UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended September 30, 2008 |
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OR |
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o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-33274
TRAVELCENTERS OF AMERICA LLC
(Exact name of registrant as specified in its charter)
Delaware |
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20-5701514 |
(State or Other Jurisdiction of Incorporation or |
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(I.R.S. Employer Identification No.) |
Organization) |
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24601 Center Ridge Road, Suite 200, Westlake, OH 44145-5639
(Address of Principal Executive Offices)
(440) 808-9100
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer x |
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Smaller reporting company o |
(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
N umber of Common Shares outstanding at November 7, 2008: 16,048,865 common shares.
TRAVELCENTERS OF AMERICA LLC
FORM 10-Q
September 30, 2008
As used herein the terms we, us, our and TA include TravelCenters of America LLC and its consolidated subsidiaries unless otherwise expressly stated or the context otherwise requires.
TravelCenters of America LLC
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except share data)
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September 30, |
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December 31, |
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2008 |
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2007 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
144,049 |
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$ |
148,876 |
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Restricted cash |
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4,801 |
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Restricted investments |
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271,415 |
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Accounts receivable (less allowance for doubtful accounts of $3,319 as of September 30, 2008 and $2,327 as of December 31, 2007) |
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110,393 |
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110,555 |
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Inventories |
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149,013 |
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148,005 |
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Leasehold improvement receivable |
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11,228 |
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25,000 |
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Other current assets |
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59,931 |
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37,362 |
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Total current assets |
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474,614 |
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746,014 |
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Property and equipment, net |
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419,431 |
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397,266 |
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Intangible assets, net |
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36,595 |
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39,962 |
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Leasehold improvement receivable |
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10,597 |
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63,320 |
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Other noncurrent assets |
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20,291 |
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16,759 |
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Total assets |
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$ |
961,528 |
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$ |
1,263,321 |
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Liabilities and Shareholders Equity |
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Current liabilities: |
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Current maturities of long term debt |
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$ |
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$ |
262,866 |
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Accounts payable |
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160,135 |
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154,906 |
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Other current liabilities |
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131,758 |
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150,011 |
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Total current liabilities |
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291,893 |
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567,783 |
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Other noncurrent liabilities |
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73,970 |
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55,479 |
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Capital lease obligations |
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104,240 |
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105,859 |
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Deferred leasehold improvement allowance |
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89,683 |
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94,760 |
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Total liabilities |
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559,786 |
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823,881 |
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Commitments and contingencies |
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Shareholders equity: |
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Common shares, no par value, 16,048,985 and 14,489,265 shares issued and outstanding at September 30, 2008 and December 31, 2007, respectively |
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543,834 |
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539,476 |
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Accumulated other comprehensive income |
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774 |
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1,272 |
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Accumulated deficit |
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(142,866 |
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(101,308 |
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Total shareholders equity |
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401,742 |
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439,440 |
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Total liabilities and shareholders equity |
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$ |
961,528 |
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$ |
1,263,321 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
1
TravelCenters of America LLC
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)
(in thousands, except per share data)
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Three Months Ended |
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September 30, |
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2008 |
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2007 |
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Revenues: |
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Fuel |
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$ |
1,832,414 |
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$ |
1,447,583 |
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Non-fuel |
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321,429 |
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332,102 |
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Rent and royalties |
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3,850 |
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3,933 |
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Total revenues |
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2,157,693 |
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1,783,618 |
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Cost of goods sold (excluding depreciation): |
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Fuel |
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1,747,106 |
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1,392,628 |
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Non-fuel |
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134,991 |
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143,088 |
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Total cost of goods sold (excluding depreciation) |
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1,882,097 |
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1,535,716 |
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Operating expenses: |
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Site level operating |
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166,567 |
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163,287 |
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Selling, general & administrative |
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21,256 |
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32,597 |
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Real estate rent |
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58,696 |
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57,908 |
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Depreciation and amortization |
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10,445 |
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5,976 |
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Total operating expenses |
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256,964 |
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259,768 |
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Income (loss) from operations |
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18,632 |
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(11,866 |
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Equity in income of joint venture |
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465 |
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547 |
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Interest income |
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862 |
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7,043 |
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Interest expense |
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(3,154 |
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(5,108 |
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Income (loss) before income taxes |
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16,805 |
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(9,384 |
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Provision for income taxes |
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150 |
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7,074 |
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Net income (loss) |
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$ |
16,655 |
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$ |
(16,458 |
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Other comprehensive income (loss), net of tax: |
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Foreign currency translation adjustments, (net of taxes of $(101) and $132, respectively) |
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(294 |
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676 |
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Comprehensive income (loss) |
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$ |
16,361 |
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$ |
(15,782 |
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Weighted average shares outstanding: |
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Basic |
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15,084 |
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13,884 |
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Diluted |
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15,359 |
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13,884 |
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Income (loss) per share: |
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Basic |
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$ |
1.10 |
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$ |
(1.19 |
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Diluted |
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$ |
1.08 |
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$ |
(1.19 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
TravelCenters of America LLC
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)
(in thousands, except per share data)
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Company |
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Predecessor |
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Nine Months |
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Eight Months |
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One Month |
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Ended |
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Ended |
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Ended |
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September 30,
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September 30,
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January 31,
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Revenues: |
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Fuel |
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$ |
5,415,499 |
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$ |
3,266,012 |
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$ |
285,053 |
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Non-fuel |
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916,874 |
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732,371 |
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66,795 |
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Rent and royalties |
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11,010 |
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8,361 |
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834 |
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Total revenues |
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6,343,383 |
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4,006,744 |
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352,682 |
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Cost of goods sold (excluding depreciation): |
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Fuel |
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5,227,879 |
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3,153,507 |
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270,694 |
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Non-fuel |
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384,530 |
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309,611 |
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27,478 |
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Total cost of goods sold (excluding depreciation) |
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5,612,409 |
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3,463,118 |
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298,172 |
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Operating expenses: |
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Site level operating |
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484,532 |
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361,173 |
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36,093 |
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Selling, general & administrative |
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77,298 |
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69,621 |
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8,892 |
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Real estate rent |
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174,789 |
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132,167 |
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931 |
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Depreciation and amortization |
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32,516 |
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19,333 |
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5,786 |
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Merger related |
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44,972 |
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Total operating expenses |
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769,135 |
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582,294 |
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96,674 |
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Loss from operations |
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(38,161 |
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(38,668 |
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(42,164 |
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Debt extinguishment expenses |
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(16,140 |
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Equity in income of joint venture |
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821 |
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737 |
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Interest income |
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6,171 |
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12,161 |
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1,131 |
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Interest expense |
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(9,892 |
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(9,375 |
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(5,345 |
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Loss before income taxes |
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(41,061 |
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(35,145 |
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(62,518 |
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Provision (benefit) for income taxes |
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497 |
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(2,730 |
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(40,470 |
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Net loss |
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$ |
(41,558 |
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$ |
(32,415 |
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$ |
(22,048 |
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Other comprehensive loss, net of tax: |
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Foreign currency translation adjustments, (net of taxes of $(171), $361 and $(47), respectively) |
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(498 |
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1,243 |
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(47 |
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Comprehensive loss |
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$ |
(42,056 |
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$ |
(31,172 |
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$ |
(22,095 |
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Weighted average shares outstanding: |
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Basic and diluted |
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14,498 |
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10,519 |
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6,937 |
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Loss per share: |
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Basic and diluted |
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$ |
(2.87 |
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$ |
(3.08 |
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$ |
(3.18 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
TravelCenters of America LLC
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
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Company |
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Predecessor |
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Nine Months |
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Eight Months |
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One Month |
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Ended |
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Ended |
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Ended |
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September 30,
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September 30,
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January 31,
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Cash flows from operating activities: |
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Net loss |
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$ |
(41,558 |
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$ |
(32,415 |
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$ |
(22,048 |
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Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
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Noncash rent expense |
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20,987 |
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12,428 |
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34 |
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Cash received for leasehold improvements sold to Hospitality Trust |
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69,839 |
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13,667 |
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Share based compensation expense |
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782 |
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260 |
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4,268 |
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Depreciation and amortization |
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32,516 |
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19,333 |
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5,786 |
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Equity in income of joint venture |
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(821 |
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(737 |
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Amortization of deferred financing costs |
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312 |
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267 |
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Debt extinguishment expenses |
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16,140 |
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Deferred income tax provision and change in valuation allowance |
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(2,730 |
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(33,827 |
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Provision for doubtful accounts |
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1,284 |
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446 |
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50 |
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Changes in assets and liabilities, net of effects of acquisitions: |
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Accounts receivable |
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(869 |
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(28,012 |
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9,112 |
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Inventories |
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(1,048 |
) |
(15,357 |
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4,779 |
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Other current assets |
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(22,578 |
) |
(15,477 |
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(10,452 |
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Accounts payable and other current accrued liabilities |
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7,014 |
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924 |
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59,966 |
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Other, net |
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(7,050 |
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(7,938 |
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5,950 |
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Net cash provided by (used in) operating activities |
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58,810 |
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(55,608 |
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40,025 |
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Cash flows from investing activities: |
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Acquisitions of businesses |
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(25,059 |
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Proceeds from asset sales |
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2,753 |
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19 |
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35 |
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Proceeds from assets sold to Hospitality Trust |
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1,438 |
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Capital expenditures |
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(71,153 |
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(75,905 |
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(7,176 |
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Net cash used in investing activities |
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(68,400 |
) |
(99,507 |
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(7,141 |
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Cash flows from financing activities: |
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Decrease in checks drawn in excess of bank balances |
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(8,170 |
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Proceeds from issuance of common shares |
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205,338 |
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Long term debt repayments |
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(54 |
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Cash security for letters of credit refunded (deposited) |
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4,801 |
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(37,007 |
) |
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Net cash provided by (used in) financing activities |
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4,801 |
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168,331 |
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(8,224 |
) |
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Effect of exchange rate changes on cash |
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(38 |
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114 |
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(7 |
) |
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Net increase (decrease) in cash |
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(4,827 |
) |
13,330 |
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24,653 |
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Cash and cash equivalents at the beginning of the period |
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148,876 |
|
245,010 |
|
55,297 |
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Cash and cash equivalents at the end of the period |
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$ |
144,049 |
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$ |
258,340 |
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$ |
79,950 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
TravelCenters of America LLC
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except for per share amounts)
1. Basis of Presentation, Business Description and Organization
TravelCenters of America LLC, together with its subsidiaries, which we refer to collectively as the Company, we, us and our, operates and franchises travel centers under the TravelCenters of America, TA and Petro brands primarily along the U.S. interstate highway system. Our customers include trucking fleets and their drivers, independent truck drivers and motorists. Our travel centers are typically 20 to 25 acre sites and provide our customers with diesel fuel and gasoline as well as non-fuel products and services such as truck repair and maintenance services, full service restaurants, quick service restaurants, travel and convenience stores and various other driver services. We also collect rents and franchise royalties from our franchisees.
The accompanying condensed consolidated financial statements are unaudited. These unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, applicable for interim financial statements. Therefore, the disclosures do not include all the information necessary for complete financial statements in accordance with GAAP. These unaudited interim financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2007. In the opinion of our management, all adjustments, which include only normal recurring adjustments, considered necessary for a fair presentation have been included. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.
At September 30, 2008, our business included 236 travel centers in 41 states and in Canada, 167 of which were operated under the Travel Centers of America or TA brand names and 69 that were operated under the Petro brand name. We operated 189 of these travel centers, which we refer to as Company operated sites, and our franchisees operated 47 of these travel centers, including 10 travel centers which our franchisees sublease from us and 37 travel centers which our franchisees own or lease from other lessors.
We were formed as a Delaware limited liability company on October 10, 2006. Our initial capitalization of one dollar was provided by Hospitality Properties Trust, or Hospitality Trust, on our formation date. Until January 31, 2007, we were a wholly owned, indirect subsidiary of Hospitality Trust that conducted no business activities. On January 31, 2007, Hospitality Trust acquired Travel Centers of America, Inc., our predecessor, through a merger of a subsidiary of ours with and into TravelCenters of America, Inc., restructured the business of our predecessor and distributed our then outstanding shares to Hospitality Trust shareholders in a spin off transaction. The principal effects of the restructuring were that (i) our predecessor became our 100% owned subsidiary, (ii) subsidiaries of Hospitality Trust that we do not own became owners of the real estate at substantially all of the travel centers and certain other assets previously owned by our predecessor, (iii) we entered a lease for that real estate and those other assets with those subsidiaries of Hospitality Trust, which we refer to as the TA Lease, and (iv) all of the outstanding indebtedness of our predecessor was repaid in full. We refer to these January 31, 2007 events as the HPT Transaction (see Note 3). We retained the balance of the assets previously owned by our predecessor and continued their operations. We sometimes refer to Hospitality Trust and the subsidiaries of Hospitality Trust from which we lease properties collectively as Hospitality Trust.
On May 30, 2007, we acquired Petro Stopping Centers, L.P., or Petro, from Petro Stopping Centers Holdings, L.P., or Petro Holdings, which transaction we refer to as the Petro Acquisition (see Note 3). Also on May 30, 2007, Hospitality Trust acquired Petro Holdings, which owned the real estate of 40 Petro travel centers. Simultaneously with Hospitality Trusts acquisition of this real estate, we leased these 40 travel centers from Hospitality Trust. We refer to this lease as the Petro Lease. On September 1, 2008, Petro merged with and into our wholly owned subsidiary TA Operating LLC. At that time, Petros separate legal existence ceased; however, we continue to operate Petros travel centers under the Petro brand.
2. Recently Issued Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements, or FAS 157. FAS 157 provides a common fair value hierarchy for companies to follow to determine fair value measurements in the preparation of financial statements and expands disclosure requirements relating to how such fair value measurements were developed. FAS 157 clarifies the principle that fair value should be based on the assumptions that the marketplace would use when pricing an asset or liability, rather than company specific data. FAS 157 is effective for fiscal years beginning after November 15, 2007. However, on February 12, 2008, the FASB issued Staff Position 157-2 which delayed the effective date of FAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair
5
TravelCenters of America LLC
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except for per share amounts)
value in the financial statements on a recurring basis. For items within its scope, this Staff Position defers the effective date of FAS 157 to fiscal years beginning after November 15, 2008. The Company adopted FAS 157 effective January 1, 2008, for its financial assets and liabilities and this adoption did not have a material effect on the consolidated financial statements. We do not believe that the adoption, effective January 1, 2009, of FAS 157 for our non-financial assets and liabilities will have a material effect on our consolidated financial statements.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations, or FAS 141(R). FAS 141(R) establishes principles and requirements for how the acquirer shall recognize and measure in its financial statements the identifiable assets acquired, liabilities assumed, any non-controlling interest in the acquiree and goodwill acquired in a business combination. FAS 141(R) is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the effect that adopting FAS 141(R) will have on our consolidated financial statements.
3. HPT Transaction and Petro Acquisition
On January 31, 2007, the HPT Transaction was consummated and we entered the TA Lease. On May 30, 2007, we consummated the Petro Acquisition and entered the Petro Lease. Significant differences exist between our statement of operations and comprehensive income (loss) and that of our predecessor.
The following unaudited pro forma information presents our results of operations for the 2007 periods as if both the HPT Transaction and the Petro Acquisition had occurred on January 1, 2007:
|
|
Three Months
|
|
Nine Months
|
|
|||
|
|
|
|
|
|
|||
Total revenues |
|
$ |
1,783,618 |
|
$ |
5,234,089 |
|
|
Net loss |
|
$ |
(16,458 |
) |
$ |
(79,844 |
) |
|
Loss per common share |
|
$ |
(1.19 |
) |
$ |
(7.44 |
) |
|
These pro forma results of operations are presented for comparative purposes only and do not purport to be indicative of the results of operations that actually would have resulted had the HPT Transaction and the Petro Acquisition occurred at the beginning of the period presented, or that may result in the future. The pro forma results for the nine months ended September 30, 2007 include $66,554 of merger related expenses, $16,662 of debt extinguishment expenses and $4,268 of share based compensation expense, each incurred by our predecessor or Petro as a result of the HPT Transaction or our Petro Acquisition, and $15,251 of expenses related to employee retention and separation payments. The pro forma results for the three months ended September 30, 2007 include $6,882 of expenses related to employee retention and separation payments. We do not include motor fuel taxes in our fuel revenues and fuel cost of sales; however, prior to the Petro Acquisition, Petro included motor fuel taxes in their fuel revenues and fuel cost of sales. For purposes of the pro forma presentation provided above, these amounts, for periods prior to May 30, 2007, have not been removed from Petros reported revenues for periods prior to the Petro Acquisition. For the nine months ended September 30, 2007, the total revenues presented above include $130,240 of motor fuel taxes that were also included in fuel cost of sales.
6
TravelCenters of America LLC
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except for per share amounts)
4. Earnings Per Share
As of the date of the HPT Transaction and continuing through September 30, 2008, we did not have any share options or warrants outstanding. During the quarter ended September 30, 2008, we issued 1,540,000 common shares to Hospitality Trust under the terms of a rent deferral agreement with HPT (see Note 8) and 5,000 common shares under our equity incentive plan (see Note 7).
The following table reconciles our basic earnings per common share to diluted earnings per common share. The assumed exercise of our predecessors stock options and warrants, all of which were cancelled in connection with the HPT Transaction, would have had an anti-dilutive effect on loss per share for the one month period ended January 31, 2007. Our unvested common share grants would have had an anti-dilutive effect on our loss per common share for the nine months ended September 30, 2008 and the three months and eight months ended September 30, 2007.
|
|
|
|
|
|
Nine months |
|
Eight months |
|
One month |
|
|||||
|
|
Three months ended |
|
ended |
|
ended |
|
Ended |
|
|||||||
|
|
September 30, |
|
September 30, |
|
September 30, |
|
January 31, |
|
|||||||
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
2007 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Determination of shares: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Weighted average common shares outstanding |
|
15,084 |
|
13,884 |
|
14,498 |
|
10,519 |
|
6,937 |
|
|||||
Dilutive effect of unvested shares issued under equity incentive plan |
|
275 |
|
|
|
|
|
|
|
|
|
|||||
Diluted weighted average common shares outstanding |
|
15,359 |
|
13,884 |
|
14,498 |
|
10,519 |
|
6,937 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Basic earnings (loss) per common share |
|
$ |
1.10 |
|
$ |
(1.19 |
) |
$ |
(2.87 |
) |
$ |
(3.08 |
) |
$ |
(3.18 |
) |
Diluted earnings (loss) per common share |
|
$ |
1.08 |
|
$ |
(1.19 |
) |
$ |
(2.87 |
) |
$ |
(3.08 |
) |
$ |
(3.18 |
) |
5. Inventories
Inventories consisted of the following:
|
|
September 30, |
|
December 31, |
|
||
|
|
2008 |
|
2007 |
|
||
|
|
|
|
|
|
||
Non-fuel merchandise |
|
$ |
109,618 |
|
$ |
105,222 |
|
Petroleum products |
|
39,395 |
|
42,783 |
|
||
Total inventories |
|
$ |
149,013 |
|
$ |
148,005 |
|
6. Restricted Investments, Current Maturities of Long Term Debt and Credit Facility
The 9% Notes. Simultaneously with the Petro Acquisition, we and Hospitality Trust made arrangements to call Petros 9% Senior Secured Notes due 2012, which we refer to as the 9% Notes, by depositing with the trustee for the 9% Notes U.S. Treasury obligations sufficient to effect a covenant defeasance, to pay all of the interest due on the 9% Notes until the redemption date and to pay the full amount of the 9% Notes, including the redemption premium, on the redemption date of February 15, 2008. On December 31, 2007, $250,000 in principal amount of the 9% Notes was outstanding. The 9% Notes were our obligations and remained so until the redemption date, and are included on our balance sheet as of December 31, 2007, at their estimated fair value, which includes the redemption premium. On February 15, 2008, we paid the 9% Notes, the redemption premium and accrued interest using funds from the restricted investments that had been held by the trustee for that purpose.
7
TravelCenters of America LLC
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except for per share amounts)
Revolving Credit Facility. We have a $100,000 revolving credit agreement, or our credit facility, under which a maximum of $100,000 may be drawn, repaid and redrawn until maturity in November 2012. The maximum amount is subject to limits based on qualified collateral. The credit facility may be used for general business purposes and provides for the issuance of letters of credit. Generally, no principal payments are due until maturity. Credit facility borrowings bear interest at LIBOR plus a spread that is currently 100 basis points, subject to adjustment based upon facility availability, utilization and other requirements. The credit facility is collateralized principally by our accounts receivable and inventory. On July 8, 2008, we entered an amendment to the credit facility to add as qualified collateral certain receivables and inventory related to our Petro sites, which assets had been previously excluded from the collateral supporting our credit facility.
The credit facility requires maintenance of collateral, limits the incurrence of debt and liens, restricts our making certain investments and the payment of dividends and other distributions, requires a minimum fixed charge ratio under certain circumstances and has other customary covenants and conditions. The credit facility provides for acceleration of principal and interest payments upon an event of default. Events of default include, but are not limited to, failure to pay interest or other amounts due, a change in control of us, as defined in the credit facility, and our default of the lease agreements with Hospitality Trust or our management and shared services agreement with Reit Management & Research LLC, or Reit Management.
At December 31, 2007 and September 30, 2008, there were no amounts outstanding under our revolving credit facility, but at September 30, 2008, we had outstanding $69,613 of letters of credit issued under this facility, which we caused to be issued to secure certain purchases, insurance, fuel tax and other trade obligations.
7. Shareholders Equity and Equity Incentive Plans
On January 31, 2007, as part of the HPT Transaction, Hospitality Trust distributed 8,808,575 of our common shares to its shareholders in a spin off transaction. In July and August 2007 we issued an additional 5,335,090 of our common shares in a public offering.
Pursuant to the rent deferral agreement described in Note 8, on August 11, 2008, we issued to Hospitality Trust 1,540,000 common shares, approximately 9.6% of our shares outstanding after this new issuance. In the event we do not defer in full the permitted amounts through December 31, 2009, a pro-rata amount of our shares issued to Hospitality Trust may be repurchased by us from Hospitality Trust for nominal consideration. This deferral agreement also includes a prohibition on share repurchases and dividends by us while any deferred rent remains unpaid. The shares issued to Hospitality Trust were valued in the aggregate at $3,577, their estimated fair value based on the closing price of our common shares on the date of issuance, and were recorded in our consolidated financial statements as an increase in shareholders equity with an offsetting increase in a deferred financing cost asset that will be amortized into interest expense over the period through December 31, 2009.
Equity Incentive Plans. An aggregate of 2,000,000 of our common shares were authorized for issuance under the terms of our 2007 Equity Compensation Plan, or the Plan. During the nine months ended September 30, 2008, 30,000 shares were awarded under the Plan. These awards were valued at an aggregate value of $70 based on the closing prices of our shares on the exchange on which they are traded on the dates of the grants. As of September 30, 2008, 1,634,680 shares remained available for issuance under our Plan. We recognized $232 and $782 of noncash share based compensation expense for the three and nine month periods ended September 30, 2008, respectively, and recognized $260 of such expense during the eight months ended September 30, 2007.
Our predecessor had a share option plan that we did not assume. All 939,375 share options that were outstanding under our predecessors share option plan as of December 31, 2006 were cancelled as part of the HPT Transaction on January 31, 2007. Our predecessor recognized share based compensation expense of $4,268 in January 2007 when its outstanding options vested and were cancelled as a result of the HPT Transaction.
8. Related Party Transactions
One of our Managing Directors, Barry Portnoy, is a managing trustee of Hospitality Trust and the Chairman and majority owner of Reit Management. Our other Managing Director and President is also an executive vice president of Reit Management. Our Treasurer and Chief Financial Officer is also a senior vice president of Reit Management. In addition to providing services to us, Reit Management also provides services to Hospitality Trust. Further, Hospitality Trust owns approximately 9.6% of our outstanding common shares. For these reasons, we consider Hospitality Trust and Reit Management to be related parties of ours. For a further
8
TravelCenters of America LLC
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except for per share amounts)
description of relationships among us, Hospitality Trust and Reit Management, please review the contracts among these parties which are publicly available as exhibits to our public filings with the Securities and Exchange Commission, or the SEC, and are accessible at the SEC website, www.sec.gov, and also see our descriptions of these relationships in our Proxy Statement for our 2008 Annual Meeting of Shareholders, the descriptions in our periodic reports filed with the SEC after the date of that Proxy Statement of certain applicable agreements entered following that date and the description of the risks which may arise from these relationships in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2007, all of which documents are also accessible at the SEC website.
We were formerly a 100% subsidiary of Hospitality Trust and Hospitality Trust is our principal landlord. During 2007 we completed both the HPT Transaction and the Petro Acquisition together with Hospitality Trust. Under these leases we are required to pay the following rent amounts: (i) minimum amounts of rent to Hospitality Trust specified in the TA Lease and the Petro Lease, (ii) additional rent to Hospitality Trust in connection with certain sales to Hospitality Trust of qualifying improvements at sites leased from Hospitality Trust, and (iii) the underlying ground lease payments at those sites subleased to us by Hospitality Trust, which ground lease payments we pay directly to the party from whom Hospitality Trust leases the site. For certain sites, Hospitality Trust has exercised purchase options or otherwise acquired the leased properties that had previously been subleased to us and we now pay the related ground lease rents to Hospitality Trust.
Under the TA Lease, we can sell to Hospitality Trust certain capital improvements we make to properties owned by Hospitality Trust with no increase in our rent payable to Hospitality Trust. These sales originally were limited to $125,000 with no more than $25,000 of sales permitted in any one year. On May 12, 2008, we and Hospitality Trust amended the TA Lease. This lease amendment permits us to sell to Hospitality Trust qualified improvements which we have made or may make to the travel centers leased from Hospitality Trust under the TA Lease on an expedited basis. In the event that we elect to sell these capital improvements before the time contractually permitted by the original lease terms, Hospitality Trusts purchase commitment amount is discounted to reflect the accelerated receipt of funds by us according to a present value formula established in the amended lease. During the nine month period ended September 30, 2008, we sold leasehold improvements to Hospitality Trust for total cash proceeds, after the discounts for accelerated receipts, of $69,838. At September 30, 2008, $25,821 of the $125,000 total amount of the leasehold improvements saleable to Hospitality Trust with no increase in our rent remained available.
