional $175 million equity investment in the Company. The Company also obtained a senior secured credit facility that provided for borrowings of up to $445 million and issued approximately $152 million of 11.25% senior subordinated notes due 2009 at a discount of 98.575%. See Note 12 for a discussion of the Company's credit facilities. The Company used the proceeds from the equity investment, senior subordinated notes, and the term loans issued under the senior secured credit facility to pay off all of its then outstanding debt, and $35 million of Parent Company senior notes, and made a final distribution to Grupo Dina of approximately $75 million. As part of the financial restructuring and reorganization, Parent Company retained ownership of MCII and Dina Autobuses, S.A. de C.V. ("Autobuses"), and transferred its interest in its other minor Mexican subsidiaries to Grupo Dina. Autobuses became a subsidiary of MCII and its name was changed to Motor Coach Industries Mexico, S.A. de C.V. As a result of the financial restructuring, MCII Holdings contributed its Autobuses subsidiary to the Company at historical cost, and some minor Mexican subsidiaries were transferred by Parent Company and the Company to Grupo Dina. The Company's consolidated financial statements include Autobuses for all periods presented, as this is a reorganization of entities under common control. During 2000, the Company received an additional capital contribution of approximately $50.0 million, net of transaction costs, from Parent Company. Certain reclassifications have been made to the financial statements of prior periods to conform to 2000 classifications. Note 3. Significant Accounting Policies Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as contingent assets and liabilities disclosed in the financial statements. Actual results could differ from those amounts reported or disclosed. 28 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Cash Equivalents The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents. Foreign Currency Transactions As a company with multi-national operations, certain of the Company's transactions are denominated in foreign currencies. The Company uses financial instruments to hedge or reduce its overall exposure to the effects of currency fluctuations in its cash flows. The Company's policy is not to speculate in such financial instruments for profit or gain. Instruments used as hedges must be effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the inception of the contract. Foreign currency transactions that are not hedged are converted at the exchange rates in effect at the date of the transaction. Any gain or loss resulting from the translation of such transactions is included in the income statement and was not material in any year. Intangibles Intangibles, which consist primarily of goodwill, are carried at cost less accumulated amortization of $39.4 million at December 31, 2000 and $33.6 million at December 31, 1999. Intangibles are amortized primarily on the straight-line method over the periods of expected benefit, generally, but not in excess of 40 years. The Company evaluates the carrying value of goodwill and other long-lived assets at each reporting period for possible impairment in accordance with the provisions of Statement of Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The pronouncement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is evaluated by comparing future cash flows (undiscounted without interest charges) expected to result from the use or sale of the asset and its eventual disposition to the carrying amount of the asset. If an asset is deemed to be impaired it is adjusted to fair value. Inventories Inventories are generally stated at the lower of cost or market. Cost is generally determined on a first-in, first-out basis. Inventory of used coaches are valued based on management's estimates of current market value. The inventory value is reviewed periodically and adjusted as necessary. Notes Receivable Notes receivable are collateralized by coaches. Substantially all notes carry market floating rates of interest based on the creditworthiness of each individual purchaser. The allowance for uncollectible contracts is adjusted periodically based on an evaluation of individual contract collectability. As discussed in Note 13, during the second quarter of 2000, the Company entered into an agreement allowing it to sell qualifying receivables and financing leases to a qualified securitization entity. Pensions and Other Benefits Trusteed, noncontributory pension plans cover substantially all employees in the United States and Canada. Benefits for the noncontributory plans are based primarily on final average salary and years of service. Net periodic pension cost for the Company is based on the provisions of SFAS No. 87, "Employers' Accounting for Pensions." Funding policies provide that payments to pension trusts shall be at least equal to the minimum funding required by applicable regulations. Information with respect to the Company's pension plans is presented in accordance with the disclosure requirements of SFAS 132, "Employers' Disclosures about Pensions and Other Post Retirement Benefits." 29 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Under Mexican labor law, companies are liable for severance payments for all indemnities and seniority premiums to employees terminated under certain circumstances. Additionally, there is a liability for voluntary retirements as agreed in the union contract and a pension plan for the personnel. Indemnity payments are expensed as incurred. The liability for seniority premiums, pensions and severance payments is recorded as incurred based on actuarial computations determined by using the projected unit credit method. Certain employees in the U.S. and Canada are covered under defined benefit post retirement plans that provide medical and life insurance for eligible retirees and dependents. The net periodic post-retirement benefit cost for the Company is based on the provisions of SFAS No. 106, "Employers' Accounting for Post-retirement Benefits Other Than Pensions." Information with respect to the Company's defined benefit post retirement plans is presented in accordance with the disclosure requirements of SFAS 132, "Employers' Disclosures about Pensions and Other Post Retirement Benefits." Property, Plant, and Equipment Property, plant, and equipment are stated at cost. Depreciation is provided principally by use of the straight-line method at annual rates as follows: Buildings and leasehold improvements 3% to 25% Assets held for lease 10% to 33% Machinery and equipment 10% to 33% Research and Development Research and development expenses, net of contributions, are charged to income as incurred. Revenue Recognition Sales are generally recognized on shipment of product to customers. Price allowances are recorded at the time of sale. An allowance for losses on receivables is maintained at an amount that management considers appropriate in relation to the outstanding receivable portfolio. Allowances for losses on receivables are charged to expense as appropriate. Warranty An accrual for warranty claims is made at the time of sale. This accrual is based on management's estimate of future warranty liabilities and is charged to operations. Actual warranty expenditures are charged to the accrual as incurred. The accrual is reviewed periodically for adequacy and adjustments are recorded if necessary. Recently Issued Accounting Standards In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is required to be adopted in years beginning after June 15, 1999. In July 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133", which amends SFAS No. 133 to be effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company will adopt the provisions of SFAS No. 133 beginning January 1, 2001. The adoption of SFAS No. 133 will not have a significant effect on the results of operations or financial condition of the Company. Note 4. Cost of Sales Inventory Valuation Charge The Company recorded a non-cash inventory charge of $15.7 million at December 31, 2000, to adjust the carrying value of its used coach inventory to reflect the changing dynamics of the marketplace. The Company also 30 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) recorded a non-cash inventory charge of $21.0 million in the second quarter of 1999. $15.0 million of this charge was recorded to adjust the inventory of used coaches in order to reflect a change in asset management strategy in response to the changing dynamics of the marketplace. The remaining $6.0 million charge was recorded to rationalize the inventory of replacement parts in conjunction with a revised plan developed during the second quarter of 1999 to consolidate the Company's replacement parts distribution activities into a single location. Note 5. Extraordinary Loss In the second quarter of 1999, the Company recorded a $2.6 million after-tax ($4.2 million pre-tax) extraordinary charge associated with the early retirement of debt in connection with the June 16, 1999 financial restructuring. The charge consists primarily of early redemption premiums and other financing costs incurred, partially offset by a gain resulting from the recognition of unamortized swap accretion deferred credits. Note 6. Gain on Sale of Investments In 1993, the Company (through a wholly-owned subsidiary) purchased a 10% ownership interest in Mexicana de Autobuses, S.A. de C.V. ("MASA"), a Mexican coach manufacturing company, for $6,000,000. In December 1994, the Company distributed the MASA shares to Grupo Dina as a dividend. In December 1995, the Company repurchased the MASA shares directly from Grupo Dina for $1.2 million. In 1996, the Company evaluated the realizability of its investment in MASA, and, due to the continuing operating losses of MASA and prolonged weakness in the Mexican economy, wrote off the investment, resulting in a pre-tax loss of $1.2 million. In 1998, the Company sold its interest in MASA for $7.0 million, less reimbursement of fees and expenses of $2.0 million paid to Grupo Dina. Note 7. Business Interruption Insurance Policies During 1997, flooding along the Red River caused significant operating disruptions at the Company's Pembina, North Dakota and Winnipeg, Manitoba facilities. As a result, the Company filed insurance claims seeking recovery of various out-of-pocket costs and business interruption losses. The Company settled its claim for business interruption for a total of $9.0 million. A partial recovery of $500,000 was recognized as income in 1997 and the remainder of the business insurance recovery was recognized as income in 1998. Note 8. Net Receivables from Affiliates and Related Parties As discussed in Note 23, at December 31, 2000, the Company had total receivables from affiliates of $5.5 million, which are included in the consolidated balance sheet in other receivables. In 1999, as a result of the financial restructuring, the Company forgave $58.4 million of net receivables due it from Grupo Dina companies and MCII and Parent Company subsidiaries that were contributed to Grupo Dina as part of the restructuring. The forgiveness resulted in a $58.4 million charge against additional capital in stockholder's equity. During 2000, the Company adjusted this 1999 receivable forgiveness, resulting in an additional charge against equity of $5.2 million. During 1998, the Company took a net charge of $42.9 million against additional capital in stockholder's equity to reflect the write off of net receivables from Grupo Dina. 31 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 9. Inventories Inventories at December 31 consisted of the following: 2000 1999 --------- --------- (dollars in thousands) Raw materials $ 42,227 $ 42,865 Work in process 68,527 41,513 Finished goods 135,499 163,634 --------- --------- 246,253 248,012 Inventories reserve (19,638) (30,929) --------- --------- $ 226,615 $ 217,083 ========= ========= Note 10. Notes Receivable Notes receivable at December 31 consisted of the following: 2000 1999 -------- -------- (dollars in thousands) Notes receivable, at contract amount $ 59,550 $ 92,512 Less: allowance for uncollectible contracts (1,919) (1,820) -------- -------- Notes receivable, net 57,631 90,692 Less current portion (17,693) (24,099) -------- -------- Long-term notes receivable $ 39,938 $ 66,593 ======== ======== Scheduled annual maturities of note receivables at December 31, 2000, were: (dollars in thousands) 2006 and 2001 2002 2003 2004 2005 thereafter ------- ------- ------- ------ ------ ------- $17,693 $14,398 $ 5,033 $4,412 $4,172 $13,842 Note 11. Property, Plant, and Equipment Property, Plant, and Equipment at December 31 consisted of the following: 2000 1999 --------- --------- (dollars in thousands) Land $ 8,482 $ 7,567 Building and Improvements 53,154 51,996 Machinery and Equipment 83,610 66,973 Assets Held for Lease 24,391 31,514 --------- --------- 169,637 158,050 Less accumulated depreciation and amortization (56,718) (47,580) --------- --------- $ 112,919 $ 110,470 ========= ========= Depreciation and amortization expense for property, plant and equipment was $23.1 million, $18.6 million and $18.3 million for the years ended December 31, 2000, 1999, and 1998, respectively. 32 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 12. Long-Term Debt Outstanding debt as of December 31 consisted of the following: 2000 1999 --------- --------- (dollars in thousands) 11.25% senior subordinated notes, due 2009 $ 152,250 $ 152,250 Borrowings under senior secured credit facility: Term loan B, due 2006 303,056 331,335 Revolving credit agreement, due 2005 -- 55,000 --------- --------- 455,306 538,585 Less unamortized discount on 11.25% senior subordinated notes (1,831) (2,051) --------- --------- $ 453,475 $ 536,534 ========= ========= As previously discussed, on June 16, 1999, the Company completed a major financial restructuring where the Company issued $152.3 million of senior subordinated notes and also entered into a $445.0 million senior secured credit facility. The 11.25% senior subordinated notes were issued at a discount of 98.5755%, yielding cash proceeds of $150.1 million. Interest payments are twice a year, on each May 1 and November 1. The notes are not secured by any collateral and rank junior to any of the Company's other senior debt but equal to any future senior subordinated debt issuance. The Company has a right to buy back some or all of the notes prior to their due date, subject to certain limitations and premium provisions as specified in the agreement. These notes contain certain non-financial covenants for which the Company was in compliance at December 31, 2000. The senior secured credit facility initially consisted of $333.0 million of term loans and a $112.0 million revolving credit facility. The Company has pledged substantially all of its assets under this agreement. During the second quarter of 2000, the Company executed two amendments to its senior secured credit facility. These amendments provided the opportunity to complete an asset securitization of the Company's long-term receivables and finance leases, see Note 13, increased the $112.0 million revolving credit line to $132.0 million, allowed the Company to increase the revolving credit line by up to an additional $40.0 million, and redefined certain loan covenant provisions contained in the senior secured credit facility. In conjunction with the execution of the amendments, Parent Company issued additional shares of its common stock to the investment group led by JLL Fund III in exchange for $50.0 million in cash, and Parent Company subsequently made an additional capital contribution of $50.0 million to the Company through MCII Holdings, Inc. See Item 12 for current beneficial ownership of Parent Company. The Company, during the third quarter, increased its credit line on the Revolver by an additional $20.0 million to a total of $152.0 million. The revolving credit facility due 2005 provides the Company with the ability to borrow funds as needed at variable rates of interest based upon certain formulas stated in the agreement that includes a base rate of interest and an 0.5% facility fee on the unused portion of the revolving credit facility. As of December 31, 2000, the Company had no outstanding borrowings under the revolving line of credit and had letters of credit totaling $101.7 million drawn against the revolving line of credit. In January 2001, the Company borrowed $32.0 million under the revolving credit line. The term loans were variable rate loans with accrued interest plus current principal payments due at the end of each calendar quarter through March 31, 2006. A final principal payment, plus accrued interest, is due on June 16, 2006. 33 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The variable rate of interest was based upon certain formulas stated in the agreement, which included a base rate of interest and an applicable margin based upon a calculation of the Company's consolidated total leverage ratio. As of December 31, 2000, the average effective interest rate on $303.1 million of outstanding borrowings was 10.2%. In addition to the scheduled quarterly principal payments, at September and December 2000 the Company made voluntary term loan prepayments of $20.0 million and $5.0 million, respectively. In accordance with provisions of the term loan agreement, the Company applied the $5.0 million December prepayment against quarterly term loan payments due during 2001. The agreement also contains a mandatory prepayment provision based upon a free cash flow formula as specified in the agreement. The prepayment provision called for any prepayment made to be first applied to the term loans and then to the loans made under the revolving credit agreement. The Company has reviewed the formula and was not required to make an additional prepayment required as of December 31, 2000. The senior secured credit facility contains financial covenants that the Company will not exceed certain leverage ratios or fall below certain interest coverage ratios as specified in the agreement. As of December 31, 2000, the Company was in compliance with all such covenants. However, based upon its business plan, the Company did not expect to be in compliance with all the financial covenants of the agreement during the period ending March 31, 2001. Accordingly, effective May 1, 2001, the Company obtained an amendment to the credit facility which waived any existing conditions of non-compliance with the facility. The amendment, among other things, suspended the current financial covenants through the period ending December 31, 2001 and provided for additional financial covenants requiring minimum levels of EBITDA, adjusted EBITDA and minimum excess cash flow, as defined. The revised covenants were based upon the Company's business plan for the year ending December 31, 2001. In addition, the amendment provides for the funding of an additional $8.5 million term loan (the " Tranche B Loan") on or prior to May 31, 2001. The Tranche B Loan bear interest 5% over the adjusted Eurodollar rate, which interest is payable in kind or equity. The Company's majority equity holder, an investment group led by JLL Fund II, has agreed to purchase a 100% equity interest in the Tranche B Loan. As a result of the amendment, the loans (other than the Tranche B Loan) will bear interest at the adjusted Eurodollar rate plus 4% per annum or the adjusted base rate plus 5%. Scheduled annual maturities of long-term debt at December 31, 2000, were: (dollars in thousands) 2001 $ -- 2002 -- 2003 -- 2004 -- 2005 -- 2006 and thereafter 453,475 --------- $ 453,475 ========= Interest paid in the years ended December 31, 2000, 1999, and 1998 was $52.2 million, $49.8 million and $24.9 million, respectively. Note 13. Securitization Transaction During the second quarter of 2000, the Company completed the asset securitization transaction permitted under terms of the amendments to its senior secured credit facility. The Company executed several agreements in conjunction with this asset securitization transaction (together referred to as the "Asset Securitization Agreement"), allowing certain 34 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) of its subsidiaries to sell qualifying receivables and financing leases to a qualified securitization entity up to an aggregate outstanding amount of $250 million. Under the terms of the Asset Securitization Agreement, certain subsidiaries of the Company sold a substantial portion of their portfolio to MCII Funding II, Inc., an unconsolidated affiliated company, at 97% of the remaining principal balance. MCII Funding II, Inc. then sold these receivables and leases at 100% of the remaining principal balance to the Special Purpose Accounts Receivable Corporation ("SPARC"). The Company's subsidiaries recognized losses on the sale of notes to MCII Funding II, Inc. while MCII Funding II, Inc. recognized gains on the sale of the notes to SPARC. Through December 31, 2000, the Company's subsidiaries had realized proceeds of approximately $116.0 million from the sale of notes receivable and financing leases resulting in a loss on the securitization of $4.5 million. Note 14. Fair Value of Financial Instruments The following disclosures of the estimated fair value of financial instruments have been determined by using available market information and the valuation methodologies described below. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein may not be indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value amounts. The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate fair values due to the short-term maturities of these instruments. The carrying value of the notes receivable approximates fair value. Although a significant portion of the notes receivable is represented by fixed rate notes, the overall yield of the portfolio at December 31, 2000 approximates the Company's current borrowing rate. The carrying amounts and estimated fair values of the Company's other financial instruments at December 31 were as follows:
2000 1999 ------------------- ------------------- Carrying Fair Carrying Fair Value Value Value Value -------- -------- -------- -------- (dollars in thousands) Debt: Borrowings under senior secured credit facility: Term loan B $303,056 $303,056 $331,335 $331,335 Revolving credit agreement, -- -- 55,000 55,000 11.25% senior subordinated notes 150,419 45,675 150,199 151,768 -------- -------- -------- -------- $453,475 $348,731 $536,534 $538,103 ======== ======== ======== ========
The fair value of the 11.25% senior subordinated notes was estimated by using the value the notes were priced at on December 31, 2000. The carrying value of the other long-term debt approximates fair value because the debt is based on variable rates of interest. Note 15. Income Taxes The U.S. operations of the Company are included in the consolidated and other applicable U.S. income tax returns of the Company. Tax returns for the Canadian and Mexican entities are filed separately in Canada and Mexico. 35 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 15. Income Taxes (continued) Income (loss) before taxes and extraordinary items in the United States, Canada, and Mexico for the years ended December 31, was as follows:
2000 1999 1998 --------- -------- -------- (dollars in thousands) United States $(123,072) $(15,298) $ 33,163 Canada 58,288 34,792 41,145 Mexico (10,602) 6,380 (2,675) Non deductible interest from push down of debt -- (11,601) (25,194) --------- -------- -------- Total income (loss) before income taxes $ (75,386) $ 14,273 $ 46,439 ========= ======== ========
Income tax expense (benefit) for the years ended December 31 was comprised of the following: 2000 1999 1998 -------- -------- -------- (dollars in thousands) Current: United States Federal $(45,098) $ (9,026) $ 14,661 State (5,323) (1,213) 3,665 Foreign 25,704 17,259 18,288 -------- -------- -------- (24,717) 7,020 36,614 -------- -------- -------- Deferred: United States Federal 3,427 8,224 (3,812) State 419 1,108 (706) Foreign (1,156) (18,288) (306) -------- -------- -------- 2,690 (8,956) (4,824) -------- -------- -------- Total income tax expense (benefit) $(22,027) $ (1,936) $ 31,790 ======== ======== ======== A reconciliation of the provision for income taxes and the amount computed using statutory federal income tax rates on income (loss) before income taxes is set forth below: 2000 1999 1998 -------- -------- ------- (dollars in thousands) Computed income tax provision at statutory rate of 35% $(26,385) $ 4,996 $16,254 Non deductible interest expense from push down of debt -- 6,891 8,818 State income taxes (5,101) (80) 1,923 Canadian tax differences 3,673 2,179 2,601 Mexican tax differences 3,711 (17,836) 690 Intangible amortization 1,453 1,482 1,778 Other, net 622 432 (274) -------- -------- ------- Total income tax expense (benefit) $(22,027) $ (1,936) $31,790 ======== ======== ======= 36 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 15. Income Taxes (continued) Deferred income tax assets and liabilities included in the Consolidated Balance Sheet at December 31 consisted of the following: 2000 1999 --------- -------- (dollars in thousands) Deferred tax assets: Property, plant, and equipment $ -- $ 8,860 Pension and other benefits 6,512 6,859 Allowances and reserves for losses 24,360 21,425 Net operating loss carry forward 63,887 23,530 Asset tax carryforward 6,498 -- Deferred state income taxes 1,709 1,643 Inventories -- 3,112 Other 1,048 1,106 --------- -------- 104,014 66,535 Valuation allowance (27,228) (15,070) --------- -------- Total gross deferred tax assets $ 76,786 $ 51,465 --------- -------- Deferred tax liabilities: Property, plant, and equipment $ (8,594) $ (7,721) Intangibles (8,123) (7,462) Deferred state income taxes (156) -- Installment sales (105) (303) Deferred start-up costs (1,985) (2,349) Other -- (59) --------- -------- Total gross deferred tax liabilities (18,963) (17,894) --------- -------- Net deferred tax asset $ 57,823 $ 33,571 ========= ======== SFAS No. 109, "Accounting for Income Taxes," requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or the entire deferred tax asset will not be realized. During 2000, a net operating loss of $87.5 million dollars was incurred from U.S. operations. Approximately $23.3 million can be carried back to the year ended December 31, 1998 and the remaining $64.2 million is available to be applied against future taxable income. The Company has concluded that it is more likely than not that future taxable income will be sufficient to realize the benefit of the current year net operating loss prior to its expiration. Accordingly, no valuation allowance has been provided to reduce the deferred tax asset representing the current year U.S. net operating loss carryforward. A valuation allowance has been established related to net operating losses incurred in Mexico. 37 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 15. Income Taxes (continued) Income taxes paid in the years ended December 31, 2000, 1999 and 1998 were $11.4 million, $29.1 million and $12.9 million, respectively. The Company's Canadian income tax returns for 1982 through 1992 were under review for several years by the Canada Customs and Revenue Agency ("CCRA"). The CCRA proposed imputing additional income in Canada related to transactions between Canadian and U.S. based subsidiaries of the Company. A formal reassessment was issued by the CCRA for the 1985 return, and we filed a Notice of Objection for 1985 and requested Competent Authority relief from the CCRA with respect to 1982-92. Thereafter, several years of negotiation took place involving the CCRA, IRS, and the Company. During 2000, the CCRA and the IRS reached an agreement to settle the cross-border transfer pricing issue by shifting $35.6 million of income from the U.S. to Canada. The settlement documents were signed by all parties in September 2000, and cover the 1982-99 tax years. The settlement did not have a material adverse affect on the Company's financial condition or results of operations. The Company has not provided for U.S. federal income taxes and foreign withholding taxes on the undistributed earnings of non-U.S. subsidiaries. The undistributed earnings are intended to be reinvested indefinitely. If these earnings were distributed, foreign withholding taxes would be imposed; however, net operating loss carryforwards and foreign tax credits would be available to substantially reduce any resulting U.S. income tax liability. Note 16. Pension Benefits The Company sponsors various retirement plans for most full-time employees. Benefits of the plans are generally based on years of service and employees' compensation during the final years of employment. During 1999, the Company terminated an unqualified pension plan resulting in a curtailment loss of $179,000 realized in 1999. While the participants in the plan at the time of termination will continue to receive benefits, all benefits were frozen and no future benefits will be accrued. The components of net periodic pension costs are summarized in the following table:
United States Canada ------------------------------- ------------------------------ 2000 1999 1998 2000 1999 1998 --------- --------- -------- -------- -------- -------- (dollars in thousands) Service cost benefits earned during the period $ 1,162 $ 1,409 $ 1,214 $ 524 $ 590 $ 485 Interest cost on projected benefit obligation 1,888 1,874 1,705 609 517 427 Expected return on plan assets (2,028) (1,752) (1,511) (720) (727) (621) Amortization of prior service cost (2) 510 510 -- 22 3 Amortization of transition obligation (11) (11) (11) (4) (2) (2) Recognized net actuarial loss (116) 34 100 -- 2 -- Curtailment loss -- 179 -- -- -- -- --------- --------- -------- -------- -------- -------- Net pension cost $ 893 $ 2,243 $ 2,007 $ 409 $ 402 $ 292 ========= ========= ======== ======== ======== ========
38 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 16. Pension Benefits (continued) The following tables summarize pension benefit obligations, plan assets and funded status as of December 31:
United States Canada ---------------------- --------------------- 2000 1999 2000 1999 ---------- ---------- --------- ---------- (dollars in thousands) Change in Pension Benefit Obligation: Benefit obligation as of January 1 $ 25,294 $ 27,060 $ 7,880 $ 7,081 Service cost 1,162 1,409 524 590 Interest cost 1,888 1,874 609 517 Actuarial (gain) loss (2,071) (3,649) 281 (679) Amendments -- -- -- 364 Plan participant contributions -- -- -- 28 Benefits paid (996) (928) (691) (454) Curtailment -- (472) -- -- Foreign currency rate change -- -- (305) 433 ---------- ---------- --------- ---------- Benefit obligation as of December 31 $ 25,277 $ 25,294 $ 8,298 $ 7,880 ========== ========== ========= ========== Change in Plan Assets: Fair value of plan assets at beginning of year $ 24,632 $ 22,472 $ 9,552 $ 7,763 Actual return on plan assets 333 2,235 489 1,213 Employer contribution 303 618 110 503 Plan participants contributions -- -- -- 28 Benefits paid (996) (693) (691) (454) Foreign currency rate change -- -- (351) 499 ---------- ---------- --------- ---------- Fair value of plan assets at end of year $ 24,272 $ 24,632 $ 9,109 $ 9,552 ========== ========== ========= ========== Funded Status: Funded status at end of year $ (1,005) $ (662) $ 812 $ 1,672 Unrecognized transition (asset) obligation (22) (34) (75) 12 Unrecognized net actuarial (gain) loss (6,255) (5,995) 227 (930) Unrecognized prior service cost 4 2 -- 386 ---------- ---------- --------- ---------- Prepaid (accrued) benefit cost $ (7,278) $ (6,689) $ 964 $ 1,140 ========== ========== ========= ==========
The Company has one pension plan for which the employer must recognize an additional minimum liability in accordance with the provisions of paragraph 36 of SFAS 87.
