<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 3, 1997
REGISTRATION NO. 333-32863
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
CHEMICAL LEAMAN CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
PENNSYLVANIA 4213 23-2021808
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer Identification No.)
Classification Code Number)
</TABLE>
102 PICKERING WAY
EXTON, PENNSYLVANIA 19341-0200
(610) 363-4200
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
---------------------------
DAVID M. BOUCHER
SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER & SECRETARY
CHEMICAL LEAMAN CORPORATION
102 PICKERING WAY
EXTON, PENNSYLVANIA 19341-0200
(Name, Address Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
---------------------------
Copies to all communications to:
BARRY M. ABELSON, ESQUIRE
ROBERT A. FRIEDEL, ESQUIRE
PEPPER, HAMILTON & SCHEETZ LLP
3000 TWO LOGAN SQUARE
PHILADELPHIA, PA 19103
(215) 981-4000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the registration statement becomes effective and all other
conditions to the exchange offer described in the enclosed Prospectus have been
satisfied or waived.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
---------------------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
---------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE>
CHEMICAL LEAMAN CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K AND RULE 404(a)
SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS IN FORM S-4
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND HEADING PROSPECTUS CAPTION
--------------------------------------- ------------------
<S> <C> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus..... Facing Page; Cross-Reference Sheet; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus................................. Available Information; Table of Contents;
Inside Front Pages of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information.............. Prospectus Summary; Risk Factors; The
Exchange Offer; Summary Consolidated
Financial Data; Selected Consolidated
Financial Data; Capitalization
4. Terms of the Transaction..................... Prospectus Summary; The Exchange Offer;
Description of Principal Indebtedness;
Description of New Notes; Plan of
Distribution
5. Pro Forma Financial Information.............. Summary Consolidated Financial Data; Selected
Consolidated Financial Data
6. Material Contacts with the Company Being
Acquired................................... Not Applicable
7. Additional Information Required for
Reoffering by Persons and Parties Deemed to
be Underwriters............................ Not Applicable
8. Interests of Counsel......................... Legal Matters
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
10. Information With Respect to S-3
Registrants................................ Not Applicable
11. Incorporation of Certain Information by
Reference.................................. Not Applicable
12. Information with Respect to S-2 or S-3
Registrants................................ Not Applicable
13. Incorporation of Certain Information by
Reference.................................. Not Applicable
14. Information with Respect to Registrants Other
than S-2 or S-3 Registrants................ Prospectus Cover Page; Available Information;
Prospectus Summary; Summary Consolidated
Financial Data; Selected Consolidated
Financial Data; Management's Discussion and
Analysis of Financial Condition and Results
of Operations; Business; Index to
Consolidated Financial Statements
15. Information with Respect to S-3 Companies.... Not Applicable
16. Information with Respect to S-2 or S-3
Companies.................................. Not Applicable
17. Information with Respect to Companies Other
than S-2 or S-3 Companies.................. Not Applicable
18. Information if Proxies, Consents or
Authorizations are to be Solicited......... Not Applicable
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer....................... Management; Certain Transactions;
Incorporation of Certain Documents by
Reference
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS SUBJECT TO COMPLETION, DATED OCTOBER 3, 1997
CHEMICAL LEAMAN CORPORATION
10 3/8% SENIOR NOTES DUE 2005 [LOGO]
($100,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR 10 3/8% SENIOR NOTES DUE 2005
------------------------
The Exchange Offer (defined below) and withdrawal rights will expire at
5:00 p.m., New York City time, on , 1997 (as such date may be
extended, the "Expiration Date").