On August 11, 2008 we entered a rent deferral agreement with Hospitality Trust. Under the terms of the deferral agreement we have the option to defer our monthly rent payments to Hospitality Trust by up to $5,000 per month for periods beginning July 1, 2008 until December 31, 2010 and we are not obligated to pay cash interest on the deferred rent through December 31, 2009. Also pursuant to the deferral agreement, we issued 1,540,000 of our common shares to Hospitality Trust (which represents approximately 9.6% of our shares outstanding after this new issuance). In the event we do not defer our monthly payments for all the permitted amounts through December 31, 2009, we may repurchase a pro-rata amount of our shares issued to Hospitality Trust for nominal consideration. In the event that any rents which have been deferred remain unpaid or additional rent amounts are deferred after December 31, 2009, interest on all such amounts is payable to Hospitality Trust monthly at the rate of 12% per annum, beginning January 1, 2010. No additional rent deferrals are permitted for rent periods after December 31, 2010. Any deferred rent (and interest thereon) not paid is due to Hospitality Trust on July 1, 2011. Any deferred amounts (and related interest) may be prepaid at any time. This deferral agreement also includes a prohibition on share repurchases and dividends by us while any deferred rent remains unpaid and has change of control covenants so that amounts deferred will be immediately payable to Hospitality Trust in the event we experience a change of control while deferred rent is unpaid. As of September 30, 2008, we had deferred an aggregate of $15,000 of rent payable to Hospitality Trust.
9
TravelCenters of America LLC
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except for per share amounts)
The following table summarizes the various amounts related to our leases with Hospitality Trust that are reflected in our operating results:
|
|
Three Months
|
|
Nine Months
|
|
Eight Months
|
|
||||||
|
|
September 30,
|
|
September 30,
|
|
September 30,
|
|
September 30,
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Minimum base rent cash payments |
|
$ |
39,806 |
|
$ |
53,932 |
|
$ |
148,835 |
|
$ |
123,416 |
|
Rent for improvements sold to Hospitality Trust |
|
31 |
|
31 |
|
92 |
|
41 |
|
||||
Rent for ground leases acquired by Hospitality Trust |
|
2,099 |
|
511 |
|
5,044 |
|
1,258 |
|
||||
Total rent payments to Hospitality Trust |
|
41,936 |
|
54,474 |
|
153,971 |
|
124,715 |
|
||||
Required straight line rent adjustments |
|
3,424 |
|
4,299 |
|
10,564 |
|
11,464 |
|
||||
Rent deferred under rent deferral agreement |
|
15,000 |
|
|
|
15,000 |
|
|
|
||||
Less capital lease obligation amortization |
|
(540 |
) |
(480 |
) |
(1,620 |
) |
(1,280 |
) |
||||
Less amount recognized as interest |
|
(2,342 |
) |
(2,402 |
) |
(7,026 |
) |
(6,405 |
) |
||||
Less deferred leasehold improvement allowance amortization |
|
(1,692 |
) |
(1,693 |
) |
(5,077 |
) |
(4,513 |
) |
||||
Rent to Hospitality Trust recognized as rent expense |
|
$ |
55,786 |
|
$ |
54,198 |
|
$ |
165,812 |
|
$ |
123,981 |
|
Other current liabilities in our consolidated balance sheets at September 30, 2008 and December 31, 2007, include $13,282 and $17,987, respectively, for rent due to Hospitality Trust. Other noncurrent liabilities in our consolidated balance sheet at September 30, 2008 included $15,000 of deferred rent payable to Hospitality Trust under the rent deferral agreement.
We are party to a management and shared services agreement with Reit Management. Reit Management assists us with various aspects of our business, which may include, but are not limited to, compliance with various laws and rules applicable to our status as a publicly owned company, maintenance of our travel centers, site selection for properties on which new travel centers may be developed, identification of, and purchase negotiation for travel centers and travel center companies, accounting and financial reporting, capital markets and financing activities, investor relations and general oversight of all our daily business activities, including legal matters, human resources, insurance programs, management information systems and the like. For these services, we pay Reit Management a fee equal to 0.6% of our fuel gross margin and 0.6% of our total non-fuel revenues. The fee is payable monthly based upon the prior months margin or revenues, as applicable. In connection with the payments made to Reit Management under the management and shared services agreement, for the three months ended September 30, 2008 and 2007, we recognized expense of $2,482 and $2,339, respectively, and for the nine and eight months ended September 30, 2008 and 2007 we recognized expense of $6,635 and $5,049, respectively, included in selling, general and administrative expenses.
We have a minority joint venture interest in Petro Travel Plaza Holdings LLC, which owns one travel center that we operate under a management agreement and a parcel of land upon which Petro Travel Plaza Holdings LLC is developing a new travel center that we expect to operate. This investment is accounted for under the equity method. We recognized equity income of $821 and $737 for the nine months ended September 30, 2008 and the eight months ended September 30, 2007, respectively. In addition, included in our results for the nine month period ended September 30, 2008 and eight month period ended September 30, 2007 was management and accounting fee income of $285 and $129, respectively, earned from managing this joint venture. At September 30, 2008 and December 31, 2007, we had a net payable to this joint venture of $1,742 and $4,406, respectively. On October 8, 2008 we made a capital contribution to Petro Travel Plaza Holdings LLC in the amount of $6,970 in conjunction with our joint venture partner contributing land to the joint venture, such that our ownership percentage remained at 40%.
9. Commitments and Contingencies
Guarantees
In the normal course of our business we periodically enter into agreements that contain guarantees or indemnification provisions. While the maximum amount to which we may be exposed under such agreements cannot be estimated, we do not believe that any potential guaranty or indemnification will have a material adverse effect on our consolidated financial position or results of operations.
10
TravelCenters of America LLC
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except for per share amounts)
We offer a warranty of our workmanship in our truck repair shops, but we believe the annual warranty expense and corresponding liability are not material to us.
Environmental Matters
Our operations and properties are extensively regulated by environmental laws that (i) regulate our operations that may have adverse environmental effects, such as potentially hazardous discharges to air, soil and water, (ii) regulate our management of petroleum products and other potentially hazardous substances, and (iii) impose liability for the costs of cleaning up sites affected by, and for damages resulting from, disposal or other releases of hazardous substances. We use underground and above ground storage tanks to store petroleum products and waste at our travel centers; and we must comply with requirements of environmental laws regarding tank construction, integrity testing, leak detection and monitoring, overfill and spill control, contaminant release reporting, financial assurance and corrective action in the event of a release from a storage tank into the environment. We regularly conduct investigatory and/or remedial actions with respect to releases of hazardous substances at a number of our sites. We regularly receive notices of alleged violations of environmental laws at travel centers.
Under certain environmental agreements entered into as part of our predecessors acquisitions of travel centers, prior owners of certain of our sites are required to indemnify us for certain environmental conditions. Certain of our remediation expenditures may be recovered from state government administered tank funds. In addition, we have insurance of up to $35,000 for environmental liabilities at certain of our travel centers that were known at the time the policies were issued, and up to $60,000 for unknown environmental liabilities, subject, in each case, to certain limitations and deductibles.
At September 30, 2008, we had an accrued liability for environmental matters of $10,146, as well as a receivable for expected recoveries of certain of these estimated future expenditures and cash in an escrow account to fund certain of these estimated future expenditures, resulting in an estimated net amount of $3,645 to be funded by us in the future. While it is not possible to quantify with certainty our environmental exposure, in our opinion, based upon the information now known to us, our potential liability for clean up and remediation in excess of the accrual we have recorded will not have a material adverse effect on our financial condition, results of operations or cash flows.
While the costs of our environmental compliance in the past have not had, and we do not believe such costs will have, a material adverse impact on us, it is impossible to predict the ultimate effect that changing circumstances and changing environmental laws may have on us in the future. We cannot be certain that additional contamination presently unknown to us does not exist at our sites, or that material liability will not be imposed on us in the future. If additional environmental matters arise or are discovered, or if additional environmental requirements are imposed by government agencies, increased environmental compliance or remediation expenditures may be required, and such costs could have a material adverse effect on us.
Pending Litigation
In February 2006 a subsidiary of our predecessor, Pilot Travel Centers, LLC, or Pilot, a competitor of ours, and others were sued by Flying J, Inc., or Flying J, another one of our competitors, and its affiliates in the U.S. District Court for the District of Utah. In essence the lawsuit claimed that we, Pilot and others participated in an unlawful concerted antitrust action to refuse to accept a payment card issued by a Flying J affiliate. Flying J and its affiliates sought damages in amounts to be determined at trial and other relief. In April 2008 we settled this litigation by paying $5,000 and by agreeing to accept the payment card issued by one of Flying Js affiliates. As a result of this settlement, we were dismissed from the litigation on May 5, 2008. The expense related to this settlement was recognized in the first quarter of 2008 in our selling, general and administrative expenses and we paid the settlement amount in April 2008.
In May 2007 we terminated a contract with Simons Petroleum, Inc., or Simons, a fuel marketer, that had been entered by our predecessor. This contract permitted Simons to market fuel to trucking companies and distribute that fuel through our TA branded locations in exchange for paying low pumping fees to us. The termination was made at our option as provided in the contract and required an 18 month wind down period during which Simons may continue to market and distribute fuel through our locations. A dispute arose between us and Simons regarding the proper conduct of the parties during the wind down period. After settlement negotiations were conducted, we and Simons participated in a mediation, which failed to produce a settlement. In February 2008, we
11
TravelCenters of America LLC
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except for per share amounts)
and Simons participated in a binding arbitration, under the auspices of the American Arbitration Association, or AAA. On March 14, 2008, we received the AAA ruling, which ordered us to pay Simons $900 and to accept new customers, if any, presented to us by Simons until November 7, 2008. We recognized the expense of $900 related to the AAA ruling in the fourth quarter of 2007 and paid this amount in April 2008.
On February 1, 2008, we commenced litigation against E 2 Investment Partners LLC and related entities and individuals in the Delaware Court of Chancery. On December 31, 2007, these defendants forwarded a letter to us proposing directors and other matters for consideration at our 2008 annual meeting of shareholders. We sought a court order declaring that the defendants did not comply with our limited liability company agreement, or LLC agreement, and that therefore the defendants notice was invalid and their proposed nominees and other matters were not properly presented for consideration at our 2008 annual meeting. On April 4, 2008, the Delaware Court of Chancery issued an order declaring that the defendants notice breached our LLC agreement and was therefore invalid and of no force or effect. On May 8, 2008, we commenced a second litigation against the same defendants in the Delaware Court of Chancery to collect our costs and expenses arising from the defendants breach of our LLC agreement. On July 2, 2008, the defendants filed an answer to our complaint and generally denied liability. Certain defendants in this litigation have recently hired new counsel and filed a motion to dismiss. We have opposed their motion and filed a cross motion for partial summary judgment. No hearing has yet been scheduled for these motions. We do not know what amounts, if any, will ultimately be collected by us.
On February 1, 2008, Alan R. Kahn filed a purported derivative action in the Delaware Court of Chancery on behalf of TA against members of our board of directors, Hospitality Trust and Reit Management. This action alleges that our directors breached their fiduciary duties in connection with the Petro Acquisition and seeks an award of unspecified damages and reformation of our Petro Lease. This action also appears to allege that Reit Management and Hospitality Trust aided and abetted our directors. Under our LLC agreement and agreements with Reit Management and Hospitality Trust, we are liable to indemnify our directors, Hospitality Trust and Reit Management for liabilities, costs and expenses incurred by them in connection with this litigation. On May 6, 2008, we moved to dismiss this complaint. On June 20, 2008 the plaintiff filed an amended complaint making additional allegations regarding the members of our board of directors and withdrawing his request for reformation of the Petro Lease. On July 2, 2008, we moved to dismiss the amended complaint. On September 12, 2008, the plaintiff filed his answering brief in opposition to our motion to dismiss. The answering brief stated that the plaintiff would voluntarily dismiss his claims against Reit Management and also conceded that the plaintiff was unable to effect service of process on Hospitality Trust. On October 7, 2008, we filed our reply brief in support of our motion to dismiss. On October 30, 2008, Mr. Kahns claims against Reit Management were dismissed. A hearing on our motion to dismiss is scheduled for November 25, 2008. We believe the plaintiffs allegations are without merit.
Beginning in mid December 2006, a series of class action lawsuits were filed against numerous companies in the petroleum industry, including our predecessor and subsidiaries, in United States District courts in over 20 states. Major petroleum companies and significant retailers in the industry have been named as defendants in one or more of these lawsuits. The plaintiffs in the lawsuits generally allege that they are retail purchasers who purchased motor fuel at temperatures greater than 60 degrees Fahrenheit at the time of sale. One theory alleges that the plaintiffs purchased smaller quantities of motor fuel than the amount for which we and other defendants charged them because the defendants measured the amount of motor fuel delivered by volume of gallons which, at higher temperatures, contain less energy. These temperature cases seek, among other relief, an order requiring the defendants to install temperature correcting equipment on their retail motor fuel dispensing devices, damages, and attorneys fees. A second theory alleges that fuel taxes are calculated in temperature adjusted 60 degree gallons and are collected by the federal and various state governments from suppliers and wholesalers, who are reimbursed in the amount of the tax by us and other retailers before the fuel is sold to consumers. These tax cases allege that when the fuel is subsequently sold to consumers at temperatures above 60 degrees, the retailers sell a greater volume of fuel than the amount on which they paid tax, and therefore reap an excess profit because the customers pay more tax than the retailer paid. These tax cases seek, among other relief, recovery of excess taxes paid and punitive damages. We believe that there are substantial factual and legal defenses to the theories alleged in these cases. The cases have been consolidated into one court pursuant to multi-district litigation procedures; and, because discovery has only recently commenced, we cannot estimate our ultimate exposure to loss or liability, if any, related to these lawsuits.
In November 2006 Great American Insurance Company of New York and Novartis Pharmaceuticals Corporation, or Novartis, filed a complaint in the United States District Court for the Southern District of New York against our predecessor and an
12
TravelCenters of America LLC
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except for per share amounts)
unrelated party Prime, Inc., or Prime, in connection with the alleged theft of a tractor trailer operated by Prime which contained Novartis pharmaceutical products. The alleged theft occurred at our Bloomsbury, New Jersey travel center. Novartis seeks damages up to or exceeding $30,000 together with interest and costs, attorneys fees and disbursements. On January 5, 2007, our predecessor answered Novartis complaint and asserted a cross claim for contribution and indemnification against Prime. On September 12, 2008, we and Prime filed motions for summary judgment as to liability and damages. Plaintiffs filed a motion for summary judgment as to damages. A hearing on these motions is scheduled for November 14, 2008, and a trial is scheduled to begin on January 5, 2009. We believe that there are substantial defenses to these claims and that any liability arising from this matter may be substantially paid by one or more of our existing insurance policies or by Prime.
In March 2005, a California County, Tehama County, commenced litigation against our predecessor in the Superior Court of California, Tehama County, seeking civil penalties and injunctive relief arising out of a fuel spill which occurred in December 2003. In July 2008, Riverside and San Bernardino Counties in the State of California each filed litigation against us in the Superior Court of California for Riverside and San Bernardino Counties, respectively, seeking civil penalties and injunctive relief for alleged past violations of various state laws and regulations relating to our predecessors management of underground storage tanks. We have been involved in negotiations with these three California counties and one other California county, Shasta County, which also is alleging past violations of various state laws and regulations relating to the management of underground storage tanks, in an effort to resolve their pending and threatened claims. Although we believe that the judgments or settlements which may result from these litigations and negotiations are unlikely to be material to us, Californias environmental laws provide for the possible assessment of large civil penalties for various violations, including some violations which do not result in environmental harm or continuing environmental risks. In addition, only a portion of the claims being asserted by these California counties are likely to be covered under our environmental insurance policies. Accordingly, these litigations and negotiations may result in our obligation to pay material amounts.
On October 3, 2008, we received an investigative subpoena from the Florida Department of Agriculture and Consumer Services requesting the production of documents relating to the retail price and cost of fuel at a site in Florida. In late September and early October 2008, we received investigative demands from the Georgia Governors Office of Consumer Affairs requesting the production of documents relating to the retail price and cost of fuel for the period after September 10, 2008 at three sites in Georgia. In late October 2008, we received an investigative subpoena from the Office of the Attorney General for South Carolina requesting the production of documents relating to the retail price and cost of gasoline at a site in South Carolina. It appears that these investigations are motivated by the increase in fuel prices in the southeastern U.S. after certain refineries and fuel distribution pipelines were shut down during portions of the 2008 hurricane season. We are complying with the requests made in the investigative subpoena and investigative demands from Florida and Georgia.
We are involved from time to time in various other legal and administrative proceedings and threatened legal and administrative proceedings incidental to the ordinary course of our business, none of which we expect, individually or in the aggregate, to have a material adverse effect on our business, financial condition, results of operations or cash flows.
13
TravelCenters of America LLC
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except for per share amounts)
10. Income Taxes
The provisions (benefits) for income taxes included in our current and historical financial statements were as follows:
|
|
Company |
|
Predecessor |
|
|||||||||||
|
|
Three Months |
|
Three Months |
|
Nine Months |
|
Eight Months |
|
One Month |
|
|||||
|
|
Ended |
|
Ended |
|
Ended |
|
Ended |
|
Ended |
|
|||||
|
|
September 30,
|
|
September 30,
|
|
September 30,
|
|
September 30,
|
|
January 31,
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Current tax provision (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|||||
Federal |
|
$ |
|
|
$ |
7,470 |
|
$ |
|
|
$ |
|
|
$ |
(6,750 |
) |
State |
|
150 |
|
1,480 |
|
497 |
|
|
|
107 |
|
|||||
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
150 |
|
8,950 |
|
497 |
|
|
|
(6,643 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Deferred tax provision (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|||||
Federal |
|
(913 |
) |
(10,931 |
) |
(20,938 |
) |
(11,901 |
) |
(31,380 |
) |
|||||
State |
|
(114 |
) |
(1,452 |
) |
(2,487 |
) |
(1,336 |
) |
(2,432 |
) |
|||||
Foreign |
|
(39 |
) |
|
|
(118 |
) |
|
|
(15 |
) |
|||||
|
|
(1,066 |
) |
(12,383 |
) |
(23,543 |
) |
(13,237 |
) |
(33,827 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total tax provision (benefit) |
|
(916 |
) |
(3,433 |
) |
(23,046 |
) |
(13,237 |
) |
(40,470 |
) |
|||||
Change in valuation allowance |
|
1,066 |
|
10,507 |
|
23,543 |
|
10,507 |
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net tax provision (benefit) |
|
$ |
150 |
|
$ |
7,074 |
|
$ |
497 |
|
$ |
(2,730 |
) |
$ |
(40,470 |
) |
Because of our short history and our history of operating losses, we do not currently recognize the benefit of any of our deferred tax assets, including tax loss carry forwards, that may be used to offset future taxable income. We will, however, continue to assess our ability to generate sufficient taxable income during future periods in which our deferred tax assets may be realized. If we later believe it is more likely than not we will recover some or all of our deferred tax assets, we will record an appropriate amount of these assets as an income tax benefit in our consolidated statement of operations at that time. As of December 31, 2007, our federal net operating loss carryforward was approximately $50,470. Our net operating loss carryforwards will begin to expire in 2028.
Our effective tax rates for the three and nine month periods ended September 30, 2008 were a provision of 0.9% and 1.2%, respectively, which differed from the statutory rate primarily due to recognition of a valuation allowance against our net deferred tax assets and to state income taxes net of the federal tax effect. Our effective tax rate for the three and eight month periods ended September 30, 2007 and our predecessors effective tax rate for the one month ended January 31, 2007 were a provision of 75.4%, and benefits of 7.8% and 64.7%, respectively. Our tax rates for the three and eight month periods ended September 30, 2007, differed from the statutory rate primarily due to state income taxes, net of the federal tax effect. Our predecessors tax rate for the one month ended January 31, 2007 differed from the statutory rate primarily due to deductibility for tax purposes of expenses related to stock options that were not expensed for financial reporting purposes, partially offset by certain merger related expenses recognized in the financial statements which were not deductible for income tax purposes.
14
TravelCenters of America LLC
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except for per share amounts)
11. Supplemental Cash Flow Information.
|
|
Company |
|
Predecessor |
|
|||||
|
|
Nine Months |
|
Eight Months |
|
One Month |
|
|||
|
|
Ended |
|
Ended |
|
Ended |
|
|||
|
|
September 30,
|
|
September 30,
|
|
January 31,
|
|
|||
|
|
|
|
|
|
|
|
|||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|||
Interest paid (net of capitalized interest) |
|
$ |
19,233 |
|
$ |
362 |
|
$ |
32,179 |
|
Income taxes paid (net of refunds) |
|
(4,639 |
) |
6,541 |
|
740 |
|
|||
|
|
|
|
|
|
|
|
|||
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|||
Issuance of common shares |
|
$ |
4,358 |
|
$ |
260 |
|
$ |
|
|
15
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Overview
We were formed in October 2006 as a Delaware limited liability company. We were formed as a wholly owned subsidiary of Hospitality Trust to succeed to the operating business of our predecessor, which Hospitality Trust acquired on January 31, 2007. Until January 31, 2007, we operated as a shell company subsidiary of Hospitality Trust. Because of the HPT Transaction and the Petro Acquisition described in Note 1 to our financial statements included elsewhere in this Quarterly Report on Form 10-Q, we believe our 2007 historical financial information may not be an appropriate basis for comparison with our current or future financial position, results of operations or cash flows. You should read the following discussion in conjunction with the financial statements included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2007.
Our fuel costs are subject to potentially material changes as a result of the market prices of diesel fuel and gasoline, as well as the availability of these products. These factors are subject to the worldwide petroleum products supply chain, which historically has incurred material price changes as a result of, among other things, severe weather, terrorism, political crises, wars and other military actions and variations in demand, which are often the result of changes in the macroeconomic environment. Over the past few years there has been a significant increase in the cost of diesel fuel and gasoline; first, as crude oil demand increased during the previous economic recovery in the United States and events such as Hurricanes Gustav, Ike and Katrina affected the supply system; then as economic growth in certain developing economies, such as China and India, increased demand for petroleum products; and, more recently, as the world value of the U.S. dollar has declined and as speculation in the price of these commodities has increased. We expect that, although most increases in our costs for these products can largely be passed on to our customers over time, increased prices can result in negative effects on our sales and profitability and material increases in our working capital requirements. We expect that petroleum products markets will continue to be volatile during the next 12 months.
Summary of Travel Center Site Counts
The changes in the number of our sites (company operated, franchisee leased and operated or franchisee owned and operated) are significant factors that influenced the changes in our results of operations. The following table summarizes the changes in the composition of our business from December 31, 2006 through September 30, 2008:
|
|
|
|
|
|
Franchisee |
|
|
|
|
|
|
|
|
|
Owned |
|
|
|
|
|
Company |
|
Franchisee |
|
and |
|
|
|
|
|
Operated |
|
Operated |
|
Operated |
|
Total |
|
Number of travel centers at December 31, 2006 |
|
140 |
|
10 |
|
13 |
|
163 |
|
|
|
|
|
|
|
|
|
|
|
January - September 2007 Activity: |
|
|
|
|
|
|
|
|
|
Acquisition of franchised travel center |
|
1 |
|
|
|
(1 |
) |
|
|
Petro acquisition |
|
45 |
|
|
|
24 |
|
69 |
|
New travel centers |
|
2 |
|
|
|
1 |
|
3 |
|
Closed travel center |
|
(1 |
) |
|
|
|
|
(1 |
) |
Number of travel centers at September 30, 2007 |
|
187 |
|
10 |
|
37 |
|
234 |
|
|
|
|
|
|
|
|
|
|
|
October - December 2007 Activity: |
|
|
|
|
|
|
|
|
|
New travel centers |
|
2 |
|
|
|
|
|
2 |
|
Number of travel centers at December 31, 2007 |
|
189 |
|
10 |
|
37 |
|
236 |
|
|
|
|
|
|
|
|
|
|
|
January September 2008 Activity: |
|
|
|
|
|
|
|
|
|
No activity |
|
|
|
|
|
|
|
|
|
Number of travel centers at September 30, 2008 |
|
189 |
|
10 |
|
37 |
|
236 |
|
16
Relevance of Fuel Revenues
Due to volatile pricing of fuel products and our pricing arrangements with fuel customers, we believe that fuel revenue is not a reliable metric for analyzing our results of operations or our predecessors results from period to period. As a result solely of changes in fuel prices, our fuel revenue may increase or decrease significantly versus our or our predecessors historical results of operations, in both absolute amounts and on a percentage basis, without a comparable change in fuel sales volumes or in gross margin per gallon. We consider fuel volumes and gross margin to be better measures of comparative performance than fuel revenues.