United States Canada --------------------- --------------------- 2000 1999 2000 1999 ---------- ---------- ---------- ---------- (dollars in thousands) Amounts Recognized in the Statement of Financial Position consist of: Prepaid benefit cost $ 54 $ 50 $ 964 $ 1,142 Accrued benefit liability (7,332) (6,739) -- (2) ---------- ---------- ---------- ---------- Net amount recognized $(7,278) $(6,689) $ 964 $ 1,140 ========== ========== ========== ==========
39 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 16. Pension Benefits (continued) Weighted average assumptions used were:
United States Canada --------------------------------- --------------------------------- 2000 1999 1998 2000 1999 1998 -------- -------- -------- -------- -------- --------- Discount rate for obligation 8.0% 7.8% 6.8% 7.5% 7.5% 6.8% Rate of increase in compensation 4.0% 4.8% 4.0% 4.0% 4.0% 4.0% Long-term rate of return on assets 9.5% 9.5% 9.5% 8.0% 9.5% 9.5%
The Company also has defined contribution plans for certain U.S. employees. Company contributions in the years ended December 31, 2000, 1999, and 1998 were $1.2 million, $1.2 million and $1.1 million, respectively. Note 17. Mexican Employee Benefits Net periodic pension cost for the two years ended December 31 included the following components:
2000 1999 1998 ----- ----- ----- (dollars in thousands) Service cost benefits earned during the period $ 120 $ 128 $ 57 Interest cost on projected benefit obligation 148 477 456 Expected return on plan assets -- -- (666) Net amortization and deferral (49) (51) (51) ----- ----- ----- Net pension cost $ 219 $ 554 $(204) ===== ===== =====
The Company, under Mexican labor laws, is able to withdraw funds from a pension trust and use them for other purposes. During the first quarter Grupo Dina withdrew the funds held by the trust and used the funds to pay-off existing indebtedness of Grupo Dina. The following tables summarize pension benefit obligations, plan assets and funded status as of December 31: 2000 1999 ------- ------- (dollars in thousands) Change in Pension Benefit Obligation: Benefit obligation as of January 1 $ 2,984 $ 2,212 Service cost 264 128 Interest cost 141 477 Actuarial gain 95 56 Benefits paid (20) -- Foreign currency rate change (373) 111 ------- ------- Benefit obligation as of December 31 $ 3,091 $ 2,984 ======= ======= Change in Plan Assets: Fair value of plan assets at beginning of year $ -- $ 2,999 Withdrawal of plan assets -- (2,999) ------- ------- Fair value of plan assets at end of year $ -- $ -- ======= ======= 40 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2000 1999 ------- ------- (dollars in thousands) Funded Status: Funded status at end of year $(3,091) $(2,984) Unrecognized net actuarial (gain)/loss 319 303 Unrecognized prior service cost (1,410) (802) ------- ------- Prepaid (accrued) benefit cost $(4,182) $(3,483) ======= ======= Weighted average assumptions used were: Discount rate for obligation 13.9% 17.4% Rate of increase in compensation 10.1% 14.0% Long-term rate of return on assets 15.5% 19.1% Note 18. Post-Retirement Benefits The Company has certain defined post retirement benefit plans that provide medical and life insurance benefits for eligible retirees and dependents. Effective at the end of 1999, the Company terminated its remaining active post-retirement medical plan covering certain employees of its customer service business. Any participant receiving benefits under the plan at the time of termination will continue to receive benefits, but no other employees or retirees will be eligible to receive benefits under the plan. As a result of the termination of this plan, in 1999 the Company recorded a gross curtailment gain of $4.6 million and a curtailment gain net of current year post-retirement expenses of $3.3 million as illustrated in the table below. The net periodic post retirement benefit cost for the years ended December 31 included the following components:
United States Canada ----------------------------- --------------------------- 2000 1999 1998 2000 1999 1998 ------- ------- ------- ------- ------- ------- (dollars in thousands) Service cost $ -- $ 568 $ 563 $ 20 $ 17 $ 21 Interest cost 323 634 574 20 18 18 Amortization of prior service cost -- (3) (3) -- -- -- Recognized net actuarial (gain) loss -- -- (39) -- -- -- -- (4,546) -- -- -- -- ------- ------- ------- ------- ------- ------- Net periodic benefic cost (income) $ 323 $(3,347) $ 1,095 $ 40 $ 35 $ 39 ======= ======= ======= ======= ======= =======
The following tables summarize post-retirement benefit obligations and funded status as of December 31:
United States Canada ------------------ ------------------ 2000 1999 2000 1999 ------- ------- ------- ------- (dollars in thousands) Change in Post Retirement Benefit Obligation: Benefit obligation as of January 1 $ 4,532 $ 9,575 $ 280 $ 274 Service cost -- 568 20 17 Interest cost 323 634 20 18 Participants contributions 33 -- -- -- Actuarial (gain) loss (561) (1,538) -- (30) Benefits paid (169) (161) (18) (14) Curtailment gain -- (4,546) -- -- Foreign currency rate change -- -- (10) 15 ------- ------- ------- ------- Benefit obligation as of December 31 $ 4,158 $ 4,532 $ 292 $ 280 ======= ======= ======= =======
41 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 18. Post-Retirement Benefits (Continued)
United States Canada ------------------ ------------------ 2000 1999 2000 1999 ------- ------- ------- ------- (dollars in thousands) Funded Status: Funded status at end of year $(4,158) $(4,532) $ (292) $ (280) Unrecognized net actuarial (gain) loss (2,024) (1,463) (52) (22) ------- ------- ------- ------- Accrued benefit cost $(6,182) $(5,995) $ (344) $ (302) ======= ======= ======= =======
The assumed health care cost trend rate used in measuring the accumulated post retirement benefit obligation ("APBO") for the Company's U.S. operations was 8.0% as of December 31, 2000, declining by 1.0% per year to 5.0% by the year 2004 and remaining at that level thereafter for retirees below the age 65, and 6.0% as of December 31, 1998, declining by 0.5% per year to 5.0% by the year 2003 and remaining at that level thereafter for retirees above age 65. A one percentage-point change in the assumed health-care-cost trend rate would have the following effects: One Percentage One Percentage Point Increase Point Decrease --------------- -------------- (dollars in thousands) Effect on total of service and interest cost components $ 36 $ (31) Effect on post retirement benefit obligation 466 (402) The post retirement benefit obligation of the Company's Canadian operations does not contain a health care component. Note 19. Lease Obligations The Company leases a wide variety of facilities and equipment under operating leases, including certain warehouses, offices and equipment. Some of the leases provide for renewal options. Leases, which expire, are generally renewed or replaced by similar leases. At December 31, 2000, future minimum rental payments with respect to non-cancelable operating leases with terms in excess of one year were as follows: 2006 and 2001 2002 2003 2004 2005 Thereafter ------- ------- ------- ------- ------- ------- (dollars in thousands) $ 5,736 $ 4,412 $ 3,006 $ 1,908 $ 1,624 $ 5,086 Total rental expense for the years ended December 31, 2000, 1999, and 1998 was $3.9 million, $4.4 million, and $4.1 million respectively. Note 20. Common Stock The Company is a wholly owned subsidiary of MCII Holdings, Inc., which is a wholly owned subsidiary of Parent Company. Prior to the completion of the financial restructuring, Parent Company was a wholly owned subsidiary of Grupo Dina. On June 16, 1999, as a part of the financial restructuring, a 61% equity interest of MCII Holdings (USA), Inc. was purchased by an investment group led by JLL Fund III. As part of the transaction, the investment group led by JLL Fund III received warrants to purchase additional shares of the common stock of Parent Company. These warrants are immediately exercisable at a price of $204.918 per share, which is equivalent to the price per share that the investment group led by JLL Fund III invested in Parent Company. See Item 12 for the current beneficial ownership of Parent Company as of April 30, 2001. 42 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 21. Equity Consolidation Adjustment In 1998, the Company made a $2.9 million Stockholder's Equity adjustment that corrected an immaterial prior period accounting error occurring in a consolidation adjustment of a subsidiary company. Note 22. Changes in Other Operating Activities Changes in other operating activities for the years ended December 31, 2000, 1999, and 1998 consisted of:
2000 1999 1998 -------- -------- -------- (dollars in thousands) Decrease (increase) in accounts receivable $ 62,673 $(29,619) $(44,121) Decrease (increase) in inventories (435) (15,892) 28,263 Increase (decrease) in accounts payable (25,757) 7,549 13,819 Increase (decrease) in accrued income taxes 16,365 (27,625) 25,245 Increase (decrease) in customer deposits 46,375 (1,754) 550 All other changes, net (17,836) (1,673) (12,348) -------- -------- -------- Changes in other operating activities $ 81,385 $(69,014) $ 11,408 ======== ======== ========
Note 23. Related Party Transactions Related party transactions for the years ended December 31 were as follows: 2000 1999 1998 ------- ------- ------- (dollars in thousands) Purchases from affiliated companies: Goods $ 9,895 $ 5,779 $ 4,146 Services 1,536 8,932 7,681 Allocated interest expense -- -- 3,234 ------- ------- ------- $11,431 $14,711 $15,061 ======= ======= ======= Sales to affiliated companies: Goods $ 1,104 $ 3,289 $ -- Services -- 75 2,640 Allocated interest income -- -- 11,989 ------- ------- ------- $ 1,104 $ 3,364 $14,629 ======= ======= ======= Charges to affiliated parties: MCII Funding II $ 461 $ -- $ -- ======= ======= ======= Charges from affiliated parties: MCII Financial Services (1) $ 1,005 $ 2,168 $ 931 Grupo Dina Royalties -- 2,013 3,990 Grupo Dina Management Fee -- 417 1,000 ------- ------- ------- $ 1,005 $ 4,598 $ 5,921 ======= ======= ======= (1) In the third quarter of 2000, the Company acquired the remaining 75% interest in MCII Financial Services Inc. and its wholly owned subsidiaries, MCII Funding Inc. and MCI Acceptance Corp. (together referred to as "MCIFS1") and is included as a consolidated subsidiary since acquisition. 43 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Related party balances included in the December 31 balance sheet were: 2000 1999 -------- -------- (dollars in thousands) Net receivable from affiliates and related parties $ 4,193 $ 6,161 In conjunction with the securitization transactions discussed in Note 13, during 2000, the Company and its MCII Financial Services II, Inc. subsidiary advanced $4.3 million to MCII Funding II, Inc. to fund certain fees and costs associated with the securitization transactions. During 2000, the Company paid certain fees and expenses totaling $1.2 million for the benefit of Parent Company. Note 24. Business and Geographic Data Business Segment Data The Company has three reporting segments, Coach Sales, Customer Support Business, and Finance. The Coach Sales segment manufactures and markets new coaches in the United States, Canada and Mexico and further supports our customers by purchasing and reselling used coaches. The Customer Support Business segment manufactures and/or distributes replacement parts for inter-city coaches throughout North America and operates five coach service centers located throughout the United States and Canada. The Finance segment provides financing options for the sale of new and used coaches. The reportable segments are managed separately because each business has differing customer selling requirements. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. There are no material inter-segment transactions and all intercompany transactions between segments have been eliminated. Intangible assets are included in each segment's reportable assets, and the corresponding amortization of these intangible assets is included in the determination of a segment's operating profit or loss. The Company evaluates performance based on profit or loss from operations before income taxes, interest, and other non-operating income (expenses). Data for these three segments of the years ending December 31 are as follows: 2000 1999 1998 -------- -------- -------- (dollars in thousands) Revenues: Coach Sales $542,965 $720,369 $723,720 Customer Support Business 141,970 182,103 198,568 Finance 7,502 8,641 9,439 -------- -------- -------- $692,437 $911,113 $931,727 ======== ======== ======== Gross profit: Coach Sales $ 97,569 167,692 155,352 Customer Support Business 27,022 35,788 40,565 Finance 4,384 8,218 8,890 -------- -------- -------- $128,975 $211,698 $204,807 ======== ======== ======== 44 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 24. Business and Geographic Data (Continued)
2000 1999 1998 --------- --------- --------- (dollars in thousands) Operating income (loss): Coach Sales $ (5,865) $ 66,992 $ 61,354 Customer Support Business (2,200) 10,868 20,110 Finance (1,599) (539) 5,105 --------- --------- --------- $ (9,664) $ 77,321 $ 86,569 ========= ========= ========= Depreciation and amortization: Coach Sales $ 22,991 $ 18,554 $ 19,725 Customer Support Business 5,310 4,479 4,189 Finance 2,152 2,059 2,170 --------- --------- --------- $ 30,453 $ 25,092 $ 26,084 ========= ========= ========= Capital Expenditures Coach Sales $ 11,275 $ 8,172 $ 8,521 Customer Support Business 6,775 19,941 3,207 Finance 145 91 12 --------- --------- --------- $ 18,195 $ 28,204 $ 11,740 ========= ========= ========= Assets: Coach Sales $ 530,246 $ 580,047 $ 519,221 Customer Support Business 223,554 210,036 196,894 Finance 61,940 101,191 85,640 --------- --------- --------- $ 815,740 $ 891,274 $ 801,755 ========= ========= =========
Major customers are generally defined as those that individually account for more than 10% of the Company's revenue. For the years ended 2000 and 1999, a single Coach Sales customer accounted for 11.0% and 13.4% of the Company's consolidated revenues. There were no customers that individually accounted for more than 10% of the Company's sales in 1998. Geographical Data The company reports sales to and revenues from unaffiliated customers in different geographical areas on the basis of the location of the customer. 2000 1999 1998 -------- -------- -------- (dollars in thousands) Revenues: United States $564,459 $756,644 $770,709 Canada 58,315 70,185 79,767 Mexico 69,663 84,284 81,251 -------- -------- -------- $692,437 911,113 931,727 ======== ======== ======== Long-lived assets: United States $308,410 $310,179 $273,686 Canada 97,359 107,291 92,395 Mexico 30,462 56,499 25,683 -------- -------- -------- $436,231 $473,969 $391,764 ======== ======== ======== 45 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 25. Financial Information with Off-Balance Sheet Risk As an adjunct to its coach business, the Company has entered into repurchase and first loss agreements with certain companies that provide financing for coaches sold by the Company, pursuant to which the Company agrees to either repurchase coaches from such companies or guarantee the payment of certain obligations of coach owners or operators. The amounts of such repurchase agreements as of December 31, 2000 and 1999 was $15.3 million and $18.6 million, respectively. The Company has other agreements with customers in which the customers have been guaranteed a residual value. The Company has purchased residual value insurance to protect it from future loss of the value of these coaches. Additionally, as a result of certain sales of notes receivable and leases, the Company is obligated to reimburse the purchaser of such notes and leases for any losses as a result of defaults up to $5.6 million and $2.7 million as of December 31, 2000 and 1999, respectively. Losses under existing agreements are not expected to have a material effect on the Company's future financial position or results of operations. Note 26. Commitments and Contingencies During 1996, the Company completed a research and development project in connection with the development of the E-Series coach, which had been undertaken with the cooperation of the Government of Canada and the Province of Manitoba. Agreements entered into between the parties for this project provided for payment of matching contributions and specified that the contributions may be repayable if, during the first five years following project completion, the ratio of Canadian employees to total employees of the Company falls below 40%. As of December 31, 2000, the total amount of such contributions was $6,891,000 and the Company had met the employee ratio commitment. The Company and certain of its subsidiaries are plaintiffs or defendants to various actions, proceedings and pending claims. Some of the foregoing involve or may involve claims for compensatory, punitive, or other damages in material amounts. Litigation is subject to many uncertainties and it is possible that some of these legal actions, proceedings and pending claims could be decided against the Company. Although the amount of liability at December 31, 2000 with respect to these matters is not ascertainable, the Company believes that any resulting liability would not materially affect the Company's financial condition or results of operations. The Company entered into an employment agreement effective January 31, 2000 with C. Roberto Cordaro who was chief executive officer, until his resignation effective February 15, 2001. The Company has agreed to continue to pay Mr. Cordaro his base salary for the two year period ending February 15, 2003 in accordance with its normal periodic pay practices. The cost of Mr. Cordaro's compensation for the two year period ending February 15, 2003 will be charged to expense in the first quarter of 2001. Effective February 15, 2001, the Company entered into an agreement with an unaffiliated corporation to provide the Company with the management services of Steven K. Clough and Thomas Sorrells III as Chief Executive Officer and Chief Operating Officer, respectively. The agreement has an initial term of one year and provides for a base consulting fee. An additional fee is payable if the Company attains certain performance goals during fiscal 2001. The Company had entered into an employment agreement effective June 16, 1999 with Mr. Gomez Flores, who was chairman of the board, until his death on March 4, 2001. The agreement provided for total annual compensation of $1.5 million, which obligation terminated upon Mr. Gomez Flores death. The Company also has employment agreements with certain officers and key members of management. As of December 31, 2000, the aggregate commitment for future salary payments for all employment contracts is approximately $2.5 million. 46 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 27. MCII Financial Services Acquisition In 1997, MCII Financial Services Inc. ("MFS") was formed to provide conditional sales contracts and operating leases to the Company's customers. The Company initially acquired 250,000 shares, or 25%, of voting common stock of MFS and 15,000,000 shares of non-voting preferred stock of MFS for $250,000 and $15,000,000 respectively. The remaining 750,000 shares, or 75%, of the voting common stock were acquired by the indirect controlling shareholders of the Company. In 1998, the Company increased its investment by $7,650,000. In July 2000, the Company acquired the remaining 75% interest in MFS and its wholly owned subsidiaries, MCII Funding Inc. and MCI Acceptance Corp. (together referred to as "MCIFS1") for $750,000. MCIFS1 has been included as a consolidated subsidiary of the Company since the date of acquisition. The Company recognized its share of equity income from MFS, prior to our proportionate share of loss in 2000 from securitization transactions, of $225,000, $695,000 and $210,000 for 2000, 1999 and 1998, respectively. Note 28. Guarantor/Non-Guarantor Financial Statements In connection with the issuance of the senior subordinated notes due 2009 (the "Notes") (see Notes 2 and 12), certain of the Company's U.S. subsidiaries became guarantors of the Notes. The following tables present condensed consolidating financial information for the MCII Guarantors (U.S. entities), and Non-Guarantors (Non-U.S. entities including Autobuses and MCI, Ltd.). Each of the Guarantors is a direct or indirect wholly owned subsidiary of MCII. The Guarantors will jointly and severally and fully and unconditionally guarantee the Notes of the Company. The following condensed consolidating financial information presents the results of operations, financial position and cash flows of MCII, Guarantors, and Non-Guarantors, and the eliminations necessary to arrive at the information for the Company on a condensed consolidated basis. 47 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 28 - GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED) Condensed Consolidated Income Statement (Unaudited) -- 2000