Chemical Leaman Corporation ("Chemical" and together with its subsidiaries
the "Company") hereby offers (the "Exchange Offer"), upon the terms and subject
to the conditions set forth in this Prospectus and the accompanying letter of
transmittal (the "Letter of Transmittal"), to exchange $1,000 in principal
amount of its 10 3/8% Senior Notes due 2005 (the "New Notes") for each $1,000 in
principal amount of its outstanding 10 3/8% Senior Notes due 2005 (the "Old
Notes") (the Old Notes and the New Notes are sometimes collectively referred to
herein as the "Notes") held by Eligible Holders (defined below). An aggregate
principal amount of $100 million of Old Notes is outstanding. See "The Exchange
Offer." After the issuance of the Old Notes, the Company's ratio of indebtedness
to total capital was 85% as of June 29, 1997. For purposes of the Exchange
Offer, "Eligible Holder" shall mean the registered owner of any Old Notes that
remain Registrable Securities (defined below) as reflected on the records of
First Union National Bank, as registrar for the Old Notes (in such capacity, the
"Registrar"), or any person whose Old Notes are held of record by the depository
of the Old Notes. For purposes of the Exchange Offer, "Registrable Securities"
means each Old Note until the earliest to occur of (i) the date on which such
Old Note has been exchanged for a New Note in the Exchange Offer and is
thereafter freely tradeable by the holder thereof not an affiliate of the
Company, (ii) the date on which such Old Note is registered under the Securities
Act of 1933, as amended (the "Securities Act"), and disposed of in accordance
with a registration statement, (iii) the date on which such Old Note is eligible
for distribution to the public pursuant to Rule 144(k) under the Securities Act,
or (iv) the date on which such Old Note shall have ceased to be outstanding.
The Company will accept for exchange any and all Old Notes that are validly
tendered prior to 5:00 p.m., New York City time, on the Expiration Date. Tenders
of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Offer is not conditioned upon any
minimum principal amount of the Old Notes being tendered for exchange. However,
the Exchange Offer is subject to certain customary conditions, which may be
waived by the Company, and to the terms and provisions of the Registration
Rights Agreement, dated as of June 10, 1997 (the "Registration Rights
Agreement") among the Company, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Schroder Wertheim & Co. Incorporated (collectively, the
"Initial Purchasers"). The Old Notes may be tendered only in multiples of
$1,000. See "The Exchange Offer."
SEE "RISK FACTORS" BEGINNING ON PAGE 13 HEREIN FOR A DISCUSSION OF CERTAIN
RISKS THAT SHOULD BE CONSIDERED BY ELIGIBLE HOLDERS IN EVALUATING THE EXCHANGE
OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is ____________, 1997.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. As used in this Prospectus, unless the context
requires otherwise, the terms "Company" and "Chemical Leaman" refer to Chemical
Leaman Corporation, its predecessor companies and its subsidiaries, including
Chemical Leaman Tank Lines, Inc. ("CLTL"), Fleet Transport Company, Inc.
("Fleet"), Quala Systems, Inc. ("QSI") and Power Purchasing, Inc. ("PPI").
THE COMPANY
Founded in 1913, Chemical Leaman Corporation is the largest tank truck
carrier in the United States based on revenues. The Company offers a full range
of specialized transportation services, including short and long-haul
transportation, intermodal services, materials handling and third-party
logistics, principally to the chemical industry. In addition, the Company
provides tank cleaning and driver-related services to its own fleet as well as
to independent owner-operators and third-party carriers. In 1996, approximately
91% of the Company's revenues were derived from transportation services, while
approximately 9% were derived from tank cleaning and intermodal services. The
specialized nature of the Company's services, the quality of its customer base
and the stability of chemical industry output have allowed the Company to
generate consistent levels of annual operating income. The Company believes that
these factors, coupled with the Company's current investment in a new
information technology system, position Chemical Leaman for future revenue
growth and profitability. For the twelve months ended June 29, 1997, the Company
had revenues, EBITDA (as defined herein), and a net loss of $310 million, $24.6
million and $2.4 million, respectively. For the year ended December 31, 1996,
the Company had revenues, EBITDA and a net loss of $281.1 million, $22.9 million
and $162,000, respectively. For the six months ended June 29, 1997, the Company
had revenues, EBITDA and a net loss of $157 million, $12.6 million and $1.9
million, respectively. As EBITDA is not calculated identically by all companies,
the presentation herein may not be comparable to other similarly titled measures
of other companies. The Company has experienced declining levels of net income
since 1994 largely due to increased debt levels and related interest expense.