Results of Operations
Three months ended September 30, 2008 compared to September 30, 2007
The following table summarizes our results for the three month periods ended September 30, 2008 and 2007.
|
|
Three Months Ended
|
|
$ |
|
% |
|
|||||
(dollars in millions) |
|
2008 |
|
2007 |
|
Change |
|
Change |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Revenues: |
|
|
|
|
|
|
|
|
|
|||
Fuel |
|
$ |
1,832.4 |
|
$ |
1,447.6 |
|
$ |
384.8 |
|
26.6 |
% |
Non-fuel |
|
321.4 |
|
332.1 |
|
(10.7 |
) |
-3.2 |
% |
|||
Rent and royalties |
|
3.9 |
|
3.9 |
|
0.0 |
|
-2.1 |
% |
|||
Total revenues |
|
2,157.7 |
|
1,783.6 |
|
374.1 |
|
21.0 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|||
Cost of goods sold (excluding depreciation): |
|
|
|
|
|
|
|
|
|
|||
Fuel |
|
1,747.1 |
|
1,392.6 |
|
354.5 |
|
25.5 |
% |
|||
Non-fuel |
|
135.0 |
|
143.1 |
|
(8.1 |
) |
-5.7 |
% |
|||
Total cost of goods sold (excluding depreciation) |
|
1,882.1 |
|
1,535.7 |
|
346.4 |
|
22.6 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|||
Site level operating expenses |
|
166.6 |
|
163.3 |
|
3.3 |
|
2.0 |
% |
|||
Selling, general & administrative expense |
|
21.3 |
|
32.6 |
|
(11.3 |
) |
-34.8 |
% |
|||
Real estate rent |
|
58.7 |
|
57.9 |
|
0.8 |
|
1.4 |
% |
|||
Depreciation and amortization expense |
|
10.4 |
|
6.0 |
|
4.4 |
|
74.8 |
% |
|||
Total operating expenses |
|
257.0 |
|
259.8 |
|
(2.8 |
) |
-1.1 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|||
Income (loss) from operations |
|
18.6 |
|
(11.9 |
) |
30.5 |
|
257.0 |
% |
|||
Equity income in joint venture |
|
0.5 |
|
0.5 |
|
0.0 |
|
-15.0 |
% |
|||
Interest income |
|
0.9 |
|
7.1 |
|
(6.2 |
) |
-87.8 |
% |
|||
Interest expense |
|
(3.2 |
) |
(5.1 |
) |
1.9 |
|
-38.3 |
% |
|||
Income (loss) before income taxes |
|
16.8 |
|
(9.4 |
) |
26.2 |
|
279.1 |
% |
|||
Provision for income taxes |
|
0.1 |
|
7.1 |
|
(7.0 |
) |
-97.9 |
% |
|||
Net income (loss) |
|
$ |
16.7 |
|
$ |
(16.5 |
) |
$ |
33.2 |
|
201.2 |
% |
17
Same Site Comparisons . A travel center is included in the following same site comparisons if it was continuously operated by us from July 1, 2007 through September 30, 2008 or, in the case of rent revenues and royalty revenues, by a franchisee of ours or the prior owner of Petro for that same period. Travel centers are not excluded from the same site comparisons as a result of expansions in their size or in the services offered.
|
|
Three Months Ended September 30, |
|
$ |
|
% |
|
|||||
(gallons and dollars in millions) |
|
2008 |
|
2007 |
|
Change |
|
Change |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Number of company operated travel centers |
|
185 |
|
185 |
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Fuel sales volume (gallons) (1) |
|
491.4 |
|
595.0 |
|
(103.6 |
) |
-17.4 |
% |
|||
Fuel margin(1) |
|
$ |
86.5 |
|
$ |
57.3 |
|
$ |
29.2 |
|
50.9 |
% |
Total non-fuel revenues (1) |
|
$ |
318.2 |
|
$ |
332.2 |
|
$ |
(14.0 |
) |
-4.2 |
% |
Operating expenses (1) (2) |
|
$ |
164.1 |
|
$ |
163.0 |
|
$ |
1.1 |
|
0.7 |
% |
|
|
|
|
|
|
|
|
|
|
|||
Number of franchisee operated travel centers |
|
46 |
|
46 |
|
|
|
|
|
|||
Rent and royalty revenues |
|
$ |
3.9 |
|
$ |
3.9 |
|
$ |
0.0 |
|
-2.6 |
% |
(1) |
Includes fuel volume, fuel margin, revenues and expenses of company operated travel centers only. |
(2) |
Excludes real estate rent expense, Petro integration expenses, legal settlement expense and previously deferred maintenance costs which were expensed under GAAP . |
Revenues. Revenues for the three month period ended September 30, 2008, were $2,157.7 million, which represented an increase from the quarter ended September 30, 2007, of $374.1 million, or 21.0%, primarily related to increases in fuel prices.
Fuel revenues were 84.9% of total revenues for the quarter ended September 30, 2008, as compared to 81.1% for the same period in 2007. Fuel revenue for the quarter ended September 30, 2008, increased by $384.8 million, or 26.6%, as compared to the same period in 2007. This increase was principally the result of increases in fuel prices. The table below shows the changes in fuel revenues between periods that resulted from price and volume changes:
|
|
Gallons |
|
Fuel |
|
|
(gallons and dollars in millions) |
|
Sold |
|
Revenues |
|
|
|
|
|
|
|
|
|
Results for three months ended September 30, 2007 |
|
627.7 |
|
$ |
1,447.6 |
|
|
|
|
|
|
|
|
Increase due to petroleum products price changes |
|
|
|
659.8 |
|
|
Decrease due to same site volume changes |
|
(103.6 |
) |
(237.5 |
) |
|
Increase due to net company operated sites added since July 1, 2007 |
|
4.3 |
|
10.2 |
|
|
Decrease due to wholesale fuel business sales volume variations |
|
(20.5 |
) |
(47.7 |
) |
|
Net increase (decrease) from prior year period |
|
(119.8 |
) |
384.8 |
|
|
|
|
|
|
|
|
|
Results for three months ended September 30, 2008 |
|
507.9 |
|
$ |
1,832.4 |
|
18
On a same site basis for our company operated TA and Petro sites, fuel sales volume decreased by 103.6 million gallons, or 17.4%, during the three months ended September 30, 2008 compared to the same period in 2007. We believe the same site fuel sales volume decrease resulted primarily from a decline in trucking activity that was largely attributable to the slowing of economic activity in the U.S., particularly the declines in the shipments of durable goods, including new home building supplies, as well as a decline in imports into the U.S. that are transported by truck, combined with the high cost of fuel negatively affecting the demands for fuel during the 2008 periods as compared to the 2007 periods. We believe the same site fuel sales volume decrease also resulted from decreased demand from motorists as a result of the high cost of fuel to consumers and the general condition of the U.S. economy. Some portion of our fuel volume declines experienced in the 2008 period may be the result of our strategic fuel pricing decision to not compete for lower margin fuel business. In addition, a portion of the fuel volume declines experienced in the 2008 period were also the result of our decision to reduce our wholesale fuel business activities in March 2008.
Non-fuel revenues were 15.0% of total revenues for the quarter ended September 30, 2008, as compared to 18.6% for the same period in 2007. Non-fuel revenues for the three months ended September 30, 2008 were $321.4 million, a decrease of $10.7 million, or 3.2%, as compared to the same period in 2007. The change between years is primarily related to the decline in sales at those sites we operated during both periods, partially offset by our price increases. On a same site basis for our company operated TA and Petro sites, non-fuel revenues decreased by $14.0 million, or 4.2% during the three months ended September 30, 2008 compared to the same period in 2007. We believe the same site non-fuel revenue decrease reflects decreased customer traffic in our travel centers as a result of many of the factors affecting our fuel sales volumes partially offset by the impact of our sales and marketing initiatives.
Rent and royalty revenues for the three months ended September 30, 2008 were $3.9 million, representing no change from the same period in 2007.
Cost of goods sold (excluding depreciation). Cost of goods sold for the three months ended September 30, 2008, was $1,882.1 million, an increase of $346.4 million, or 22.6%, as compared to the same period in 2007, which was primarily attributable to increased fuel costs. Fuel cost of goods sold for the quarter ended September 30, 2008 of $1,747.1 million increased by $354.5 million, or 25.5%. The increase in fuel cost of goods sold for the quarter ended September 30, 2008 as compared to the same period in 2007 primarily resulted from commodity price increases partially offset by the fuel sales volumes decreases described above.
Non-fuel cost of goods sold for the three months ended September 30, 2008 was $135.0 million, a decrease of $8.1 million, or 5.7%, as compared to the same period in 2007. Non-fuel cost of goods sold also decreased due to same site non-fuel sales decreases noted above, partially offset by increases in product unit costs and from sites added in 2007. Non-fuel cost of goods sold as a percentage of non-fuel revenue was 42.0% for the quarter ended September 30, 2008 compared to 43.1% for the same period in 2007.
19
Site level operating expenses. Site level operating expenses for the three months ended September 30, 2008, were $166.6 million, an increase of $3.3 million, or 2.0%, as compared to the same period in 2007; $1.2 million of this increase resulted from company operated locations added since June 2007.
On a same site basis for our company operated TA and Petro sites, site level operating expenses increased by $1.1 million, or 0.7% in the three months ended September 30, 2008 compared to the same period in 2007. During the 2008 third quarter we experienced decreases as compared to the prior year period in labor and related benefits and payroll tax costs as a result of our March 2008 workforce reduction, other labor control initiatives and the lower sales volumes during the quarter. These savings were offset by increases in other operating expenses that are not as directly related to our volume of business, primarily utilities, real estate and other taxes not based on income, payment card transaction fees and the cost of maintaining our operating locations. On a same site basis, site level operating expenses as a percentage of non-fuel revenues for the quarter ended September 30, 2008 were 51.6%, compared to 49.1% for the same period in 2007. The increase in operating expenses as a percentage of non-fuel revenues results from the fact that a certain portion of our expenses are fixed in nature so decreases in non-fuel revenues do not result in a corresponding decrease in site level operating expenses.
Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended September 30, 2008 were $21.3 million, a decrease of $11.3 million, or 34.8%, as compared to the same period in 2007. This decrease primarily resulted from the elimination of costs associated with Petros El Paso, Texas headquarters, which was closed earlier in 2008, combined with a reduction of expense related to severance and retention payments to certain current and former employees. This decrease also resulted from our cost saving strategies, including our March 2008 workforce reduction and a decrease in legal fees and other costs related to the litigation matters discussed in Note 9 to our financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Real estate rent expense. Rent expense for the three months ended September 30, 2008 was $58.7 million, an increase of $0.8 million as compared to the same period in 2007. Under our real estate leases, we paid rent of $44.7 million during the three months ended September 30, 2008 of which $2.3 million was recognized as interest expense and $0.5 million was recognized as a reduction of our capital lease obligation. We accrued $3.4 million of noncash rent expense to recognize rent expense on a straight line basis over the terms of those leases that include rent escalation provisions and amortized $1.7 million of our deferred leasehold improvement allowance as a reduction of rent expense. In addition, we accrued $15.0 million of rent expense which was not paid in cash pursuant to our rent deferral agreement with Hospitality Trust.
Depreciation and amortization expense. Depreciation and amortization expense for the three months ended September 30, 2008 was $10.4 million, an increase of $4.4 million, or 74.8%, as compared to the same period in 2007 that resulted from an increase in our depreciable assets.
Income (loss) from operations. Net income from operations for the three months ended September 30, 2008, was $18.6 million, an increase of $30.5 million, or 257.0%, as compared to the same period in 2007. This increase was the result of the changes in revenues and expenses described above.
20
Interest income and expense. Interest income and expense consisted of the following:
|
|
Three Months Ended September
|
|
$ |
|
|||||
(dollars in millions) |
|
2008 |
|
2007 |
|
Change |
|
|||
|
|
|
|
|
|
|
|
|||
Accretion of leasehold improvement receivable |
|
$ |
0.4 |
|
$ |
1.5 |
|
$ |
(1.1 |
) |
Interest income on restricted investments |
|
|
|
2.4 |
|
(2.4 |
) |
|||
Other interest income |
|
0.5 |
|
3.2 |
|
(2.7 |
) |
|||
Total interest income |
|
$ |
0.9 |
|
$ |
7.1 |
|
$ |
(6.2 |
) |
|
|
|
|
|
|
|
|
|||
Interest on the defeased 9% Notes |
|
$ |
|
|
$ |
2.4 |
|
$ |
(2.4 |
) |
Rent expense classified as interest |
|
2.3 |
|
2.4 |
|
(0.1 |
) |
|||
Amortization of deferred financing costs |
|
0.2 |
|
|
|
0.2 |
|
|||
Other interest expense |
|
0.7 |
|
0.3 |
|
0.4 |
|
|||
Total interest expense |
|
$ |
3.2 |
|
$ |
5.1 |
|
$ |
(1.9 |
) |
The decrease in other interest income was primarily attributable to reduced interest income on our lower cash balances in the third quarter of 2008 as compared to the same period in 2007, and declining interest rates. The decline in interest expense in the third quarter of 2008 as compared to the same period in 2007 was due to the repayment of the Petro notes in February 2008.
Income tax provision (benefit) . Our effective tax rates for the three month periods ended September 30, 2008 and 2007 were provisions of 0.9% and 75.4%, respectively. The rate for the 2008 period differs from the statutory rate due to an increase in the valuation allowance against our net deferred tax assets, and to state income taxes net of the federal tax effect. For the 2007 period, the effective tax rate differs from the statutory rate primarily due to state income taxes net of the federal tax effect.
21
Nine months ended September 30, 2008 compared to September 30, 2007
We were spun off from Hospitality Trust on January 31, 2007, and had no operations prior to that time. For the purpose of discussing our nine month historical results of operations, the following table combines our results for the eight months ended September 30, 2007, which include the results of Petro only from May 30, 2007, and the results of our predecessor for the one month ended January 31, 2007, without pro forma adjustments, and compares these combined results of operations to our results for the nine months ended September 30, 2008. The data has been presented to facilitate our discussion below of the trends and changes affecting our operating results. It has been prepared for comparative purposes only and does not purport to be indicative of the results of operations that actually would have resulted had the HPT Transaction occurred on January 1, 2007, and is not indicative of our future results of operations. Due to the Petro Acquisition on May 30, 2007, the results for the 2007 period may not be an appropriate basis for comparison to our current year results. The results shown for the 2007 period include the results from Petro beginning on May 30, 2007 and do not include pro forma adjustments.
|
|
Company |
|
Predecessor |
|
Combined |
|
|
|
|
|
|||||||
|
|
Nine |
|
Eight |
|
One |
|
Nine |
|
|
|
|
|
|||||
|
|
Months |
|
Months |
|
Month |
|
Months |
|
|
|
|
|
|||||
|
|
Ended |
|
Ended |
|
Ended |
|
Ended |
|
|
|
|
|
|||||
|
|
September 30, |
|
September 30, |
|
January 31, |
|
September 30, |
|
$ |
|
% |
|
|||||
(dollars in millions) |
|
2008 |
|
2007 |
|
2007 |
|
2007 |
|
Change |
|
Change |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Fuel |
|
$ |
5,415.5 |
|
$ |
3,266.0 |
|
$ |
285.1 |
|
$ |
3,551.1 |
|
$ |
1,864.4 |
|
52.5 |
% |
Non-fuel |
|
916.9 |
|
732.4 |
|
66.8 |
|
799.2 |
|
117.7 |
|
14.7 |
% |
|||||
Rent and royalties |
|
11.0 |
|
8.4 |
|
0.8 |
|
9.2 |
|
1.8 |
|
19.7 |
% |
|||||
Total revenues |
|
6,343.4 |
|
4,006.8 |
|
352.7 |
|
4,359.5 |
|
1,983.9 |
|
45.5 |
% |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cost of goods sold (excluding depreciation): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Fuel |
|
5,227.9 |
|
3,153.5 |
|
270.7 |
|
3,424.2 |
|
1,803.7 |
|
52.7 |
% |
|||||
Non-fuel |
|
384.5 |
|
309.6 |
|
27.5 |
|
337.1 |
|
47.4 |
|
14.1 |
% |
|||||
Total cost of goods sold (excluding depreciation) |
|
5,612.4 |
|
3,463.1 |
|
298.2 |
|
3,761.3 |
|
1,851.1 |
|
49.2 |
% |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Site level operating expenses |
|
484.5 |
|
361.2 |
|
36.1 |
|
397.3 |
|
87.2 |
|
22.0 |
% |
|||||
Selling, general & administrative expense |
|
77.3 |
|
69.6 |
|
8.9 |
|
78.5 |
|
(1.2 |
) |
-1.5 |
% |
|||||
Real estate rent |
|
174.8 |
|
132.2 |
|
0.9 |
|
133.1 |
|
41.7 |
|
31.3 |
% |
|||||
Depreciation and amortization expense |
|
32.5 |
|
19.3 |
|
5.8 |
|
25.1 |
|
7.4 |
|
29.4 |
% |
|||||
Merger related expenses |
|
|
|
|
|
45.0 |
|
45.0 |
|
(45.0 |
) |
-100.0 |
% |
|||||
Total operating expenses |
|
769.1 |
|
582.3 |
|
96.7 |
|
679.0 |
|
90.1 |
|
13.3 |
% |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Loss from operations |
|
(38.1 |
) |
(38.6 |
) |
(42.2 |
) |
(80.8 |
) |
42.7 |
|
-52.8 |
% |
|||||
Debt extinguishment expense |
|
|
|
|
|
(16.1 |
) |
(16.1 |
) |
16.1 |
|
-100.0 |
% |
|||||
Equity income in joint venture |
|
0.8 |
|
0.7 |
|
|
|
0.7 |
|
0.1 |
|
11.4 |
% |
|||||
Interest income |
|
6.2 |
|
12.2 |
|
1.1 |
|
13.3 |
|
(7.1 |
) |
-53.6 |
% |
|||||
Interest expense |
|
(9.9 |
) |
(9.4 |
) |
(5.3 |
) |
(14.7 |
) |
4.8 |
|
-32.8 |
% |
|||||
Loss before income taxes |
|
(41.0 |
) |
(35.1 |
) |
(62.5 |
) |
(97.6 |
) |
56.6 |
|
-58.0 |
% |
|||||
Provision (benefit) for income taxes |
|
0.5 |
|
(2.7 |
) |
(40.5 |
) |
(43.2 |
) |
43.7 |
|
-101.2 |
% |
|||||
Net loss |
|
$ |
(41.5 |
) |
$ |
(32.4 |
) |
$ |
(22.0 |
) |
$ |
(54.4 |
) |
$ |
12.9 |
|
-23.7 |
% |
22
Same Site Comparisons . A travel center is included in the following same site comparisons if it was continuously operated by us, our predecessor or the prior owner of the Petro sites from January 1, 2007 through September 30, 2008 or, in the case of rent revenues and royalty revenues, by a franchisee of ours, our predecessor, or the prior owner of Petro for that same period. Travel centers are not excluded from the same site comparisons as a result of expansions in their size or in the services offered.
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|||||
(gallons and dollars in millions) |
|
Company
|
|
Combined
|
|
$
|
|
%
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Number of company operated travel centers |
|
182 |
|
182 |
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Fuel sales volume (gallons) (1) |
|
1,518.6 |
|
1,793.6 |
|
(275.0 |
) |
-15.3 |
% |
|||
Fuel margin(1) |
|
$ |
188.2 |
|
$ |
156.8 |
|
$ |
31.5 |
|
20.1 |
% |
Total non-fuel revenues (1) |
|
$ |
900.9 |
|
$ |
933.1 |
|
$ |
(32.2 |
) |
-3.5 |
% |
Operating expenses (1), (2) |
|
$ |
470.8 |
|
$ |
468.3 |
|
$ |
2.5 |
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|||
Number of franchisee operated travel centers |
|
46 |
|
46 |
|
|
|
|
|
|||
Rent and royalty revenues |
|
$ |
10.8 |
|
$ |
11.2 |
|
$ |
(0.4 |
) |
-3.0 |
% |
(1) |
Includes fuel volume, fuel margin, revenues and expenses of company operated travel centers only. |
(2) |
Excludes real estate rent expense, Petro integration expenses, legal settlement expense and previously deferred maintenance costs which were expensed under GAAP. |
Revenues. Revenues for the nine months ended September 30, 2008, were $6,343.4 million, which represented an increase from the nine months ended September 30, 2007, of $1,983.9 million, or 45.5%, that is primarily attributable to the Petro Acquisition and increases in fuel prices.
Fuel revenues were 85.4% of total revenues for the nine months ended September 30, 2008, as compared to 81.5% for the same period in 2007. Fuel revenue for the nine months ended September 30, 2008, increased by $1,864.4 million, or 52.5%, as compared to the same period in 2007. This increase was principally the result of sites added in 2007, including the Petro sites, and increases in fuel sales prices.
The table below shows the changes in fuel revenues between periods that resulted from price and volume changes:
23
|
|
Gallons |
|
Fuel |
|
|
(gallons and dollars in millions) |
|
Sold |
|
Revenues |
|
|
|
|
|
|
|
|
|
Results for nine months ended September 30, 2007 |
|
1,609.3 |
|
$ |
3,551.1 |
|
|
|
|
|
|
|
|
Increase due to petroleum products price change |
|
|
|
1,782.0 |
|
|
Increase (decrease) due to same site volume change |
|
(211.7 |
) |
(468.7 |
) |
|
Increase due to Petro sites added |
|
221.5 |
|
602.0 |
|
|
Increase due to other net company operated sites added since January 1, 2007 |
|
21.6 |
|
47.7 |
|
|
Decrease due to wholesale fuel business sales volume variations |
|
(45.8 |
) |
(98.6 |
) |
|
Net increase (decrease) from prior year period |
|
(14.4 |
) |
1,864.4 |
|
|
|
|
|
|
|
|
|
Results for nine months ended September 30, 2008 |
|
1,594.9 |
|
$ |
5,415.5 |
|
On a same site basis for our company operated TA and Petro sites, fuel sales volume decreased by 275.0 million gallons, or 15.3%, during the nine months ended September 30, 2008 as compared to the same period in 2007. We believe the same site fuel sales volume decrease resulted primarily from a decline in trucking activity that was largely attributable to the slowing of economic activity in the U.S., particularly the declines in the shipments of durable goods, including new home building supplies, as well as a decline in imports into the U.S. that are transported by truck, combined with the high cost of fuel negatively affecting the demand for fuel during the 2008 periods as compared to the 2007 periods. Some of our same site fuel volume declines experienced in the 2008 period may be the result of our strategic fuel pricing decision not to compete for lower margin fuel business, especially during the three months ended September 30, 2008. A portion of the fuel volume declines experienced in the 2008 period were also the result of our decision to reduce our wholesale fuel business in March 2008.
Non-fuel revenues were 14.5% of total revenues for the nine months ended September 30, 2008, as compared to 18.3% for the same period in 2007. Non-fuel revenues for the nine months ended September 30, 2008 were $916.9 million, an increase of $117.7 million, or 14.7%, as compared to the same period in 2007. Of this increase, $114.5 million related to the company operated sites added in the Petro Acquisition on May 30, 2007, and $16.1 million from other sites added in 2007. The remainder of the change between years is related to the decline in sales at those sites we operated during both periods, partially offset by our price increases. On a same site basis for our company operated TA and Petro sites, non-fuel revenues decreased by $32.2 million, or 3.5%. We believe the same site non-fuel revenue decrease reflects decreased customer traffic in our travel centers as a result of the factors affecting our fuel sales volumes partially offset by the impact of our sales and marketing initiatives and price increases.
Rent and royalty revenues for the nine months ended September 30, 2008 were $11.0 million, an increase of $1.8 million, or 19.7%, as compared to the same period in 2007. This increase was primarily the result of the 24 Petro franchisee sites added on May 30, 2007.
Cost of goods sold (excluding depreciation). Cost of goods sold for the nine months ended September 30, 2008, was $5,612.4 million, an increase of $1,851.1 million, or 49.2%, as compared to the same period in 2007, which was primarily attributable to the cost of goods sold at the Petro locations acquired on May 30, 2007 and increased fuel costs. Fuel cost of goods sold for the nine months ended September 30, 2008 of $5,227.9 million increased by $1,803.7 million, or 52.7%, of which $839.2 million resulted from fuel sales at the Petro locations acquired on May 30, 2007. The increase in fuel cost of goods sold for the nine months ended September 30, 2008 as compared to the same period in 2007 also resulted from commodity price increases partially offset by the fuel sales volumes decreases described above.
24
Non-fuel cost of goods sold for the nine months ended September 30, 2008 was $384.5 million, an increase of $47.4 million, or 14.1%, as compared to the same period in 2007, of which $52.2 million resulted from non-fuel sales at the Petro locations acquired on May 30, 2007, partially offset by the same site non-fuel sales decreases noted above. Non-fuel cost of goods sold as a percentage of non-fuel revenue was 41.9% for the nine months ended September 30, 2008 compared to 42.2% for the same period in 2007.
Site level operating expenses. Site level operating expenses for the nine months ended September 30, 2008, were $484.5 million, an increase of $87.2 million, or 22.0%, as compared to the same period in 2007. This increase primarily resulted from $62.5 million in site level operating expenses at the Petro locations acquired on May 30, 2007, and $6.8 million from the other company operated locations added in 2007. On a same site basis for our company operated TA and Petro sites, site level operating expenses increased by $2.5 million, or 0.5% in the nine months ended September 30, 2008 compared to the same period in 2007. The increase in site level operating expenses on a same site basis was primarily the result of increases over the prior year period in expenses that are not as directly related to our volume of business such as utilities, maintenance, real estate taxes and other taxes not based on income, payment card transaction fees, our company operated vehicle fuel expenses and the cost of maintaining our operating locations. These increases were partially offset by decreases in labor and related benefits and payroll tax expense as a result of our March 2008 workforce reduction, other labor control initiatives and the lower sales volumes. On a same site basis, site level operating expenses as a percentage of non-fuel revenues for the nine months ended September 30, 2008 were 52.3%, compared to 50.2% for the same period in 2007. The increase in operating expenses as a percentage of non-fuel revenues is partially due to the above increases and because some of our expenses are fixed in nature so decreases in non-fuel revenues do not result in a corresponding decrease in site level operating expenses.
Selling, general and administrative expenses. Selling, general and administrative expenses for the nine months ended September 30, 2008 were $77.3 million, a decrease of $1.2 million, or 1.5%, as compared to the same period in 2007. This decrease primarily resulted from the elimination of costs associated with Petros El Paso, Texas headquarters, a reduction of expense related to severance and retention payments to certain current and former employees and a reduction in share based compensation expense. This decrease also resulted from our cost saving initiatives, including our March 2008 workforce reduction. These decreases were partially offset by the increased costs as a result of the Petro Acquisition and other company growth; the increases in legal fees and other costs related to the litigation matters discussed in Note 9 to our financial statements included elsewhere in this Quarterly Report on Form 10-Q, including the Flying J litigation settlement in 2008.
Real estate rent expense. Rent expense for the nine months ended September 30, 2008 was $174.8 million, an increase of $41.7 million as compared to the same period in 2007. This increase was primarily attributable to our lease agreements that became effective on January 31, 2007 and May 30, 2007. Under our real estate leases, we paid rent of $162.4 million during the nine months ended September 30, 2008 of which $7.0 million was recognized as interest expense and $1.6 million was recognized as a reduction of our capital lease obligation. We accrued $10.6 million of noncash rent expense to recognize rent expense on a straight line basis over the terms of those leases that include rent escalation provisions and amortized $5.0 million of our deferred leasehold improvement allowance as a reduction of rent expense. In addition, we accrued $15.0 million as rent expense which was deferred pursuant to the terms of our rent deferral agreement with Hospitality Trust.