Year Ended December 31, 2000 ---------------------------------------------------------------- Non- MCII Guarantors Guarantors Eliminations Consolidated --------- ---------- ---------- ---------- ----------- (dollars in thousands) Revenues $ -- $ 574,962 $ 269,730 $(152,255) $ 692,437 Cost of sales (exclusive of items shown separately below) -- 451,516 248,922 (152,676) 547,762 Cost of sales inventory valuation charge -- 15,700 -- -- 15,700 Depreciation & amortization expense 487 16,958 13,008 -- 30,453 Research and development expenses -- 6,781 3,691 -- 10,472 Tax profit allocation - MCI/MCI Ltd. -- 66,067 (66,067) -- -- Selling, general and marketing expenses 17,697 55,999 24,018 -- 97,714 --------- --------- --------- --------- --------- Operating income (loss) (18,184) (38,059) 46,158 421 (9,664) --------- --------- --------- --------- --------- Interest expense (38,939) (20,934) (282) -- (60,155) Loss on sale of notes receivable through securitizaton -- (4,549) -- -- (4,549) Foreign currency translation gain (loss) (61) (1,023) 1,818 -- 734 Other expense -- (545) (1,207) -- (1,752) --------- --------- --------- --------- --------- (39,000) (27,051) 329 -- (65,722) --------- --------- --------- --------- --------- Income (loss) before income taxes (57,184) (65,110) 46,487 421 (75,386) Income tax provision (benefit) (23,827) (22,748) 24,548 -- (22,027) --------- --------- --------- --------- --------- Net income (loss) $ (33,357) $ (42,362) $ 21,939 $ 421 $ (53,359) ========= ========= ========= ========= =========
48 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 28 - GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED) Condensed Consolidated Income Statement (Unaudited) -- 1999
Year Ended December 31, 1999 ---------------------------------------------------------------- Non- MCII Guarantors Guarantors Eliminations Consolidated --------- -------- -------- --------- --------- (dollars in thousands) Revenues $ -- $ 755,297 $ 350,240 $(194,424) $ 911,113 Cost of sales (exclusive of items shown separately below) -- 565,941 307,006 (194,532) 678,415 Cost of sales inventory valuation charge -- 21,000 -- -- 21,000 Depreciation & amorization expense 270 11,106 13,716 -- 25,092 Research and development expenses -- 6,753 3,895 -- 10,648 Tax profit allocation- MCI/MCI Ltd. -- 52,699 (52,699) -- -- Selling, general and marketing expenses (8,636) 71,294 39,147 -- 101,805 Curtailment gain, net (3,168) -- -- -- (3,168) --------- -------- -------- --------- --------- Operating income 11,534 26,504 39,175 108 77,321 --------- -------- -------- --------- --------- Interest (expense) income (25,837) (18,552) (2,861) -- (47,250) Interest expense pushed down from related party (11,601) -- -- -- (11,601) Foreign currency translation gain (loss) 125 (2,840) (1,043) -- (3,758) Other income (expense) -- (3,429) 2,990 -- (439) --------- -------- -------- --------- --------- (37,313) (24,821) (914) -- (63,048) --------- -------- -------- --------- --------- Income (loss) before income taxes (25,779) 1,683 38,261 108 14,273 Income tax provision (benefit) (4,946) 4,039 (1,029) -- (1,936) --------- -------- -------- --------- --------- (20,833) (2,356) 39,290 108 16,209 Extraordinary loss (2,614) -- -- -- (2,614) --------- -------- -------- --------- --------- Net income (loss) $ (23,447) $ (2,356) $ 39,290 $ 108 $ 13,595 ========= ========= ========= ========= =========
49 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 28- GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED) Condensed Consolidated Income Statement (Unaudited) -- 1998
Year Ended December 31, 1998 -------------------------------------------------------------- Non- MCII Guarantors Guarantors Eliminations Consolidated --------- --------- --------- --------- --------- (dollars in thousands) Revenues $ -- $ 772,022 $ 347,742 $(188,037) $ 931,727 Cost of sales (exclusive of items shown separately below) -- 613,774 303,179 (190,033) 726,920 Depreciation & amorization expense 339 12,074 13,671 -- 26,084 Research and development expenses -- 5,234 4,488 -- 9,722 Business insurance recoveries -- (7,366) (1,096) -- (8,462) Tax profit allocation- MCI/MCI Ltd. -- 44,704 (44,704) -- -- Selling, general and marketing expenses 8,540 42,054 40,030 270 90,894 --------- -------- -------- --------- --------- Operating income (loss) (8,879) 61,548 32,174 1,726 86,569 --------- -------- -------- --------- --------- Interest (expense) income (2,498) (21,464) 1,212 -- (22,750) Interest expense pushed down from related party (25,194) -- -- -- (25,194) Gain on equity investment 5,000 -- -- -- 5,000 Foreign currency translation gain (loss) -- -- 3,325 -- 3,325 Other income (expense) (340) (204) 33 -- (511) --------- -------- -------- --------- --------- (23,032) (21,668) 4,570 -- (40,130) --------- -------- -------- --------- --------- Income (loss) before income taxes (31,911) 39,880 36,744 1,726 46,439 Income tax provision (benefit) (3,264) 17,072 17,982 -- 31,790 --------- -------- -------- --------- --------- Net income (loss) $ (28,647) $ 22,808 $ 18,762 $ 1,726 $ 14,649 ========= ======== ======== ========= =========
50 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 28- GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED) Condensed Consolidated Balance Sheet (Unaudited) -- 2000
December 31, 2000 -------------------------------------------------------------- Non- MCII Guarantors Guarantors Eliminations Consolidated --------- --------- --------- --------- --------- (dollars in thousands) ASSETS Current assets: Cash and cash equivalents $ 34,924 $ 2,120 $ 4,728 $ -- $ 41,772 Trade and other accounts receivable 11,029 43,405 16,241 -- 70,675 Intercompany receivables (payables) 656,854 (478,855) 31,457 (209,456) -- Current portion of notes receivable -- 4,073 13,620 -- 17,693 Inventories -- 168,467 59,226 (1,078) 226,615 Deferred income taxes 2,301 12,943 710 -- 15,954 Other current assets 571 4,989 1,240 -- 6,800 --------- --------- --------- --------- --------- Total current assets 705,679 (242,858) 127,222 (210,534) 379,509 Property plant & equipment 2,267 64,903 45,780 (31) 112,919 Notes receivable -- 26,468 13,470 -- 39,938 Investments in affiliates 160,386 -- -- (160,386) -- Intangibles assets 1,679 139,862 65,142 -- 206,683 Deferred income taxes- non current 10,225 22,451 15,982 -- 48,658 Other assets 18,794 6,913 2,326 -- 28,033 --------- --------- --------- --------- --------- Total Assets $ 899,030 $ 17,739 $ 269,922 $(370,951) $ 815,740 ========= ========= ========= ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilites: Accounts payable $ 8,368 $ 31,994 $ 29,507 $ -- $ 69,869 Accrued compensation and other benefits 323 3,926 3,850 -- 8,099 Accrued warranties -- 12,708 2,404 -- 15,112 Accrued income taxes -- -- 18,490 169 18,659 Self insurance reserves 3,021 -- -- -- 3,021 Customer deposits -- 45,549 1,778 -- 47,327 Other current liabilities 9,165 4,989 4,542 -- 18,696 --------- --------- --------- --------- --------- Total current liabilities 20,877 99,166 60,571 169 180,783 Long-term debt 453,475 -- -- -- 453,475 Pensions and other benefits 13,947 -- 4,507 -- 18,454 Deferred income taxes 2,541 -- 4,248 -- 6,789 Other deferred items & self insurance reserves 5,408 10,729 -- -- 16,137 --------- --------- --------- --------- --------- Total liabilites 496,248 109,895 69,326 169 675,638 --------- --------- --------- --------- --------- Common stock and additional capital 623,245 124,612 120,623 (481,884) 386,596 Accumulated earnings (deficit) (220,427) (216,768) 105,553 111,033 (220,609) Accumulated other comprehensive loss (36) -- (25,580) (269) (25,885) --------- --------- --------- --------- --------- Total stockholder's equity 402,782 (92,156) 200,596 (371,120) 140,102 --------- --------- --------- --------- --------- Total liabilities and stockholder's equity $ 899,030 $ 17,739 $ 269,922 $(370,951) $ 815,740 ========= ========= ========= ========= =========
51 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 28- GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED) Condensed Consolidated Balance Sheet (Unaudited) -- 1999
December 31, 1999 -------------------------------------------------------------- Non- MCII Guarantors Guarantors Eliminations Consolidated --------- --------- --------- --------- --------- (dollars in thousands) ASSETS Current assets: Cash and cash equivalents $ 4,163 $ 2,204 $ 9,263 $ -- $ 15,630 Trade and other accounts receivable 6,782 91,407 32,064 -- 130,253 Intercompany receivables (payables) 758,889 (543,678) (5,755) (209,456) -- Current portion of notes receivable -- 16,924 7,175 -- 24,099 Inventories -- 163,478 55,105 (1,500) 217,083 Deferred income taxes 7,146 16,546 1,797 -- 25,489 Other current assets 653 2,920 1,178 -- 4,751 --------- --------- --------- --------- --------- Total current assets 777,633 (250,199) 100,827 (210,956) 417,305 Property plant & equipment 1,161 52,681 56,659 (31) 110,470 Notes receivable -- 54,833 11,760 -- 66,593 Investments in affiliates 160,388 -- -- (136,568) 23,820 Intangibles assets 1,729 141,374 69,620 -- 212,723 Deferred income taxes- non current 1,483 2,694 15,798 -- 19,975 Other assets 20,811 11,844 7,733 -- 40,388 --------- --------- --------- --------- --------- Total Assets $ 963,205 $ 13,227 $ 262,397 $(347,555) $ 891,274 ========= ========= ========= ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilites: Accounts payable $ 2,541 $ 48,034 $ 39,608 $ -- $ 90,183 Accrued compensation and other benefits 1,195 3,861 4,093 -- 9,149 Accrued warranties -- 10,115 3,250 -- 13,365 Accrued income taxes 1,084 (183) 3,794 -- 4,695 Self insurance reserves 3,101 -- -- -- 3,101 Customer deposits -- 768 184 -- 952 Other current liabilities 7,017 11,992 15,820 -- 34,829 --------- --------- --------- --------- --------- Total current liabilities 14,938 74,587 66,749 -- 156,274 Long-term debt 536,534 -- -- -- 536,534 Pensions and other benefits 12,393 -- 4,296 -- 16,689 Deferred income taxes 853 4,786 6,254 -- 11,893 Other deferred items & self insurance reserves 6,169 8,598 -- -- 14,767 --------- --------- --------- --------- --------- Total liabilites 570,887 87,971 77,299 -- 736,157 --------- --------- --------- --------- --------- Common stock and additional capital 578,463 98,456 120,623 (455,729) 341,813 Accumulated earnings (deficit) (186,109) (173,200) 83,616 108,443 (167,250) Accumulated other comprehensive loss (36) -- (19,141) (269) (19,446) Total stockholder's equity 392,318 (74,744) 185,098 (347,555) 155,117 --------- --------- --------- --------- --------- Total liabilities and stockholder's equity $ 963,205 $ 13,227 $ 262,397 $(347,555) $ 891,274 ========= ========= ========= ========= =========
52 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 28- GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED) Condensed Consolidated Statement of Cash Flows (Unaudited) -- 2000
Year Ended December 31, 2000 --------------------------------------------------------------- Non- MCII Guarantors Guarantors Eliminations Consolidated --------- -------- -------- --------- --------- (dollars in thousands) Cash flows provided by (used in) operating activities: Net income (loss) $ (33,357) $ (42,362) $ 21,939 $ 421 $ (53,359) Adjustments to reconcile net income (loss) to net cash provided by (used in) operations: Depreciation and amortization 487 16,958 13,008 -- 30,453 Deferred income taxes (2,209) (21,015) (1,103) -- (24,327) Loss on sale of notes receivable through securitization -- 4,549 -- -- 4,549 Other non-cash interest expense 3,235 -- -- -- 3,235 Other non-cash items (210) (1,300) (1,519) -- (3,029) Non-cash inventory valuation charge -- 15,700 -- -- 15,700 All other operating activities 98,666 2,168 (19,028) (421) 81,385 --------- -------- -------- --------- --------- Net cash provided by (used in) operating activities 66,612 (25,302) 13,297 -- 54,607 --------- -------- -------- --------- --------- Cash flows provided by (used in) investing activities: Capital expenditures (1,671) (8,674) (7,850) -- (18,195) Proceeds from sale of property and investments 153 126 91 -- 370 Net proceeds from sales notes receivable through securitization -- 115,998 -- -- 115,998 Other changes in notes receivable -- (71,489) (8,155) -- (79,644) net of cash received -- 338 (1,918) -- (1,580) Investments in assets held for lease -- (11,081) -- -- (11,081) --------- -------- -------- --------- --------- Net cash provided by (used in) investing activities (1,518) 25,218 (17,832) -- 5,868 Cash flows provided by (used in) financing activities --------- -------- -------- --------- --------- Payment of term B loan principal (83,279) -- -- -- (83,279) Debt issuance costs (1,050) -- -- -- (1,050) Capital investment, net of transaction costs 49,996 -- -- -- 49,996 --------- -------- -------- --------- --------- Net cash provided by (used in) financing activities (34,333) -- -- -- (34,333) --------- -------- -------- --------- --------- Net increase (decrease) in cash 30,761 (84) (4,535) -- 26,142 Cash and cash equivalents at beginning of period 4,163 2,204 9,263 -- 15,630 --------- -------- -------- --------- --------- Cash and cash equivalents at end of period $ 34,924 $ 2,120 $ 4,728 $ -- $ 41,772 ========= ======== ======== ========= =========
53 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 28- GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED) Condensed Consolidated Statement of Cash Flows (Unaudited) -- 1999
Year Ended December 31, 1999 --------------------------------------------------------------- Non- MCII Guarantors Guarantors Eliminations Consolidated --------- --------- --------- --------- ---------- (dollars in thousands) Cash flows provided by (used in) operating activities: Net income (loss) $ (23,447) $ (2,356) $ 39,290 $ 108 $ 13,595 Adjustments to reconcile net income to net cash provided by (used in) operations: Depreciation and amortization 270 11,106 13,716 -- 25,092 Deferred income taxes (1,678) 400 (17,795) -- (19,073) Extraordinary loss on early retirement of debt 4,182 -- -- -- 4,182 Other non-cash interest expense 6,543 -- -- -- 6,543 Other non-cash items 2,278 (1,693) (2,946) -- (2,361) Non-cash inventory valuation charge -- 21,000 -- -- 21,000 Net curtailment gain (3,168) -- -- -- (3,168) All other operating activities (34,086) (7,972) (26,848) (108) (69,014) --------- --------- --------- --------- --------- Net cash provided by (used in) operating activities (49,106) 20,485 5,417 -- (23,204) --------- --------- --------- --------- --------- Cash flows provided by (used in) investing activities Capital expenditures (848) (23,221) (4,135) -- (28,204) Proceeds from sale of property and investments -- 18,570 59 -- 18,629 Change in notes receivable -- (29,306) -- -- (29,306) Investments in assets held for lease -- (9,543) -- -- (9,543) Other -- (467) 774 -- 307 --------- --------- --------- --------- --------- Net cash provided by (used in) investing activities (848) (43,967) (3,302) -- (48,117) --------- --------- --------- --------- --------- Cash flows provided by (used in) financing activites Proceeds from issuance of term B loans 333,000 -- -- -- 333,000 Proceeds from issuance of 11- 1/4% senior sub notes 150,080 -- -- -- 150,080 Payment of term B loan principal (1,665) -- -- -- (1,665) Payment of 9.02% senior notes (105,321) -- -- -- (105,321) Payment of senior secured discount notes (206,500) -- -- -- (206,500) Payment of debt issuance costs (22,503) -- -- -- (22,503) Payment of parent company senior notes (35,574) -- -- -- (35,574) Net change in other long-term borrowings (22,371) -- -- -- (22,371 Net change in related party receivables, payables (45,597) 13,318 9,487 -- (22,792) Dividends paid to parent company (71,751) -- -- -- (71,751) Net change in bank credit facilities (82,000) -- (8,594) -- (90,594) Capital investment, net of transaction costs 158,904 -- -- -- 158,904 --------- --------- --------- --------- --------- Net cash provided by (used in) financing activities 48,702 13,318 893 -- 62,913 --------- --------- --------- --------- --------- Net increase (decrease) in cash (1,252) (10,164) 3,008 -- (8,408) Cash and cash equivalents at beginning of period 5,415 12,368 6,255 -- 24,038 --------- --------- --------- --------- --------- Cash and cash equivalents at end of period $ 4,163 $ 2,204 $ 9,263 $ -- $ 15,630 ========= ========= ========= ========= =========
54 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 28- GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED) Condensed Consolidated Statement of Cash Flows (Unaudited) -- 1998
Year Ended December 31, 1998 ------------------------------------------------------------ Non- MCII Guarantors Guarantors Eliminations Consolidated -------- -------- -------- ---------- ---------- (dollars in thousands) Cash flows provided by (used in) operating activities: Net income (loss) $(28,647) $ 22,808 $ 18,762 $ 1,726 $ 14,649 Adjustments to reconcile net income to net cash provided by (used in) operations: Depreciation and amortization 339 12,074 13,671 -- 26,084 Deferred income taxes (85) (6,288) 1,619 -- (4,754) down from related party 25,194 -- -- -- 25,194 Other non-cash interest expense 1,689 -- -- -- 1,689 Gain on sale of property and notes receivable -- (1,188) -- -- (1,188) Gain on sale of equity investment (5,000) -- -- -- (5,000) Other non-cash items 137 5,272 241 -- 5,650 All other operating activities 3,152 (43,048) 53,030 (1,726) 11,408 -------- -------- -------- -------- -------- Net cash provided by (used in) operating activities (3,221) (10,370) 87,323 -- 73,732 -------- -------- -------- -------- -------- Cash flows provided by (used in) investing activities Capital expenditures (75) (7,270) (4,395) -- (11,740) Proceeds from sale of property and investments -- 906 341 -- 1,247 Change in notes receivable -- (195) 957 -- 762 Investment in business (7,860) -- -- -- (7,860) Investments in assets held for lease -- (4,279) -- -- (4,279) Investment in affiliate 5,000 -- -- -- 5,000 Other -- 2,187 -- -- 2,187 -------- -------- -------- -------- -------- Net cash provided by (used in) investing activities (2,935) (8,651) (3,097) -- (14,683) -------- -------- -------- -------- -------- Cash flows provided by (used in) financing activities Net change in long-term borrowings (25,000) (148) (12,425) -- (37,573) Net change in credit facility 2,000 -- (9,935) -- (7,935) Net change in related party receivables/payables 29,053 29,705 (58,758) -- -- Dividends paid to parent company (3,500) -- -- -- (3,500) Net cash provided by (used in) financing activities 2,553 29,557 (81,118) -- (49,008) -------- -------- -------- -------- -------- Net increase (decrease) in cash (3,603) 10,536 3,108 -- 10,041 Cash and cash equivalents at beginning of period 9,018 1,832 3,147 -- 13,997 -------- -------- -------- -------- -------- Cash and cash equivalents at end of period $ 5,415 $ 12,368 $ 6,255 $ -- $ 24,038 ======== ======== ======== ======== ========
55 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 29. Subsequent Event Subsequent to December 31, 2000, the Company, Parent Company, Grupo Dina, JLL Fund III and others entered into a Settlement Agreement and Release, dated April 24, 2001 (the "Settlement Agreement"), pursuant to which, among other things, the parties settled certain disputes between them. Pursuant to the Settlement Agreement the parties terminated the Master Purchase and Supply Agreement, dated as of June 16, 1999, pursuant to which affiliates of Dina were providing parts and other supplies to the Company. In addition, the Company paid to Grupo Dina $1.6 million, primarily for assets and services provided by Grupo Dina, which funds, along with approximately $250,000 due to the Company's former Chairman, Rafael Gomez Flores, were placed in escrow as security for Grupo Dina's obligation to transfer certain parcels of land to the Company or one of its affiliates. In connection with such Settlement, Parent Company issued additional shares to JLL Fund III and cancelled a like number of shares held by Grupo Dina. The Settlement Agreement further provided for a mutual release of all claims arising out of the operation and ownership of the Parent Company and the Company, subject to certain specified exceptions. 56 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS The information required herein is incorporated by reference to the Company's Form 8-K reports dated October 8, 1999, November 8, 1999 and March 1, 2000. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Executive Officers and Directors The following table sets forth certain information about our directors and executive officers and their ages as of April 15, 2001. Pursuant to the terms of a stockholders agreement, the board is to be comprised of one representatives from Grupo Dina, the Chief Executive Officer of the Company, and five representatives from JLL Fund III. Currently, there are five directors serving on the board.