Additional debt was incurred in order to complete the Fleet acquisition and in
connection with the Company's computer technology system. While EBITDA has
increased in each year since 1993, the EBITDA to interest expense ratio has
declined from 3.8% in 1994 to 3.0% in 1996 and to 2.8% for the six months ended
June 29, 1997. The net loss for the six months ended June 29, 1997 was mainly
due to a $1.5 million charge for an insurance claim. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Results of Operations."
The Company operates in the U.S., Canada and Mexico and maintains a
nationwide network of 105 terminals and 30 tank cleaning facilities. The Company
utilizes its network of terminals and facilities to transport liquid and dry
bulk specialty and commodity chemicals and, to a lesser degree, petroleum and
food grade products, throughout North America. The Company's terminals are
strategically located near customers' plants, resulting in a consistently high
percentage of on-time pick-ups and deliveries and effective utilization of
drivers and equipment. At June 29, 1997, the Company's fleet included 1,813
tractors (491 Company-owned tractors and 1,322 owner-operated tractors) and
3,433 specialized trailers. The Company's extensive use of owner-operators
increases the Company's asset utilization and lowers its fixed cost structure.
Chemical Leaman is a core carrier to some of the largest and best-known
chemical manufacturers, including Dow Chemical North America, E.I. DuPont de
Nemours Co., Air Products and Chemicals, Inc., AlliedSignal Inc. and Union
Carbide Corporation. The Company believes it has developed a superior reputation
among its customers due to its strong safety record, the strategic location of
its facilities and the full range of transportation and logistics services
offered. Through its national account marketing program, the Company seeks to
grow the number of chemical producers for which it serves as a core carrier.
1
<PAGE>
The current size of the tank truck carrier market is estimated to be
approximately $8 billion, with independent carriers representing approximately
70% of the market. The independent tank truck segment of the market is
fragmented, consisting of approximately 200 carriers, with the top five carriers
accounting for approximately 20% of the segment's 1995 revenues, according to
Modern Bulk Transporter. The Company believes there are significant growth
opportunities as the industry continues to consolidate and as chemical producers
outsource a greater percentage of their transportation and logistics needs,
increasingly through the use of a limited number of core carriers. Further, the
capital requirements for the acquisition and maintenance of a fleet of tank
trailers, the need for sophisticated information technology systems, generally
rising insurance requirements, the focus of customers on quality control
programs and the increasing complexity of environmental regulation all favor
larger, better capitalized carriers. As a result of its leading market position,
operating expertise and logistics capabilities, the Company believes it is
well-positioned to benefit from these industry trends.
BUSINESS STRATEGY
The Company's objective is to continue to enhance its revenue growth and
profitability by pursuing the following key strategies: (i) expanding market
share by marketing on both a national and regional level, (ii) focusing on
improving operating efficiencies by continuing to shift to an owner-operator
driver force, emphasizing safety and leveraging information technology, (iii)
offering value-added related services, including tank cleaning, third-party
logistics and driver-related services, and (iv) seeking selective acquisitions.
EXPAND MARKET SHARE. Although Chemical Leaman is the largest tank truck
carrier in the U.S. based on revenues, the Company believes there are
significant opportunities for it to gain market share. The Company believes it
can handle an even larger proportion of its core customers' bulk transportation
and logistics requirements by building upon existing relationships and
leveraging its reputation for high-quality customer service, competitive pricing
and value-added services. The Company also believes that it can generate
additional revenue opportunities from large chemical producers that are
outsourcing a greater percentage of their transportation requirements. In
addition, the Company aims to gain market share by targeting regional chemical
producers located near the Company's terminals that can benefit from Chemical
Leaman's national presence and extensive capabilities.