Depreciation and amortization expense. Depreciation and amortization expense for the nine months ended September 30, 2008 was $32.5 million, an increase of $7.4 million, or 29.4%, as compared to the same period in 2007. This increase was primarily attributable to assets acquired in the Petro Acquisition and a $1.6 million charge recorded in the first three months of 2008 in connection with canceling contracts and letters of intent for various development projects and acquisitions we decided not to pursue.
25
Merger related expenses. During January 2007, our predecessor recognized a charge of $45.0 million related to expenses incurred in marketing itself for sale and completing the HPT Transaction. These costs primarily consisted of investment banking fees, other transaction advisory fees and management bonus payments.
Income (loss) from operations. Net loss from operations for the nine months ended September 30, 2008, was $38.1 million, an improvement of $42.7 million, or 52.8%, as compared to the same period in 2007. This decrease was the result of the changes in revenues and expenses described above.
Interest income and expense. Interest income and expense consisted of the following:
|
|
Nine Months Ended September 30, |
|
$ |
|
|||||
(dollars in millions) |
|
2008 |
|
2007 |
|
Change |
|
|||
|
|
|
|
|
|
|
|
|||
Accretion of leasehold improvement receivable |
|
$ |
3.3 |
|
$ |
4.0 |
|
$ |
(0.7 |
) |
Interest income on restricted investments |
|
1.2 |
|
3.2 |
|
(2.0 |
) |
|||
Other interest income |
|
1.7 |
|
6.1 |
|
(4.4 |
) |
|||
Total interest income |
|
$ |
6.2 |
|
$ |
13.3 |
|
$ |
(7.1 |
) |
|
|
|
|
|
|
|
|
|||
Interest on our predecessors debt |
|
$ |
|
|
$ |
4.4 |
|
$ |
(4.4 |
) |
Interest on the defeased 9% Notes |
|
1.3 |
|
3.2 |
|
(1.9 |
) |
|||
Rent expense classified as interest |
|
7.0 |
|
6.4 |
|
0.6 |
|
|||
Amortization of deferred financing costs |
|
0.3 |
|
0.3 |
|
|
|
|||
Other interest expense |
|
1.3 |
|
0.4 |
|
0.9 |
|
|||
Total interest expense |
|
$ |
9.9 |
|
$ |
14.7 |
|
$ |
(4.8 |
) |
The restricted investments were used to repay the defeased 9% notes in full on February 15, 2008. The decrease in other interest income was primarily attributable to reduced interest income on our lower cash balance in the first nine months of 2008 as compared to the same period in 2007, and declining interest rates. Our predecessors debt was retired on January 31, 2007 as part of the HPT Transaction.
Income tax provision (benefit) . Our effective tax rates for the nine month periods ended September 30, 2008 and 2007 were a provision of 1.2% and a benefit of 44.2%, respectively. The rate for the 2008 period differs from the statutory rate due to a $22.5 million increase in the valuation allowance against our net deferred tax assets, and to state income taxes net of the federal tax effect. For the 2007 period, the effective tax rate differs from the statutory rate primarily due to items affecting our predecessor in the one month ended January 31, 2007, including the deductibility for tax purposes of expenses related to stock options of our predecessor that were not expensed for financial reporting purposes, partially offset by certain merger related expenses recognized in the financial statements by our predecessor which were not deductible for income tax purposes.
Seasonality
Our revenues during a year are often lowest in the first quarter when movement of freight by professional truck drivers and motorist travel are at their lowest levels in each calendar year. Our revenues in the fourth quarter of a year are often somewhat lower than those of the second and third quarters because, while the beginning of the fourth quarter is often positively impacted by increased movement of freight in preparation for various national holidays, that positive impact is often more than offset by a reduction in freight movement caused by vacation time associated with those holidays taken by professional truck drivers toward the end of the year. While our revenues are modestly seasonal, the quarterly variations in our operating income may reflect greater seasonal differences because our rent and other costs do not vary seasonally.
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Inflation and Deflation
Inflation, or a general increase in prices, will likely have more negative than positive impacts on our business. Rising prices may allow us to increase revenues, but also likely will increase our operating costs. Also, rising prices for fuel and other products we sell increase our working capital requirements and appear to cause some of our customers to reduce their purchases of our goods and services. Because significant components of our expenses are fixed, we may not be able to realize expense reductions which match declines in general price levels, or deflation.
Workforce Reduction
In March 2008, we announced we had reduced the workforce at our headquarters and other locations. We recognized a severance charge of $1.6 million during the 2008 first quarter as a result of this reduction in workforce. Reductions were also made to our hourly workforce starting in March 2008.
Liquidity and Capital Resources
Our principal liquidity requirements are to meet our operating expenses, including rent, and to fund our capital expenditures and other working capital requirements. Our principal sources of liquidity to meet these requirements are our operating cash flow, our cash balance, our credit facility, our ability to sell qualified capital improvements to Hospitality Trust under the terms of our leases with Hospitality Trust, and our ability to defer up to $5 million per month of rent through December 2010 and defer payment of any deferred rent amounts until July 2011.
Under the TA Lease, we can sell to Hospitality Trust certain capital improvements we make to properties owned by Hospitality Trust with no increase in our rent payable to Hospitality Trust. These sales were originally limited to $125 million with no more than $25 million in any year. On May 12, 2008, we and Hospitality Trust amended the TA Lease to permit us to sell these capital improvements to Hospitality Trust earlier than previously permitted. In the event that we elect to sell these capital improvements before the time contractually permitted by the original lease terms, Hospitality Trusts purchase commitment is discounted to reflect the accelerated receipt of funds by us according to a present value formula established in the amended lease. During the first nine months of 2008, we sold $69.8 million of capital improvements to Hospitality Trust for no increase in our rent. As of September 30, 2008, $25.8 million of the $125 million maximum amount remained available for sale by us to Hospitality Trust.
As of September 30, 2008, under our rent deferral arrangement with Hospitality Trust, we had deferred $15 million of rent that is due to Hospitality Trust not later than July 1, 2011. Based on current economic and industry conditions, we expect that we will elect to defer $5.0 million of rent payments due Hospitality Trust for each month through at least March 2009 and perhaps thereafter.
The primary risks we face with respect to our operating cash flow are decreased demand for our products and services which may be caused by the volatility and high prices for petroleum products or the general economic slowing of commercial activities in the U.S. and in the U.S. trucking industry, as well as increased working capital which may be associated with increases in fuel costs. A reduction of our revenue without an offsetting reduction in our operating expenses may cause us to use our cash at a rate that we cannot sustain for extended periods. Also, a significant increase in the prices we must pay to obtain fuel or decrease in the time we have to pay our trade creditors may increase our cash working capital requirements materially. The current economic conditions in the trucking industry, in conjunction with the high cost of fuel, may lead to increased cash investment in accounts receivable should customers slow their payments to us and may also lead to an increase in our rate of bad debt write offs.
Assets and Liabilities
Our total current assets at September 30, 2008, were $474.6 million, compared to our total current assets of $746.0 million at December 31, 2007. At September 30, 2008, and December 31, 2007, we had cash and cash equivalents of $144.0 million and $148.9 million, respectively. Our current liabilities were $291.9 million at September 30, 2008, compared to our current liabilities of $567.8 million at December 31, 2007.
Included in current assets as of December 31, 2007 was $271.4 million of restricted investments held in trust to repay certain notes we assumed as part of the Petro Acquisition, including the related call premium and accrued interest, that were defeased as part of the Petro Acquisition. Included in current liabilities as of December 31, 2007 were $262.9 million and $8.4 million for the defeased Petro debt and related accrued interest, respectively. The restricted investments were used to repay these notes and related call premium plus accrued interest in February 2008.
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Changes in accounts receivable, inventories, accounts payable and accrued expenses were primarily the result of higher fuel prices during the past nine months and higher costs of other inventory and expense items we purchase and sell.
During the nine months ended September 30, 2008, we had a net loss of $41.5 million, net cash inflows from operating activities of $58.8 million, net cash outflows from investing activities of $68.4 million and net cash inflows from financing activities of $4.8 million that resulted in a $4.9 million decrease in our cash balance between December 31, 2007 and September 30, 2008. At September 30, 2008, we had cash and cash equivalents of $144.0 million.
At September 30, 2008, we had a leasehold improvement receivable totaling $21.8 million that represents the estimated discounted amount of funds as of that date that we expect to receive from Hospitality Trust in connection with our sales of leasehold improvements to Hospitality Trust under our lease with Hospitality Trust for TA branded travel centers.
We also own a portfolio of operating real estate and developable land which may be a source of additional liquidity over time to the extent it can be financed or sold; however, we do not believe these assets can be readily converted to cash in the present capital market conditions.
There can be no assurance that industry conditions will not decline further or that any one or more of the risks identified under the section Risk Factors or Warning Regarding Forward Looking Statements in our Annual Report on Form 10-K or elsewhere in this Quarterly Report on Form 10-Q or some other unidentified risk will not manifest itself in a manner which is material and adverse to our results of operations, cash flow or financial position.
Revolving Credit Facility
We have a revolving credit agreement under which a maximum of $100 million may be drawn, repaid and redrawn until maturity in November 2012. The maximum amount is subject to limits based on qualified collateral. The credit facility may be used for general business purposes, including the issuance of letters of credit. Generally, no principal payments are due until maturity in November 2012. Credit facility borrowings bear interest at LIBOR plus a spread that is currently 100 basis points, subject to adjustment based upon facility availability, utilization and other requirements. The credit facility is collateralized principally by our accounts receivable and inventory. On July 8, 2008, we entered an amendment to the credit facility to add certain previously excluded receivables and inventory as qualified collateral. On July 8, 2008, we entered an amendment to the credit facility to add as qualified collateral certain receivables and inventory related to our Petro sites, which assets had been previously excluded from the collateral supporting our credit facility.
The credit facility requires maintenance of collateral, limits the incurrence of debt and liens, restricts the making of certain investments and the payment of dividends and other distributions, requires a minimum fixed charge ratio under certain circumstances and has other customary covenants and conditions. The credit facility provides for acceleration of principal and interest payments upon an event of default. Events of default include, but are not limited to, failure to pay interest or other amounts due, a change in control of us, as defined in the credit facility, and our default of our lease agreements with Hospitality Trust or our management and shared services agreement with Reit Management.
At December 31, 2007 and September 30, 2008, there were no amounts outstanding under our revolving credit facility, but at September 30, 2008, we had outstanding $69.6 million of letters of credit issued under this facility, which we caused to be issued to secure certain purchases, insurance, fuel tax and other trade obligations. These letters of credit reduce the amount available for borrowing under our credit facility.
Investment Activities
Market conditions and other factors have caused us to cancel contracts and letters of intent for the acquisition of several operating and greenfield development sites and to stop development activities at the eight greenfield development sites we own. In connection with our abandoning these various projects, we recognized a charge of $1.6 million during the nine months ended September 30, 2008.
Our current capital plan for 2008 is unchanged from the second quarter and anticipates expenditures of approximately $100 million during 2008. For the nine months ended September 30, 2008, we invested approximately $71 million in capital projects. In October 2008 we made a cash capital contribution of approximately $7 million in the joint venture in which we acquired a minority interest as part of our Petro Acquisition. In conjunction with our $7 million cash capital contribution, our joint venture partner contributed land to the joint venture such that our ownership percentage in the joint venture remained at 40%.
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Off Balance Sheet Arrangements
As part of the Petro Acquisition, we acquired a minority interest in a joint venture that owns one travel center that we operate. This travel center is encumbered by mortgage debt of approximately $9.8 million as of September 30, 2008. We account for the investment in this joint venture under the equity method of accounting and, therefore, we have not recorded a liability for this mortgage debt. Petro was not and we are not directly liable for this debt, but the carrying value of our investment in this joint venture could be adversely affected if the joint venture defaulted on this debt and the joint ventures property was used to satisfy this debt. On October 8, 2008 we invested approximately $7.0 million in this joint venture in connection with plans to develop a new travel center on land owned by the joint venture in Southern California in 2009. This development also may be financed by the issuance of additional debt by the joint venture.
Some of our customers at Petro branded locations were billed for fuel purchases by a third party that settled those transactions with us. In certain circumstances involving nonpayment by a customer, the payments we received were subject to our repayment to this third party. At September 30, 2008, the total amount of this repayment risk was $8.4 million. We expect to terminate this billing program during the fourth quarter of 2008.
Related Party Transactions
One of our Managing Directors, Barry Portnoy, is a managing trustee of Hospitality Trust and the Chairman and majority owner of Reit Management. Our other Managing Director and President is also an executive vice president of Reit Management. Our Treasurer and Chief Financial Officer is also a senior vice president of Reit Management. In addition to providing services to us, Reit Management also provides services to Hospitality Trust. Further, Hospitality Trust owns approximately 9.6% of our outstanding common shares. For these reasons, we consider Hospitality Trust and Reit Management to be related parties of ours. For a further description of the relationships among us, Hospitality Trust and Reit Management, please review the contracts among these parties which are publicly available as exhibits to our public filings with the Securities and Exchange Commission, or the SEC, and are accessible at the SEC website, www.sec.gov, and also see our descriptions of these relationships in our Proxy Statement for our 2008 Annual Meeting of Shareholders, the descriptions in our periodic reports filed with the SEC after the date of that Proxy Statement of certain applicable agreements entered following that date and the description of the risks which may arise from these relationships in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2007, all of which documents are also accessible at the SEC website.
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We were formerly a 100% subsidiary of Hospitality Trust and Hospitality Trust is our principal landlord. During 2007 we completed both the HPT Transaction and the Petro Acquisition together with Hospitality Trust. Our leases with Hospitality Trust require us to pay: (i) minimum amounts of rent to Hospitality Trust specified in the TA Lease and the Petro Lease, (ii) additional rent to Hospitality Trust in connection with certain sales to Hospitality Trust of qualifying improvements at sites leased from Hospitality Trust, and (iii) the underlying ground lease payments at those sites subleased to us by Hospitality Trust, which ground lease payments we pay directly to the party from whom Hospitality Trust leases the site. In certain cases Hospitality Trust has exercised purchase options or otherwise acquired the leased properties that had previously been subleased to us and we now pay the related ground lease rents to Hospitality Trust.
Under our TA Lease we were originally permitted to sell $125 million of capital improvements to the leased properties to Hospitality Trust in increments of up to $25 million per year. For the three months ended September 30, 2008 and 2007 we paid rent to Hospitality Trust of $41.9 million and $54.5 million, respectively. For the nine months and eight months ended September 30, 2008 and 2007, we paid rent to Hospitality Trust of $154.0 million and $124.7 million, respectively. On May 12, 2008, we and Hospitality Trust amended the TA Lease to permit us to sell to Hospitality Trust, without an increase of our rent, certain capital improvements to properties leased from Hospitality Trust earlier than previously permitted. In the event that we elect to sell these capital improvements before the time contractually required by the original lease terms, Hospitality Trusts purchase commitment amount is discounted to reflect the accelerated receipt of funds by us according to a present value formula established in the amended lease. During the nine month period ended September 30, 2008, we sold leasehold improvements to Hospitality Trust for total cash proceeds, after the discounts for accelerated receipts of $69.8 million. At September 30, 2008, $25.8 million of the $125.0 million total amount of the leasehold improvements saleable to Hospitality Trust remained available.
On August 11, 2008 we entered a rent deferral agreement with Hospitality Trust. Under the terms of this deferral agreement we have the option to defer our monthly rent payments to Hospitality Trust by up to $5.0 million per month for periods beginning July 1, 2008 until December 31, 2010 and we are not obligated to pay cash interest on the deferred rent through December 31, 2009. Also pursuant to the deferral agreement, we issued 1,540,000 of our common shares to Hospitality Trust (approximately 9.6% of our shares outstanding after this new issuance). In the event we do not defer our monthly payments for all the permitted amounts through December 31, 2009, we may repurchase a pro-rata amount of our shares issued to Hospitality Trust for nominal consideration. In the event that any rents which have been deferred remain unpaid or additional rent amounts are deferred after December 31, 2009, interest on all such amounts is payable to Hospitality Trust monthly at the rate of 12% per annum, beginning January 1, 2010. No additional rent deferrals are permitted for rent periods after December 31, 2010. Any deferred rent (and interest thereon) not paid is due to Hospitality Trust on July 1, 2011. We may repay any deferred amounts (and related interest) at any time. This deferral agreement also includes a prohibition on share repurchases and dividends by us while any deferred rent remains unpaid and has change of control covenants so that amounts deferred will be immediately payable to Hospitality Trust in the event we experience a change of control (as defined in the agreement) while deferred rent is unpaid. As of September 30, 2008, we had deferred an aggregate of $15.0 million of rent payable to Hospitality Trust. Based on current economic and industry conditions we expect that we will elect to defer $5.0 million of rent payments due Hospitality Trust for each month through at least March 2009 and perhaps thereafter.
Other current liabilities in our consolidated balance sheets at September 30, 2008 and December 31, 2007, include $13.3 million and $18.0 million, respectively, for rent due to Hospitality Trust. Other noncurrent liabilities in our consolidated balance sheet at September 30, 2008 included $15.0 million of deferred rent payable to Hospitality Trust under the rent deferral agreement.
The shares issued to Hospitality Trust and no longer subject to repurchase under our rent deferral agreement may be registered by us under the Securities Act of 1933 at the option of Hospitality Trust, in accordance with the terms of a registration rights agreement between us and Hospitality Trust entered into concurrently with our rent deferral agreement. Under the registration rights agreement, Hospitality Trust will have three demand rights to require us to conduct a registered public offering (underwritten or otherwise) with respect to our common shares issued to Hospitality Trust, commencing on the date upon which one-third of such common shares are no longer subject to repurchase under our rent deferral agreement and continuing through the date which is twelve months following the latest of the expiration of the terms of the TA Lease and the Petro Lease. In addition, Hospitality Trust will have piggy-back rights to require us to include our common shares issued to Hospitality Trust and no longer subject to repurchase under our rent deferral agreement as part of any registered public offering which we may conduct from time to time.
We are party to a management and shared services agreement with Reit Management. Reit Management assists us with various aspects of our business, which may include, but are not limited to, compliance with various laws and rules applicable to our status as a publicly owned company, maintenance of our travel centers, site selection for properties on which new travel centers may be developed, identification of, and purchase negotiation for travel centers and travel center companies, accounting and financial reporting, capital markets and financing activities, investor relations and general oversight of all our daily business activities, including legal matters, human resources, insurance programs, management information systems and the like. For these services, we pay Reit Management a fee equal to 0.6% of our fuel gross margin and 0.6% of our total non-fuel revenues. The fee is payable monthly based upon the prior months margin or revenues, as applicable. In connection with the payments made to Reit Management under the management and shared services agreement, for the three months ended September 30, 2008 and 2007, we recognized expense of $2.5 million and $2.3 million, respectively, and for the nine and eight months ended September 30, 2008 and 2007 we recognized expense of $6.6 million and $5.0 million, respectively.
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As part of the Petro Acquisition, we acquired a minority interest in a joint venture that owns one travel center that we operate under a management agreement. This travel center is encumbered by mortgage debt of approximately $9.8 million as of September 30, 2008. We account for the investment in this joint venture under the equity method of accounting and, therefore, we have not recorded a liability for this mortgage debt. Petro was not and we are not directly liable for this debt, but the carrying value of our investment in this joint venture could be adversely affected if the joint venture defaulted on this debt and the joint ventures property was used to satisfy this debt. On October 8, 2008 we invested approximately $7.0 million in this joint venture in connection with plans to develop a new travel center on land owned by the joint venture in Southern California in 2009. This development also may be financed by the issuance of additional debt by the joint venture. Included in our results for the three and nine month periods ended September 30, 2008 was management and accounting fee income of $0.1 million and $0.3 million, respectively, earned from managing this joint venture. At September 30, 2008 we had a net payable to this joint venture of $2.2 million.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For quantitative and qualitative disclosures about market risk affecting us, see Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K for the year ended December 31, 2007 filed with the Securities and Exchange Commission on March 31, 2008. Our exposure to market risks has not changed materially from that set forth in our Annual Report on Form 10-K. During the nine months ended September 30, 2008, market prices for fuel continued to climb from the levels existing in 2007 and continued to be volatile.
Item 4T. Controls and Procedures
As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and Rule 15d-15. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective.
There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2008, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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There have been no material developments since December 31, 2007 to the legal proceedings previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2007 except for the items below:
In February 2006 a subsidiary of our predecessor, Pilot Travel Centers, LLC, or Pilot, a competitor of ours, and others were sued by Flying J, Inc., or Flying J, another one of our competitors, and its affiliates in the U.S. District Court for the District of Utah. In essence, the lawsuit claimed that we, Pilot and others participated in an unlawful concerted antitrust action to refuse to accept a payment card issued by a Flying J affiliate. Flying J and its affiliates sought damages in amounts to be determined at trial and other relief. In April 2008 we settled this litigation by paying $5 million and by agreeing to accept the payment card issued by one of Flying Js affiliates. As a result of this settlement, we were dismissed from the litigation on May 5, 2008. We paid the $5 million settlement amount in April 2008.
In May 2007 we terminated a contract with Simons Petroleum, Inc., or Simons, a fuel marketer, that had been entered by our predecessor. This contract permitted Simons to market fuel to trucking companies and distribute that fuel through our TA branded locations in exchange for paying low pumping fees to us. The termination was made at our option as provided in the contract and required an 18 month wind down period during which Simons may continue to market and distribute fuel through our locations. A dispute arose between us and Simons regarding the proper conduct of the parties during the wind down period. After settlement negotiations were conducted, we and Simons participated in a mediation, which failed to produce a settlement. In February 2008, we and Simons participated in a binding arbitration, under the auspices of the American Arbitration Association, or AAA. On March 14, 2008, we received the AAA ruling, which ordered us to pay Simons $900,000 and to accept new customers, if any, presented to us by Simons until November 7, 2008. We paid this amount in April 2008.
On February 1, 2008, we commenced litigation against E 2 Investment Partners LLC and related entities and individuals in the Delaware Court of Chancery. On December 31, 2007, these defendants forwarded a letter to us proposing directors and other matters for consideration at our 2008 annual meeting of shareholders. We sought a court order declaring that the defendants did not comply with our limited liability company agreement, or LLC agreement, and that therefore the defendants notice was invalid and their proposed nominees and other matters were not properly presented for consideration at our 2008 annual meeting. On April 4, 2008, the Delaware Court of Chancery issued an order declaring that the defendants notice breached our LLC agreement and was therefore invalid and of no force or effect. On May 8, 2008, we commenced a second litigation against the same defendants in the Delaware Court of Chancery to collect our costs and expenses arising from these defendants breach of our LLC agreement. On July 2, 2008, the defendants filed an answer to our complaint and generally denied liability. Certain defendants in this litigation have recently hired new counsel and filed a motion to dismiss. We have opposed this motion and filed a cross motion for partial summary judgment. No hearing has yet been scheduled for these motions. We do not know what amounts, if any, will ultimately be collected by us.
On February 1, 2008, Alan R. Kahn filed a purported derivative action in the Delaware Court of Chancery on behalf of TA against members of our board of directors, Hospitality Trust and Reit Management. This action alleges that our directors breached their fiduciary duties in connection with the Petro Acquisition and seeks an award of unspecified damages and reformation of our Petro Lease. This action also appears to allege that Reit Management and Hospitality Trust aided and abetted our directors. Under our LLC agreement and agreements with Reit Management and Hospitality Trust, we are liable to indemnify our directors, Hospitality Trust and Reit Management for liabilities, costs and expenses incurred by them in connection with this litigation. On May 6, 2008, we moved to dismiss this complaint. On June 20, 2008 the plaintiff filed an amended complaint making additional allegations regarding the members of our board of directors and withdrawing his request for reformation of the Petro Lease. On July 2, 2008, we moved to dismiss the amended complaint. On September 12, 2008, the plaintiff filed his answering brief in opposition to our motion to dismiss. The answering brief stated that the plaintiff would voluntarily dismiss his claims against Reit Management and also conceded that the plaintiff was unable to effect service of process on Hospitality Trust. On October 7, 2008, we filed our reply brief in support of our motion to dismiss. On October 30, 2008, Mr. Kahns claims against Reit management were dismissed. A hearing on our motion to dismiss is scheduled for November 25, 2008. We believe the plaintiffs allegations are without merit.
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In March 2005, a California County, Tehama County, commenced litigation against our predecessor in the Superior Court of California, Tehama County, seeking civil penalties and injunctive relief arising out of a fuel spill which occurred in December 2003. In July 2008, Riverside and San Bernardino Counties in the State of California each filed litigation against us in the Superior Court of California for Riverside and San Bernardino Counties, respectively, seeking civil penalties and injunctive relief for alleged past violations of various state laws and regulations relating to our predecessors management of underground storage tanks. We have been involved in negotiations with these three California counties and one other California county, Shasta County, which also is alleging past violations of various state laws and regulations relating to the management of underground storage tanks, in an effort to resolve their pending and threatened claims. Although we believe that the judgments or settlements which may result from these litigations and negotiations are unlikely to be material to us, Californias environmental laws provide for the possible assessment of large civil penalties for various violations, including some violations which do not result in environmental harm or continuing environmental risks. In addition, only a portion of the claims being asserted by these California counties are likely to be covered under our environmental insurance policies. Accordingly, these litigations and negotiations may result in our obligation to pay material amounts.
In November 2006 Great American Insurance Company of New York and Novartis Pharmaceuticals Corporation, or Novartis, filed a complaint in the United States District Court for the Southern District of New York against our predecessor and an unrelated party Prime, Inc., or Prime, in connection with the alleged theft of a tractor trailer operated by Prime which contained Novartis pharmaceutical products. The alleged theft occurred at our Bloomsbury, New Jersey travel center. Novartis seeks damages up to or exceeding $30,000 together with interest and costs, attorneys fees and disbursements. On January 5, 2007, our predecessor answered Novartis complaint and asserted a cross claim for contribution and indemnification against Prime. On September 12, 2008, we and Prime filed motions for summary judgment as to liability and damages. Plaintiffs filed a motion for summary judgment as to damages. A hearing on these motions is scheduled for November 14, 2008, and a trial is scheduled to begin on January 5, 2009. We believe that there are substantial defenses to these claims and that any liability arising from this matter may be substantially paid by one or more of our existing insurance policies or by Prime.