Name Age Position ------------------------ ---- --------------------------------------------------------------- Stephen K. Clough 48 Chief Executive Officer Thomas Sorrells III 36 Chief Operating Officer Horst O. Sieben 63 Chief Financial Officer Pedro Ferro 42 Executive Vice President - Sales, Marketing and Distribution Mario Gonzalez 48 Executive Vice President - Operations Allan D. Swanson 41 Vice President and Corporate Controller William M. Murray 50 Vice President, Finance, and Treasurer Gregory Berg 37 Vice President - Sales Timothy J. Nalepka 45 Vice President, General Counsel, and Secretary Peter Palladino 51 Vice President -Major Accounts/Private Sector Gamaliel Garcia Cortes 47 Director Paul S. Levy 53 Director Jeffrey C. Lightcap 42 Director Ramsey Frank 40 Director Dean C. Kehler 44 Director Francisco J. Rodriguez 29 Director
Stephen K. Clough. Mr. Clough was named Chief Executive Officer of the Company on February 15, 2001, upon the resignation of Roberto Cordaro. Mr. Clough was appointed President and Chief Executive Officer and was elected to the Board of Directors of Fairfield Manufacturing Company, Inc. in August of 1998. Prior to his appointment, Mr. Clough was employed by Kaydon Corporation, where he served at the President and Chief Executive Officer from June 1996 to June 1998 and the President and Chief Operating Officer from September 1989 to June 1996. Thomas Sorrells III. Mr. Sorrells was named Chief Operating Officer of the Company on February 15, 2001. He has been Vice President of Business Development of Fairfield Manufacturing Company, Inc. since March 2000. Prior to his present position, Mr. Sorrells was Vice President of Business Development of Lancer Industries from November 1999 to February 2000. Prior to that, he was President of Kaydon Fluid Power, a division of Kaydon Corporation, from September 1995 to November 1999. Horst O. Sieben. Mr. Sieben became Chief Financial Officer on June 16, 1999. During the preceding twelve years, he served as Chief Financial Officer of a number of portfolio companies controlled by Joseph, Littlejohn & Levy, Inc.(" JLL"). From 1994 through May 1997, Mr. Sieben was Senior Vice President and Chief Financial Officer of Foodbrands America Inc. (formerly Doskocil Inc.), and after the sale of Foodbrands he assumed the same position at Freedom Chemical Company, where he served until it was sold in March 1998. From April 1998 through June 1999 he served as financial consultant to JLL and others. 57 Pedro Ferro. Mr. Ferro was appointed Executive Vice President - Sales, Marketing, and Distribution in November 2000. From February 2000 to November 2000, he was Vice President and General Manager, Customer Support Business. Prior to joining the Company, Mr. Ferro held the position of Director of Marketing, Federal with Dell Computer Corporation from June 1999 to February 2000. From 1985 through June of 1999, Mr. Ferro held several management positions with Cummins Engine Co., most recently serving as Vice President, Automotive Information Business from 1995 through June 1999. Mario Gonzalez. Mr. Gonzalez was appointed Executive Vice President - Operations in November 2000. He previously served as Chief Operating Officer, and prior to that was Vice President of Plant Operations since September of 1996. From April 1995 to September 1996, Mr. Gonzalez was appointed Vice President of Plant Operations for Grupo Dina. From October 1994 to April 1995, Mr. Gonzalez was employed as a consultant for Grupo Dina. Prior to October 1994, Mr. Gonzalez was a consultant to a company in the manufacturing industry. Allan D. Swanson. Mr. Swanson was appointed Vice President and Corporate Controller in September 2000. Prior to joining the Company, he was with Specialty Foods Corporation for 6 years, serving as Vice President, Corporate Controller, then Executive Vice President and CFO of Specialty Foods' largest operating subsidiary, Metz Baking Company. From 1981 to 1994 he was with PriceWaterhouseCoopers LLP. William M. Murray. Mr. Murray was appointed Vice President, Finance and Treasurer in February 2000. Prior to joining the Company, Mr. Murray was Vice President and Treasurer of the Beloit Corporation from 1998 through February 2000, and was Treasurer of the Fuller Company from 1985 through 1997. Gregory Berg. Mr. Berg was appointed Vice President - Sales and General Manager - MCI Financial Services in November of 2000. He previously was Vice President & General Manager of MCI Financial Services since January of 2000. Prior to joining MCII, Mr. Berg served as a Division Vice President for Conseco Inc. He started his finance career with GE Capital. He held various finance, credit and marketing positions with GE Capital over a span of eight years. Timothy J. Nalepka. Mr. Nalepka has been the Vice President, Secretary and General Counsel since November 1998. Previously, Mr. Nalepka, who joined MCII in January 1997, served as senior counsel. Prior to joining MCII, Mr. Nalepka was employed from 1989 to 1996 as senior counsel for Sears, Roebuck and Co. Peter Palladino. Mr. Palladino was named Vice President, Major Accounts, Private Sector in November 2000. Previously, he was the Vice President of Marketing since February 2000. Before joining the Company, Mr. Palladino held several positions of increasing responsibility with Cummins Engine Co. since 1969. Most recently, Mr. Palladino held the positions of Executive Director of the Truck OEM Business since 1997 and General Manager of the OEM Business from 1994 through 1997. Gamaliel Garcia Cortes. Mr. Garcia Cortes has been Chief Executive Officer of Grupo Dina for Mexico and Latin America since December 1996. From August 1996 until December 1996, he was the Chief Operating Officer of Grupo Dina for Mexico and Latin America. From July 1996 until August 1996, he was the Sales, Marketing and Operations Vice President of Grupo Dina for Mexico and Latin America. From July 1995 until July 1996, Mr. Garcia Cortes was a Commercial Director for Grupo Dina. From April 1995 until July 1995, he was a transportation sub-director for Grupo Dina. Prior to joining Grupo Dina, Mr. Garcia Cortes was Chief Executive Officer for Premium Internacional, S.A. de C.V. since June 1994. Paul S. Levy. Mr. Levy was appointed a director on June 16, 1999. Mr. Levy has been a Senior Managing Director of JLL since its formation in May 1988. Mr. Levy serves on the boards of directors of Hayes Lemmerz International Inc., Builders FirstSource, Inc., Lancer Industries, Inc., AdvancePCS, Fairfield Manufacturing Company, Inc., IASIS Healthcare Corp. and New World Pasta Company. Jeffrey C. Lightcap. Mr. Lightcap was appointed a director on June 16, 1999. Mr. Lightcap is a Senior Managing Director of JLL, which he joined in 1997. From 1993 to 1997, he was a Managing Director and head of leveraged buyout firm coverage for the mergers and acquisitions group at Merrill Lynch & Co., Inc. Mr. Lightcap serves on the boards of directors of Hayes Lemmerz International Inc., IASIS Healthcare Corp. and New World Pasta Company. Ramsey Frank. Mr. Frank was appointed a director on April 30, 2001. Mr. Frank is a Senior Managing Director of JLL, which he joined in 1999. From 1993 to 1999, Mr. Frank was a Managing Director of Donaldson, Lufkin & Jenrette, where he headed the restructuring group and was a senior member of the leveraged finance group. Mr. Frank serves on the boards of IASIS Healthcare Corporation. and AdvancePCS. Dean C. Kehler. Mr. Kehler is a Managing Director of CIBC World Markets in New York and is a member of the Executive Board, U.S. Management Committee and the Investment Committee of CIBC World Markets. He was a founding partner and Managing Director of The Argosy Group L.P., which was acquired by CIBC in August 1995. Mr. Kehler previously worked as an investment banker at Drexel Burnham Lambert Incorporated and Lehman Brothers Kuhn Loeb Incorporated. Francisco J. Rodriguez. Mr. Rodriguez was appointed as a director on June 16, 1999. Mr. Rodriguez is a Vice President of JLL, which he joined in 1995. He was formerly a member of the Merchant Banking Group of Donaldson, Lufkin and Jenrette, which he joined in 1992. Mr. Rodriguez serves on the board of directors of IASIS Healthcare Corp. Rafael Gomez Flores. Mr. Gomez Flores died on March 4, 2001. Prior to his death, he had been Chairman of the Company, and Chairman and President of Grupo Dina and the holding company of Grupo Dina, Grupo Empresarial G, for the past ten years. Mr. Gomez Flores maintained full executive and board member responsibilities with Grupo Dina and maintained board member responsibilities with MCII. Mr. Gomez Flores was a director of Grupo Empresarial G's other companies, including Grupo MIAs, the second largest commercial flour manufacturer in Mexico, and Grupo Immobiliario G, a real estate development company engaged in the construction and sale of housing units, office buildings, commercial malls, hotels, sports clubs, and industrial complexes. Prior to his activities at the Grupo Empresarial G and its subsidiaries, Mr. Gomez Flores was Chairman and Chief Executive of Arrendadora Financiera Dina, a lease finance company. 59 ITEM 11. EXECUTIVE COMPENSATION The following table sets forth certain information regarding compensation paid or accrued by us during the fiscal years ended December 31, 2000 and 1999, to our chief executive officers and the next four most highly compensated executive officers who were serving as executive officers of the Company, or who would have been included had they been serving as an executive officer, as of the end of the respective fiscal year. Summary Compensation Table
Annual Compensation Restricted -------------------------- Stock All Other Name and Principal Position Year Salary ($) Bonus ($) Award ($) Compensation - ----------------------------------- ------ ----------- ----------- ------------ ---------------- Rafael Gomez Flores, Chairman of the Board 2000 1,523,103 (1) -- -- -- 1999 1,196,953 -- -- 4,468 C. Roberto Cordaro, Former Chief Executive Officer 2000 542,308 -- 100,000 2,487 James P. Bernacchi, Former Chief Executive Officer 2000 269,711 -- -- 569,603 (2) 1999 346,188 200,000 -- 61,929 Horst O. Sieben, Chief Financial Officer 2000 325,000 180,000 -- 4,875 Mario Gonzalez, Executive Vice President-Operations 2000 252,045 136,160 -- -- 1999 176,934 152,375 -- 55,570 Alexander C. Baker , Former Vice President, 2000 60,577 25,000 -- 232,920 (3) Sales and Marketing 1999 172,154 105,600 -- 372 Harold Zuschlag, Vice President, Customer Care 1999 174,198 130,000 -- 18,229 (1) Includes $715,411 of Mr. Gomez Flores' salary allocated to Parent Company. (2) Includes $506,250 of severance and unpaid vacation and a supplemental retirement plan distribution of $63,353. (3) Includes $200,046 of severance and unpaid vacation.
Benefit Plans We sponsor various retirement plans for most full-time employees, with benefits generally based on years of service and employees' compensation. For executive employees, we have had a supplemental employee retirement plan and executive incentive compensation plan. For detailed information regarding pension costs, benefit obligations, plan assets and other related information, please see Notes 16, 17 and 18 in the notes to our consolidated financial statements included in Form 10-K. Compensation of Directors Directors who are not our employees are not compensated for serving on the board. All directors will receive reimbursement of reasonable out-of-pocket expenses incurred in connection with meetings of the board. Employment Agreements We entered into an employment agreement effective June 16, 1999 with Mr. Gomez Flores, who was chairman of the board until his death on March 4, 2001. The agreement provided for total annual compensation of $1.5 million, which obligation terminated upon Mr. Gomez Flores' death. We entered into an employment agreement effective January 31, 2000, with C. Roberto Cordaro, who was chief executive officer until his resignation effective February 15, 2001. The Company has agreed to pay Mr. Cordaro his base salary for two years in accordance with its normal periodic pay practices. The Company also has employment agreements with certain officers. As of December 31, 2000, the aggregate commitment for future salary payments for all employment contracts is approximately $2.5 million. 60 Effective February 15, 2001, we entered into an agreement with an unaffiliated corporation to provide us the management services of Steven K. Clough and Thomas Sorrells III as Chief Executive Officer and Chief Operating Officer, respectively. The agreement has an initial term of one year and provides for a base consulting fee. An additional fee is payable if the Company attains certain performance goals during fiscal 2001. Management Options Certain key senior executives the Company, including its former chairman, Mr. Gomez Flores, either have been or will be allocated options to purchase Parent Company's common stock. The options that were granted concurrently with the consummation of the Transactions represented approximately 20% of the fully-diluted equity value of Parent Company with an exercise price equivalent to the value per share at which the equity investors invested in Parent Company. The grant was designed as an incentive to selected employees and directors to acquire a proprietary interest in Parent Company, to continue to perform services for Parent Company, to increase their efforts on behalf of Parent Company and to promote the success of the business. The stock options vest ratably, commencing on the first anniversary of grant and annually thereafter until the fifth anniversary of grant. The following options had been granted to the named executive officers as of March 15, 2001. Option Grants in Last Fiscal Year
Potential realizable value at assumed annual rates of stock price appreciation for option term -------------------------- Number of Percent of securities total Exercise underlying options/SARS Price Expiration 5% 10% Options granted to ($/Sh) Date ($) ($) Name granted (#) employees in fiscal year (a) (b) (c) (d) (e) (f) (g) - ------------------------- --------------- --------------- ------------ ------------- ------------ ------------ Rafael Gomez Flores (1) 214,285 -- $ 204.918 6/16/09 (1) 27,615,337 69,981,624 C. Roberto Cordaro (2) 31,254 2,440 $ 204.918 2/14/02 (2) 141,528 289,984 Horst O. Sieben 5,984 2,440 $ 204.918 1/31/10 1,085,618 2,751,127 Mario Gonzalez 5,984 2,440 $ 204.918 1/31/10 1,085,618 2,751,127 (1) Mr. Gomez Flores was granted an option to purchase 214,285 shares of Parent Company's common stock at a price of $204.918 per share. As a result of Mr. Gomez Flores' death, his option to purchase the 214,285 shares vested immediately and his representative has the right to exercise the option in full at any time prior to June 16, 2009. (2) As a result of his resignation, Mr. Cordaro has until February 14, 2002 in which to exercise his option to purchase 6,738.8 shares. Mr. Cordaro's option to purchase the remaining 26,955.2 shares terminated upon his resignation.
61 ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT MCII Holdings (USA), Inc., through its wholly owned subsidiary MCII Holdings, Inc., owns all of the issued and outstanding stock of MCII. The following table sets forth certain information regarding the beneficial ownership of the issued and outstanding stock of MCII Holdings (USA), Inc. as of April 30, 2001. For descriptions of certain voting and other arrangements among such holders, see "Certain Transactions; Relationship with Grupo Dina" following in this report on Form 10-K.
Number of Shares Percentage Number of Shares Total Total of of Of Number of Percentage Voting Voting Non-Voting Shares of of Beneficial Owner Common Stock Common Stock Common Stock Common Stock Common Stock - ---------------------------- ------------------ -------------- ----------------- --------------- --------------- Beneficial Ownership (a) JLL Fund III (b) 450 Lexington Avenue Suite 3350 New York, New York 10017 928,120.18 60.92 % -- 928,120.18 57.55% Consorcio G Grupo Dina, S.A. de C.V.(c) Tlacoquemecatl 41 Colonia Del Valle 03100, Mexico D.F., Mexico 516,535.00 33.90% -- 516,535.00 32.03% CIBC(d) 161 Bay Street, PP Box 500, M51258, Toronto, Canada 65,776.98 4.32% 89,204.12 154,981.10 9.61% Rafael Gomez Flores (c)(e) 516,535.00 33.90% -- 516,535.00 32.03% C. Roberto Cordaro (f) 7,226.85 0.47% -- 7,226.85 0.45% Paul S. Levy (b) 928,120.18 60.92% -- 928,120.18 57.55% Jeffrey C. Lightcap (b) 928,120.18 60.92% -- 928,120.18 57.55% Ramsey Frank (b) 928,120.18 60.92% -- 928,120.18 57.55% Frank Rodriguez (b) 928,120.18 60.92% -- 928,120.18 57.55% All directors and executive officers as a group 1,523,555.36 100% -- 1,612,759.48 100% (18 persons) (e) - -------------------- (a) "Beneficial ownership" generally means any person who, directly or indirectly, has or shares voting or investment power with respect to a security or has the right to acquire such power within 60 days. Unless otherwise indicated, we believe that each holder has sole voting and investment power with regard to the equity interests listed as beneficially owned. (b) Includes warrants to purchase 122,162.71 shares of common stock which, together with the warrants issued to the other equity investors, represent 8.84% of the fully diluted common stock of MCII Holdings (USA), Inc. Messrs. Levy, Lightcap, Frank and Rodriguez are all associated with JLL Fund III, which owns 57.55% of the total common stock, 60.92% of the voting common stock, of MCII Holdings (USA), Inc. Mr. Rodriguez disclaims any beneficial ownership of such common stock. Messrs. Levy and Lightcap are general partners of JLL Associates III, LLC, the general partner of JLL Fund III, and, as a result, each of them may be deemed to beneficially own all of the shares of common stock held directly or indirectly by JLL Fund III. Includes 11,339.50 shares of common stock and warrants to purchase 2,285.69 shares of common stock owned by Coaches, LLC, an entity controlled by JLL. Coaches' members include certain executive officers of the Company. 62 Pursuant to the Coaches operating agreement, the members have granted an irrevocable proxy to JLL and are prohibited from transferring their interests in Coaches to any entity or individual, other than Coaches, without the prior written consent of JLL. Messrs. Levy and Lightcap are Managers of Coaches and as a result of such may be deemed to beneficially own all of the securities owned by Coaches. (c) Includes Mr. Gomez Flores options to purchase 214,285 shares, which vested upon his death on March 4, 2001. Based upon information available as of December 31, 2000, Grupo Empresarial G, S.A. de C.V., a Mexican corporation, is the only person known to Grupo Dina to be the beneficial owner of more than 5% of Grupo Dina. Grupo Empresarial owns 127,912,420 shares, or 62.8%, of Grupo Dina's common stock. Grupo Empresarial is a holding company owned by Mr. Rafael Gomez Flores' representatives and the following members of his family: O. Raymundo Gomez Flores, Armando Gomez Flores, Alfonso Miguel Gomez Flores, and Guillermo Gomez Flores. Since each of the named members of the Gomez Flores family has voting power or shares voting power and/or investment power over the shares owned of record by Grupo Empresarial, each such family member may be deemed to be the beneficial owner of all 127,912,420 shares of Grupo Dina owned by Grupo Empresarial. In addition, Mr. Rafael Gomez Flores' representatives and each of the foregoing named family members each individually own approximately 1,666,300 shares, or 0.8%, of Grupo Dina's common stock. (d) Andrew R. Heyer, Jay R. Bloom and Dean C. Kehler, who are employees of an affiliate of CIBC, have shared power to vote and dispose of the shares of common stock reported in the table. The business address of Messrs. Heyer, Bloom and Kehler is 425 Lexington Avenue, 7th Floor, New York, New York 10017. Share amounts include warrants to purchase 20,408.56 shares of nonvoting common stock, which for calculation purposes are assumed to be converted to voting common stock to the maximum level currently permissible under regulatory requirements and the terms of such warrants. Together with the warrants issued to JLL, such warrants represent 8.84% of the fully diluted common stock of MCII Holdings. (e) Mr. Rafael Gomez Flores' estate may be deemed to beneficially own 32.03% of MCII Holdings (USA), Inc. total common stock, 33.90% of the voting common stock (see footnote (c) above), and each of Messrs. Levy and Lightcap may be deemed to beneficially own 57.55% of MCII Holdings (USA), Inc. total common stock, 60.92% of the voting common stock (see footnote (b) above). (f) Restricted shares subject to the Stockholders Agreement (see "Certain Transactions; Relationship with Grupo Dina") and the Employment Agreement dated January 31, 2000 between Mr. Cordaro and MCII.