FOCUS ON OPERATING EFFICIENCIES. The Company continues to focus on
increasing operating efficiencies without lowering the quality or range of its
services by concentrating on the following key areas:
o Extensive Use of Owner-Operators. The Company's percentage of
owner-operators to total drivers has increased from 54% at December
31, 1992 to 75% at June 29, 1997. Owner-operators provide their own
tractors and pay their own operating expenses. The Company's
extensive use of owner-operators increases the Company's operating
and financial flexibility by improving asset utilization and
reducing fixed costs. The Company is highly selective in its driver
recruiting efforts and has invested substantial resources in its
driver recruitment programs. The Company requires all of its
drivers to participate in extensive training sessions held at its
driver training center which it believes enhances the quality of
its drivers and improves its safety record.
o Continuing Emphasis on Safety. Because of the specialized nature
of many of the products that the Company handles and transports,
driver and equipment safety are critical in obtaining new business
and in maintaining existing customer relationships. The Company has
committed substantial resources to its Safety and Emergency
Response Departments, and its emphasis on safety is reflected in
the Company's low cost of risk and favorable accident experience.
The Company has received national safety awards
2
<PAGE>
from the National Tank Truck Carriers Association in each of the
past five years including first place as safest carrier in 1995 and
1996. The Company received the American Trucking Association's
first place safety award in 1995 and has received the U.S.
Department of Transportation's highest safety rating for 20 years.
o Investment in Information Technology. The Company believes that
maximizing its use of information technology will create
significant competitive advantages by reducing administrative costs
and enhancing the utilization of tractors, trailers and drivers.
The Company is investing in a proprietary information technology
system which will provide the Company with a new order entry
system, enhanced order tracking and continuous communication with
drivers via satellite. The Company expects full implementation of
its new information technology system by the first quarter of 1998.
OFFER VALUE-ADDED RELATED SERVICES. The Company provides tank cleaning
services to Chemical Leaman's fleet and to third-party tank truck carriers
through a nationwide network of 30 tank cleaning facilities. By taking advantage
of its significant purchasing power, the Company facilitates the purchase of
tractors, fuel and tires as well as a comprehensive line of insurance products
by its owner-operator driver force and by third party owner-operators. Chemical
producers continue to focus on their core competencies and therefore
increasingly look to outsource their entire transportation and shipping
functions. In order to capitalize on these opportunities, the Company has
developed logistics capabilities including transportation, inventory and asset
management. The Company is currently providing logistics services to third
parties and believes there are additional opportunities to expand its
third-party logistics business. The Company believes it can increase revenues
and enhance its profitability by marketing these value-added
transportation-related services.
SEEK SELECTIVE ACQUISITIONS. The Company believes that the tank truck
carrier industry is consolidating and that it is well-positioned to take
advantage of this trend. As the largest tank truck carrier in the U.S. based on
revenues, the Company believes that acquisitions will allow it to leverage its
operating and management expertise over a larger base of assets thereby
increasing profit opportunities. In June 1996, Chemical Leaman acquired Fleet,
which operated 30 terminals located primarily in the southeastern U.S. Fleet
contributed $57.3 million of revenues for the twelve months ended June 29, 1997.
The Fleet acquisition enhanced the Company's geographic terminal coverage and
expanded its customer base. Chemical Leaman will continue to evaluate
acquisition opportunities of high-quality tank truck carrier companies, tank
cleaning services companies and other companies engaged in related businesses
that offer a strategic fit with the Company's existing business, provided that
such acquisitions may require the consent of the Company's lenders. See "Risk
Factors - Substantial Leverage."