On October 3, 2008, we received an investigative subpoena from the Florida Department of Agriculture and Consumer Services requesting the production of documents relating to the retail price and cost of fuel at a site in Florida. In late September and early October 2008, we received investigative demands from the Georgia Governors Office of Consumer Affairs requesting the production of documents relating to the retail price and cost of fuel for the period after September 10, 2008 at three sites in Georgia. In late October 2008, we received an investigative subpoena from the Office of the Attorney General for South Carolina requesting the production of documents relating to the retail price and cost of gasoline at a site in South Carolina. It appears that these investigations are motivated by the increases in fuel prices in the southeastern U.S. after certain refineries and fuel distribution pipelines shut down during portions of the 2008 hurricane season. We are complying with the requests made in the investigative subpoena and investigative demands from Florida and Georgia.
There have been no material changes during the period covered by this Quarterly Report on Form 10-Q to the risk factors previously disclosed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2007.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Pursuant to the rent deferral agreement described in Note 8 to our financial statements included elsewhere in this Quarterly Report on Form 10-Q, on August 11, 2008, we issued to Hospitality Trust 1,540,000 common shares, which represented approximately 9.6% of our shares outstanding after this new issuance. In the event we do not defer all the permitted rent amounts through December 31, 2009, we may repurchase a pro-rata amount of our shares issued to Hospitality Trust for nominal consideration. This deferral agreement also includes a prohibition on share repurchases and dividends by us while any deferred rent remains unpaid, as well as other covenants and conditions. The shares issued to Hospitality Trust were valued at their estimated fair value on the date of issuance. This issuance does not involve any public offering and is therefore exempt from registration under Section 4(2) of the Securities Act of 1933, as amended. The shares issued to Hospitality Trust and no longer subject to repurchase under our rent deferral agreement may be registered by us under the Securities Act of 1933 at the option of Hospitality Trust, in accordance with the terms of a registration rights agreement between us and Hospitality Trust entered into concurrently with our rent deferral agreement. Under the registration rights agreement, Hospitality Trust will have three demand rights to require us to conduct a registered public offering (underwritten or otherwise) with respect to our common shares issued to Hospitality Trust, commencing on the date upon which one-third of such common shares are no longer subject to repurchase under our rent deferral agreement and continuing through the date which is twelve months following the latest of the expiration of the terms of the TA Lease and the Petro Lease. In addition, Hospitality Trust will have piggy-back rights to require us to include our common shares issued to Hospitality Trust and no longer subject to repurchase under our rent deferral agreement as part of any registered public offering which we may conduct from time to time. The foregoing description is qualified in its entirety by reference to the terms of the deferral agreement and the registration rights agreement filed as Exhibit 10.6 and Exhibit 10.7, respectively, to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 filed with the SEC on August 11, 2008.
On September 19, 2008, we granted 5,000 common shares, valued at $2.68 per share, the closing price of our common shares on that day on the exchange on which they are traded, to our Director of Internal Audit as part of his annual compensation. We made this grant pursuant to the exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended.
On November 7, 2008, our board of directors approved and adopted Bylaws (the Bylaws) for the Company in accordance with Section 15.3 of the LLC agreement. The Bylaws are effective as of November 7, 2008. The Bylaws address, among other things, the following matters:
· The principal office of the Company;
· Meetings of shareholders, including advance notice procedures which a shareholder must comply with in order to nominate individuals for election to our board of directors or propose other business at an applicable meeting of shareholders;
· Powers, qualifications and terms of our directors, and the composition and meetings of, and other procedural matters relating to, our board of directors;
· Roles and processes of the committees of our board of directors and our officers;
· Check drafting and depositing of our funds;
· Share certificates and transfers, closing of transfer books and fixing record dates;
· Regulatory compliance and disclosure, which, among other things, obligate our shareholders to comply with regulatory matters applicable to us or any of our subsidiaries or our or their respective businesses, assets or operations;
· Our fiscal year, which shall end on December 31 unless otherwise determined by our board of directors;
· The authorization of our board of directors to pay dividends and distributions;
· Adoption of a seal by the Company;
· Waiving notice of meetings;
· Procedures for amending the Bylaws; and
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· Various miscellaneous provisions, including a provision that each shareholder will to the fullest extent permitted by law be liable to us for, and indemnify and hold us harmless (and any subsidiaries or affiliates of ours) from and against, all costs, expenses, penalties, fines or other amounts arising from such shareholders breach of any provision of the Bylaws or our LLC agreement or any action against us in which such shareholder is not the prevailing party and procedures for ratification of past action or inaction on the part of the Company or our officers.
To the extent that the Bylaws contain provisions which limit the ability of a shareholder to remove management or directors or restrict the ability to own or transfer Company shares, those provisions may have anti-takeover effects.
The foregoing summary of the Bylaws is qualified in its entirety by reference to the text of the Bylaws. The Bylaws are attached hereto as Exhibit 3.2 and are incorporated by reference herein.
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Exhibit 3.1 |
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Composite Copy of Amended and Restated Limited Liability Company Agreement of TravelCenters of America LLC (Incorporated by reference to Exhibit 3.2 of our Registration Statement on Form S-1, filed on June 15, 2007, File No. 333-143814) |
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Exhibit 3.2 |
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Bylaws of TravelCenters of America LLC, as adopted November 7, 2008 (filed herewith) |
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Exhibit 4.1 |
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Form of share certificate (Incorporated by reference to Exhibit 4.1 of our Quarterly Report on Form 10-Q filed on August 11, 2008) |
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Exhibit 10.1 |
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Amendment No. 1 to Loan and Security Agreement, dated as of June 30, 2008, by and among TravelCenters of America LLC, TA Leasing LLC, TA Operating LLC, Petro Stopping Centers, L.P., as borrowers, each of the guarantors under the agreement, the parties to the agreement from time to time as lenders, and Wachovia Capital Finance Corporation (Central), in its capacity as agent for the lenders (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed on July 11, 2008) |
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Exhibit 10.2 |
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Deferral Agreement, dated as of August 11, 2008 among Hospitality Properties Trust, HPT TA Properties Trust, HPT TA Properties LLC, HPT PSC Properties Trust, HPT PSC Properties LLC, TravelCenters of America LLC, TA Leasing LLC and Petro Stopping Centers, L.P. (Incorporated by reference to Exhibit 10.6 of our Quarterly Report on Form 10-Q filed on August 11, 2008) |
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Exhibit 10.3 |
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Registration Rights Agreement, dated August 11, 2008 between TravelCenters of America LLC and Hospitality Properties Trust (Incorporated by reference to Exhibit 10.7 of our Quarterly Report on Form 10-Q filed on August 11, 2008) |
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Exhibit 10.4 |
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Amendment No. 4 to Operating Agreement, dated as of August 12, 2008 by and between Daimler Trucks North America LLC, F/K/A Freightliner Corporation and Freightliner LLC, TA Operating LLC (successor by conversion to TA Operating Corp.), TA Franchise Systems LLC (successor by conversion to TA Franchise Systems Inc.) and Petro Stopping Centers, L.P. (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed on August 15, 2008) |
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Exhibit 10.5 |
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First Amendment to Lease Agreement dated March 17, 2008 by and among HPT PSC Properties Trust, HPT PSC Properties LLC and Petro Stopping Centers, L.P. (filed herewith) |
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Exhibit 31.1 |
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Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer (filed herewith) |
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Exhibit 31.2 |
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Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer (filed herewith) |
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Exhibit 32.1 |
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Section 1350 Certification of Chief Executive Officer and Chief Financial Officer (furnished herewith) |
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Exhibit 99.1 |
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Reimbursement Agreement, dated as of October 17, 2008, among REIT Management & Research LLC, TravelCenters of America LLC and Five Star Quality Care, Inc. (filed herewith) |
36
WARNING CONCERNING FORWARD LOOKING STATEMENTS
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS STATEMENTS WHICH CONSTITUTE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER FEDERAL SECURITIES LAWS. ALSO, WHENEVER WE USE WORDS SUCH AS BELIEVE, EXPECT, ANTICIPATE, INTEND, PLAN, ESTIMATE OR SIMILAR EXPRESSIONS, WE ARE MAKING FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON OUR PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY OUR FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. AMONG OTHERS, THE FORWARD LOOKING STATEMENTS WHICH APPEAR IN THIS QUARTERLY REPORT ON FORM 10-Q THAT MAY NOT OCCUR INCLUDE:
· OUR DESCRIPTION OF OUR RECENT RENT DEFERRAL AGREEMENT WITH HOSPITALITY TRUST MAY IMPLY THAT THE RENT DEFERRAL AMOUNTS TOGETHER WITH OUR OTHER CASH PROVIDED BY OUR OPERATING ACTIVITIES WILL BE SUFFICIENT TO ALLOW US TO GENERATE POSITIVE CASH FLOW FROM OPERATIONS AND TO MEET OUR OBLIGATIONS DURING THE RENT DEFERRAL PERIOD. IN FACT, WE MAY NOT BE ABLE TO GENERATE POSITIVE CASH FLOW FROM OPERATIONS OR MEET OUR OBLIGATIONS;
· CERTAIN STATEMENTS MAY IMPLY THAT OUR STAFF REDUCTIONS, EXPENSE CONTROLS AND OTHER INITIATIVES MAY CAUSE IMPROVED FINANCIAL RESULTS. IN FACT, FUTURE MARKET CONDITIONS IN THE TRUCKING INDUSTRY OR OTHERWISE MAY BE WORSE THAN WE NOW EXPECT, OUR INITIATIVES MAY NOT BE SUCCESSFULLY IMPLEMENTED OR SUSTAINED AND OUR FINANCIAL RESULTS MAY NOT IMPROVE OR WE MAY EXPERIENCE MATERIAL AND CONTINUING LOSSES;
· THE LITIGATION BROUGHT BY FLYING J AND ITS AFFILIATES IS EXPECTED TO CONTINUE AGAINST DEFENDANTS OTHER THAN US. DURING THE CONTINUATION OF THIS LITIGATION, WE MAY BE REQUIRED TO RESPOND TO DISCOVERY REQUESTS OR BECOME OTHERWISE INVOLVED IN THE CONTINUING LITIGATION. ACCORDINGLY, THE SETTLEMENT AGREEMENT REACHED WITH FLYING J MAY NOT END OUR INVOLVEMENT IN THIS LITIGATION AND WE MAY CONTINUE TO INCUR EXPENSES AND MANAGEMENT EFFORTS ARISING FROM THIS LITIGATION. THE AMOUNT OF OUR CONTINUING INVOLVEMENT IN THIS CONTINUING LITIGATION WILL DEPEND, IN LARGE PART, UPON ACTIONS TAKEN BY OTHER PARTIES CONTINUING IN THIS LITIGATION, WHICH ACTIONS ARE NOT WITHIN OUR CONTROL;
· OUR ENVIRONMENTAL LIABILITY MAY BE GREATER THAN WE CURRENTLY ANTICIPATE; AND
· WE MAY BE UNABLE TO SETTLE OR PREVAIL IN OUR PENDING LITIGATION MATTERS AND ANY SETTLEMENT OR ADVERSE RULING MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
THESE UNEXPECTED RESULTS OF OUR FORWARD LOOKING STATEMENTS MAY BE CAUSED BY VARIOUS FACTORS, SOME OF WHICH ARE BEYOND OUR CONTROL:
· FUEL PRICE INCREASES, FUEL PRICE VOLATILITY, OR OTHER FACTORS MAY CAUSE US TO NEED MORE WORKING CAPITAL TO MAINTAIN OUR INVENTORIES AND CARRY OUR ACCOUNTS RECEIVABLE THAN WE NOW EXPECT;
· CONTINUATION OF THE CURRENTLY HIGH FUEL PRICES OR INCREASES IN FUEL PRICES MAY REDUCE THE DEMAND FOR THE GOODS AND SERVICES WHICH WE SELL BECAUSE SUCH FUEL PRICES MAY ENCOURAGE FUEL CONSERVATION, DIRECT FREIGHT BUSINESS AWAY FROM TRUCKING OR OTHERWISE ADVERSELY AFFECT THE BUSINESS OF OUR CUSTOMERS;
37
· OUR EFFORTS TO MAINTAIN OR IMPROVE OUR OPERATING MARGINS BY INCREASING PRICES MAY NOT BE EFFECTIVE AND MAY CAUSE US TO LOSE BUSINESS AND REDUCE OUR OPERATING EARNINGS AND CREATE OR INCREASE OUR LOSSES;
· THE SUCCESS OF OUR COST CONTROL INITIATIVES DEPENDS IN LARGE PART UPON OUR MANAGEMENTS ABILITY TO MANAGE HOURLY EMPLOYMENT TO MATCH OUR CHANGING LEVELS OF BUSINESS, BUT WE MAY BE UNABLE TO REDUCE STAFFING BELOW CERTAIN LEVELS AT OUR TRAVEL CENTERS WHICH GENERALLY OPERATE 24 HOURS PER DAY, 365 DAYS PER YEAR;
· OUR SUPPLIERS MAY BE UNWILLING OR UNABLE TO MAINTAIN OR INCREASE THEIR LIMITS FOR OUR PURCHASES ON CREDIT. IF WE ARE UNABLE TO PURCHASE GOODS ON REASONABLE CREDIT TERMS, OUR REQUIRED WORKING CAPITAL MAY INCREASE AND WE MAY INCUR MATERIAL LOSSES;
· IF THE U.S. ECONOMY CONTINUES TO SLOW, THE TRUCKING INDUSTRY MAY DECLINE FURTHER AND OUR CUSTOMERS MAY PURCHASE LESS OF OUR GOODS AND SERVICES; AND,
· DISCOVERY AND COURT DECISIONS DURING LITIGATION OFTEN RESULT IN UNANTICIPATED RESULTS. LITIGATION IS USUALLY EXPENSIVE AND DISTRACTING TO MANAGEMENT. WE CAN PROVIDE NO ASSURANCE AS TO THE OUTCOME OF ANY OF THE LITIGATION MATTERS IN WHICH WE ARE INVOLVED.
WE HAVE PRODUCED PROFITABLE OPERATIONS IN ONLY ONE QUARTERLY REPORTING PERIOD SINCE WE BECAME A PUBLICALLY OWNED COMPANY ON JANUARY 31, 2007. ALTHOUGHT OUR PLANS ARE INTENDED TO CREATE PROFITABLE OPERATIONS, THERE CAN BE NO ASSURANCE THAT THESE PLANS WILL SUCCEED.
RESULTS WHICH DIFFER FROM THOSE STATED OR IMPLIED BY OUR FORWARD LOOKING STATEMENTS ALSO MAY BE CAUSED BY VARIOUS CHANGES IN OUR BUSINESS OR MARKET CONDITIONS AS DESCRIBED MORE FULLY UNDER ITEM 1A. RISK FACTORS IN OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2007.
YOU SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS.
EXCEPT AS REQUIRED BY LAW, WE UNDERTAKE NO OBLIGATION TO UPDATE OR REVISE ANY FORWARD LOOKING STATEMENT AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
38
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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TRAVELCENTERS OF AMERICA LLC |
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By: |
/s/ |
Andrew J. Rebholz |
November 10, 2008 |
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Name: |
Andrew J. Rebholz |
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Title: |
Executive Vice President, |
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Chief Financial Officer and Treasurer |
39
Exhibit Index
Exhibit 3.1 |
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Composite Copy of Amended and Restated Limited Liability Company Agreement of TravelCenters of America LLC (Incorporated by reference to Exhibit 3.2 of our Registration Statement on Form S-1, filed on June 15, 2007, File No. 333-143814) |
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Exhibit 3.2 |
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Bylaws of TravelCenters of America LLC, as adopted November 7, 2008 (filed herewith) |
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Exhibit 4.1 |
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Form of share certificate (Incorporated by reference to Exhibit 4.1 of our Quarterly Report on Form 10-Q filed on August 11, 2008) |
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Exhibit 10.1 |
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Amendment No. 1 to Loan and Security Agreement, dated as of June 30, 2008, by and among TravelCenters of America LLC, TA Leasing LLC, TA Operating LLC, Petro Stopping Centers, L.P., as borrowers, each of the guarantors under the agreement, the parties to the agreement from time to time as lenders, and Wachovia Capital Finance Corporation (Central), in its capacity as agent for the lenders (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed on July 11, 2008) |
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Exhibit 10.2 |
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Deferral Agreement, dated as of August 11, 2008 among Hospitality Properties Trust, HPT TA Properties Trust, HPT TA Properties LLC, HPT PSC Properties Trust, HPT PSC Properties LLC, TravelCenters of America LLC, TA Leasing LLC and Petro Stopping Centers, L.P. (Incorporated by reference to Exhibit 10.6 of our Quarterly Report on Form 10-Q filed on August 11, 2008) |
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Exhibit 10.3 |
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Registration Rights Agreement, dated August 11, 2008 between TravelCenters of America LLC and Hospitality Properties Trust (Incorporated by reference to Exhibit 10.7 of our Quarterly Report on Form 10-Q filed on August 11, 2008) |
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Exhibit 10.4 |
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Amendment No. 4 to Operating Agreement, dated as of August 12, 2008 by and between Daimler Trucks North America LLC, F/K/A Freightliner Corporation and Freightliner LLC, TA Operating LLC (successor by conversion to TA Operating Corp.), TA Franchise Systems LLC (successor by conversion to TA Franchise Systems Inc.) and Petro Stopping Centers, L.P. (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed on August 15, 2008) |
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Exhibit 10.5 |
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First Amendment to Lease Agreement dated March 17, 2008 by and among HPT PSC Properties Trust, HPT PSC Properties LLC and Petro Stopping Centers, L.P. (filed herewith) |
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Exhibit 31.1 |
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Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer (filed herewith) |
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Exhibit 31.2 |
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Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer (filed herewith) |
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Exhibit 32.1 |
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Section 1350 Certification of Chief Executive Officer and Chief Financial Officer (furnished herewith) |
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Exhibit 99.1 |
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Reimbursement Agreement, dated as of October 17, 2008, among REIT Management & Research LLC, TravelCenters of America LLC and Five Star Quality Care, Inc. (filed herewith) |
40
Table of Contents
ARTICLE I OFFICES |
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1 |
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Section 1.1. |
Offices |
1 |
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ARTICLE II MEETINGS OF SHAREHOLDERS |
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1 |
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Section 2.1. |
Place |
1 |
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Section 2.2. |
Annual Meeting |
1 |
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Section 2.3. |
Special Meetings |
1 |
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Section 2.3.1. |
General |
1 |
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Section 2.3.2. |
Shareholder Requested Special Meetings |
2 |
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Section 2.4. |
Notice of Regular or Special Meetings |
4 |
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Section 2.5. |
Notice of Adjourned Meetings |
4 |
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Section 2.6. |
Scope of Meetings |
4 |
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Section 2.7. |
Organization of Shareholder Meetings |
4 |
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Section 2.8. |
Quorum |
5 |
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Section 2.9. |
Voting |
6 |
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Section 2.10. |
Proxies |
6 |
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Section 2.11. |
Record Date |
6 |
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Section 2.12. |
Voting of Shares by Certain Holders |
6 |
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Section 2.13. |
Inspectors |
6 |
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Section 2.14. |
Nominations and Other Proposals to be Considered at Meetings of Shareholders |
7 |
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Section 2.14.1. |
Annual Meetings of Shareholders |
7 |
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Section 2.14.2. |
Shareholder Nominations or Other Proposals Causing Covenant Breaches or Defaults |
13 |
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Section 2.14.3. |
Shareholder Nominations or Other Proposals Requiring Governmental Action |
14 |
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Section 2.14.4. |
Special Meetings of Shareholders |
15 |
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Section 2.14.5. |
General |
15 |
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Section 2.15. |
Voting by Ballot |
17 |
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Section 2.16. |
Proposals of Business Which Are Not Proper Matters For Action By Shareholders |
17 |
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ARTICLE III DIRECTORS |
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18 |
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Section 3.1. |
General Powers; Qualifications; Directors Holding Over |
18 |
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Section 3.2. |
Independent Directors and Managing Directors |
18 |
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Section 3.3. |
Number and Tenure |
19 |
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Section 3.4. |
Annual and Regular Meetings |
19 |
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Section 3.5. |
Special Meetings |
19 |
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Section 3.6. |
Notice |
19 |
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Section 3.7. |
Quorum |
20 |
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Section 3.8. |
Voting |
20 |
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Section 3.9. |
Telephone Meetings |
20 |
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Section 3.10. |
Action by Written Consent of Board of Directors |
20 |
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Section 3.11. |
Waiver of Notice |
20 |
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Section 3.12. |
Vacancies |
20 |
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Section 3.13. |
Compensation |
21 |
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Section 3.14. |
Removal of Directors |
21 |
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Section 3.15. |
Surety Bonds |
21 |
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Section 3.16. |
Reliance |
21 |
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Section 3.17. |
Qualifying Shares Not Required |
21 |
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Section 3.18. |
Certain Rights of Directors, Officers, Employees and Agents |
21 |
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Section 3.19. |
Emergency Provisions |
22 |
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ARTICLE IV COMMITTEES |
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22 |
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Section 4.1. |
Number; Tenure and Qualifications |
22 |
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Section 4.2. |
Powers |
22 |
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Section 4.3. |
Meetings |
22 |
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Section 4.4. |
Telephone Meetings |
23 |
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Section 4.5. |
Action by Written Consent of Committees |
23 |
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Section 4.6. |
Vacancies |
23 |
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ARTICLE V OFFICERS |
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23 |
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Section 5.1. |
General Provisions |
23 |
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Section 5.2. |
Removal and Resignation |
24 |
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Section 5.3. |
Vacancies |
24 |
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Section 5.4. |
Chief Executive Officer |
24 |
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Section 5.5. |
Chief Operating Officer |
24 |
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Section 5.6. |
Chief Financial Officer |
24 |
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Section 5.7. |
Chairman of the Board |
24 |
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Section 5.8. |
Vice Chairman of the Board |
24 |
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Section 5.9. |
President |
25 |
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Section 5.10. |
Vice Presidents |
25 |
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Section 5.11. |
Secretary |
25 |
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Section 5.12. |
Treasurer |
25 |
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Section 5.13. |
Assistant Secretaries and Assistant Treasurers |
25 |
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Section 5.14. |
General Powers of Officers |
25 |
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ARTICLE VI CHECKS AND DEPOSITS |
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26 |
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Section 6.1. |
Checks and Drafts |
26 |
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Section 6.2. |
Deposits |
26 |
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ARTICLE VII SHARES |
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26 |
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Section 7.1. |
Certificates |
26 |
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Section 7.2. |
Transfers |
26 |
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Section 7.3. |
Mutilated, Destroyed, Lost or Stolen Certificates |
27 |
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Section 7.4. |
Closing of Transfer Books or Fixing of Record Date |
28 |
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Section 7.5. |
Stock Ledger |
28 |
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ARTICLE VIII REGULATORY COMPLIANCE AND DISCLOSURE |
29 |
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Section 8.1. |
Actions Requiring Regulatory Compliance Implicating the Company |
29 |
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Section 8.2. |
Compliance With Law |
30 |
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ii
Section 8.3. |
Limitation on Voting Shares or Proxies |
30 |
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Section 8.4. |
Representations, Warranties and Covenants Made to Governmental or Regulatory Bodies |
30 |
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Section 8.5. |
Board of Directors Determinations |
30 |
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ARTICLE IX FISCAL YEAR |
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31 |
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Section 9.1. |
Fiscal Year |
31 |
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ARTICLE X DIVIDENDS AND OTHER DISTRIBUTIONS |
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31 |
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Section 10.1. |
Dividends and Other Distributions |
31 |
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ARTICLE XI SEAL |
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31 |
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Section 11.1. |
Seal |
31 |
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Section 11.2. |
Affixing Seal |
31 |
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ARTICLE XII WAIVER OF NOTICE |
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31 |
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Section 12.1. |
Waiver of Notice |
31 |
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ARTICLE XIII AMENDMENT OF BYLAWS |
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32 |
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Section 13.1. |
Amendment of Bylaws |
32 |
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ARTICLE XIV MISCELLANEOUS |
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32 |
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Section 14.1. |
References to Limited Liability Company Agreement of the Company; Conflicting Provisions |
32 |
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Section 14.2. |
Costs and Expenses |
32 |
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Section 14.3. |
Ratification |
32 |
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Section 14.4. |
Ambiguity |
33 |
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Section 14.5. |
Inspection of Bylaws |
33 |
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iii
Exhibit 3.2
TRAVELCENTERS OF AMERICA LLC
BYLAWS
ARTICLE I
OFFICES
Section 1.1. Offices . The Board of Directors may establish and change the principal office or place of business of the Company at any time and may cause the Company to establish other offices or places of business in various jurisdictions.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.1. Place . All meetings of shareholders shall be held at the principal executive office of the Company or at such other place as shall be set by the Board of Directors as stated in the notice of the meeting. For purposes of these Bylaws, all references to shareholders of the Company shall have the same meaning as the term Shareholders as used and defined in the Companys Limited Liability Company Agreement (as it may be amended from time to time, the LLC Agreement).
Section 2.2. Annual Meeting . An annual meeting of the shareholders for the election of directors and the transaction of any business within the powers of the Company shall be called by the Board of Directors and shall be held on a date and at the time set by the Board of Directors. Failure to hold an annual meeting does not invalidate the Companys existence or affect any otherwise valid acts of the Company.
Section 2.3. Special Meetings .
Section 2.3.1. General . The chairman of the board, if any, or a majority of the entire Board of Directors may call a special meeting of the shareholders. Subject to Section 2.3.2 and the last sentence of this Section 2.3.1, a special meeting of shareholders shall also be called by the secretary of the Company upon the written request of shareholders entitled to cast not less than the Special Meeting Percentage of all the votes entitled to be cast at such meeting. The Special Meeting Percentage shall be a majority or, to the extent permitted by any applicable rule of the principal exchange on which the Companys common shares are listed (such rules, the Exchange Rules), such higher percentage as shall be specified from time to time by the Board of Directors; provided, however, that in no case shall the Special Meeting Percentage be more than 75%. Nothing in these Bylaws shall be construed to permit the shareholders to cause a special meeting of the shareholders to be called unless applicable law or Exchange Rule requires that the shareholders be able to do so.