MCII Holdings (USA), Inc. Equity Structure MCII is an indirect, wholly owned subsidiary of MCII Holdings (USA), Inc. MCII Holdings (USA), Inc has authorized two classes of common stock, a voting and nonvoting class. The voting common stock has one vote per share for the election of directors and all other corporate matters. Except as provided by law, the nonvoting common stock will have no vote on any matter and will not be included in determining the number of shares voting or entitled to vote. Each holder of nonvoting common stock is entitled to convert any or all of its nonvoting shares into an equal number of voting common stock, unless as a result of such conversion, such holder or its affiliates would own a greater quantity of securities than it is permitted to own under any law, regulation order, rule or other requirement of any governmental authority. The stockholders' agreement for MCII Holdings (USA), Inc. contains certain provisions relating to the governance of MCII and restrictions on, and rights in the event of, the transfer of MCII Holdings (USA), Inc. common stock. See "Certain Transactions; Relationship with Grupo Dina-Stockholders Agreement." 63 Management Options Pursuant to the investment agreement, certain key executives of MCII may be granted stock options to purchase up to 285,714 shares of MCII Holdings' common stock. See "Executive Compensation--Management Options." Warrants In connection with the equity investment, the equity investors received warrants to purchase up to 10% of the fully diluted common stock of MCII Holdings. The warrants are immediately exercisable at a price equivalent to the value per share at which the equity investors invested in MCII Holdings. 64 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS CERTAIN TRANSACTIONS; RELATIONSHIP WITH GRUPO DINA General Prior to the consummation of the Financial Restructuring and Reorganization Transactions ("Transactions"), we and Autobuses were indirect wholly owned subsidiaries of Grupo Dina. Grupo Dina is a manufacturer of trucks and is listed on the Bolsa Mexicana de Valores, Mexican Stock Exchange, and the New York Stock Exchange. In the ordinary course of business, we and Autobuses have routinely made purchases and sales of goods and services from Grupo Dina and other affiliated companies. For more information about these historical transactions, see Note 23 to our consolidated financial statements. JLL owns in excess of 50% of MCII Holdings and MCII Holdings indirectly owns all of the outstanding common stock of MCII. Consequently, and subject to the terms of the stockholders agreement described below, JLL is able to significantly influence such actions as, the election of directors of MCII Holdings, the approval of matters submitted for stockholders approval, or preventing a potential takeover. Prior to the consummation of the Transactions, our Autobuses subsidiary obtained certain services from, and provided certain services to, Grupo Dina, and was included as part of Grupo Dina's consolidated group for income tax purposes. In connection with the Transactions, MCII Holdings and we entered into agreements with Grupo Dina that cover transition services, sales, benefit administration services, data center and software administration services, procurement services, purchasing services, transfer of employees and general management services. These agreements resulted from an "arm's-length" negotiation and are on terms that we believe are at least as favorable as the terms that could be obtained by us in comparable transactions made on an arm's-length basis between unaffiliated parties. Grupo Dina and its subsidiaries also have a first right and obligation to supply substantially all non-major component parts to MCII Holdings and its subsidiaries until June, 2014, so long as (1) they are sold at a discount below any U.S. or Canadian supplier, and (2) they meet quality and delivery standards. Grupo Dina has agreed not to sell products to MCII Holdings' competitors. Additionally, in connection with the Transactions, Autobuses entered into an agreement with Grupo Dina or with one or more of its subsidiaries regarding the exchange of certain of Autobuses' unimproved real property at the Sahagun facility for certain of Grupo Dina's property, general maintenance and security services at the Sahagun facility, and certain administrative and employee services. These agreements resulted from an "arm's-length" negotiation and are on terms that we believe are at least as favorable as the terms that could be obtained by us in comparable transactions made on an arm's-length basis between unaffiliated parties. In connection with the Transactions, in 1999 we made a final distribution to Grupo Dina of approximately $71.4 million. Asset Transfers Concurrent with the consummation of the Transactions, Grupo Dina made certain transfers of its assets and subsidiaries in order to concentrate its core coach business assets at or under us. Specifically: o MCII Holdings transferred its Dina Autobuses, S.A. de C.V. subsidiary to us and Autobuses then became our subsidiary. The financial position and results of Autobuses and us are set forth in the consolidated financial statements included elsewhere in this Form 10-K. o MCII Holdings transferred its Mexicana de Manufacturas Especiales, S.A. de C.V., subsidiary to Grupo Dina. 65 o Autobuses transferred the following immaterial subsidiaries to Grupo Dina, Autopartes Hidalguenses, S.A. de C.V. and Carroceria Sahagun, S.A. de C.V. Carroceria Sahagun was a dormant company with virtually no operations or assets. As at and during the year ended December 31, 1998, Autopartes had revenues, excluding intercompany, operating loss and total assets of approximately $3.7 million, ($0.5 million) and $3.6 million, respectively. o Autobuses exchanged certain of its unimproved property in Mexico for unimproved property and two facilities of a Grupo Dina subsidiary. o Autobuses transferred to Grupo Dina a group of 240 transit buses that are leased to a company affiliated with Grupo Dina, together with the related lease rights. As at and during the year ended December 31, 1998, Autobuses' financial statements reflected revenues, operating income and net book value of approximately $1.5 million, $0.3 million and $3.0 million, respectively, relating to these leased transit buses. o We transferred our Universal Coach Parts Mexico, S.A. de C.V. subsidiary to Grupo Dina and canceled a $7.3 million receivable. As at and during the year ended December 31, 1998, UCP Mexico had revenues, excluding intercompany, operating income and total assets of $17.4 million, $0.6 million and $9.9 million, respectively. In addition, Autobuses canceled certain intercompany advances due from Grupo Dina of approximately $115.0 million which had been previously charged against equity on Autobuses' financial statements. License Agreements In connection with the Transactions, MCII Holdings licensed from Grupo Dina certain trademarks, trade names and service marks with respect to the name "Dina" and certain patents used by Grupo Dina for a perpetual term which is exclusive and royalty-free in the United States, Mexico, Canada, Argentina and Brazil. The license was amended to expire on the earlier of (i) the failure of the Company to manufacture at least 25 coaches using the Dina name, (ii) failure by the Company to use the name in any six month period and (iii) April 24, 2011 Omnibus Agreement St. Matthews Facility In connection with the Transactions, one of our Canadian subsidiaries entered into a sale-leaseback transaction with Grupo Dina for certain tooling and equipment located at the manufacturing facility of Motor Coach Industries Limited, a wholly owned subsidiary of ours, at St. Matthews Avenue, Winnipeg, Manitoba. The purchase price and lease payment were for nominal amounts and the estimated market value of the tooling and equipment is between $2 million and $4 million. We will lease the tooling and equipment for a period of up to three years and prior to the expiration of such lease, we will transfer the manufacturing operations at this facility to a wholly-owned subsidiary of Grupo Dina, who will then manufacture parts for us at this facility. Pursuant to the Settlement Grupo Dina acknowledged that it had not yet acquired such equipment and waived its rights to do so. Latin American Rights In the event MCII Holdings determines (i) not to manufacture, distribute or sell its products in any country in Latin America and (ii) that the business should be conducted by a third party, it will offer to Grupo Dina the right to manufacture, distribute, and sell MCII Holdings' products in such country to the extent permitted by law. Dina Distribution Rights In addition, MCII Holdings has a right of first refusal to distribute any of Grupo Dina's body-on-chassis bus products in the United States and Canada that are not distributed by Grupo Dina itself. The rights are on terms and 66 conditions no less favorable to MCII Holdings and MCII than any other distribution rights granted by Grupo Dina with respect to its products. In connection with the Settlement, these rights were terminated. MME Investment The equity investors have the right to purchase 20%, and under certain conditions up to 50%, of Mexicana de Manufacturas Especiales, S.A. de C.V., for a price and other terms that are mutually agreeable to the parties. MCII Financial Services Inc. In 1997, MCII and Mr. Gomez Flores and members of his family formed MCII Financial Services Inc., a coach finance company. MCII acquired 25% of the voting common stock and 15,000,000 shares of non-voting preferred stock for $250,000 and $15,000,000 respectively. The remaining 75% of the voting common stock were acquired by the Gomez Flores family members. In 1998, MCII increased its investment by $7,650,000. Financial Services operated independently from MCII and provides conditional sales contracts and operating leases to MCII's customers. Financial Services was created to provide attractive financing alternatives to our coach customers. As an independent company, Financial Services was expected to have better access to funding on competitive terms. In July 2000, we acquired the remaining 75% interest in Financial Services Inc. for $750,000 and Financial Services has been included as a consolidated subsidiary of the Company since the date of acquisition. Stockholders Agreement In connection with the Transactions, Grupo Dina and the equity investors entered into a stockholders agreement governing their ownership of MCII Holdings. The following is a summary of the material terms included in the stockholders agreement, as amended. Such agreement was amended and restated in connection with the Settlement. The parties have agreed to modify certain provisions of the stockholders agreement in the event of an initial public offering. o The stockholders agreement provides that the board of directors will have seven members, composed of three representatives of Grupo Dina, the CEO of MCII Holdings, and four representatives of JLL Fund III. o Subject to certain exceptions, no stockholder other than JLL Fund III may transfer any of its shares prior to June 16, 2006. o Certain extraordinary transactions must be approved by the representatives of Grupo Dina. o Following an initial public offering, the stockholders are entitled to an unlimited number of "piggyback registrations," which allow them to include shares of common stock held by them in certain registrations of common shares by MCII Holdings. o All parties to the stockholders agreement have a right to participate proportionately in any sale by JLL Fund III or CIBC of MCII Holdings' common stock. o Grupo Dina entered into certain non-competition agreements with MCII Holdings and its subsidiaries, including MCII, upon any sale of MCII Holdings. o Prior to an initial public offering, the stockholders have the right to participate on a pro rata basis in any future private offerings of common stock. o Grupo Dina has a right of first offer to purchase the shares held by the equity investors in any permitted sale by JLL Fund III of all of its shares. 67 PART IV Item 14. Exhibits and Financial Statement Schedules (a) Exhibits Exhibit Number Description - ----------- ----------------------------------------------------------------- 1.1* Purchase Agreement dated June 14, 1999 among Transportation Manufacturing Operations, Inc., the subsidiary guarantors, CIBC World Market Corp. and Merrill Lynch, Pierce, Fenner, & Smith Incorporated. (1.) 2.1* Investment Agreement dated June 11, 1999 among Joseph Littlejohn & Levy Fund III L.P., CIBC WG Argosy Merchant Fund 2, L.L.C., Co-Investment Merchant Fund 3, L.L.C., Grupo Dina and MCII Holdings. (1.) 2.2* First Amendment to Investment Agreement dated June 16, 1999 among JLL Fund III, CIBC Argosy, Co-Investment Fund 3, Grupo Dina and MCI Holdings. (1.) 3.1* Certificate of Incorporation of Transportation Manufacturing Operations, Inc. (1.) 3.2* Bylaws of Transportation Manufacturing Operations, Inc. (1.) 3.3* Certificate of Incorporation of TMO Acquisition Corporation. (1.) 3.4* Bylaws of BusLease, Inc. (1.) 3.5* Certification of Incorporation of Transit Bus International, Inc. (1.) 3.6* Bylaws of Transit Bus International, Inc. (1.) 3.7* Certificate of Incorporation of New Hausman Bus Sales, Inc. (1.) 3.8* Bylaws of Hausman Bus Sales, Inc. (1.) 3.9* Certificate of Incorporate of Motor Coach Industries, Inc. (1.) 3.10* Bylaws of Motor Coach Industries, Inc. (1.) 3.11* Certificate of Incorporation of Universal Coach Parts, Inc. (1.) 3.12* Bylaws of Universal Coach Parts, Inc. (1.) 4.1* Indenture dated June 16, 1999 among TMO, the subsidiary guarantors and IBJ Whitehall Bank & trust Company. (1.) 4.2* Registration Rights Agreement dated June 16, 1999 among TMO, the subsidiary guarantors, of CIBC and Merrill Lynch. (1.) 5.1* Opinion of Skadden Arps. (1.) 10.1* Credit Agreement dated June 16, 1999 among MCII, TMO, The Bank of Nova Scotia, as syndication agent, General Electric Capital Corporation, as documentation agent, and CIBC, as administrative agent, and the lenders party thereto. (1.) 10.2 Amended and Restated Stockholders Agreement dated as of April 24, 2001 among MCII Holdings, JLL Fund III, CIBC Argosy Merchant Fund 2, CIBC Argosy, Co-Investment Fund 3, Grupo Dina. 68 10.3* License Agreement dated June 16, 1999 between Grupo Dina and MCII Holdings. (1.) 10.4* MCII Holdings (USA), Inc. Management Stock Option Plan. (1.) 10.5* Non-qualified Stock Option Agreement dated June 16, 1999 between MCII Holdings and Mr. Gomez Flores. (1.) 10.6* Omnibus Agreement dated June 16, 1999 among MCII Holdings, Grupo Dina, JLL Fund III, CIBC Argosy and Co-Investment Fund 3. (1.) 10.7* Employment Agreement dated June 16, 1999 between MCII and Mr. Gomez Flores. (1.) 10.8* First Amendment to Credit Agreement dated June 16, 1999 among MCII, TMO, The Bank of Nova Scotia, as syndication agent, General Electric Capital Corporation, as documentation agent, and CIBC, as administrative agent, and the lenders party thereto. (6.) 10.9* Second Amendment to Credit Agreement Amendment to Credit Agreement dated June 16, 1999 among MCII, TMO, The Bank of Nova Scotia, as syndication agent, General Electric Capital Corporation, as documentation agent, and CIBC, as administrative agent, and the lenders party thereto. (6.) 10.10* Receivables Purchase Agreement with SPARC as Purchaser dated May 2, 2000. (7.) 10.11* Receivables Purchase Agreement with CIBC as Purchaser dated May 2, 2000. (7.) 10.12* Receivables Sales Agreement with BusLease as Seller dated May 2, 2000. (7.) 10.13* Receivables Sales Agreement with MCII Financial Services II as Seller dated May 2, 2000, (7.) 10.14* Receivables Sales Agreement with MCII Fundings, Inc. as Seller dated May 2, 2000. (7.) 10.15* Insurance and Indemnity Agreement dated May 2, 2000. (7.) 10.16* Employment Agreement between the Company and Roberto Cordaro. (7.) 10.17* First Amendment to Employment Agreement between the Company and Roberto Cordaro 10.18* Employment Agreement between the Company and Horst Sieben. (7.) 10.19* 2000 Management Incentive Plan. (7.) 10.20 Employment Agreement between the Company and Barry Melnkovic. 10.21 Employment Agreement between the Company and Timothy Nalepka. 10.22 Employment Agreement between the Company and Pedro Ferro. 10.23 Employment Agreement between the Company and Peter Palladino. 10.24 Consulting Agreement between the Company and Tocatta, Inc. 10.25 Settlement Agreement and Release, dated as of April 24, 2001 by and among MCII Holdings (USA), Inc., Motor Coach Industries International, Inc., Motor Coach Industries Mexico, S.A. de C.V., JLL Fund III, CIBC WG Argosy Merchant Fund 2., Co-Investment Merchant Fund 3 and Consorcio G Grupo Dina, S.A. de C.V., Sistemas Y Servicios G, S.A. de C.V. 69 10.26 Escrow Agreement, dated as of April 24, 2001, by and among MCII Holdings (USA), Inc., Consorcio G Grupo Dina, S.A. de C.V. and The Chase Manhattan Bank. 10.27 Third Amendment and Waiver dated as of May 1, 2001 to the Credit Agreement among MCII Holdings, Inc., Motor Coach Industries International, Inc., Canadian Imperial Bank of Commerce, as a Lender and as Administrative Agent for the Lenders under the Credit Agreement, General Electric Capital Corporation, as a Lender and as documentation agent for the lenders under the Credit Agreement, The Bank of Nova Scotia, and the other lenders parties hereto. 12.1 Ratio of Earnings to Fixed Charges 16.1* Letter regarding change in Certifying Accountant. (3.) 16.2* Letter regarding change in Certifying Accountant. (4.) 16.3* Letter regarding change in Certifying Accountant (5.) 21.1 Subsidiaries of MCII 25.1* Statement of Eligibility and Qualification on Form T-1 of IBJ Whitehall. (1.) 99.1* Form of Letter of Transmittal. (1.) 99.2* Form of Notice of Guaranteed Delivery. (1.) 99.3* Form of Letter to Registered Holders. (1.) - ------------------------- *Previously filed. +Filed herewith. - ------------------------- 1. Previously filed and incorporated herein by reference from Registrant's prospectus on Form S-4 dated July 28, 1999. 2. Previously filed and incorporated herein by reference from Registrant's prospectus on amendment number one to Form S-4 dated September 23, 1999. 3. Previously filed and incorporated herein by reference from Registrant's Form 8-K dated October 15, 1999. 4. Previously filed and incorporated herein by reference from Registrant's Form 8-K dated November 16, 1999. 5. Previously filed and incorporated herein by reference from Registrant's Form 8-K dated February 3, 2000. 6. Previously filed and incorporated herein by reference from Registrant's Form 10-Q/A for the quarterly period ended March 31, 2000, dated June 5, 2000. 7. Previously filed and incorporated herein by reference from Registrant's Form 10-Q for the quarterly period ended June 30, 2000, dated August 21, 2000. 14(b) Reports on Form 8-K None. 70 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: May 3, 2001 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. By /s/ STEPHEN K.CLOUGH ------------------------------------ Stephen K. Clough Chief Executive Officer Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the date indicated. Signature Title Date --------- ----- ---- /s/ STEPHEN K. CLOUGH Chief Executive Officer May 3, 2001 - ------------------------------- and Director Stephen K. Clough /s/ THOMAS SORRELLS III Chief Operating Officer May 3, 2001 - ------------------------------- Thomas Sorrells III /s/ HORST O. SIEBEN Chief Financial Officer May 3, 2001 - ------------------------------- Horst O. Sieben /s/ ALLAN D. SWANSON Vice President and May 3, 2001 - ------------------------------- Corporate Controller Allan D. Swanson Chief Accounting Officer /s/ PAUL S. LEVY Director May 3, 2001 - ------------------------------- Paul S. Levy /s/ JEFFREY C. LIGHTCAP Director May 3, 2001 - ------------------------------- Jeffrey C. Lightcap /s/ RAMSEY FRANK Director May 3, 2001 - ------------------------------- Jeffrey C. Lightcap /s/ FRANCISCO J. RODRIGUEZ Director May 3, 2001 - ------------------------------- Francisco J. Rodriguez EX-10 10 ex1023_10k00.txt EMPLOYMENT AGREEMENT EXHIBIT 10.23 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement") dated as of April 17, 2000, by and between Motor Coach Industries International, Inc., a Delaware corporation (the "Company"), and Peter Palladino (the "Executive"). WHEREAS, the Company, through its subsidiaries and affiliates, is engaged in the business of (i) designing, manufacturing, assembling, and marketing of coaches of monocoque or unitized construction configuration, and (ii) distribution of replacement parts to the intercity coach and transit bus markets (the "Business"); and WHEREAS, the Company desires that the Executive serve as Vice President of Marketing of the Company and the Executive desires to hold such position under the terms and conditions of this Agreement; and WHEREAS, the parties desire to enter into this Agreement setting forth the terms and conditions of the employment relationship of the Executive with the Company. NOW, THEREFORE, intending to be legally bound hereby, the parties agree as follows: 1. Employment. The Company hereby employs the Executive, and the Executive hereby accepts employment with the Company, upon the terms and subject to the conditions set forth herein. 2. Term. Subject to earlier termination pursuant to Section 10 hereof, the term of the employment by the Company of the Executive pursuant to this Agreement (the "Term") shall commence on April 17, 2000 (the "Effective Date"), and terminate on the second anniversary thereof. 3. Position. During the Term, the Executive shall serve as the Vice President of Marketing of the Company, and shall perform such other duties as the Board of Directors of the Company (the "Company Board") or the Company's Chief Executive Officer shall from time to time determine. 4. Duties. During the Term, the Executive shall devote his full time and attention during normal business hours to the business and affairs of the Company, except for vacations in accordance with the Company's policies and for illness or incapacity, in accordance with Section 9 hereof. 5. Salary and Bonus. (a) During the Term, the Company shall pay to the Executive a Base Salary at the rate of $175,000.00 per year. Commencing on the first anniversary of the Effective Date, the Company Board shall review the Base Salary annually and shall make such adjustments from time to time as it may deem advisable. The Base Salary shall be payable to the Executive in substantially equal installments in accordance with the Company's normal payroll practices. (b) For the Company's fiscal year ending December 31, 2000, and for each fiscal year thereafter during the Term, the Executive shall be eligible to receive an annual cash bonus at the discretion of the Company Board in accordance with the [Management Bonus Program] or other incentive compensation plan established by the Company Board for the Company's executive officers. 6. Stock Option Plan. During the Term, the Executive shall be eligible to participate in the MCII Holdings (USA), Inc. Management Stock Option Plan or other stock option plan established by the Company Board for the Company's executive officers and may be granted options thereunder at the discretion of the Board and as set forth in Exhibit A hereto. 7. Vacation, Holidays and Sick Leave. During the Term, the Executive shall be entitled to paid vacation, paid holidays and sick leave in accordance with the Company's standard policies for its senior executive officers. 8. Business Expenses. The Executive shall be reimbursed for all reasonable and necessary business expenses incurred by him in connection with his employment (including, without limitation, expenses for travel and entertainment incurred in conducting or promoting business for the Company) upon timely submission by the Executive of receipts and other documentation as required by the Internal Revenue Code of 1986, as amended (the "Code"), and in accordance with the Company's normal expense reimbursement policies. 9. Other Benefits. During the Term, the Executive shall be eligible to participate fully in all health and other employee benefit arrangements available to senior executive officers of the Company generally. 10. Termination of Agreement. The Executive's employment by the Company pursuant to this Agreement shall not be terminated prior to the end of the Term hereof except as set forth in this Section 10. (a) By Mutual Consent. The Executive's employment pursuant to this Agreement may be terminated at any time by the mutual written agreement of the Company and the Executive. (b) Death. The Executive's employment by the Company pursuant to this Agreement shall be terminated upon the death of the Executive, in which event the Executive's spouse or heirs shall receive, when the same would have been paid to the Executive, (i) all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination (as defined in Section 10(f) hereof) and (ii) the Base Salary and health benefits to be paid or provided to the Executive under this Agreement until the earlier of (x) six months following the Date of Termination and (y) the expiration of the Term. (c) Disability. The Executive's employment by the Company pursuant to this Agreement may be terminated by written notice to the Executive by the Company or to the Company by the Executive in the event that (i) the Executive becomes unable to perform his normal duties by reason of physical or mental illness or accident for any six (6) consecutive month period, or (ii) the Company receives written opinions from both a physician for the Company and a physician for the Executive that the Executive will be so disabled. In the event that this Agreement is terminated pursuant to this Section 10(c), the Executive shall be entitled to receive, when the same would have been paid to the Executive, (i) all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination and (ii) the Base Salary and health benefits to be paid or provided to the Executive under this Agreement until the earlier of (x) six months following the Date of Termination and (y) the expiration of the Term. (d) By the Company for Cause. This Agreement may be terminated by the Company by written notice to the Executive ("Notice of Termination") upon the occurrence of any of the following events (each of which shall constitute "Cause" for termination): (i) the Executive commits any act of gross negligence, incompetence, fraud or wilful misconduct causing harm to the Company, (ii) the conviction of the Executive of a felony that could adversely affect the Company or its reputation, (iii) the Executive intentionally obtains personal gain, profit or enrichment at the expense of the Company or from any transaction in which the Executive has an interest which is adverse to the interest of the Company unless the Executive shall have obtained the prior written consent of the Company Board, (iv) the Executive acts in a manner which is materially detrimental or damaging to the Company's reputation, business operations or relations with its employees, suppliers or customers, or (v) any material breach by the Executive of this Agreement, including, without limitation, a material breach of Section 13 hereof, which breach remains uncorrected for a period of fifteen (15) days after receipt by the Executive of written notice from the Company setting forth the breach. In the event the Executive's employment by the Company is terminated pursuant to this Section 10(d), the Executive shall be entitled to receive all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination. (e) By the Company Without Cause. The employment by the Company of the Executive pursuant to this Agreement may be terminated by the Company at any time without Cause by delivery of a Notice of Termination to the Executive. In the event that the employment by the Company of the Executive pursuant to this Agreement is terminated by the Company without Cause pursuant to this Section 10(e), the Executive shall be entitled to receive, when the same would have been paid to the Executive, the greater of (i) the Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Term, and (ii) the Base Salary and benefits to be paid or provided to the Executive under this Agreement for twelve (12) months after the Date of Termination. (f) Date of Termination. The Executive's Date of Termination shall be (i) if the Executive's employment by the Company is terminated pursuant to Section 10(b), the date of his death, (ii) if the Executive's employment by the Company is terminated pursuant to Section 10(c), the last day of the six-month period referred to in Section 10(c), (iii) if the Executive's employment by the Company is terminated pursuant to Section 10(d), the date on which a Notice of Termination is given, and (iv) if the Executive's employment is terminated pursuant to Section 10(e), the date set forth in the Notice of Termination. 11. Representations. (a) The Company represents and warrants that this Agreement has been authorized by all necessary corporate action of the Company and is a valid and binding agreement of the Company enforceable against it in accordance with its terms. (b) The Executive represents and warrants that he is not a party to any agreement or instrument which would prevent him from entering into or performing his duties in any way under this Agreement. 12. Assignment; Binding Agreement. This Agreement is a personal contract and the rights and interests of the Executive hereunder may not be sold, transferred, assigned, pledged, encumbered, or hypothecated by him, except as otherwise expressly permitted by the provisions of this Agreement. This Agreement shall inure to the benefit of and be enforceable by the Executive and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to him hereunder had the Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to his devisee, legatee, or other designee or, if there is no such designee, to his estate. 13. Confidentiality; Non-Competition; Ownership of Works. (a) Executive acknowledges that: (i) the Business is intensely competitive and that Executive's employment by the Company will require that Executive have access to and knowledge of confidential information of the Company, including, but not limited to, the identity of the Company's customers, the identity of the representatives of customers with whom the Company has dealt, the kinds of services provided by the Company to customers and offered to be performed for potential customers, the manner in which such services are performed or offered to be performed, the service needs of actual or prospective customers, pricing information, information concerning the creation, acquisition, or disposition of products and services, creative ideas and concepts, computer software applications and other programs, research data, personnel information and other trade secrets (the "Confidential Information"); (ii) the direct or indirect disclosure of any such Confidential Information would place the Company at a competitive disadvantage and would do damage, monetary or otherwise, to the Company's business; and (iii) the engaging by Executive in any of the activities prohibited by this Section 13 may constitute improper appropriation and/or use of such Confidential Information. Executive expressly acknowledges the trade secret status of the Confidential Information and that the Confidential Information constitutes a protectable business interest of the Company. Accordingly, the Company and Executive agree as follows: (b) For purposes of this Section 13, the Company shall be construed to include the Company and its parents and subsidiaries engaged in the Business, including any divisions managed by Executive. (c) During Executive's employment with the Company, and at all times after the termination of Executive's employment by expiration of the Term or otherwise, Executive shall not, directly or indirectly, whether individually, as a director, stockholder, owner, partner, employee, principal, or agent of any business, or in any other capacity, make known, disclose, furnish, make available, or utilize any of the Confidential Information, other than in the proper performance of the duties contemplated herein, or as expressly permitted herein, or as required by a court of competent jurisdiction or other administrative or legislative body; provided that, prior to disclosing any of the Confidential Information as required by a court or other administrative or legislative body, Executive shall promptly notify the Company so that the Company may seek a protective order or other appropriate remedy. Executive agrees to return all documents or other materials containing Confidential Information, including all photocopies, extracts and summaries thereof, and any such information stored electronically on tapes, computer disks or in any other manner, to the Company at any time upon request by the Company and immediately upon the termination of his employment for any reason. (d) During Executive's employment with the Company, Executive shall not engage in "Competition" with the Company. For purposes of this Agreement, Competition by Executive shall mean Executive's engaging in, or otherwise directly or indirectly being employed by or acting as a consultant or lender to, or being a director, officer, employee, principal, agent, stockholder, member, owner or partner of, or permitting his name to be used in connection with the activities of, any other business or organization anywhere in the Western Hemisphere which competes, directly or indirectly, with the Business of the Company. (e) For a period of two (2) years following the termination of Executive's employment, whether upon expiration of the Term or otherwise, Executive shall not engage in Competition, as defined above, with the Company in any locality or region of the Western Hemisphere in which the Company had operations at the time of, or within six (6) months prior to, Executive's termination, or in which, during the six (6) month period prior to Executive's termination, the Company had made substantial plans with the intention of establishing operations in such locality or region; provided that, it shall not be a violation of this sub-paragraph for Executive to become the registered or beneficial owner of up to one percent (1%) of any class of the capital stock of a competing corporation registered under the Securities Exchange Act of 1934, as amended, provided that Executive does not actively participate in the business of such corporation until such time as this covenant expires. (f) For a period of two (2) years after he ceases to be employed hereunder by the Company, whether upon expiration of the Term or otherwise, Executive agrees that he will not, directly or indirectly, for his benefit or for the benefit of any other person, firm or entity, do any of the following: i solicit from any customer doing business with the Company as of Executive's termination, business of the same or of a similar nature to the business of the Company with such customer; ii solicit from any known potential customer of the Company business of the same or of a similar nature to that which has been the subject of a known written or oral bid, offer, or proposal by the Company, or of substantial preparation with a view to making such a bid, proposal, or offer, within six (6) months prior to Executive's termination; iii recruit or solicit the employment or services of, or hire, any person who was known to be employed by the Company upon termination of Executive's employment, or within six (6) months prior thereto; or iv otherwise knowingly interfere with the business or accounts of the Company. (g) The Executive will make full and prompt disclosure to the Company of all inventions, improvements, formulas, data, programs, processes, ideas, concepts, discoveries, methods, developments, software, and works of authorship, whether or not copyrightable, trademarkable, or patentable, which are created, made, conceived, or reduced to practice by the Executive, either alone, under his direction or jointly with others during the period of his employment with the Company, whether or not during normal working hours or on the premises of the Company, which (i) relate to the actual or anticipated business, activities, or research of the Company, or (ii) result from or are suggested by work performed by the Executive for the Company, or (iii) result, to any extent, from use of the Company's premises or property (all of which are collectively referred to in this Agreement as "Works"). All Works shall be the sole property of the Company, and, to the extent that the Company is not already considered the owner thereof as a matter of law, the Executive hereby assigns to the Company, without further compensation, all his right, title, and interest in and to such Works and any and all related intellectual property rights (including, but not limited to, patents, patent applications, copyrights, copyright applications, and trademarks) in the Western Hemisphere and elsewhere. Notwithstanding the foregoing, this Agreement does not apply to any invention for which no equipment, supplies, facility, or trade secret information of the Company was used and which was developed entirely on the Executive's own time, unless: (A) the invention relates (X) to the Business of the Company, or (Y) to the Company's actual demonstratively anticipated research or development; or (B) the invention results from any work performed by the Executive for the Company. (h) Executive acknowledges that the services to be rendered by him to the Company are of a special and unique character, which gives this Agreement a peculiar value to the Company, the loss of which may not be reasonably or adequately compensated for by damages in an action at law, and that a breach or threatened breach by him of any of the provisions contained in this Section 13 will cause the Company irreparable injury. Executive therefore agrees that the Company shall be entitled, in addition to any other right or remedy, to a temporary, preliminary, and permanent injunction, without the necessity of proving the inadequacy of monetary damages or the posting of any bond or security, enjoining or restraining Executive from any such violation or threatened violations. (i) Executive further acknowledges and agrees that due to the uniqueness of his services and confidential nature of the information he will possess, the covenants set forth herein are reasonable and necessary for the protection of the business and goodwill of the Company. (j) If any one or more of the provisions contained in this Agreement shall be held to be excessively broad as to duration, activity, or subject, such provisions shall be construed by limiting and reducing them so as to be enforceable to the fullest extent permitted by law. 14. Entire Agreement. This Agreement contains all the understandings between the parties hereto pertaining to the matters referred to herein, and supersedes any other undertakings and agreements, whether oral or in writing, previously entered into by them with respect thereto. The Executive represents that, in executing this Agreement, he does not rely and has not relied upon any representation or statement not set forth herein made by the Company with regard to the subject matter or effect of this Agreement or otherwise. 15. Amendment or Modification, Waiver. No provision of this Agreement may be amended or waived, unless such amendment or waiver is agreed to in writing, signed by the Executive and by a duly authorized officer of the Company. No waiver by any party hereto of any breach by another party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time, or any subsequent time. 16. Notices. Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier or facsimile or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice hereunder in writing: To the Executive at: Peter Palladino 351 W. Baltimore Drive Vernon Hill, IL 60061 To the Company at: Motor Coach Industries International, Inc. 10 East Golf Road Des Plaines, Illinois 60016 Facsimile: (847) 299-6773 Attention: Vice President & General Counsel Any notice delivered personally or by courier under this Section 16 shall be deemed given on the date delivered and any notice sent by facsimile or registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date transmitted by facsimile or mailed. 17. Severability. If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable, shall not be affected thereby, and each provision hereof shall be validated and shall be enforced to the fullest extent permitted by law. 18. Survivorship. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 19. Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Illinois, without regard to the principles of conflicts of law thereof. 20. Headings. All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph. 21. Withholding. All payments to the Executive under this Agreement shall be reduced by all applicable withholding required by federal, state, or local law. 22. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement on April 17, 2000, to be effective as of the Effective Date. MOTOR COACH INDUSTRIES INTERNATIONAL, INC. By: /s/R. Roberto Cordaro ----------------------------- Name: R. Roberto Cordaro Title: Chief Executive Officer /s/Peter Palladino ------------------ PETER PALLADINO EXHIBIT A Executive will be granted a number of stock options with an exercise price of $204.918 per share which, based upon the current three-five year projections for the Company are intended to provide Executive with $1-$2 million of equity value over the same period. Company will revisit the number of options granted to Executive in connection with its 2001 Budget and long-term forecast process, with the intention of confirming that the options granted to Executive are still expected to reasonably yield the aforementioned value is such long-term forecasts are achieved. The options will vest ratably over five years. Company will loan to Executive up to the amount of one annual Base Salary to purchase shares of common stock of the Company, at a purchase price of $204.918 per share. The loan will be full recourse to Executive, secured by the stock purchased with the proceeds thereof, and payable in full at the end of five years from the issuance or 90 days after termination of Executive's employment, whichever is earlier (except in the event of termination as a result of Executive's death or disability, in which event the loan will be due at the end of five years from issuance). Interest on the loan will be payable annually at the Applicable Federal Rate (currently around 6%). Executive shall use 50% of his annual bonus payments to re-pay the loan until paid in full. All shares of common stock purchased by Executive (including shares issued upon exercise of options) will be subject to transfer restrictions contained in the Stockholder Agreement. In the event of any conflict between any of the foregoing provisions and the terms and conditions of the MCII Holdings (USA), Inc. Management Stock Option Plan, as the same may be amended from time to time, the latter will control. EX-10 11 ex102_10k00.txt AMENDED AND RESTATED STOCKHOLDERS AGREEMENT Exhibit 10.2 AMENDED AND RESTATED STOCKHOLDERS AGREEMENT This AMENDED AND RESTATED STOCKHOLDERS AGREEMENT ("Agreement"), dated as of April 24, 2001, is by and among MCII Holdings (USA), Inc., a Delaware corporation (the "Company"), Joseph Littlejohn & Levy Fund III, L.P. ("JLL"), CIBC WG Argosy Merchant Fund 2, L.L.C., ("CIBC Argosy"), CIBC WMC, Inc. ("CIBC WMC"), Co-Investment Merchant Fund 3, LLC ("CMF" and, together with CIBC Argosy and CIBC WMC, "CIBC"), Coaches, LLC ("Coaches") and Consorcio G Grupo Dina, S.A. de C.V., a corporation organized under the laws of the United Mexican States ("Dina"). W I T N E S S E T H WHEREAS, JLL, CIBC, and Dina entered into a Stockholders Agreement dated June 16, 1999 (the "Original Agreement"); WHEREAS, JLL transferred certain shares to Coaches and the parties agreed that Coaches would have certain rights and obligations under the Original Agreement; and WHEREAS, JLL, CIBC and Dina desire to amend and restate the Original Agreement upon the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt of which is hereby acknowledged, and intending to be legally bound, the parties agree as follows: ARTICLE Certain Definitions 2.1 Section Definitions. For purposes of this Agreement, the following terms shall have the following meanings: (a) The term "Applicable Percentage" shall mean, with respect to any Preemptive Rights Stockholder (as hereinafter defined), at the time of any issuance and sale of Common Stock by the Company, a number equal to the quotient of (i) the total number of shares of Common Stock held by such Preemptive Rights Stockholder immediately prior to such issuance and sale, divided by (ii) the aggregate number of shares of Common Stock outstanding immediately prior to such issuance and sale. (b) The term "Business" shall mean the ownership or management of, or investment in, any business or Person engaged in (a) the designing, manufacturing, assembling or marketing of coaches of monocoque or unitized construction configuration or (b) the distribution of replacement parts which are for the use of intercity coaches or monocoque transit buses. (c) The term "Commission" shall mean the United States Securities and Exchange Commission or any successor agency. (d) The term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. (e) The term "Initial Public Offering" shall mean the first Public Offering (as hereinafter defined) of shares of Common Stock. (f) The term "Initial Stockholder" shall mean any of JLL, Dina or CIBC. (g) The term "Permitted Transferee" shall mean, with respect to each Stockholder (as hereinafter defined) bound by the terms of this Agreement, (i) any descendant, Affiliate or Associate (each, as defined in Rule 405 of the Securities Act (as hereinafter defined)) of such Stockholder or any Permitted Transferee of such Affiliate; (ii) the Company; (iii) in the event of the dissolution, liquidation or winding up of any such Stockholder that is a corporation or a partnership, the partners of a partnership that is such Stockholder, the stockholders of a corporation that is such Stockholder or a successor partnership all of the partners of which or a successor corporation all of the stockholders of which are the Persons (as hereinafter defined) who were the partners of such partnership or the stockholders of such corporation immediately prior to the dissolution, liquidation or winding up of such Stockholder; (iv) a transferee by testamentary or intestate disposition; (v) a transferee by inter vivos transfer to the transferring Person's spouse, children and/or other lineal descendants; (vi) a trust transferee by inter vivos transfer, the beneficiaries of which are the transferring Person, spouse, children and/or other lineal descendants; (vii) a successor nominee or trustee for the beneficial owner of the Shares (as hereinafter defined) for which such Person acts as nominee or trustee, as the case may be; or (viii) with respect to any Initial Stockholder, any other Initial Stockholder. (h) The term "Person" shall mean any individual, firm, corporation, partnership, limited liability company or other entity, and shall include any successor (by merger or otherwise) of such entity. (i) The term "Public Offering" shall mean a public offering of equity securities of the Company pursuant to an effective registration statement under the Securities Act. (j) The term "Qualified Stockholder" shall mean Dina so long as it, together with its Affiliates or Associates (as such terms are defined in Rule 405 of the Securities Act), owns at least 117,000 Shares. (k) The term "Registrable Securities" shall mean (i) the Shares and (ii) additional shares of Common Stock acquired by one or more Stockholders after the date hereof. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (i) a registration statement registering such securities under the Securities Act has been declared effective and such securities have been sold or otherwise transferred by the holder thereof pursuant to such effective registration statement, (ii) such securities are sold in accordance with Rule 144 (or any successor provision) promulgated under the Securities Act or (iii) such securities are transferred under circumstances in which any legend borne by the certificates for such securities relating to restrictions on transferability thereof, under the Securities Act or otherwise, is removed by the Company. (l) The term "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. (m) The term "Shares" shall mean the shares of Common Stock owned by each Stockholder on the date hereof, as set forth opposite each Stockholder's name on Annex I hereto, and all shares of Common Stock acquired by any Stockholder after the date of this Agreement. (n) The term "Stockholders" shall mean collectively, JLL, Dina, CIBC Argosy, CMF, Coaches and each other stockholder of the Company identified on Annex I hereto, as such annex may be amended from time to time to reflect the addition of any new stockholder and the transfer of Shares, each as permitted by the terms of this Agreement. (o) The term "Transfer" shall mean any voluntary or involuntary attempt to, directly or indirectly through the transfer of interests in controlled Affiliates or otherwise, offer, sell, assign, transfer, grant a participation in, pledge or otherwise dispose of any Shares, or the consummation of any such transactions, or the soliciting of any offers to purchase or otherwise acquire, or taking a pledge of, any of the Shares; provided, however, that the transfer of an interest in any of the Stockholders shall not be deemed to be a transfer. 2.2 Section Other Definitions. Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the Investment Agreement, dated as of June 11, 1999, by and among JLL, CIBC and Dina, as amended. ARTICLE 3 Representations, Warranties and Covenants 3.1 Section Representations and Warranties of the Company. The Company represents and warrants to each Stockholder as follows: (a) Corporate Authority. The Company has full corporate power and authority to execute, deliver and perform this Agreement; (b) Due Authorization. This Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms; (c) No Conflict. The execution, delivery and performance of this Agreement by the Company do not violate or conflict with or constitute a default under (i) the Company's certificate of incorporation or by-laws, (ii) any judgment, order or decree or statute, law, ordinance, rule or regulation of any governmental entity applicable to the Company or (iii) any material agreement to which the Company is a party or by which it or its property is bound; (d) Registration Rights. Except as provided herein, no other party is entitled to any registration or similar right with respect to any securities of the Company; and (e) Voting Agreements. Except as set forth herein, the Company is not aware of any voting trust, voting agreement or arrangement with respect to any of its voting securities. 3.2 Section Representations and Warranties of the Stockholders. Each Stockholder individually represents and warrants to each other Stockholder and the Company as follows: (a) Authority. Such Stockholder has full power, capacity and authority to execute, deliver and perform this Agreement; (b) Due Authorization. This Agreement has been duly authorized, executed and delivered by such Stockholder and constitutes a valid and binding obligation of such Stockholder, enforceable against such Stockholder in accordance with its terms; and (c) No Conflict. The execution, delivery and performance of this Agreement by such Stockholder do not violate or conflict with or constitute a default under (i) such Stockholder's organizational documents, (ii) any judgment, order or decree or statute, law, ordinance, rule or regulation of any governmental entity applicable to such Stockholder or (iii) any material agreement to which such Stockholder is a party or by which it or its property is bound. 3.3 Section Covenants. (a) The Company shall use its commercially reasonable efforts to cooperate with Dina in consummating an exchange with the holders of Dina's convertible debentures (the "Dina Bondholders") of Shares owned by Dina for such convertible debentures (the "Dina Exchange"), including providing all publicly filed information with respect to Motor Coach Industries International, Inc. and its subsidiaries; provided, however, that in no event shall the Company be required to make any filings under any applicable securities laws or regulations in connection with such exchange, including, without limitation, the filing of a registration statement under the Securities Act; and provided, further, that any such cooperation shall be at the sole cost and expense of Dina. The Company further agrees to provide to Dina such other information, as may be reasonably requested by Dina, in connection with the Dina Exchange; provided, however, that the Company shall not be obligated to provide such information if, in the Company's reasonable discretion, public disclosure of such information would require the Company to make filings under applicable securities laws or regulations, including, without limitation, the filing of a registration statement under the Securities Act or the Exchange Act. (b) For so long as each of Dina and CIBC are Stockholders, the Company covenants (i) that it will afford such Stockholder and their respective officers, employees, financial advisors, legal counsel, accountants, consultants and other representatives (except to the extent not permitted under applicable law as advised by counsel to the Company and except as may be limited by any confidentiality obligations contained in any contract with a third party) reasonable access during normal business hours during the term of this Agreement to all of its books and records and its properties and facilities and, during such period, shall furnish promptly to such of Dina and CIBC that remains a Stockholder periodic financial and other information provided to the Board and (ii) to promptly provide to such of Dina and CIBC that remains a Stockholder copies of all monthly, quarterly and annual financial information prepared for any directors, creditors or stockholders of the Company. Unless otherwise required by law, Dina and CIBC each agrees that it shall (i) hold in confidence all non-public information so acquired and (ii) not use any such information as the basis for any market transaction in the securities of the Company unless and until such information is made generally available to the public; provided, however, that the foregoing shall not apply to any information provided pursuant to Section 2.03(a). 