Section 2.3.2. Shareholder Requested Special Meetings .
(a) Subject to the last sentence of Section 2.3.1, any shareholder of record seeking to have shareholders request a special meeting shall, by sending written notice to the secretary of the Company (the Record Date Request Notice) by registered mail, return receipt requested, request the Board of Directors to fix a record date to determine the shareholders entitled to request a special meeting (the Request Record Date). No shareholder may make a Record Date Request Notice unless such shareholder holds certificates for all shares in the Company owned by such shareholder, and a copy of each such certificate shall accompany such shareholders written request to the secretary, as described in the preceding sentence, in order for such request to be effective. The Record Date Request Notice shall set forth the purpose of the meeting and the matters proposed to be acted on at the meeting, shall be signed by one or more shareholders of record as of the date of signature (or their duly authorized agents), shall bear the date of signature of each such shareholder (or its duly authorized agent) signing the Record Date Request Notice and shall set forth all information that each such shareholder would be required to disclose in solicitations of proxies for election of directors in an election contest (even if an election contest is not involved), or is otherwise required, in each case, pursuant to Section 14 (or any successor provision) of the Securities Exchange Act of 1934, as amended (the Exchange Act), and the rules and regulations promulgated thereunder, as well as additional information required by Section 2.14. Upon receiving the Record Date Request Notice, the Board of Directors may in its discretion fix a Request Record Date, which need not be the same date as that requested in the Record Date Request Notice, and may also fix the Special Meeting Percentage for that meeting. The Request Record Date shall not precede, and shall not be more than 10 days after the close of business on, the date on which the resolution fixing the Request Record Date is adopted by the Board of Directors. If the Board of Directors, within 10 days after the date on which a valid Record Date Request Notice is received, fails to adopt a resolution fixing the Request Record Date and make a public announcement (as defined in Section 2.14.5(c)) of such Request Record Date, the Request Record Date shall be the close of business on the 10th day after the date a valid Record Date Request Notice is received by the secretary.
(b) Subject to the last sentence of Section 2.3.1, in order for any shareholder to request a special meeting, one or more written requests for a special meeting signed by shareholders of record (or their duly authorized agents) as of the Request Record Date entitled to cast not less than the Special Meeting Percentage (the Special Meeting Request) shall be delivered to the secretary. No shareholder may make a Special Meeting Request unless such shareholder holds certificates for all shares in the Company owned by such shareholder, and a copy of each such certificate shall accompany such shareholders written request to the secretary, as described in the preceding sentence, in order for such request to be effective. In addition, the Special Meeting Request shall set forth the purpose of the meeting and the matters proposed to be acted on at the meeting (which shall be limited to the matters set forth in the Record Date Request Notice received by the secretary), shall bear the date of signature of each such shareholder (or its duly authorized agent) signing the Special Meeting Request, shall set forth the name and address, as they appear in the Companys books, of each shareholder signing such request (or on whose behalf the Special Meeting Request is signed) and the class and number of shares of the Company which are owned of record and beneficially
2
by each such shareholder, shall be sent to the secretary by registered mail, return receipt requested, and shall be received by the secretary within 60 days after the Request Record Date. Any requesting shareholder may revoke his, her or its request for a special meeting at any time by written revocation delivered to the secretary.
(c) The secretary shall inform the requesting shareholders of the reasonably estimated cost of preparing, mailing and filing the notice of meeting (including the Companys proxy materials). The secretary shall not be required to call a special meeting upon shareholder request and such meeting shall not be held unless, in addition to the documents and information required by Section 2.3.2(b), the secretary receives payment from the requesting shareholders of such reasonably estimated cost prior to the mailing of any notice of the meeting.
(d) Except as provided in the next sentence, any special meeting shall be held at such place, date and time as may be designated by the officer who called the meeting, if any, and otherwise by the Board of Directors. In the case of any special meeting called by the secretary upon the request of shareholders (a Shareholder Requested Meeting), such meeting shall be held at such place, date and time as may be designated by the Board of Directors; provided, however, that if the Board of Directors fails to designate, within 10 days after the date that a valid Special Meeting Request is actually received by the secretary (the Delivery Date), a date and time for a Shareholder Requested Meeting, then such meeting shall be held at 2:00 p.m. local time on the 90th day after the record date for such Shareholder Requested Meeting (the Meeting Record Date) or, if such 90th day is not a Business Day (as defined below), on the first Business Day preceding such 90th day; and provided further that in the event that the Board of Directors fails to designate a place for a Shareholder Requested Meeting within 10 days after the Delivery Date, then such meeting shall be held at the principal executive offices of the Company. In fixing a date for any special meeting, the chairman of the board, if any, the president or the Board of Directors may consider such factors as he, she or it deems relevant within the good faith exercise of business judgment, including, without limitation, the nature of the matters to be considered, the facts and circumstances surrounding any request for meeting and any plan of the Board of Directors to call an annual meeting or a special meeting. In the case of any Shareholder Requested Meeting, if the Board of Directors fails to fix a Meeting Record Date that is a date within 30 days after the Delivery Date, then the close of business on the 30th day after the Delivery Date shall be the Meeting Record Date.
(e) If at any time as a result of written revocations of requests for the special meeting, shareholders of record (or their duly authorized agents) as of the Request Record Date entitled to cast less than the Special Meeting Percentage shall have delivered and not revoked requests for a special meeting, the secretary may refrain from mailing the notice of the meeting or, if the notice of the meeting has been mailed, the secretary may revoke the notice of the meeting at any time not less than 10 days before the meeting if the secretary has sent to all other requesting shareholders written notice of such revocation and of the intention to revoke the notice of the meeting, and the Company may cancel and not hold such meeting. Any request for a special meeting received after a
3
revocation by the secretary of a notice of a meeting shall be considered a request for a new special meeting.
(f) The Board of Directors shall determine the validity of any purported Record Date Request Notice or Special Meeting Request received by the secretary. For the purpose of permitting the Board of Directors to perform such review, no such purported request shall be deemed to have been delivered to the secretary until the earlier of (i) five Business Days after receipt by the secretary of such purported request and (ii) such date as the Board of Directors may certify that the secretary has validly received requests signed by shareholders (or their duly authorized agents) entitled to cast not less than the Special Meeting Percentage of all votes entitled to be cast at the meeting to be called pursuant to such requests. Any Record Date Request Notice or Special Meeting Request that is submitted but which is inaccurate, incomplete or otherwise fails to satisfy completely any applicable provisions of this Section 2.3.2 shall be deemed defective and shall thereby render all proposals set forth in such Record Date Request Notice or Special Meeting Request, as applicable, defective.
(g) For purposes of these Bylaws, Business Day means Monday through Friday of each week, except that a legal holiday recognized as such by the U.S. Government shall not be regarded as a Business Day
Section 2.4. Notice of Regular or Special Meetings . If and to the extent required by law, the secretary shall give to each shareholder entitled to vote at such meeting and to each shareholder not entitled to vote who is entitled to notice of the meeting written notice stating the time and place of the meeting and, in the case of a special meeting or as otherwise may be required by any statute, the purpose for which the meeting is called, either by mail, by recognized national courier service, by presenting it to such shareholder personally, by leaving it at the shareholders residence or usual place of business or by any other means, including electronic delivery, permitted by the Delaware Limited Liability Company Act, the Exchange Act and any applicable Exchange Rule. If mailed, such notice shall be deemed to be given when deposited in the U.S. mail addressed to the shareholder at the shareholders address as it appears on the records of the Company, with postage thereon prepaid.
Section 2.5. Notice of Adjourned Meetings . It shall not be necessary to give notice of the time and place of any adjourned meeting or of the business to be transacted thereat other than by announcement at the meeting at which such adjournment is taken.
Section 2.6. Scope of Meetings . Except as otherwise expressly set forth elsewhere in these Bylaws, no business shall be transacted at an annual or special meeting of shareholders except as specifically designated in the notice or otherwise properly brought before the shareholders by or at the direction of the Board of Directors.
Section 2.7. Organization of Shareholder Meetings . Every meeting of shareholders shall be conducted by an individual appointed by the Board of Directors to be chairperson of the meeting or, in the absence of such appointment, by the chairman of the board, if there be one, or, in the case of the absence of the chairman of the board, by one of the following officers present at the meeting in the following order: the vice chairman of the board, if there be one, the president, the vice presidents in their order of seniority or, in the absence of
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such officers, a chairperson chosen by the shareholders by the vote of a majority of the votes cast on such appointment by shareholders present in person or represented by proxy. The secretary, an assistant secretary or a person appointed by the Board of Directors or, in the absence of such appointment, a person appointed by the chairperson of the meeting shall act as secretary of the meeting and record the minutes of the meeting. If the secretary presides as chairperson at a meeting of the shareholders, then the secretary shall not also act as secretary of the meeting and record the minutes of the meeting. The order of business and all other matters of procedure at any meeting of shareholders shall be determined by the chairperson of the meeting. The chairperson of the meeting may prescribe such rules, regulations and procedures and take such action as, in the discretion of such chairperson, are appropriate for the proper conduct of the meeting, including, without limitation: (a) restricting admission to the time set for the commencement of the meeting; (b) limiting attendance at the meeting to shareholders of record of the Company, their duly authorized proxies or other such persons as the chairperson of the meeting may determine; (c) limiting participation at the meeting on any matter to shareholders of record of the Company entitled to vote on such matter, their duly authorized proxies or other such persons as the chairperson of the meeting may determine; (d) limiting the time allotted to questions or comments by participants; (e) maintaining order and security at the meeting; (f) removing any shareholder or other person who refuses to comply with meeting procedures, rules or guidelines as set forth by the chairperson of the meeting; (g) concluding a meeting or recessing or adjourning the meeting to a later date and time and at a place announced at the meeting; and (h) complying with any state and local laws and regulations concerning safety and security. Without limiting the generality of the powers of the chairperson of the meeting pursuant to the foregoing provisions, the chairperson may adjourn any meeting of shareholders for any reason deemed necessary by the chairperson, including, without limitation, if (i) no quorum is present for the transaction of the business, (ii) the Board of Directors or the chairperson of the meeting determines that adjournment is necessary or appropriate to enable the shareholders to consider fully information that the Board of Directors or the chairperson of the meeting determines has not been made sufficiently or timely available to shareholders or (iii) the Board of Directors or the chairperson of the meeting determines that adjournment is otherwise in the best interests of the Company. Unless otherwise determined by the chairperson of the meeting, meetings of shareholders shall not be required to be held in accordance with the general rules of parliamentary procedure or any otherwise established rules of order.
Section 2.8. Quorum . A quorum for action at any meeting of shareholders shall be as set forth in the LLC Agreement. If a quorum shall not be present at any meeting of shareholders, the chairperson of the meeting shall have the power to adjourn the meeting from time to time without the Company having to set a new record date or provide any additional notice of such meeting, subject to any obligation of the Company to give notice pursuant to Section 2.5. At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. The shareholders present, either in person or by proxy, at a meeting of shareholders which has been duly called and convened and at which a quorum was established may continue to transact business until adjournment, notwithstanding the withdrawal of enough votes to leave less than a quorum then being present at the meeting.
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Section 2.9. Voting . The vote required for any matter to be voted upon by the shareholders shall be as set forth in the LLC Agreement. There shall not be cumulative voting of the common shares of the Company.
Section 2.10. Proxies . A shareholder may cast the votes entitled to be cast by him or her either in person or by proxy executed by the shareholder or by his or her duly authorized agent in any manner permitted by law. Such proxy shall be filed with such officer of the Company or third party agent as the Board of Directors shall have designated for such purpose for verification prior to or at such meeting. Any proxy relating to shares of the Company shall be valid until the expiration date therein or, if no expiration is so indicated, until the time permitted under Delaware law or as otherwise provided in the LLC Agreement. At a meeting of shareholders, all questions concerning the qualification of voters, the validity of proxies, and the acceptance or rejection of votes, shall be decided by or on behalf of the chairperson of the meeting, subject to Section 2.13.
Section 2.11. Record Date . The Board of Directors may fix the date for determination of shareholders entitled to notice of and to vote at a meeting of shareholders. If no date is fixed for the determination of the shareholders entitled to notice of and to vote at any meeting of shareholders, only persons in whose names shares entitled to vote are recorded on the share records of the Company at the close of business on the day next preceding the day on which notice is given shall be entitled to vote at such meeting.
Section 2.12. Voting of Shares by Certain Holders . Shares of the Company registered in the name of a corporation, partnership, trust or other entity, if entitled to be voted, may be voted by the president or a vice president, a general partner or trustee thereof, as the case may be, or a proxy appointed by any of the foregoing individuals, unless some other person who has been appointed to vote such shares pursuant to a bylaw or a resolution of the governing body of such corporation or other entity or pursuant to an agreement of the partners of the partnership presents a certified copy of such bylaw, resolution or agreement, in which case such person may vote such shares. Any trustee or other fiduciary may vote shares registered in his or her name as such fiduciary, either in person or by proxy.
Section 2.13. Inspectors .
(a) Before or at any meeting of shareholders, the chairperson of the meeting may appoint one or more persons as inspectors for such meeting. In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the Board of Directors or at the meeting by the chairperson of the meeting. Such inspectors shall (i) ascertain and report the number of shares of beneficial interest represented at the meeting, in person or by proxy, and the validity and effect of proxies, (ii) receive and tabulate all votes, ballots or consents, (iii) report such tabulation to the chairperson of the meeting, (iv) hear and determine all challenges and questions arising in connection with the right to vote and (v) perform such other acts as are proper to conduct the election or vote with fairness to all shareholders.
(b) Each report of an inspector shall be in writing and signed by him or her or by a majority of them if there is more than one inspector acting at such meeting.
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If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof.
Section 2.14. Nominations and Other Proposals to be Considered at Meetings of Shareholders . Nominations of individuals for election to the Board of Directors and the proposal of other business to be considered by the shareholders at meetings of shareholders may be properly brought before the meeting only as set forth in this Section 2.14. All judgments and determinations made by the Board of Directors or the chairperson of the meeting, as applicable, under this Section 2.14 (including, without limitation, judgments and determinations as to the validity of a proposed nomination or a proposal of other business for consideration by shareholders) shall be final and binding unless determined by a court of competent jurisdiction to have been made in bad faith.
Section 2.14.1. Annual Meetings of Shareholders.
(a) Nominations of individuals for election to the Board of Directors and the proposal of other business to be considered by the shareholders at an annual meeting of shareholders may be properly brought before the meeting (i) pursuant to the Companys notice of meeting or otherwise properly brought before the meeting by or at the direction of the Board of Directors or (ii) by any shareholder of the Company who (A) is a shareholder of record at the time of giving the notice provided for in this Section 2.14.1 through and including the time of the annual meeting (including any adjournment or postponement thereof), (B) is entitled to make nominations or propose other business and to vote at the meeting on such election, or the proposal for other business, as the case may be, (C) is present in person or by proxy at such meeting to answer questions concerning the nomination or other business, as the case may be, and (D) complies with the notice procedures set forth in this Section 2.14 as to such nomination or other business. Section 2.14.1(a)(ii) shall be the exclusive means for a shareholder to make nominations or propose other business before an annual meeting of shareholders, except to the extent of matters which are required to be presented to shareholders by applicable law which have been properly presented in accordance with the requirements of such law.
(b) For nominations for election to the Board of Directors or other business to be properly brought before an annual meeting by a shareholder pursuant to Section 2.14.1(a)(ii), the shareholder shall have given timely notice thereof in writing to the secretary of the Company in accordance with this Section 2.14 and such other business shall otherwise be a proper matter for action by shareholders. To be timely, a shareholders notice shall set forth all information required under this Section 2.14 and shall be delivered to the secretary at the principal executive offices of the Company not later than 5:00 p.m. (Eastern Time) on the 90th day nor earlier than the 120th day prior to the first anniversary of the date of the proxy statement for the preceding years annual meeting; provided, however, that in the event that the date of the proxy statement for the annual meeting is more than 30 days before or after the first anniversary of the date of the proxy statement for the preceding years annual meeting, notice by the shareholder to be timely shall be so delivered not earlier than 5:00 p.m. (Eastern Time) on the 120th day prior to the date of the proxy statement for such annual meeting and not later than 5:00
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p.m. (Eastern Time) on the later of (x) the 90th day prior to the date of the proxy statement for such annual meeting or (y) the 10th day following the day on which public announcement of the date of the proxy statement for such meeting or the date of such meeting is first made by the Company. Neither the postponement or adjournment of an annual meeting, nor the public announcement of such postponement or adjournment, shall commence a new time period for the giving of a shareholders notice as described above. No shareholder may give a notice to the secretary described in this Section 2.14.1(b) unless such shareholder holds a certificate for all shares of the Company owned by such shareholder, and a copy of each such certificate shall accompany such shareholders notice to the secretary in order for such notice to be effective.
A shareholders notice shall set forth:
(A) as to each individual whom the shareholder proposes to nominate for election or reelection as a director (a Proposed Nominee) and any Proposed Nominee Associated Person (as defined in Section 2.14.1(c)), (1) the name, age, business address and residence address of such Proposed Nominee and the name and address of such Proposed Nominee Associated Person, (2) the principal occupation or employment of such Proposed Nominee for the past five years, (3) a statement of whether such Proposed Nominee is proposed for nomination as an Independent Director (as defined in Section 3.2) or a Managing Director (as defined in Section 3.2) and a description of such Proposed Nominees qualifications to be an Independent Director or Managing Director, as the case may be, and such Proposed Nominees qualifications to be a director pursuant to the criteria set forth in Section 3.1, (4) the class, series and number of any shares of the Company that are, directly or indirectly, beneficially owned or owned of record by such Proposed Nominee or by such Proposed Nominee Associated Person, (5) the date such shares were acquired and the investment intent of such acquisition, (6) a description of all purchases and sales of securities of the Company by such Proposed Nominee or by such Proposed Nominee Associated Person during the previous 24 month period, including the date of the transactions, the class, series and number of securities involved in the transactions and the consideration involved, (7) a description of all Derivative Transactions (as defined in Section 2.14.1(c)) by such Proposed Nominee or by such Proposed Nominee Associated Person during the previous 24 month period, including the date of the transactions and the class, series and number of securities involved in, and the material economic terms of, the transactions, such description to include, without limitation, all information that such
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Proposed Nominee or Proposed Nominee Associated Person would be required to report on an Insider Report (as defined in Section 2.14.1(c)) if such Proposed Nominee or Proposed Nominee Associated Person were a director of the Company or the beneficial owner of more than 10% of the shares of the Company at the time of the transactions, (8) any performance related fees (other than an asset based fee) that such Proposed Nominee or such Proposed Nominee Associated Person is entitled to based on any increase or decrease in the value of shares of the Company or instrument or arrangement of the type contemplated within the definition of Derivative Transaction, if any, as of the date of such notice, including, without limitation, any such interests held by members of such Proposed Nominees or such Proposed Nominee Associated Persons immediate family sharing the same household with such Proposed Nominee or such Proposed Nominee Associated Person, (9) any proportionate interest in shares of the Company or instrument or arrangement of the type contemplated within the definition of Derivative Transaction held, directly or indirectly, by a general or limited partnership in which such Proposed Nominee or such Proposed Nominee Associated Person is a general partner or, directly or indirectly, beneficially owns an interest in a general partner, (10) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among such shareholder, Proposed Nominee Associated Person, or their respective affiliates and associates, or others acting in concert therewith, on the one hand, and each Proposed Nominee, or his or her respective affiliates and associates, or others acting in concert therewith, on the other hand, including, without limitation, all information that would be required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the U.S. Securities and Exchange Commission (the S.E.C.) (and any successor regulation), if the shareholder making the nomination and any Proposed Nominee Associated Person on whose behalf the nomination is made, or any affiliate or associate thereof or person acting in concert therewith, were the registrant for purposes of such rule and the Proposed Nominee were a director or executive officer of such registrant, (11) any rights to dividends on the shares of the Company owned beneficially by such Proposed Nominee or such Proposed Nominee Associated
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Person that are separated or separable from the underlying shares of the Company, (12) to the extent known by such Proposed Nominee or such Proposed Nominee Associated Person, the name and address of any other person who owns, of record or beneficially, any shares of the Company and who supports the Proposed Nominee for election or reelection as a director, (13) all other information relating to such Proposed Nominee or such Proposed Nominee Associated Person that is required to be disclosed in solicitations of proxies for election of directors in an election contest (even if an election contest is not involved), or is otherwise required, in each case, pursuant to Section 14 (or any successor provision) of the Exchange Act and the rules and regulations promulgated thereunder and (14) such Proposed Nominees notarized written consent to being named in the shareholders proxy statement as a nominee and to serving as a director if elected;
(B) as to any other business that the shareholder proposes to bring before the meeting, (1) a description of such business, (2) the reasons for proposing such business at the meeting and any material interest in such business of such shareholder or any Shareholder Associated Person (as defined in Section 2.14.1(c)), including any anticipated benefit to such shareholder or any Shareholder Associated Person therefrom, (3) a description of all agreements, arrangements and understandings between such shareholder and Shareholder Associated Person amongst themselves or with any other person or persons (including their names) in connection with the proposal of such business by such shareholder and (4) a representation that such shareholder intends to appear in person or by proxy at the meeting to bring the business before the meeting;
(C) as to the shareholder giving the notice and any Shareholder Associated Person, (1) the class, series and number of securities of the Company that are owned of record by such shareholder or by such Shareholder Associated Person, if any, (2) the class, series and number of, and the nominee holder for, any shares owned, directly or indirectly, beneficially but not of record by such shareholder or by such Shareholder Associated Person, if any, (3) with respect to the foregoing clauses (1) and (2), the date such shares were acquired and the investment intent of such acquisition and (4) all information relating to such
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shareholder and Shareholder Associated Person that is required to be disclosed in connection with the solicitation of proxies for election of directors in an election contest (even if an election contest is not involved), or is otherwise required, in each case, pursuant to Section 14 (or any successor provision) of the Exchange Act and the rules and regulations promulgated thereunder;
(D) as to the shareholder giving the notice and any Shareholder Associated Person, (1) the name and address of such shareholder, as they appear on the Companys stock ledger and the current name and address, if different, of such shareholder and Shareholder Associated Person and (2) the investment strategy or objective, if any, of such shareholder or Shareholder Associated Person and a copy of the prospectus, offering memorandum or similar document, if any, provided to investors or potential investors in such shareholder or Shareholder Associated Person;
(E) as to the shareholder giving the notice and any Shareholder Associated Person, (1) a description of all purchases and sales of securities of the Company by such shareholder or Shareholder Associated Person during the previous 24 month period, including the date of the transactions, the class, series and number of securities involved in the transactions and the consideration involved, (2) a description of all Derivative Transactions by such shareholder or Shareholder Associated Person during the previous 24 month period, including the date of the transactions and the class, series and number of securities involved in, and the material economic terms of, the transactions, such description to include, without limitation, all information that such shareholder or Shareholder Associated Person would be required to report on an Insider Report if such shareholder or Shareholder Associated Person were a director of the Company or the beneficial owner of more than 10% of the shares of the Company at the time of the transactions, (3) any performance related fees (other than an asset based fee) that such shareholder or Shareholder Associated Person is entitled to based on any increase or decrease in the value of shares of the Company or instrument or arrangement of the type contemplated within the definition of Derivative Transaction, if any, as of the date of such notice, including, without limitation, any such interests held by members of
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such shareholders or Shareholder Associated Persons immediate family sharing the same household with such shareholder or Shareholder Associated Person, (4) any proportionate interest in shares of the Company or instrument or arrangement of the type contemplated within the definition of Derivative Transaction held, directly or indirectly, by a general or limited partnership in which such shareholder or Shareholder Associated Person is a general partner or, directly or indirectly, beneficially owns an interest in a general partner and (5) any rights to dividends on the shares of the Company owned beneficially by such shareholder or Shareholder Associated Person that are separated or separable from the underlying shares of the Company;
(F) to the extent known by the shareholder giving the notice, the name and address of any other person who owns, beneficially or of record, any shares of the Company and who supports the nominee for election or reelection as a director or the proposal of other business; and
(G) if more than one class or series of shares of the Company is outstanding, the class and series of shares of the Company entitled to vote for such Proposed Nominee and/or shareholders proposal, as applicable.
(c) For purposes of this Section 2.14: (i) Shareholder Associated Person of any shareholder shall mean (A) any person acting in concert with, such shareholder, (B) any direct or indirect beneficial owner of shares of the Company owned of record or beneficially by such shareholder and (C) any person controlling, controlled by or under common control with such shareholder or a Shareholder Associated Person; (ii) Proposed Nominee Associated Person of any Proposed Nominee shall mean (A) any person acting in concert with such Proposed Nominee, (B) any direct or indirect beneficial owner of shares of the Company owned of record or beneficially by such Proposed Nominee and (C) any person controlling, controlled by or under common control with such Proposed Nominee or a Proposed Nominee Associated Person; (iii) Derivative Transaction by a person shall mean any (A) transaction in, or arrangement, agreement or understanding with respect to, any option, warrant, convertible security, stock appreciation right or similar right with an exercise, conversion or exchange privilege, or settlement payment or mechanism related to, any security of the Company, or similar instrument with a value derived in whole or in part from the value of a security of the Company, in any such case whether or not it is subject to settlement in a security of the Company or otherwise or (B) any transaction, arrangement, agreement or understanding which included or includes an opportunity for such person, directly or indirectly, to profit or share in any profit derived from any increase or decrease in the
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value of any security of the Company, to mitigate any loss or manage any risk associated with any increase or decrease in the value of any security of the Company or to increase or decrease the number of securities of the Company which such person was, is or will be entitled to vote, in any such case whether or not it is subject to settlement in a security of the Company or otherwise; and (iv) Insider Report shall mean a statement required to be filed pursuant to Section 16 of the Exchange Act (or any successor provisions) by a person who is a director of the Company or who is directly or indirectly the beneficial owner of more than 10% of the shares of the Company.