4 ARTICLE Board of Directors 4.1 Section Composition. (a) Members. (i) For so long as Dina is a Qualified Stockholder, each party hereto shall use its best efforts to cause the Board to consist of six members composed as follows: (A) four members shall be designees of JLL (the "JLL Designees"), who shall initially be Messrs. Paul Levy, Jeffrey Lightcap, Frank Rodriguez and Dean Kehler, (B) one member shall be a designee of Dina (the "Dina Designee"), who shall initially be Mr. Juan Jaime Petersen and (C) one member shall be the Chief Executive Officer of the Company. (ii) Once Dina is no longer a Qualified Stockholder, the Dina Designee shall resign from the Board and Dina shall not be entitled to elect any members to the Board. (iii) Any successor Dina Designee must be reasonably acceptable to JLL and, for so long as Dina is a Qualified Stockholder, any successor JLL Designee must be reasonably acceptable to Dina. (b) Removal. No Stockholder shall take any action to cause the removal of any director designated by any other Stockholder other than "for cause." (c) Vacancies. If at any time a vacancy is created on the Board by reason of the death, removal or resignation of any director who was nominated and elected as a director pursuant to Section 3.01(a) above or this Section 3.01(c), the Stockholders shall, as soon as practicable, cause their designees on the Board, to the extent not inconsistent with their fiduciary duties under applicable law, to elect the individual designated to fill such vacancy or vacancies by JLL or Dina, as the case may be, to fill such vacancy for the unexpired term of the director whom such individual is replacing. (d) Voting Agreement. (i) Each Stockholder agrees that, during the term of this Agreement, (A) it will be present, in person or represented by proxy, at all stockholder meetings of the Company for the election of directors, so that all shares of Voting Common Stock beneficially owned by it shall be counted for the purpose of determining the presence of a quorum for the election of directors at such meetings, and (B) it shall vote, or act by consent with respect to, all shares of Voting Common Stock beneficially owned by it for the election of the nominees for the Board nominated by the Board so long as such nominees consist of individuals meeting the requirements of this Section 3.01. (ii) Except as specifically set forth in this Section 3.01(e), each Stockholder shall be entitled to vote its Shares on all other matters as it deems fit. 4.2 Section Supermajority Vote Requirement. For so long as Dina is a Qualified Stockholder, the following actions shall require the approval of the Dina Designee: (a) any increase or decrease in the number of members constituting the Board; (b) any amendment or modification of any provision of this Agreement, which amendment materially and adversely affects Dina; (c) any amendment or modification of the Amended and Restated Certificate of Incorporation, which amendment materially and adversely affects Dina, other than to amend Article IV thereof to increase the authorized shares of capital stock (which amendment will only require the affirmative vote of a majority of the members of the Board); (d) any amendment of the By-Laws of the Company, which materially and adversely affects Dina; (e) any transaction with JLL or any of its affiliates with a value in excess of twenty million dollars, unless such transaction is fair to the Company as determined by an independent third party selected by the Company with the consent of Dina, such consent not to be unreasonably withheld or delayed; provided, however, that in the event that Dina shall withhold consent more than once with respect to any transaction, the Company shall than have right to appoint the independent third party without obtaining the consent of Dina; and (f) any acquisition by the Company or any of its subsidiaries of a business or assets unrelated to the Business whether by merger, consolidation or other business combination. 4.3 Section Initial Public Offering. The parties acknowledge and agree that the provisions of this Article III may not be appropriate following the Initial Public Offering. Accordingly, JLL and Dina agree to use their reasonable best efforts to reach an agreement with respect to the appropriate composition of the Board and supermajority voting requirements following the Initial Public Offering and amend this Agreement accordingly. 5 ARTICLE 6 Restrictions on Transfer 6.1 Section General Restrictions. Except as expressly permitted by JLL in its sole discretion (which may be withheld or delayed for any reason or no reason whatsoever), no Stockholder or any of its respective Permitted Transferees (other than JLL) may, prior to the fifth anniversary of the date hereof (the "Restricted Period"), Transfer any Shares except for Transfers (a) to any of their Permitted Transferees; provided, however, that prior to any Transfer of Shares, such Permitted Transferee shall agree in writing to take such Shares subject to, and to comply with, all of the provisions of this Agreement, a copy of which agreement shall be on file with the Secretary of the Company and shall include the address of such Permitted Transferee to which notices hereunder shall be sent, (b) pursuant to the provisions of Section 4.04 (but only with respect to Shares Transferred as a Notice Recipient (as defined herein)), (c) pursuant to any corporate transaction requiring the approval of the holders of a majority of the shares of Common Stock outstanding and as to which the requisite approval of the stockholders shall have been obtained or (d) by Dina to the Dina Bondholders; provided, however, that prior to any Transfer of Shares, (i) such Dina Bondholders shall agree in writing to take such Shares subject to, and to comply with, all of the provisions of this Agreement, a copy of which agreement shall be on file with the Secretary of the Company and shall include the address of such Dina Bondholders to which notices hereunder shall be sent or (ii) the Company and JLL shall be satisfied, in their reasonable discretion, that the Dina Bondholders are taking the Shares subject to, and are obligated to comply with, the provisions of this Agreement; provided, further, that no Transfer of Shares to the Dina Bondholders shall be valid if, as a result of the Dina Exchange, more than 475 Dina Bondholders would become Stockholders. The foregoing restrictions of this Section 4.01 shall also apply to any transfer of the Warrant and the Warrant Shares. 6.2 Section Compliance with Securities Laws. Each Stockholder agrees that every Transfer of its Shares shall comply with all federal, state, local and foreign securities laws applicable to such transaction. At the request of the Company, the transferring Stockholder shall deliver to the Company an opinion of counsel, which counsel and opinion shall be reasonably satisfactory to the Company, to the effect that the sale, transfer or other disposition satisfies this Section 4.02. 6.3 Section Transfers not in Compliance. In the event of any purported or attempted Transfer of Shares by a Stockholder that does not comply with this Agreement, the purported transferee or successor by operation of law shall not be deemed to be a stockholder of the Company for any purpose and shall not be entitled to any of the rights of a stockholder, including, without limitation, the right to vote the Shares or to receive a certificate for the Shares or any dividends or other distributions on or with respect to the Shares. 6.4 Section Tag-Along Rights. Except as provided below, if, at any time during the term of this Agreement, either JLL or CIBC proposes to directly or indirectly Transfer its Shares to a Person (other than Transfers to Permitted Transferees), including pursuant to a Public Offering, such Stockholder (the "Transferring Stockholder") shall provide every other Stockholder (the "Notice Recipients") and the Company with not less than thirty (30) days' prior written notice (the "Sale Notice") of such proposed Transfer, which notice shall include all of the terms and conditions of such proposed Transfer and which shall identify such purchaser; and each Notice Recipient shall have the option, exercisable by written notice to the Transferring Stockholder within fifteen (15) days after the receipt of the Sale Notice, to require the Transferring Stockholder to arrange for such purchaser or purchasers to purchase the same percentage (the "Percentage") of the Shares then owned by such Notice Recipient as the ratio of the total number of Shares which are to be Transferred by the Transferring Stockholder pursuant to the proposed Transfer to the total number of Shares owned by the Transferring Stockholder immediately prior to such Transfer, or any lesser amount of Shares as such Notice Recipient shall desire, together with the Transferring Stockholder's Shares at the same time as, and upon the same terms and conditions (including all direct or indirect consideration or compensation) at which, the Transferring Stockholder sells its Shares. If a Notice Recipient shall so elect, the Transferring Stockholder agrees that it shall either (a) arrange for the proposed purchaser or purchasers to purchase all or a portion (as such Notice Recipient shall specify) of the same Percentage of the Shares then owned by such Notice Recipient at the same time as and upon the same terms and conditions at which the Transferring Stockholder sells its Shares, and provided that if such purchaser or purchasers shall elect to purchase only such aggregate number of Shares as originally agreed with the Transferring Stockholder, then the number of Shares to be sold by the Transferring Stockholder and all Notice Recipients electing to participate in the proposed Transfer shall be reduced pro rata to such aggregate number or (b) not effect the proposed Transfer to such purchaser or purchasers. In the event that a Notice Recipient does not exercise its right to participate in such Transfer or declines to so participate, the Transferring Stockholder shall have 120 days from the date of such Sale Notice to consummate the transaction on the terms set forth therein without being required to provide an additional Sale Notice to the remaining Stockholders. The provisions of this Section 4.04 shall not apply to the Transfer of Shares by Dina to the Dina Bondholders. 6.5 Section Drag-Along Rights. (a) If at any time JLL proposes to directly or indirectly Transfer for value all or substantially all of its Shares to a Person (other than Transfers to Permitted Transferees), JLL shall have the right, upon not less than twenty (20) business' days prior written notice of such proposed sale (the "Purchase Notice"), which notice shall include all of the material terms and conditions of such proposed sale and which shall identify such Shares and the proposed purchaser, to require each other Stockholder to sell to such purchaser that number of such Shares ("Stockholder Call Shares") equal to the product, rounded down to the nearest whole number, of (i) a fraction, the numerator of which is the number of such Shares to be sold by JLL and the denominator of which is the number of such Shares then owned by JLL, multiplied by (ii) the number of such Shares then owned by the Stockholder, or any lesser number of such Shares as JLL shall desire. If JLL shall so elect, JLL shall arrange for such purchaser to purchase the Stockholder Call Shares at the same time as, and upon the same terms and conditions (including all direct or indirect consideration or compensation), at which JLL sells its Shares; provided, however, that the only representations and warranties that such Stockholders shall be required to make shall be with respect to due authorization to sell such Stockholder Call Shares and ownership of such Stockholder Call Shares free of all liens, as the case may be, and such Stockholders shall not be required to agree to any related covenant not to compete or similar restriction. Upon receipt of the Purchase Notice, the Stockholder shall cooperate with JLL and otherwise take, or cause to be taken, all reasonable actions and do, or cause to be done, all things reasonably necessary and appropriate to so enter into, consummate and make effective the sale and purchase of the Stockholder Call Shares, together with JLL's Shares. Notwithstanding any provision hereof to the contrary, from and after the date on which JLL consummates a Transfer subject to this Section 4.05 and each Stockholder receives the consideration for such Stockholder Call Shares contemplated by the Transfer, (i) the Stockholder shall have no rights of a stockholder with respect to the Stockholders Call Shares sold and purchased in such transaction and (ii) the Stockholder shall not seek, nor shall JLL have any obligation, to enforce any such right with respect to such Stockholder Call Shares. (b) JLL represents and warrants that, as of the date hereof, it does not have any agreement with a third party to consummate a Transfer. 6.6 Section Non-Compete. In the event of the sale, transfer or disposition (including by merger or other business combination) of all or a substantial portion of the Shares or all or substantially all of the Company's assets (a "Company Sale") is consummated, until the third anniversary of the consummation of the Company Sale, Dina shall not, directly or indirectly, (a) participate in the ownership, management, operation or control of, or be connected with or employed by, or act as a consultant for, or have any financial interest in or aid or knowingly assist any other Person in the conduct of, any business or entity which (i) engages in any aspect of the Business, (ii) is contemplating engaging in such Business or (iii) provides any services that compete with those services provided by the Company or the Company Subsidiaries, in the case of (i), (ii) and (iii), anywhere within the Territory or (b) hire any officer or other employee of the Company or any Company Subsidiary or solicit or direct anyone else to solicit any officer or other employee of the Company or any Company Subsidiary (i) to terminate his or her employment or other relationship with the Company or any Company Subsidiary; or (ii) to seek or accept employment or other affiliation with any other entity (other than any solicitation directed at the public in general in publications available to the public in general). 7 ARTICLE 8 Registration Rights 8.1 Section Piggyback Registrations. (a) Right to Piggyback. Following the Initial Public Offering of the Common Stock and subject to the provisions of Section 4.01, whenever the Company proposes to register any of its equity securities or securities convertible or exchangeable into or exercisable for its equity securities under the Securities Act (other than a registration relating to the Company employee benefit plans, exchange offers by the Company or a merger or acquisition of a business or assets by the Company including, without limitation, a registration on Form S-4 or Form S-8 or any successor form) (a "Piggyback Registration"), the Company shall give all Stockholders prompt written notice thereof (but not less than ten (10) days prior to the filing by the Company with the Commission of any registration statement with respect thereto). Such notice (a "Piggyback Notice") shall specify, at a minimum, the number of securities proposed to be registered, the proposed date of filing of such registration statement with the Commission, the proposed means of distribution, the proposed managing underwriter or underwriters (if any and if known), and a good faith estimate by the Company of the proposed minimum offering price of such securities. Upon the written request of a Stockholder given within ten (10) business days of such Stockholder's receipt of the Piggyback Notice (which written request shall specify the number of Registrable Securities intended to be disposed of by such Stockholder and the intended method of distribution thereof), the Company shall include, subject to Section 5.01(b) below, in such registration all Registrable Securities with respect to which the Company has received such written requests for inclusion. (b) Priority on Piggyback Registrations. If, in connection with a Piggyback Registration, any managing underwriter (or, if such Piggyback Registration is not an underwritten offering, a nationally recognized independent investment banking firm selected by the Company (and reasonably acceptable to the holders of a majority of the Registrable Securities sought to be included in such Piggyback Registration and whose fees and expenses shall be borne solely by the Company)) advises the Company and the holders of the Registrable Securities to be included in such Piggyback Registration, that, in its opinion, the inclusion of all the securities sought to be included in such Piggyback Registration by the Company, any holders of Registrable Securities seeking to sell such securities in such Piggyback Registration ("Piggyback Sellers") and any other proposed sellers, in each case, if any, would adversely affect the marketability of the securities sought to be sold pursuant thereto, then the Company shall include in the registration statement applicable to such Piggyback Registration only such securities as the Company and the Piggyback Sellers are so advised by such underwriter can be sold without such an effect (the "Maximum Piggyback Number"), as follows and in the following order of priority: (i) first, such number of securities to be sold by the Company as the Company, in its reasonable judgment and acting in good faith and in accordance with sound financial practice, shall have determined; and (ii) second, if the number of securities to be included under clause (i) above is less than the Maximum Piggyback Number, pro rata in proportion to the Registrable Securities sought to be registered by all the Piggyback Sellers and all other proposed sellers, which, in the aggregate, when added to the number of securities to be registered under clause (i) above, equals the Maximum Piggyback Number. (c) Withdrawal by the Company. If, at any time after giving written notice of its intention to register any of its securities as set forth in this Section 5.01 and prior to the time the registration statement filed in connection with such registration is declared effective, the Company shall determine for any reason not to register such securities, the Company may, at its election, give written notice of such determination to each Stockholder and thereupon shall be relieved of its obligation to register any Registrable Securities in connection with such particular withdrawn or abandoned registration (but not from its obligation to pay the Registration Expenses (as hereinafter defined) in connection therewith as provided herein). 8.2 Section Withdrawal Rights. Any Stockholder having notified or directed the Company to include any or all of its Registrable Securities in a registration statement under the Securities Act shall have the right to withdraw any such notice or direction with respect to any or all of the Registrable Securities designated for registration thereby by giving written notice to such effect to the Company prior to the effective date of such registration statement. In the event of any such withdrawal, the Company shall not include such Registrable Securities in the applicable registration and such Registrable Securities shall continue to be Registrable Securities hereunder. No such withdrawal shall affect the obligations of the Company with respect to the Registrable Securities not so withdrawn. 8.3 Section Holdback Agreements. Each Stockholder agrees not to effect any public sale or distribution (including sales pursuant to Rule 144 under the Securities Act) of equity securities of the Company, or any securities convertible into or exchangeable or exercisable for such securities, during the ten (10) day period prior to the date which the Company has notified the Stockholders that it intends to commence a Public Offering through the 180-day period immediately following the effective date of any Piggyback Registration (in each case, except as part of such registration), or, in each case, if later, the date of any underwriting agreement with respect thereto; provided, however, that the Stockholders shall not be obligated to comply with this Section 5.03 on more than one (1) occasion in any nine (9) month period. 8.4 Section Registration Procedures. (a) Whenever the Stockholders have requested that any Registrable Securities be registered pursuant to this Agreement, the Company (subject to its right to withdraw such registration as contemplated by Section 5.01(c)) shall use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof and, in connection therewith, the Company shall as expeditiously as possible: (i) prepare and file with the Commission a registration statement with respect to such Registrable Securities on any form for which the Company then qualifies and is available for the sale of Registrable Securities to be registered thereunder in accordance with the intended method of distribution and use its best efforts to cause such registration statement to become effective within ninety (90) days of the date of the Piggyback Notice; (ii) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a continuous period of not less than ninety (90) days (or, if earlier, until all Registrable Securities included in such registration statement have been sold thereunder in accordance with the manner of distribution set forth therein) and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof as set forth in such registration statement (including, without limitation, by incorporating in a prospectus supplement or post-effective amendment, at the request of a seller of Registrable Securities, the terms of the sale of such Registrable Securities); (iii) promptly (A) notify each seller of Registrable Securities of each of (1) the filing and effectiveness of the registration statement and prospectus and any amendment or supplements thereto, (2) the receipt of any comments from the Commission or any state securities law authorities or any other governmental authorities with respect to any such registration statement or prospectus or any amendments or supplements thereto and (3) any oral or written stop order with respect to such registration, any suspension of the registration or qualification of the sale of such Registrable Securities in any jurisdiction or any initiation or threatening of any proceedings with respect to any of the foregoing and (B) use its best efforts to obtain the withdrawal of any order suspending the registration or qualification (or the effectiveness thereof) or suspending or preventing the use of any related prospectus in any jurisdiction with respect thereto; (iv) furnish to each seller of Registrable Securities, the underwriters and the sales or placement agent, if any, and counsel for each of the foregoing, a conformed copy of such registration statement and each amendment and supplement thereto (in each case, including all exhibits thereto and documents incorporated by reference therein) and such additional number of copies of such registration statement, each amendment and supplement thereto (in such case without such exhibits and documents), the prospectus (including each preliminary prospectus) included in such registration statement and prospectus supplements and all exhibits thereto and documents incorporated by reference therein and such other documents as such seller, underwriter, agent or counsel may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Seller; (v) if requested by the managing underwriter or underwriters of any registration, subject to approval of counsel to the Company in its reasonable judgment, promptly incorporate in a prospectus, supplement or post-effective amendment to the registration statement such information concerning underwriters and the plan of distribution of the Registrable Securities as such managing underwriter or underwriters or such holders reasonably shall furnish to the Company in writing and request be included therein, including, without limitation, with respect to the number of Registrable Securities being sold by such holders to such underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters and with respect to any other terms of the underwritten offering of the Registrable Securities to be sold in such offering; and make all required filings of such prospectus, supplement or post-effective amendment as soon as possible after being notified of the matters to be incorporated in such prospectus, supplement or post-effective amendment; (vi) use its best efforts to register or qualify such Registrable Securities under such securities or "blue sky" laws of such jurisdictions as the holders of a majority of Registrable Securities sought to be registered reasonably request and do any and all other acts and things which may be reasonably necessary or advisable to enable the holders of a majority of Registrable Securities sought to be registered to consummate the disposition in such jurisdictions of the Registrable Securities owned by such holders and keep such registration or qualification in effect for so long as the registration statement remains effective under the Securities Act; provided that the Company shall not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph, (B) subject itself to taxation in any such jurisdiction where it would not otherwise be subject to taxation but for this paragraph or (C) consent to the general service of process in any jurisdiction where it would not otherwise be subject to general service of process but for this paragraph; (vii) notify each seller of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon the discovery that, or of the happening of any event as a result of which, the registration statement covering such Registrable Securities, as then in effect, contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or any fact necessary to make the statements therein not misleading, and promptly prepare and furnish to each such seller a supplement or amendment to the prospectus contained in such registration statement so that such registration statement shall not, and such prospectus as thereafter delivered to the purchasers of such Registrable Securities shall not, contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or any fact necessary to make the statements therein not misleading; (viii) cause all such Registrable Securities to be listed on any securities exchange or established over-the-counter market on which or through which similar securities of the Company are listed or traded and, if not so listed or traded, to be listed on the National Association of Securities Dealers automated quotation system ("Nasdaq") and if listed on Nasdaq, use its reasonable efforts to secure designation of all such Registrable Securities covered by such registration statement as a Nasdaq "national market system security" within the meaning of Rule 11Aa2-1 under the Exchange Act or, failing that, to secure Nasdaq authorization for such Registrable Securities; (ix) make available for inspection by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement, and any attorney, accountant or other agent retained by any such seller or underwriter all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors, employees, attorneys and independent accountants to supply all information reasonably requested by any such sellers, underwriters, attorneys, accountants or agents in connection with such registration statement. Information which the Company determines, in good faith, to be confidential shall not be disclosed by such persons unless (A) the disclosure of such information is necessary to avoid or correct a misstatement or omission in such registration statement, or (B) the release of such information is ordered pursuant to a subpoena or other order from a court of competent jurisdiction. Each seller of Registrable Securities agrees, on its own behalf and on behalf of all its underwriters, accountants, attorneys and agents, that the information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of the Company unless and until such is made generally available to the public. Each seller of Registrable Securities further agrees, on its own behalf and on behalf of all its underwriters, accountants, attorneys and agents, that it will, upon learning that disclosure of such information is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of the information deemed confidential; (x) use its best efforts to comply with all applicable laws related to such registration statement and offering and sale of securities and all applicable rules and regulations of governmental authorities in connection therewith (including, without limitation, the Securities Act and the Exchange Act) and make generally available to its security holders as soon as practicable (but in any event not later than fifteen (15) months after the effectiveness of such registration statement) an earnings statement of the Company and its subsidiaries complying with Section 11(a) of the Securities Act; (xi) permit any Stockholder, which Stockholder, in its sole and exclusive judgment, might be deemed to be an underwriter or controlling person of the Company, to participate in the preparation of such registration statement and to require the insertion therein of material, furnished to the Company in writing, which in the reasonable judgment of such holder and such holder's counsel should be included; (xii) use reasonable best efforts to furnish to each seller of Registrable Securities a signed counterpart of (A) an opinion of counsel for the Company and (B) a "comfort" letter signed by the independent public accountants who have certified the Company's financial statements included or incorporated by reference in such registration statement, covering such matters with respect to such registration statement and, in the case of the accountants' comfort letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' comfort letters delivered to the underwriters in underwritten public offerings of securities for the account of, or on behalf of, an issuer of common stock, such opinion and comfort letters to be dated the date such opinions and comfort letters are customarily dated in such transactions, and covering in the case of such legal opinion, such other legal matters and, in the case of such comfort letter, such other financial matters, as the holders of a majority of the Registrable Securities being sold may reasonably request; and (xiii) take all such other actions as the holders of a majority of the Registrable Securities being sold or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities. (b) Underwriting. Without limiting any of the foregoing, in the event that the offering of Registrable Securities is to be made by or through an underwriter, the Company shall enter into an underwriting agreement with a managing underwriter or underwriters containing representations, warranties, indemnities and agreements customarily included (but not inconsistent with the agreements contained herein) by an issuer of common stock in underwriting agreements with respect to offerings of common stock for the account of, or on behalf of, such issuers. In connection with the sale of Registrable Securities hereunder, any seller of such Registrable Securities may, at its option, require that any and all representations and warranties by, and indemnities and agreements of, the Company to or for the benefit of such underwriter or underwriters (or which would be made to or for the benefit of such an underwriter or underwriters if such sale of Registrable Securities were pursuant to a customary underwritten offering) be made to and for the benefit of such seller and that any or all of the conditions precedent to the obligations of such underwriter or underwriters (or which would be so for the benefit of such underwriter or underwriters under a customary underwriting agreement) be conditions precedent to the obligations of such seller in connection with the disposition of its securities pursuant to the terms hereof. In connection with any offering of Registrable Securities registered pursuant to this Agreement, the Company shall (i) furnish to the underwriter, if any (or, if no underwriter, the sellers of such Registrable Securities), unlegended certificates representing ownership of the Registrable Securities being sold, in such denominations as requested and (ii) instruct any transfer agent and registrar of the Registrable Securities to release any stop transfer order with respect thereto. (c) Return of Prospectuses. Each seller of Registrable Securities hereunder agrees that upon receipt of any notice from the Company of the happening of any event of the kind described in Section 5.04(a)(vii), such seller shall forthwith discontinue such seller's disposition of Registrable Securities pursuant to the applicable registration statement and prospectus relating thereto until such seller's receipt of the copies of the supplemented or amended prospectus contemplated by Section 5.04(a)(vii) and, if so directed by the Company, deliver to the Company all copies, other than permanent file copies, then in such seller's possession of the prospectus current at the time of receipt of such notice relating to such Registrable Securities. In the event the Company shall give such notice, the ninety (90) day period during which such registration statement must remain effective pursuant to this Agreement shall be extended by the number of days during the period from the date of giving of a notice regarding the happening of an event of the kind described in Section 5.04(a)(vii) to the date when all such sellers shall receive such a supplemented or amended prospectus and such prospectus shall have been filed with the Commission. 8.5 Section Registration Expenses. All expenses incident to the Company's performance of, or compliance with, its obligations under this Agreement including, without limitation, all registration and filing fees, all fees and expenses of compliance with securities and "blue sky" laws (including, without limitation, the fees and expenses of counsel for underwriters or placement or sales agents in connection therewith), all printing and copying expenses, all messenger and delivery expenses, all fees and expenses of underwriters and sales and placement agents in connection therewith, all fees and expenses of the Company's independent certified public accountants and counsel (including, without limitation, with respect to "comfort" letters and opinions) (collectively, the "Registration Expenses") shall be borne by the Company; provided, however, that all incremental costs resulting from applicable federal and blue sky registration and filing fees, National Association of Securities Dealers filing fees, and underwriting discounts and commissions allocable to each Stockholder selling Registrable Securities shall be borne by such Stockholder. The Company shall be responsible for the fees and expenses of one legal counsel retained by the holders of a majority of the Registrable Securities included in such registration. Notwithstanding the foregoing, the Company shall not be responsible for the fees and expenses of any additional counsel, or any of the accountants, agents or experts retained by the Stockholders in connection with the sale of Registrable Securities. The Company will pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties, the expense of any annual audit and the expense of any liability insurance) (collectively, "Internal Expenses") and the expenses and fees for listing the securities to be registered on each securities exchange and included in each established over-the-counter market on which similar securities issued by the Company are then listed or traded or for listing on Nasdaq. 8.6 Section Indemnification. (a) By the Company. The Company agrees to indemnify, to the fullest extent permitted by law, each holder of Registrable Securities being sold, its officers, directors, employees and agents and each Person who controls (within the meaning of the Securities Act) such holder or such other indemnified Person against all losses, claims, damages, liabilities and expenses (collectively, the "Losses") caused by, resulting from or relating to any untrue or alleged untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or a fact necessary to make the statements therein not misleading, except insofar as the same are caused by or contained in any information furnished to the Company by or on behalf of such holder expressly for use therein or by such holder's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after the Company has furnished such holder with a sufficient number of copies of the same. In connection with an underwritten offering and without limiting any of the Company's other obligations under this Agreement, the Company shall indemnify such underwriters, their officers, directors, employees and agents and each Person who controls (within the meaning of the Securities Act) such underwriters or such other indemnified Person to the same extent as provided above with respect to the indemnification of the holders of Registrable Securities being sold. (b) By Stockholders. In connection with any registration statement in which a holder of Registrable Securities is participating, each such holder will furnish to the Company in writing information regarding such holder's ownership of Registrable Securities and its intended method of distribution thereof and, to the extent permitted by law, shall indemnify the Company, its directors, officers, employees and agents and each Person who controls (within the meaning of the Securities Act) the Company or such other indemnified Person against all Losses caused by, resulting from or relating to any untrue or alleged untrue statement of material fact contained in the registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is caused by or contained in such information so furnished in writing by or on behalf of such holder; provided, however, that each holder's obligation to indemnify the Company hereunder shall be apportioned between each holder based upon the net amount received by each holder from the sale of Registrable Securities, as compared to the total net amount received by all of the holders of Registrable Securities sold pursuant to such registration statement, no such holder being liable to the Company in excess of such apportionment. (c) Notice. Any Person entitled to indemnification hereunder shall give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification; provided, however, that the failure to give such notice shall not release the indemnifying party from its obligation, except to the extent that the indemnifying party has been materially prejudiced by such failure to provide such notice. (d) Defense of Actions. In any case in which any such action is brought against any indemnified party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not (so long as it shall continue to have the right to defend, contest, litigate and settle the matter in question in accordance with this paragraph) be liable to such indemnified party hereunder for any legal or other expense subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation, supervision and monitoring (unless such indemnified party reasonably objects to such assumption on the grounds that there may be defenses available to it which are different from or in addition to the defenses available to such indemnifying party, in which event the indemnified party shall be reimbursed by the indemnifying party for the expenses incurred in connection with retaining separate legal counsel). An indemnifying party shall not be liable for any settlement of an action or claim effected without its consent. The indemnifying party shall lose its right to defend, contest, litigate and settle a matter if it shall fail to diligently contest such matter (except to the extent settled in accordance with the next following sentence). No matter shall be settled by an indemnifying party without the consent of the indemnified party (which consent shall not be unreasonably withheld). (e) Survival. The indemnification provided for under this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified Person and will survive the transfer of the Registrable Securities and the termination of this Agreement. (f) Contribution. If recovery is not available under the foregoing indemnification provisions for any reason or reasons other than as specified therein, any Person who would otherwise be entitled to indemnification by the terms thereof shall nevertheless be entitled to contribution with respect to any Losses with respect to which such Person would be entitled to such indemnification but for such reason or reasons. In determining the amount of contribution to which the respective Persons are entitled, there shall be considered the Persons' relative knowledge and access to information concerning the matter with respect to which the claim was asserted, the opportunity to correct and prevent any statement or omission, and other equitable considerations appropriate under the circumstances. It is hereby agreed that it would not necessarily be equitable if the amount of such contribution were determined by pro rata or per capita allocation. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not found guilty of such fraudulent misrepresentation. Notwithstanding the foregoing, no Stockholder shall be required to make a contribution in excess of the net amount received by such holder from the sale of Registrable Securities. 9 ARTICLE 10 Preemptive Rights 10.1 Section Preemptive Rights. (a) If, at any time during the term of this Agreement and prior to the consummation of the Initial Public Offering, the Company proposes to issue and sell shares of Common Stock to any Person (other than pursuant to the Stock Option Plan), Dina, JLL, Coaches and CIBC (each, a "Preemptive Rights Stockholder" and collectively, the "Preemptive Rights Stockholders") shall have the right to purchase from the Company (at the same price per share paid by the Investors pursuant to the Investment) a number of shares of Common Stock equal to such Preemptive Rights Stockholders' Applicable Percentage of the total number of shares of Common Stock proposed to be issued and sold by the Company. Each Stockholder hereby agrees that the Company may undertake one or more issuances of Common Stock at the price of $204.918 per share, subject to the Preemptive Rights Stockholders' rights under this Section 6.01. Each Stockholder further hereby acknowledges and agrees that the payment of $204.918 per share shall be conclusive and binding as evidence of the fair market value of the Common Stock at such time. The per share price of $204.918 established by this Section 6.01(a) shall be subject to the provisions of Section 7.13 hereof. (b) If the Company proposes to issue and sell shares of Common Stock, it shall give each Preemptive Rights Stockholder written notice of such issuance, describing the price and terms upon which the Company intends to issue the same, the total number of shares to be sold and the amount of Common Stock eligible to be purchased by each Preemptive Rights Stockholder pursuant to Section 6.01(a) above. Any revision of the terms of such intended issuance shall require renotification to the Preemptive Rights Stockholders and a restarting of the ten (10) business day period provided in Section 6.01(c) below. (c) Upon receipt by each Preemptive Rights Stockholder of the written notice of the Company pursuant to Section 6.01(b) above, each Preemptive Rights Stockholder shall have ten (10) business days during which to exercise its right to purchase its proportionate share of Common Stock for the price and upon the terms specified in the aforesaid notice at the price set forth in Section 6.01(a) above. If any Preemptive Rights Stockholder fails to notify the Company of its exercise of the rights granted by this Section 6.01 within such ten (10) business day period, such Preemptive Rights Stockholder shall have no further rights with regard to the purchase of any shares of Common Stock at such price and upon the terms specified in the notice to such Preemptive Rights Stockholder, subject to Section 6.01(d) below. (d) If the Company has not sold the shares of Common Stock included in the notice issued pursuant to Section 6.01(b) above within sixty (60) days following the expiration of the ten (10) business day period referred to above, the Company shall not thereafter issue or sell any shares of Common Stock without also offering the same to the Preemptive Rights Stockholders in the manner provided above. (e) Each share of Common Stock issued and sold to a Preemptive Rights Stockholder pursuant to the rights set forth in this Section 6.01 shall be subject to this Agreement and each certificate representing such shares of Common Stock shall bear substantially the legend set forth in Section 7.01 hereof. 11 ARTICLE 12 Miscellaneous 12.1 Section Legends. Each of the Stockholders agrees that substantially the following legend shall be placed on the certificates representing any Shares owned by them: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF ("TRANSFERRED") EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF THE STOCKHOLDERS AGREEMENT DATED AS OF APRIL 24, 2001 AND MAY NOT BE TRANSFERRED UNLESS SUCH TRANSFER COMPLIES WITH THE PROVISIONS OF SUCH STOCKHOLDERS AGREEMENT. A COPY OF SUCH STOCKHOLDERS AGREEMENT IS ON FILE WITH THE SECRETARY OF MCII HOLDINGS (USA), INC. AND IS AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST THEREFOR. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF THE AFORESAID AGREEMENT. From and after the date of this Agreement, any reference in any legend on any certificate representing any Shares to the Stockholders Agreement shall be deemed for all purposes to refer to this Agreement. 12.2 Section Specific Performance. Each of the Stockholders acknowledges and agrees that in the event of any breach of this Agreement, the non-breaching party or parties would be irreparably harmed and could not be made whole by monetary damages. The Stockholders hereby agree that in addition to any other remedy to which they may be entitled at law or in equity, they shall be entitled to compel specific performance of this Agreement in any action instituted in any court of the United States or any state thereof having subject matter jurisdiction for such action. 12.3 Section Headings. The headings in this Agreement are for convenience of reference only and shall not control or affect the meaning o construction of any provisions hereof. 12.4 Section Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein, and there are no restrictions, promises, representations, warranties, covenants, conditions or undertakings with respect to the subject matter hereof, other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties hereto with respect to the subject matter hereof. 12.5 Section Proxy. For so long as this Agreement is in effect, if any Stockholder fails or refuses to vote that Stockholder's Shares pursuant to this Agreement, then, without further action by such Stockholder, the other Stockholder shall have an irrevocable proxy coupled with an interest to vote such Stockholder's Shares in accordance with this Agreement, and each Stockholder hereby grants to the other Stockholder such irrevocable proxy coupled with an interest. 12.6 Section Notices. All notices and other communications hereunder shall be in writing and shall be delivered personally or by next-day courier or telecopied, with confirmation of receipt, to the parties at the addresses specified below (or at such other address for a party as shall be specified by like notice; provided that notices of change of address shall be effective only upon receipt thereof). Any such notice shall be effective upon receipt, if personally delivered or telecopied, or one day after delivery to a courier for next-day delivery. If to the Company, to: MCII Holdings (USA), Inc. c/o Motor Coach Industries International, Inc. 1700 East Golf Road Schaumburg, Illinois 60173 Attention: Timothy J. Nalepka, Esquire Facsimile: (847) 285-2095 If to JLL, to: Joseph Littlejohn & Levy Fund III LP 450 Lexington Avenue, Suite 3350 New York, New York 10017 Attention: Mr. Jeffrey C. Lightcap Facsimile: (212) 286-8626 with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP One Rodney Square Wilmington, Delaware 19801 Attention: Robert B. Pincus, Esquire Facsimile: (302) 651-3001 If to CIBC Argosy, CIBC WMC or CMF, to: c/o CIBC World Markets Corp. 425 Lexington Avenue New York, New York 10017 Attention: Stephen A. Flyer, Esquire Facsimile: (212) 885-4946 with a copy to: Cahill Gordon & Reindel 80 Pine Street New York, New York 10005-1702 Attention: Roger Meltzer, Esquire Facsimile: (212) 269-5420 If to Dina, to: Consorcio G Grupo Dina, S.A. de C.V. Tlacoquemecatl No. 41 Colonia Del Valle 03100, Mexico D.F., Mexico Attention: Mr. Gamaliel Garcia Cortes Facsimile: 011-525-420-3977 with a copy to: Gibson, Dunn & Crutcher 200 Park Avenue New York, New York 10166 Attention: Blake T. Franklin, Esq. Facsimile: (212) 351-4035 12.7 Section Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to the principles and conflicts of law thereof. THE PARTIES HERETO WAIVE THEIR RIGHT TO A JURY TRIAL WITH RESPECT TO DISPUTES HEREUNDER; ALL SUCH DISPUTES SHALL BE SETTLED BY BINDING ARBITRATION PURSUANT TO THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION IN NEW YORK, NEW YORK AND THE ORDER OF SUCH ARBITRATORS SHALL BE FINAL AND BINDING ON ALL PARTIES HERETO AND MAY BE ENTERED AS A JUDGMENT IN A COURT HAVING JURISDICTION OVER THE PARTIES. Each Stockholder hereby agrees and consents to the jurisdiction of the Chancery Court of and for New Castle County, Delaware (the "Court"). Dina hereby irrevocably consents to the service of any and all process in any such suit, action or proceeding by the delivery of such process to such party at the address and in the manner provided in Section 7.06. Dina has appointed The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801, as its authorized agent (the "Dina Authorized Agent") upon which process may be served in any suit, action or proceeding based on this Agreement which may be instituted in any Court, by any Stockholder or the Company, and Dina expressly accepts the jurisdiction of any such Court in respect of any such suit, action or proceeding. Such appointment shall be irrevocable. Dina represents and warrants that the Dina Authorized Agent has agreed to act as said agent, respectively, for service of process, and Dina agrees to take any and all action, including the filing of any and all documents and instruments, which may be necessary to continue such appointment in full force and effect. Service of process upon the Dina Authorized Agent and written notice of such service to Dina shall be deemed, in every respect, effective service of process upon Dina. 12.8 Section Severability. The invalidity, illegality or unenforceability of one or more of the provisions of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of this Agreement, including any such provision, in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law. 12.9 Section Successors; Assigns. The provisions of this Agreement shall be binding upon the parties hereto and their respective heirs, successors and permitted assigns. Neither this Agreement nor the rights or obligations of any Stockholder hereunder may be assigned, except in connection with the transfer by a Stockholder of shares of Common Stock to a Permitted Transferee. Any such attempted assignment in contravention of this Agreement shall be void and of no effect. 12.10 Section Amendments. This Agreement may not be amended, modified or supplemented unless such modification is in writing and signed by the Company and Stockholders owning at least 662/3% of the outstanding Shares as of the date hereof; provided, however, that no such amendment shall be effective against any party that does not consent to such amendment, if such party would be materially and adversely affected thereby. 12.11 Section Waiver. Any waiver (express or implied) of any default or breach of this Agreement shall not constitute a waiver of any other or subsequent default or breach. 12.12 Section Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. 12.13 Section Recapitalization. In the event that any capital stock or other securities are issued with respect to, in exchange for or in substitution of any shares of Common Stock (other than upon the conversion thereof) by reason of any reorganization, recapitalization, reclassification, merger, consolidation, spin-off, partial or complete liquidation, stock dividend, split-up, sale of assets, distribution to stockholders or combination of the shares of Common Stock (other than upon the conversion thereof) or any other change in the Company's capital structure, appropriate adjustments shall be made to the terms hereof if necessary to fairly and equitably preserve the original rights and obligations of the parties hereto under this Agreement. 12.14 Section Termination. Unless earlier terminated, this Agreement shall terminate on the fifth anniversary of the date hereof; provided, however, that the provisions of Article V shall survive any such termination. [SIGNATURE PAGES FOLLOW] IN WITNESS WHEREOF, the undersigned hereby agree to be bound by the terms and provisions of this Amended and Restated Stockholders Agreement as of the date first above written. MCII HOLDINGS (USA), INC. By: ___________________________________ Name: Title: JOSEPH LITTLEJOHN & LEVY FUND III, L.P. By: JLL ASSOCIATES III, LLC, its General Partner By: ___________________________________ Managing Member CIBC WG ARGOSY MERCHANT FUND 2, L.L.C. By: ___________________________________ Stephen A. Flyer, authorized signatory CO-INVESTMENT MERCHANT FUND 3, LLC By: ___________________________________ Stephen A. Flyer, authorized signatory CIBC WMC, Inc. By: ____________________________________ COACHES, LLC By: JOSEPH LITTLEJOHN & LEVY FUND III, L.P. By: JLL ASSOCIATES III, LLC, its General Partner By: ___________________________________ Managing Member CONSORCIO G GRUPO DINA, S.A. de C.V. By: ___________________________________ Name: Title: Annex I Shares of Name of Common Stock Stockholder Owned (#) ----------- --------- Joseph Littlejohn & Levy Fund III, L.P. 794,617.9 Coaches, LLC 11,340.5 Consorcio G Grupo Dina, S.A. de C.V. 302,250 CIBC WG ArgosyMerchant Fund 2, L.L.C. 89,712.141 Co-InvestmentMerchant Fund 3, LLC 9,967.461 CIBC WMC, Inc. 34,8921 Estate of Rafael Gomez Flores ___2 C. Roberto Cordaro 488 - ------------------- 1 Includes shares of Nonvoting Common Stock. 2 Mr. Gomez Flores has been granted option to purchase an aggregate 214,285 shares of Common Stock pursuant to the Stock Option Plan which options were transferred to his estate upon his death. EX-12 12 ex121_10k00.txt RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12.1 MOTOR COACH INDUSTRIES INTERNATIONAL, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
------------------------------------------------- 2000 1999 1998 1997 1996 -------- ------- ------- ------- ------- WITH PUSH-DOWN Income (loss) from continuing operations before provision (benefit) for income taxes $(75,386) $14,273 $46,439 $37,794 $26,598 Add: Interest expense, including amortization 60,155 58,851 47,944 45,888 39,184 Rent expense (one-third) 1,242 1,451 1,356 1,128 1,147 -------- ------- ------- ------- ------- Earnings, as adjusted $(13,989) $74,575 $95,739 $84,810 $66,929 ======== ======= ======= ======= ======= Fixed charges: Interest expense, including amortization $ 60,155 $58,851 $47,944 $45,888 $39,184 Rent expense (one-third) 1,242 1,451 1,356 1,128 1,147 -------- ------- ------- ------- ------- Fixed charges $ 61,397 $60,302 $49,300 $47,016 $40,331 ======== ======= ======= ======= ======= Ratio of earnings to fixed charges -- 1.2 1.9 1.8 1.7 ======== ======= ======= ======= ======= Coverage deficiency $(75,386) ======== WITHOUT PUSH-DOWN Income from continuing operations before provision for income taxes $(75,386) $25,874 $71,633 $59,429 $46,148 Add: Interest expense, including amortization 60,155 47,250 22,750 24,253 19,634 Rent expense (one-third) 1,242 1,451 1,356 1,128 1,147 -------- ------- ------- ------- ------- Earnings, as adjusted $(13,989) $74,575 $95,739 $84,810 $66,929 ======== ======= ======= ======= ======= Fixed charges: Interest expense, including amortization $ 60,155 $47,250 $22,750 $24,253 $19,634 Rent expense (one-third) 1,242 1,451 1,356 1,128 1,147 -------- ------- ------- ------- ------- Fixed charges $ 61,397 $48,701 $24,106 $25,381 $20,781 ======== ======= ======= ======= ======= Ratio of earnings to fixed charges -- 1.5 4.0 3.3 3.2 ======== ======= ======= ======= ======= Coverage deficiency $(75,386) ========
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