(d) Notwithstanding anything in the second sentence of Section 2.14.1(b) to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Company is increased and there is no public announcement by the Company naming all of the nominees for director or specifying the size of the increased Board of Directors at least 100 days prior to the first anniversary of the date of the proxy statement for the preceding years annual meeting, a shareholders notice required by this Section 2.14 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the secretary of the Company at the principal executive office of the Company not later than 5:00 p.m. (Eastern Time) on the 10th day following the day on which such public announcement is first made by the Company.
Section 2.14.2. Shareholder Nominations or Other Proposals Causing Covenant Breaches or Defaults . At the same time as the submission of any shareholder nomination or proposal of other business to be considered at a shareholders meeting that, if approved and implemented by the Company, would cause the Company or any subsidiary (as defined in Section 2.14.5(c)) of the Company to be in breach of any covenant of the Company or any subsidiary of the Company or otherwise cause a default (in any case, with or without notice or lapse of time) in any existing debt instrument or agreement of the Company or any subsidiary of the Company or other material contract or agreement of the Company or any subsidiary of the Company, the proponent shareholder or shareholders shall submit to the secretary at the principal executive offices of the Company (a) evidence satisfactory to the Board of Directors of the lenders or contracting partys willingness to waive the breach of covenant or default or (b) a detailed plan for repayment of the indebtedness to the lender or curing the contractual breach or default and satisfying any resulting damage claim, specifically identifying the actions to be taken or the source of funds, which plan must be satisfactory to the Board of Directors in its discretion, and evidence of the availability to the Company of substitute credit or contractual arrangements similar to the credit or contractual arrangements which are implicated by the shareholder nomination or other proposal that are at least as favorable to the Company, as determined by the Board of Directors in its discretion. As an example and not as a limitation, at the time these Bylaws are being adopted, the Company is party to a bank credit facility that contains covenants which prohibit certain changes in the management and policies of the Company without the approval of the lenders; accordingly, a shareholder nomination or proposal which implicates these covenants shall be accompanied by a waiver of these covenants duly executed by the banks or by evidence satisfactory to the Board of Directors of the availability of funding to the Company to repay outstanding indebtedness under this credit facility and of the availability of a new credit facility on terms as favorable to the Company as the existing credit facility. As a further example and not as a limitation, at the time these Bylaws are being adopted, the Company
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is party to lease and related agreements with Hospitality Properties Trust or its subsidiaries (Hospitality Properties Trust). Those agreements contain covenants which prohibit certain changes in the management and policies of the Company without the approval of Hospitality Properties Trust. Accordingly, a shareholder nomination or proposal which implicates these covenants shall be accompanied by a waiver of these covenants duly executed by the applicable Hospitality Properties Trust entity or by evidence satisfactory to the Board of Directors of the availability of alternative facilities for lease and operation by the Company on terms as favorable to the Company as the applicable arrangement and of funds for the payment by the Company of any amounts required under the applicable agreement or otherwise as a result of any breach or termination of the agreement with Hospitality Properties Trust.
Section 2.14.3. Shareholder Nominations or Other Proposals Requiring Governmental Action . If (a) submission of any shareholder nomination or proposal of other business to be considered at a shareholders meeting that could not be considered or, if approved, implemented by the Company without the Company, any subsidiary of the Company, the proponent shareholder, any Proposed Nominee of such shareholder, any Proposed Nominee Associated Person of such Proposed Nominee, any Shareholder Associated Person of such shareholder, the holder of proxies or their respective affiliates or associates filing with or otherwise notifying or obtaining the consent, approval or other action of any federal, state, municipal or other governmental or regulatory body (a Governmental Action) or (b) such shareholders ownership of shares of the Company or any solicitation of proxies or votes or holding or exercising proxies by such shareholder, any Proposed Nominee of such shareholder, any Proposed Nominee Associated Person of such Proposed Nominee, any Shareholder Associated Person of such shareholder, or their respective affiliates or associates would require Governmental Action, then, at the same time as the submission of any shareholder nomination or proposal of other business to be considered at a shareholders meeting, the proponent shareholder or shareholders shall submit to the secretary at the principal executive offices of the Company (x) evidence satisfactory to the Board of Directors that any and all Governmental Action has been given or obtained, including, without limitation, such evidence as the Board of Directors may require so that any nominee may be determined to satisfy any suitability or other requirements or (y) if such evidence was not obtainable from a governmental or regulatory body by such time despite the shareholders diligent and best efforts, a detailed plan for making or obtaining the Governmental Action prior to the election of any such Proposed Nominee or the implementation of such proposal, which plan must be satisfactory to the Board of Directors in its discretion. As an example and not as a limitation, at the time these Bylaws are being adopted, the Company holds a controlling ownership position in a company being formed and licensed as an insurance company in the State of Indiana. The laws of the State of Indiana have certain regulatory requirements for any person who seeks to control (as defined under Indiana law) a company which itself controls an insurance company domiciled in the State of Indiana, including by soliciting proxies representing 10% or more of its voting securities. Accordingly, a shareholder who seeks to exercise proxies for a nomination or a proposal affecting the governance of the Company shall obtain any applicable approvals from the Indiana insurance regulatory authorities prior to exercising such proxies. Similarly, as a further example and not as a limitation, at the time these Bylaws are being adopted, the Company has a controlling ownership interest in gaming businesses located in Louisiana. Applicable Louisiana law requires that a director be approved by the Louisiana Gaming Control Board. Such approval process requires that any Proposed Nominee submit a detailed personal history and financial disclosures. Accordingly, a
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shareholder nomination shall be accompanied by evidence that the Proposed Nominee has been approved by the Louisiana Gaming Control Board to be a director, or if the Louisiana Gaming Control Board have not approved such an application, then the shareholder nomination shall be accompanied by a copy of completed personal history and financial disclosure forms of the Proposed Nominee as submitted or to be submitted to the Louisiana Gaming Control Board so that the Board of Directors may determine the likelihood that the Proposed Nominee will receive such approval.
Section 2.14.4. Special Meetings of Shareholders . As set forth in Section 2.6, only business brought before the meeting pursuant to the Companys notice of meeting shall be conducted at a special meeting of shareholders. Nominations of individuals for election to the Board of Directors only may be made at a special meeting of shareholders at which directors are to be elected: (a) pursuant to the Companys notice of meeting; (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors; or (c) provided that the Board of Directors has determined that directors shall be elected at such special meeting, by any shareholder of the Company who is a shareholder of record both at the time of giving of notice provided for in this Section 2.14.4 and at the time of the special meeting, who is entitled to vote at the meeting on such election and who has complied with the notice procedures set forth in this Section 2.14.4. In the event the Company calls a special meeting of shareholders for the purpose of electing one or more directors to the Board of Directors, any such shareholder may nominate an individual or individuals (as the case may be) for election as a director as specified in the Companys notice of meeting, if the shareholders notice contains the information required by Section 2.14 and the shareholder has given timely notice thereof in writing to the secretary of the Company at the principal executive offices of the Company. To be timely, a shareholders notice shall be delivered to the secretary of the Company at the principal executive offices of the Company not earlier than the 120th day prior to such special meeting and not later than 5:00 p.m. (Eastern Time) on the later of (i) the 90th day prior to such special meeting or (ii) the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. Neither the postponement or adjournment of a special meeting, nor the public announcement of such postponement or adjournment, shall commence a new time period for the giving of a shareholders notice as described above.
Section 2.14.5. General .
(a) If information submitted pursuant to this Section 2.14 by any shareholder proposing a nominee for election as a director or any proposal for other business at a meeting of shareholders shall be deemed by the Board of Directors incomplete or inaccurate, any authorized officer or the Board of Directors or any committee thereof may treat such information as not having been provided in accordance with this Section 2.14. Any notice submitted by a shareholder pursuant to this Section 2.14 that is deemed by the Board of Directors inaccurate, incomplete or otherwise fails to satisfy completely any provision of this Section 2.14 shall be deemed defective and shall thereby render all proposals and nominations set forth in such notice defective. Upon written request by the secretary of the Company or the Board of Directors or any committee thereof (which may be made from time to time), any shareholder proposing a
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nominee for election as a director or any proposal for other business at a meeting of shareholders shall provide, within three Business Days after such request (or such other period as may be specified in such request), (i) written verification, satisfactory to the secretary or any other authorized officer or the Board of Directors or any committee thereof, in his, her or its discretion, to demonstrate the accuracy of any information submitted by the shareholder pursuant to this Section 2.14, (ii) written responses to information reasonably requested by the secretary, the Board of Directors or any committee thereof and (iii) a written update, to a current date, of any information submitted by the shareholder pursuant to this Section 2.14 as of an earlier date. If a shareholder fails to provide such written verification, information or update within such period, the secretary or any other authorized officer or the Board of Directors may treat the information which was previously provided and to which the verification, request or update relates as not having been provided in accordance with this Section 2.14; provided, however, that no such written verification, response or update shall cure any incompleteness, inaccuracy or failure in any notice provided by a shareholder pursuant to this Section 2.14. It is the responsibility of a shareholder who wishes to make a nomination or other proposal to comply with the requirements of Section 2.14; nothing in this Section 2.14.5(a) or otherwise shall create any duty of the Company, the Board of Directors or any committee thereof nor any officer of the Company to inform a shareholder that the information submitted pursuant to this Section 2.14 by or on behalf of such shareholder is incomplete or inaccurate or not otherwise in accordance with this Section 2.14 nor require the Company, the Board of Directors, any committee of the Board of Directors or any officer of the Company to request clarification or updating of information provided by any shareholder but the Board of Directors, a committee thereof or the secretary acting on behalf of the Board of Directors or a committee, may do so in its, his or her discretion.
(b) Only such individuals who are nominated in accordance with this Section 2.14 shall be eligible for election by shareholders as directors and only such business shall be conducted at a meeting of shareholders as shall have been properly brought before the meeting in accordance with this Section 2.14. The chairperson of the meeting shall have the power to determine whether a nomination or any other business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with this Section 2.14 and, if any proposed nomination or other business is determined not to be in compliance with this Section 2.14, to declare that such defective nomination or proposal be disregarded.
(c) For purposes of this Section 2.14: (i) public announcement shall mean disclosure in (A) a press release reported by the Dow Jones News Service, Associated Press, Business Wire, PR Newswire or any other widely circulated news or wire service or (B) a document publicly filed by the Company with the S.E.C. pursuant to the Exchange Act; and (ii) subsidiary shall include, with respect to a person, any corporation, partnership, joint venture or other entity of which such person (A) owns, directly or indirectly, 10% or more of the outstanding voting securities or other interests or (B) has a person designated by such person serving on, or a right, contractual or otherwise, to designate a person, so to serve on, the board of directors (or analogous governing body).
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(d) Notwithstanding the foregoing provisions of this Section 2.14, a shareholder shall also comply with all applicable legal requirements, including, without limitation, applicable requirements of state law and the Exchange Act and the rules and regulations thereunder, with respect to the matters set forth in this Section 2.14. Nothing in this Section 2.14 shall be deemed to require that a shareholder nomination of an individual for election to the Board of Directors or a shareholder proposal relating to other business be included in the Companys proxy statement, except as may be required by law.
(e) The Company shall not be required to include in the Companys proxy statement a shareholder nomination of one or more individuals for election to the Board of Directors unless (i) such nomination has been properly made in accordance with the provisions of this Section 2.14 and (ii) the Board of Directors has endorsed such nomination. The Company shall not be required to include in the Companys proxy statement a shareholder proposal relating to any other business unless (i) such proposal has been properly made in accordance with the provisions of this Section 2.14 and (ii) either the Board of Directors has endorsed such proposal or the proposal has been made by shareholders holding not less than 25% of the shares required to approve the proposal (or such lesser percentage as may be required by law).
(f) The Board of Directors may from time to time require any individual nominated to serve as a director to agree in writing with regard to matters of business ethics and confidentiality while such nominee serves as a director, such agreement to be on the terms and in a form (the Agreement) determined satisfactory by the Board of Directors, as amended and supplemented from time to time in the discretion of the Board of Directors. The terms of the Agreement may be substantially similar to the Code of Business Conduct and Ethics of the Company or any similar code promulgated by the Company (the Code of Business Conduct) or may differ from or supplement the Code of Business Conduct.
(g) Determinations required or permitted to be made under this Section 2.14 by the Board of Directors may be delegated by the Board of Directors to a committee of the Board of Directors, subject to applicable law.
Section 2.15. Voting by Ballot . Voting on any question or in any election may be by voice vote unless the chairperson of the meeting or any shareholder shall demand that voting be by ballot.
Section 2.16. Proposals of Business Which Are Not Proper Matters For Action By Shareholders . Notwithstanding anything in these Bylaws to the contrary, subject to applicable law, any shareholder proposal for business the subject matter or effect of which would be within the exclusive purview of the Board of Directors or would be reasonably likely, if considered by the shareholders or approved or implemented by the Company, to result in an impairment of the limited liability status for the Companys shareholders, shall be deemed not to be a matter upon which the shareholders are entitled to vote. The Board of Directors in its discretion shall be entitled to determine whether a shareholder proposal for business is not a matter upon which the shareholders are entitled to vote pursuant to this Section 2.16, and its
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decision shall be final and binding unless determined by a court of competent jurisdiction to have been made in bad faith.
ARTICLE III
DIRECTORS
Section 3.1. General Powers; Qualifications; Directors Holding Over . The business and affairs of the Company shall be managed by or under the direction of its Board of Directors. As provided in Section 7.3 of the LLC Agreement, the Board of Directors shall have the power and authority to appoint officers of the Company. A Director shall be an individual at least 21 years of age who is not under legal disability. To qualify for nomination or election as a director, an individual, at the time of nomination and election, shall, without limitation, (a) have substantial expertise or experience relevant to the business of the Company and its subsidiaries, (b) not have been convicted of a felony and (c) meet the qualifications of an Independent Director or a Managing Director, each as defined in Section 3.2, as the case may be, depending upon the position for which such individual may be nominated and elected. In case of failure to elect directors at an annual meeting of the shareholders, the incumbent directors shall hold over and continue to direct the management of the business and affairs of the Company until they may resign or until their successors are elected and qualify.
Section 3.2. Independent Directors and Managing Directors . A majority of the directors holding office shall at all times be Independent Directors; provided, however, that upon a failure to comply with this requirement as a result of the creation of a temporary vacancy which shall be filled by an Independent Director, whether as a result of enlargement of the Board of Directors or the resignation, removal or death of a director who is an Independent Director, such requirement shall not be applicable. An Independent Director is one who is not an employee of the Company or Reit Management & Research LLC (or its permitted successors and assigns under the Management and Shared Services Agreement entered into between the Company and Reit Management & Research LLC), who is not involved in the Companys day to day activities, who meets the qualifications of an independent director (not including the specific independence requirements applicable only to members of the Audit Committee of the Board of Directors) under Exchange Rules and the applicable rules of the S.E.C., as those requirements may be amended from time to time. If the number of directors, at any time, is set at less than five, at least one director shall be a Managing Director. So long as the number of directors shall be five or greater, at least two directors shall be Managing Directors. A Managing Director shall mean a director who is not an Independent Director and who has been an employee of the Company or Reit Management & Research LLC (or its permitted successors or assigns under the Management and Shared Services Agreement entered into between the Company and Reit Management & Research LLC) or involved in the day to day activities of the Company for at least one year prior to his or her election. If at any time the Board of Directors shall not be comprised of a majority of Independent Directors, the Board of Directors shall take such actions as will cure such condition; provided that the fact that the Board of Directors does not have a majority of Independent Directors or has not taken such action at any time or from time to time shall not affect the validity of any action taken by the Board of Directors. If at any time the Board of Directors shall
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not be comprised of a number of Managing Directors as is required under this Section 3.2, the Board of Directors shall take such actions as will cure such condition; provided that the fact that the Board of Directors does not have the requisite number of Managing Directors or has not taken such action at any time or from time to time shall not affect the validity of any action taken by the Board of Directors.
Section 3.3. Number and Tenure . The number of directors constituting the entire Board of Directors may be increased or decreased from time to time only by a vote of the Board of Directors; provided however that the tenure of office of a director shall not be affected by any decrease in the number of directors; and provided, further, that the number of directors shall be at least three and no more than seven. The number of directors shall be five until increased or decreased by the Board of Directors.
Section 3.4. Annual and Regular Meetings . An annual meeting of the Board of Directors shall be held immediately after the annual meeting of shareholders, no notice other than this Bylaw being necessary. The time and place of the annual meeting of the Board of Directors may be changed by the Board of Directors. The Board of Directors may provide, by resolution, the time and place, either within or without the State of Delaware, for the holding of regular meetings of the Board of Directors without other notice than such resolution. In the event any such regular meeting is not so provided for, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors.
Section 3.5. Special Meetings . Special meetings of the Board of Directors may be called at any time by the chairman of the board or on the written request to the secretary of a majority of the directors then in office. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Delaware, as the place for holding any special meeting of the Board of Directors called by them.
Section 3.6. Notice . Notice of any special meeting shall be given by written notice delivered personally or by electronic mail, telephoned, facsimile transmitted, overnight couriered (with proof of delivery) or mailed to each director at his or her business or residence address. Personally delivered, telephoned, facsimile transmitted or electronically mailed notices shall be given at least 24 hours prior to the meeting. Notice by mail shall be deposited in the U.S. mail at least 72 hours prior to the meeting. If mailed, such notice shall be deemed to be given when deposited in the U.S. mail properly addressed, with postage thereon prepaid. Electronic mail notice shall be deemed to be given upon transmission of the message to the electronic mail address given to the Company by the director. Telephone notice shall be deemed given when the director is personally given such notice in a telephone call to which he is a party. Facsimile transmission notice shall be deemed given upon completion of the transmission of the message to the number given to the Company by the director and receipt of a completed answer back indicating receipt. If sent by overnight courier, such notice shall be deemed given when delivered to the courier. Neither the business to be transacted at, nor the purpose of, any annual, regular or special meeting of the Board of Directors need be stated in the notice, unless specifically required by statute or these Bylaws.
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Section 3.7. Quorum . A majority of the directors shall constitute a quorum for transaction of business at any meeting of the Board of Directors, provided that, if less than a majority of such directors are present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice, and provided further that if, pursuant to the LLC Agreement or these Bylaws, the vote of a majority of a particular group of directors is required for action, a quorum for that action shall also include a majority of such group. The directors present at a meeting of the Board of Directors which has been duly called and convened and at which a quorum was established may continue to transact business until adjournment, notwithstanding the withdrawal of a number of directors resulting in less than a quorum then being present at the meeting.
Section 3.8. Voting . The action of the majority of the directors present at a meeting at which a quorum is or was present shall be the action of the Board of Directors, unless the concurrence of a greater proportion is required for such action by specific provision of an applicable statute, the LLC Agreement or these Bylaws. If enough directors have withdrawn from a meeting to leave fewer than are required to establish a quorum, but the meeting is not adjourned, the action of the majority of that number of directors necessary to constitute a quorum at such meeting shall be the action of the Board of Directors, unless the concurrence of a greater proportion is required for such action by applicable law, the LLC Agreement or these Bylaws.
Section 3.9. Telephone Meetings . Directors may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting. Such meeting shall be deemed to have been held at a place designated by the directors at the meeting.
Section 3.10. Action by Written Consent of Board of Directors . Unless specifically otherwise provided in the LLC Agreement , any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting, if a majority of the directors shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the records of the Company and shall have the same force and effect as the affirmative vote of such directors at a duly held meeting of the Board of Directors at which a quorum was present.
Section 3.11. Waiver of Notice . The actions taken at any meeting of the Board of Directors, however called and noticed or wherever held, shall be as valid as though taken at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present waives notice, consents to the holding of such meeting or approves the minutes thereof.
Section 3.12. Vacancies . If for any reason any or all the directors cease to be directors, such event shall not terminate the Company or affect these Bylaws or the powers of the remaining directors hereunder (even if fewer than three directors remain). Any vacancy on the Board of Directors may be filled only by the affirmative vote of a majority of the remaining directors, even if the remaining directors do not constitute a quorum. Any director elected to fill a vacancy, whether occurring due to an increase in size of the Board of Directors or by the death, resignation or removal of any director, shall hold office for the remainder of the full term of the
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class of directors in which the vacancy occurred or was created and until a successor is elected and qualifies.
Section 3.13. Compensation . Directors shall be entitled to receive such reasonable compensation for their services as directors as the Board of Directors may determine from time to time. Directors may be reimbursed for expenses of attendance, if any, at each annual, regular or special meeting of the Board of Directors or of any committee thereof; and for their expenses, if any, in connection with each property visit and any other service or activity performed or engaged in as director. Directors shall be entitled to receive remuneration for services rendered to the Company in any other capacity, and such services may include, without limitation, services as an officer of the Company, services as an employee of any affiliate of the Company, legal, accounting or other professional services, or services as a broker, transfer agent or underwriter, whether performed by a director or any person affiliated with a director.
Section 3.14. Removal of Directors . Subject to the applicable provisions of the LLC Agreement, any director may be removed from office at any time, but only for cause and then only by the unanimous vote of the remaining directors then in office. In addition, subject to the applicable provisions of the LLC Agreement, the entire Board of Directors (but not less than the entire Board of Directors) may be removed from office at any time, but only for cause, by the affirmative vote of 75% of the shares then outstanding and entitled to vote on the election of directors, at a meeting of shareholders properly called for that purpose. For purposes of this Section 3.14, cause shall mean, with respect to any particular director, incapacity, conviction of a felony or a final judgment of a court of competent jurisdiction holding that such director caused demonstrable, material harm to the Company through bad faith or active and deliberate dishonesty.
Section 3.15. Surety Bonds . Unless specifically required by law, no director shall be obligated to give any bond or surety or other security for the performance of any of his or her duties.
Section 3.16. Reliance . Each director, officer, employee and agent of the Company shall, in the performance of his or her duties with respect to the Company, be fully protected in relying in good faith upon the records of the Company and on such information, opinions, reports or statements presented to the Company by any officer or employee of the Company, or committees of the Board of Directors, or by any other persons as to matters the director, officer, employee or agent of the Company reasonably believes are within such other persons professional or expert competence.
Section 3.17. Qualifying Shares Not Required . Directors need not be shareholders of the Company.
Section 3.18. Certain Rights of Directors, Officers, Employees and Agents . Unless otherwise provided in a written agreement with the Company, notwithstanding any duty (including any fiduciary duty) that might otherwise exist in law or equity, it shall not be a breach of any duty (including any fiduciary duty) or any other obligation of any type whatsoever of any director for such director or affiliates of such director to engage in outside business interests and activities in preference to or to the exclusion of the Company or in direct competition with the
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Company; provided that no confidential information of the Company may be used by any such person. Notwithstanding any duty (including any fiduciary duty) that might otherwise exist in law or equity, directors shall have no obligation hereunder or as a result of any duty expressed or implied by law to present business opportunities to the Company that may become available to such director or to affiliates of such director.
Section 3.19. Emergency Provisions . Notwithstanding any other provision in the LLC Agreement or these Bylaws, this Section 3.19 shall apply during the existence of any catastrophe, or other similar emergency condition, as a result of which a quorum of the Board of Directors under ARTICLE III cannot readily be obtained (an Emergency). During any Emergency, unless otherwise provided by the Board of Directors, (a) a meeting of the Board of Directors may be called by any Managing Director or officer of the Company by any means feasible under the circumstances and (b) notice of any meeting of the Board of Directors during such an Emergency may be given less than 24 hours prior to the meeting to as many directors and by such means as it may be feasible at the time, including publication, television or radio.
ARTICLE IV
COMMITTEES
Section 4.1. Number; Tenure and Qualifications . The Board of Directors shall appoint an Audit Committee, a Compensation Committee and a Nominating and Governance Committee. Each of these committees shall be composed of three or more directors, to serve at the pleasure of the Board of Directors. The Board of Directors may also appoint other committees from time to time composed of one or more directors to serve at the pleasure of the Board of Directors. The Board of Directors shall adopt a charter with respect to the Audit Committee, the Compensation Committee and the Nominating and Governance Committee, which charter shall specify the purposes, the criteria for membership and the responsibility and duties and may specify other matters with respect to each committee. The Board of Directors may also adopt a charter with respect to other committees.
Section 4.2. Powers . The Board of Directors may delegate any of the powers of the Board of Directors to committees appointed under Section 4.1 and composed solely of directors, except as prohibited by law. In the event that a charter has been adopted with respect to a committee composed solely of directors, the charter shall constitute a delegation by the Board by Directors of the powers of the Board of Directors necessary to carry out the purposes, responsibilities and duties of a committee provided in the charter or reasonably related to those purposes, responsibilities and duties, to the extent permitted by law. No committee appointed under Section 4.1 shall have the power or authority in reference to the following matters: (a) approving or adopting, or recommending to the shareholders, any action or matter expressly required by the LLC Agreement or applicable law to be submitted to the shareholders for approval or (b) adopting, amending or repealing any provision of the LLC Agreement.
Section 4.3. Meetings . Notice of committee meetings shall be given in the same manner as notice for special meetings of the Board of Directors. A majority of the members of any committee shall be present in person at any meeting of a committee in order to
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constitute a quorum for the transaction of business at a meeting, and the act of a majority present at a meeting at the time of a vote if a quorum is then present shall be the act of a committee. The Board of Directors or, if authorized by the Board in a committee charter or otherwise, the committee members may designate a chairman of any committee, and the chairman or, in the absence of a chairman, a majority of any committee may fix the time and place of its meetings unless the Board shall otherwise provide. In the absence or disqualification of any member of any committee, the members thereof present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another director to act at the meeting in the place of absent or disqualified members. Each committee shall keep minutes of its proceedings and shall periodically report its activities to the full Board of Directors and, except as otherwise provided by law, an Exchange Rule or under the rules of the S.E.C., any action by any committee shall be subject to revision and alteration by the Board of Directors, provided that no rights of third persons shall be affected by any such revision or alteration.
Section 4.4. Telephone Meetings . Members of a committee may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting.
Section 4.5. Action by Written Consent of Committees . Any action required or permitted to be taken at any meeting of a committee of the Board of Directors may be taken without a meeting, if a consent in writing to such action is signed by a majority of the committee and such written consent is filed with the minutes of proceedings of such committee.
Section 4.6. Vacancies . Subject to the provisions hereof, the Board of Directors shall have the power at any time to change the membership of any committee, to fill all vacancies, to designate alternate members to replace any absent or disqualified member or to dissolve any such committee.
ARTICLE V
OFFICERS
Section 5.1. General Provisions . The Board of Directors shall have the power and authority to appoint such officers with such titles, authority and duties as determined by the Board of Directors. The officers of the Company shall include a chief executive officer, a president and a secretary and may include a chairman of the board, a vice chairman of the board, a chief financial officer, a chief operating officer, a treasurer, one or more vice presidents (who may be further classified by such descriptions as executive, senior, assistant, or otherwise, as the Board of Directors shall determine), one or more assistant secretaries and one or more assistant treasurers. The officers of the Company shall be elected from time to time as the Board of Directors considers appropriate. Each officer shall hold office until his or her successor is elected and qualifies or until his or her death, resignation or removal in the manner hereinafter provided. Any number of offices may be held by the same individual. Election of an officer or agent shall not of itself create contract rights between the Company and such officer or agent.
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Section 5.2. Removal and Resignation . Any officer or agent of the Company may be removed by the Board of Directors if in their judgment the best interests of the Company would be served thereby, but the removal shall be without prejudice to the contract rights, if any, of the person so removed. The Board of Directors may delegate the power of removal as to officers, agents and employees who have not been appointed by the Board of Directors. Any officer of the Company may resign at any time by giving written notice of his or her resignation to the Board of Directors, the chairman of the board, the president or the secretary. Any resignation shall take effect at any time specified therein or, if the time when it shall become effective is not specified therein, immediately upon its receipt. The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation. A resignation shall be without prejudice to the contract rights, if any, of the Company.
Section 5.3. Vacancies . A vacancy in any office may be filled by the Board of Directors for the balance of the term.
Section 5.4. Chief Executive Officer . Subject to the control of the Board of Directors and the executive committee (if any) of the Board of Directors, the chief executive officer shall have general executive charge, management and control of the properties, business and operations of the Company with all such powers as may be reasonably incident to such responsibilities; he or she may employ and discharge employees and agents of the Company except such as shall be appointed by the Board of Directors, and he or she may delegate these powers; he or she may agree upon and execute all leases, contracts, evidences of indebtedness and other obligations in the name of the Company, and shall have such other powers and duties as designated in accordance with the LLC Agreement and as from time to time may be assigned by the Board of Directors.
Section 5.5. Chief Operating Officer . The Board of Directors may designate a chief operating officer from among the elected officers. Said officer will have the responsibilities and duties as set forth by the Board of Directors or the chief executive officer
Section 5.6. Chief Financial Officer . The Board of Directors may designate a chief financial officer from among the elected officers. Said officer will have the responsibilities and duties as set forth by the Board of Directors or the chief executive officer.
Section 5.7. Chairman of the Board . The Board of Directors may elect one of its members as chairman of the board. If elected, the chairman of the board shall have such powers and duties as are designated in the LLC Agreement and as from time to time may be assigned by the Board of Directors. The chairman of the board, if any, and if present and acting, shall preside at all meetings of the Board of Directors and of shareholders, unless otherwise directed by the Board of Directors. If the Board of Directors does not elect a chairman or if the chairman is absent from the meeting, the chief executive offer, if present and a director, or any other director chosen by the Board of Directors, shall preside.
Section 5.8. Vice Chairman of the Board . The Board of Directors may elect one of its members as vice chairman of the board. The vice chairman of the board will have the responsibilities and duties as set forth by the Board of Directors.
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Section 5.9. President . Unless the Board of Directors otherwise determines, the president shall have such powers and duties as are designated in accordance with the LLC Agreement, these Bylaws and as from time to time may be assigned by the Board of Directors. The president may execute any deed, mortgage, bond, lease, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Company or shall be required by law to be otherwise executed, and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the directors from time to time.
Section 5.10. Vice Presidents . In the absence or unavailability of the president, a vice president designated by the Board of Directors shall perform the duties of the president and when so acting shall have all the powers of the president; and shall perform such other duties as from time to time may be assigned to him or her by the president, the chief executive officer or the Board of Directors. The Board of Directors may designate one or more vice presidents as executive vice presidents, senior vice presidents or as vice presidents for particular areas of responsibility.
Section 5.11. Secretary . The secretary (or his or her designee) shall issue all authorized notices for, and shall keep minutes of, all meetings of the shareholders and the Board of Directors. The secretary shall have charge of the Companys minute books and shall perform such other duties as the Board of Directors may from time to time prescribe. In the absence of a secretary, the person presiding over the meeting may appoint any person to serve as secretary of the meeting.
Section 5.12. Treasurer . The treasurer shall have responsibility for the custody and control of all the funds and securities of the Company and shall have such other powers and duties as are designated in accordance with the LLC Agreement and as from time to time may be assigned to the treasurer by the Board of Directors. The treasurer shall perform all acts incident to the position of treasurer, subject to the control of the chief executive officer and the Board of Directors.
Section 5.13. Assistant Secretaries and Assistant Treasurers . The assistant secretaries and assistant treasurers, in general, shall perform such duties as shall be assigned to them by the secretary or treasurer, respectively, or by the president or the Board of Directors.
Section 5.14. General Powers of Officers .
(a) Unless the Board of Directors otherwise determines and subject to such limitations as the Board of Directors may adopt, each officer shall have the authority to agree upon and execute all leases, contracts, evidences of indebtedness and other obligations in the name of the Company. The Board of Directors may from time to time delegate all or a portion of the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof.
(b) Unless otherwise directed by the Board of Directors, the chief executive officer, the president or any officer of the Company authorized by the chief executive officer shall have power to vote and otherwise act on behalf of the Company, in
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person or by proxy, at any meeting of shareholders of or with respect to any action of equity holders of any other entity in which the Company may hold securities and otherwise to exercise any and all rights and powers which the Company may possess by reason of its ownership of securities in such other entities.
ARTICLE VI
CHECKS AND DEPOSITS
Section 6.1. Checks and Drafts . All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Company shall be signed by such officer or agent of the Company in such manner as shall from time to time be determined by the treasurer, the chief executive officer or the Board of Directors.
Section 6.2. Deposits . All funds of the Company not otherwise employed shall be deposited from time to time to the credit of the Company in such banks, trust companies or other depositories as the treasurer, the chief executive officer or the Board of Directors may designate.
ARTICLE VII
SHARES
Section 7.1. Certificates . Ownership of shares of the Company shall be evidenced by certificates, or at the election of a shareholder, in book entry form. Such certificates shall signed by the chairman of the board, the president or a vice president and by the secretary or an assistant secretary and may be sealed with the seal, if any, of the Company. The signatures may be either manual or facsimile. No certificate shall be valid for any purpose until it has been countersigned by the Transfer Agent (as defined in the LLC Agreement); provided, however, that if the Board of Directors elects to issue shares or other securities in global form, the certificates with regard thereto shall be valid upon receipt by the Depository (as defined in the LLC Agreement) and need not be countersigned. Certificates shall be consecutively numbered and if the Company shall from time to time issue several classes of shares, each class may have its own number series. Any or all of the signatures required on the certificate may be by facsimile. A certificate is valid and may be issued whether or not an officer who signed it is still an officer when it is issued.
Section 7.2. Transfers .
(a) Shares of the Company shall be transferable in the manner provided by applicable law, the LLC Agreement and these Bylaws and, to the fullest extent permitted by law, any transfer or purported transfer of shares of the Company not made in accordance with applicable law, the LLC Agreement or these Bylaws shall be null and void.
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(b) The Company shall be entitled to treat the holder of record of any shares or other securities of the Company as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such shares or other securities on the part of any other person, regardless of whether the Company shall have actual or other notice thereof, except as otherwise provided by law or any applicable Exchange Rule. Without limiting the foregoing, when a person (such as a broker, dealer, bank, trust company or clearing corporation or an agent of any of the foregoing) is acting as nominee, agent or in some other representative capacity for another person in acquiring and/or holding shares or other securities of the Company, as between the Company on the one hand, such other persons on the other, such representative person shall be the record holder of such shares or securities, as applicable.
Section 7.3. Mutilated, Destroyed, Lost or Stolen Certificates .
(a) If any mutilated certificate is surrendered to the Transfer Agent, the appropriate officers on behalf of the Company shall execute, and the Transfer Agent shall countersign and deliver in exchange therefor, a new certificate evidencing the same number and type of securities as the certificate so surrendered.
(b) The appropriate officers on behalf of the Company shall execute and deliver, and the Transfer Agent shall countersign, a new certificate in place of any certificate previously issued if the record holder of the certificate:
(i) makes proof by affidavit, in form and substance satisfactory to the Company or to the Transfer Agent, that a previously issued certificate has been lost, destroyed or stolen;
(ii) requests the issuance of a new certificate before the Company has notice that the certificate has been acquired by a purchaser for value in good faith and without notice of an adverse claim;
(iii) if requested by the Company or the Transfer Agent, delivers to the Company a bond, in form and substance satisfactory to the Company or the Transfer Agent, with a surety or sureties and with fixed or open penalty as the Company or the Transfer Agent may direct to indemnify the Company and the Transfer Agent against any claim that may be made on account of the alleged loss, destruction or theft of the certificate; and
(iv) satisfies any other reasonable requirements imposed by the Company or the Transfer Agent.
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If a shareholder fails to notify the Company within a reasonable time after such shareholder has notice of the loss, destruction or theft of a certificate, and a transfer of the shares of the Company represented by the certificate is registered before the Company or the Transfer Agent receives such notification, the shareholder shall be precluded from making any claim against the Company or the Transfer Agent for such transfer or for a new certificate.
(c) As a condition to the issuance of any new certificate under this Section 7.3, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Transfer Agent) reasonably connected therewith.
Section 7.4. Closing of Transfer Books or Fixing of Record Date .
(a) The Board of Directors may set, in advance, a record date for the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or determining shareholders entitled to receive payment of any dividend or the allotment of any other rights, or in order to make a determination of shareholders for any other proper purpose.
(b) In lieu of fixing a record date, the Board of Directors may provide that the stock transfer books shall be closed for a stated period but not longer than 20 days. If the stock transfer books are closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least 10 days before the date of such meeting.
(c) If no record date is fixed and the stock transfer books are not closed for the determination of shareholders, (i) the record date for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day next preceding the day on which notice is given and (ii) the record date for the determination of shareholders entitled to receive payment of a dividend or an allotment of any other rights shall be the close of business on the day on which the resolution of the Board of Directors, declaring the dividend or allotment of rights, is adopted.
(d) When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof unless the Board of Directors shall set a new record date with respect thereto.
Section 7.5. Stock Ledger . The Company shall keep or cause to be kept on behalf of the Company a register that provide for the registration and transfer of both certificated and uncertificated shares of the Company. The Transfer Agent, as registrar and transfer agent, shall maintain such register and shall register shares and the transfer of such shares pursuant to the provisions of the LLC Agreement and these Bylaws. The register shall, among other things, contain the name and address of each shareholder and the number of shares of each class held by such shareholder.
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ARTICLE VIII
REGULATORY COMPLIANCE AND DISCLOSURE
Section 8.1. Actions Requiring Regulatory Compliance Implicating the Company . If any shareholder (whether individually or constituting a group, as determined by the Board of Directors), by virtue of such shareholders ownership interest in the Company or actions taken by the shareholder affecting the Company, triggers the application of any requirement or regulation of any federal, state, municipal or other governmental or regulatory body on the Company or any subsidiary (for purposes of this ARTICLE VIII, as defined in Section 2.14.5(c)) of the Company or any of their respective businesses, assets or operations, including, without limitation, any obligations to make or obtain a Governmental Action (as defined in Section 2.14.3), such shareholder shall promptly take all actions necessary and fully cooperate with the Company to ensure that such requirements or regulations are satisfied without restricting, imposing additional obligations on or in any way limiting the business, assets, operations or prospects of the Company or any subsidiary of the Company. If the shareholder fails or is otherwise unable to promptly take such actions so to cause satisfaction of such requirements or regulations, the shareholder shall promptly divest a sufficient number of shares of the Company necessary to cause the application of such requirement or regulation to not apply to the Company or any subsidiary of the Company. If the shareholder fails to cause such satisfaction or divest itself of such sufficient number of shares of the Company by not later than the 10th day after triggering such requirement or regulation referred to in this Section 8.1, then any shares of the Company beneficially owned by such shareholder at and in excess of the level triggering the application of such requirement or regulation shall, to the fullest extent permitted by law, be deemed to constitute shares of the Company in excess of the Ownership Limit (as defined in Section 8.1 of the LLC Agreement) and be subject to Article VIII of the LLC Agreement and any actions triggering the application of such a requirement or regulation may be deemed by the Company to be of no force or effect. Moreover, if the shareholder who triggers the application of any regulation or requirement fails to satisfy the requirements or regulations or to take curative actions within such 10 day period, the Company may take all other actions which the Board of Directors deems appropriate to require compliance or to preserve the value of the Companys assets; and the Company may charge the offending shareholder for the Companys costs and expenses as well as any damages which may result to the Company.
As an example and not as a limitation, at the time these Bylaws are being adopted, the Company holds a controlling interest in gaming businesses in Louisiana. Louisiana law provides that any persons who owns five percent or more of gaming businesses in Louisiana shall provide detailed personal history and financial information and be approved by the Louisiana Gaming Control Board. Accordingly, if a shareholder acquires five percent or more of the Company and refuses to provide the Company with information required to be submitted to the Louisiana Gaming Control Board or if the Louisiana Gaming Control Board declines to approve such a shareholders ownership of the Company, then, in either event, shares of the Company owned by such a shareholder necessary to reduce its ownership to less than five percent of the Company may be deemed shares in excess of the Ownership Limit and shall be subject to the provisions of Article VIII of the LLC Agreement.
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As a further example and not as a limitation, at the time these Bylaws are being adopted, the Company holds a controlling ownership position in a company being formed and licensed as an insurance company in the State of Indiana. The laws of the State of Indiana have certain regulatory requirements for any person who seeks to control (as defined under Indiana law) a company which itself controls an insurance company domiciled in the State of Indiana, including by exercising proxies representing 10% or more of the Companys voting securities. Accordingly, if a shareholder seeks to exercise proxies for a matter to be voted upon at a meeting of the Companys shareholders without having obtained any applicable approvals from the Indiana insurance regulatory authorities, such proxies representing 10% or more of the Companys voting securities will, subject to Section 8.3, be void and of no further force or effect.
Section 8.2. Compliance With Law . Shareholders shall comply with all applicable requirements of federal and state laws, including all rules and regulations promulgated thereunder, in connection with such shareholders ownership interest in the Company and all other laws which apply to the Company or any subsidiary of the Company or their respective businesses, assets or operations and which require action or inaction on the part of the shareholder.
Section 8.3. Limitation on Voting Shares or Proxies . Without limiting the provisions of Section 8.1, if a shareholder (whether individually or constituting a group, as determined by the Board of Directors), by virtue of such shareholders ownership interest in the Company or its receipt or exercise of proxies to vote shares owned by other shareholders, would not be permitted to vote the shareholders shares of the Company or proxies for shares of the Company in excess of a certain amount pursuant to applicable law (including by way of example, applicable state insurance regulations) but the Board of Directors determines that the excess shares or shares represented by the excess proxies are necessary to obtain a quorum, then such shareholder shall not be entitled to vote any such excess shares or proxies, and instead such excess shares or proxies may, to the fullest extent permitted by law, be voted by the Companys applicable management services provider (or by another person designated by the directors) in proportion to the total shares otherwise voted on such matter.
Section 8.4. Representations, Warranties and Covenants Made to Governmental or Regulatory Bodies . To the fullest extent permitted by law, any representation, warranty or covenant made by a shareholder with any governmental or regulatory body in connection with such shareholders interest in the Company or any subsidiary of the Company shall be deemed to be simultaneously made to, for the benefit of and enforceable by, the Company and any applicable subsidiary of the Company.
Section 8.5. Board of Directors Determinations . The Board of Directors shall be empowered to make all determinations regarding the interpretation, application, enforcement and compliance with any matters referred to or contemplated by this ARTICLE VIII.
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ARTICLE IX
FISCAL YEAR
Section 9.1. Fiscal Year . The fiscal year of the Company shall be a fiscal year ending December 31 or as otherwise determined by the Board of Directors.
ARTICLE X
DIVIDENDS AND OTHER DISTRIBUTIONS
Section 10.1. Dividends and Other Distributions . Subject to the preferential rights of any additional classes or series of shares authorized by the Board of Directors, the holders of common shares of the Company shall be entitled to receive, when, as and if declared by the Board of Directors, out of the assets of the Company which are by law available therefor, distributions payable either in cash, in property or in securities of the Company.
ARTICLE XI
SEAL
Section 11.1. Seal . The Board of Directors may authorize the adoption of a seal by the Company. The Board of Directors may authorize one or more duplicate seals.
Section 11.2. Affixing Seal . Whenever the Company is permitted or required to affix its seal to a document, it shall be sufficient to meet the requirements of any law, rule or regulation relating to a seal to place the word (SEAL) adjacent to the signature of the person authorized to execute the document on behalf of the Company.
ARTICLE XII
WAIVER OF NOTICE
Section 12.1. Waiver of Notice . Whenever any notice is required to be given pursuant to the LLC Agreement, these Bylaws or applicable law, a waiver thereof in writing, signed by the person or persons entitled to such notice, or a waiver by electronic transmission by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at nor the purpose of any meeting need be set forth in the waiver of notice or waiver by electronic transmission, unless specifically required by statute. The attendance of any person at any meeting shall constitute a waiver of notice of such meeting, except where such person attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.
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ARTICLE XIII
AMENDMENT OF BYLAWS
Section 13.1. Amendment of Bylaws . These Bylaws may be amended or repealed or new or additional Bylaws may be adopted only by the vote or written consent of a majority of the Board of Directors.
ARTICLE XIV
MISCELLANEOUS
Section 14.1. References to Limited Liability Company Agreement of the Company; Conflicting Provisions . All references to the LLC Agreement shall include any amendments thereto. These Bylaws are subject to the LLC Agreement, and in the event any provision under these Bylaws is inconsistent with a provision of the LLC Agreement, the LLC Agreement shall control.
Section 14.2. Costs and Expenses . In addition to, and as further clarification of each shareholders obligation to indemnify and hold the Company harmless from and against all costs, expenses, penalties, fines and other amounts, including, without limitation, attorneys and other professional fees, whether third party or internal, arising from such shareholders violation of any provision of the LLC Agreement or these Bylaws pursuant to Section 10.3 of the LLC Agreement, to the fullest extent permitted by law, each shareholder will be liable to the Company for, and indemnify and hold harmless the Company (and any subsidiaries or affiliates of the Company) from and against, all costs, expenses, penalties, fines or other amounts, including without limitation, reasonable attorneys and other professional fees, whether third party or internal, arising from such shareholders breach of any provision of these Bylaws or the LLC Agreement or any action against the Company in which such shareholder is not the prevailing party, and shall pay such amounts on demand, together with interest on such amounts, which interest will accrue at the lesser of the Companys highest marginal borrowing rate, per annum compounded, and the maximum amount permitted by law, from the date such costs or the like are incurred until the receipt of payment.
Section 14.3. Ratification . To the fullest extent permitted by applicable law, the Board of Directors or the shareholders may ratify and make binding on the Company any action or inaction by the Company or its officers to the extent that the Board of Directors or the shareholders could have originally authorized the matter. Moreover, to the fullest extent permitted by applicable law, any action or inaction questioned in any shareholders derivative proceeding or any other proceeding on the ground of lack of authority, defective or irregular execution, adverse interest of a director, officer or shareholder, non-disclosure, miscomputation, the application of improper principles or practices of accounting, or otherwise, may be ratified, before or after judgment, by the Board of Directors or by the shareholders and, if so ratified, shall have the same force and effect as if the questioned action or inaction had been originally duly authorized, and such ratification shall be binding upon the Company and its shareholders and shall constitute a bar to any claim or execution of any judgment in respect of such questioned action or inaction.
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Section 14.4. Ambiguity . In the case of an ambiguity in the application of any provision of these Bylaws or any definition contained in these Bylaws, the Board of Directors shall have the sole power to determine the application of such provisions with respect to any situation based on the facts known to it and such determination shall be final and binding unless determined by a court of competent jurisdiction to have been made in bad faith.
Section 14.5. Inspection of Bylaws . The Board of Directors shall keep at the principal office for the transaction of business of the Company the original or a copy of the Bylaws as amended or otherwise altered to date, certified by the secretary, which shall be open to inspection by the shareholders at all reasonable times during office hours.
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Exhibit 10.5
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT (this Amendment ) is made and entered into as of March 17, 2008 by and among HPT PSC Properties Trust , a Maryland real estate investment trust, and HPT PSC Properties LLC , a Maryland limited liability company, as landlord (collectively, Landlord ), and Petro Stopping Centers, L.P. , a Delaware limited partnership, as tenant ( Tenant ).
W I T N E S S E T H :
WHEREAS , pursuant to the terms of that certain Lease Agreement, dated as of May 30, 2007 (the Lease ), Landlord leases to Tenant, and Tenant leases from Landlord, the Leased Property (this and other capitalized terms used but not otherwise defined herein having the meanings given such terms in the Lease), all as more particularly described in the Lease;
WHEREAS , contemporaneously herewith, Landlord has acquired the fee interest in that portion of the Leased Property (the Original Sparks Property )located at 1950 East Greg Street, Sparks, Nevada and certain additional property (the Adjacent Property , and together with the Original Sparks Property, collectively, the Sparks Property ), and Landlord and Tenant desire to include the Adjacent Property as part of the Leased Property;
WHEREAS , contemporaneously herewith, Tenant has entered into a sublease (the Sublease ) with Cashell Enterprises, Inc., a Nevada corporation ( Subtenant ), pursuant to which Tenant subleases to Subtenant and Subtenant subleases from Tenant the portion of the Sparks Property as more particularly described therein;
WHEREAS, contemporaneously herewith and pursuant to Section 4.4 of the Lease, Tenant has assigned to Landlord Tenants leasehold interest in property adjacent to the West Memphis, Arkansas Property and the York, Nebraska Property; and
WHEREAS , Landlord and Tenant wish to amend the Lease, subject to the terms and conditions of this Amendment;
NOW, THEREFORE , in consideration of the mutual covenants herein contained and other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:
Minimum Rent shall mean the sum of Sixty-Six Million One Hundred Seventy-Six Thousand Five Hundred and Twenty-Six Dollars ($66,176,526) per annum; subject, in each case, to adjustment as provided in Section 3.1.1(b) .
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IN WITNESS WHEREOF , Landlord and Tenant have caused this Amendment to be duly executed, as a sealed instrument, as of the date first set forth above.
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HPT PSC PROPERTIES TRUST |
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/s/ John G. Murray |
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John G. Murray |
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President |
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HPT PSC PROPERTIES LLC |
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/s/ John G. Murray |
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John G. Murray |
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President |
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TENANT: |
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PETRO STOPPING CENTERS, L.P. |
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/s/ Thomas M. OBrien |
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Thomas M. OBrien |
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President |
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Exhibit 31.1
CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)
I, Thomas M. OBrien, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of TravelCenters of America LLC;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: November 10, 2008 |
/s/ THOMAS M. OBRIEN |
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Thomas M. OBrien |
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President and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)
I, Andrew J. Rebholz, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of TravelCenters of America LLC;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: November 10, 2008 |
/s/ ANDREW J. REBHOLZ |
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Andrew J. Rebholz |
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Executive Vice President, Chief Financial
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Exhibit 32.1
Certification Pursuant to 18 U.S.C. Sec. 1350
(Section 906 of the Sarbanes Oxley Act of 2002)
In connection with the filing by TravelCenters of America LLC (the Company) of the Quarterly Report on Form 10-Q for the period ended September 30, 2008 (the Report), each of the undersigned hereby certifies, to the best of his knowledge:
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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Date: November 10, 2008 |
/s/ Thomas M. OBrien |
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Thomas M. OBrien |
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President and Chief Executive Officer |
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/s/ Andrew J. Rebholz |
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Andrew J. Rebholz |
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Executive Vice President
and
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Exhibit 99.1
REIMBURSEMENT AGREEMENT
REIMBURSEMENT AGREEMENT (this Agreement), dated October 17, 2008, among Reit Management & Research LLC (RMR), TravelCenters of America LLC (TA) and Five Star Quality Care, Inc. (FVE)
RECITAL
RMR provides management and administrative services to TA pursuant to a Management and Shared Services Agreement dated January 31, 2007, and to FVE pursuant to a Shared Services Agreement dated January 2, 2002, as amended, including, with respect to telecommunications services, the negotiation of contracts with third party vendors and suppliers.
RMR and AT&T Corp. (AT&T) are parties to a Master Agreement No.: 0789 dated December 16, 2003 and the schedules, exhibits, addenda and service order attachments related thereto, in each case as amended (collectively, the AT&T Agreement), attached as Schedule 1. Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the AT&T Agreement.
Under the AT&T Agreement, RMR has secured more favorable pricing for services than is generally available from AT&T, but is responsible for meeting minimum revenue commitments. The pricing secured by RMR is more favorable than that which FVE or TA has been able to secure. AT&T has agreed to make this pricing available to TA and FVE, as affiliates of RMR, provided RMR increases its minimum revenue commitments to AT&T. RMR is willing to increase its minimum revenue commitments to AT&T provided TA and FVE agree to be responsible for portions of any unsatisfied minimums related to the provision of services to them under the AT&T Agreement.
The parties are entering into this Agreement to set forth their understanding and agreement as to the obligations of each with respect to the increased minimum revenue commitments (MARC/MRC) resulting from the provision of services to TA and FVE under the AT&T Agreement and upon any termination of the AT&T Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual undertakings in this Agreement, the parties hereto agree:
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written.
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Reit Management & Research LLC |
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By: |
/s/ John C. Popeo |
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Name: John C. Popeo |
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Title: Treasurer/Chief Financial Officer |
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TravelCenters of America LLC |
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By: |
/s/ Thomas M. OBrien |
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Name: Thomas M. OBrien |
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Title: President |
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Five Star Quality Care, Inc. |
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By: |
/s/ Bruce J. Mackey |
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Name: Bruce J. Mackey |
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Title: President |
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