3
<PAGE>
ISSUANCE OF THE OLD NOTES
$100 million principal amount of 10 3/8% Senior Notes due 2005 (the "Old
Notes") were sold by the Company to the Initial Purchasers on June 16, 1997 (the
"Closing Date") pursuant to a Purchase Agreement, dated June 10, 1997 (the
"Purchase Agreement"), among the Company and the Initial Purchasers. After
deducting underwriting discounts and offering expenses, the approximately $95.8
million received by the Company as net proceeds from the sale of the Old Notes
was used to repay the Company's outstanding indebtedness in the amount of $81.8
million, and the remaining balance of $14.0 million in net proceeds have been
and are being used for working capital and general corporate purposes. The
Initial Purchasers subsequently resold the Old Notes in reliance on Rule 144A
under the Securities Act and other available exemptions under the Securities Act
(the "Offering"). The Company also entered into the Registration Rights
Agreement, dated as of the Closing Date (the "Registration Rights Agreement"),
among the Company and the Initial Purchasers, pursuant to which the Company
granted certain registration rights for the benefit of the holders of the Old
Notes. Under the Registration Rights Agreement, the Company agreed, for the
benefit of the holders of the Old Notes that it would, at its own cost, (i)
within 60 days after the Closing Date file a registration statement (the
"Registration Statement") with the Commission with respect to a registered offer
to exchange the Old Notes for New Notes, which will have terms substantially
identical to the Old Notes and (ii) use its best efforts to cause such
Registration Statement to be declared effective under the Securities Act within
120 days after the Closing Date. If for any reason the Exchange Offer is not
consummated within 150 days after the Closing Date, the Company is obligated
under the Registration Rights Agreement to file a shelf registration statement
with the Commission covering resales of the Old Notes. If the Company defaults
with respect to its obligations under the Registration Rights Agreement (as
defined herein, a "Registration Default"), the Company will be obligated to pay
Additional Interest of 0.25% per annum for the first 90-day period (or portion
thereof) and an additional 0.25% per annum for each subsequent 90-day period (up
to a maximum aggregate increase of 1.00% per annum) until all Registration
Defaults have been cured, whereupon the accrual of Additional Interest will
cease and the interest rate on the Old Notes will revert to the original rate.
The Exchange Offer is intended to satisfy certain of the Company's obligations
under the Registration Rights Agreement with respect to the Old Notes. See "The
Exchange Offer - Purpose and Effect."
------------------------
The Company was incorporated in Pennsylvania in 1977 to serve as a holding
company for its operating subsidiaries, which, together with their predecessors,
have conducted business as a transportation company since 1913. The Company's
principal executive offices are located at 102 Pickering Way, Exton,
Pennsylvania 19341-0200, and its telephone number is (610) 363-4200.
4
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer................ The Company is offering, upon the terms and
subject to the conditions set forth herein
and in the accompanying letter of
transmittal (the "Letter of Transmittal"),
to exchange $1,000 in principal amount of
its 10 3/8% Senior Notes due 2005 (the "New
Notes," and together with the Old Notes,
sometimes collectively referred to herein as
the "Notes") for each $1,000 in principal
amount of the outstanding Old Notes (the
"Exchange Offer"). As of the date of this
Prospectus, $100 million in aggregate
principal amount of the Old Notes is
outstanding, the maximum amount authorized
by the Indenture for all Notes. As of
September 16, 1997, there were three
registered holders of the Old Notes,
including Cede & Co. ("Cede") which held
$98,750,000 of aggregate principal amount of
the Old Notes for its participants. See "The
Exchange Offer - Terms of the Exchange
Offer."
Expiration Date................... 5:00 p.m., New York City time, on
________________, 1997, as the same may be
extended. See "The Exchange Offer -
Expiration Date; Extensions; Amendments."
Conditions of the Exchange Offer.. The Exchange Offer is not conditioned upon
any minimum principal amount of Old Notes
being tendered for exchange. However, the
Exchange Offer is subject to the condition
that it does not violate any applicable law
or interpretation of the staff of the
Commission. See "The Exchange Offer -
Conditions of the Exchange Offer."
Termination of Certain Rights..... Pursuant to the Registration Rights
Agreement and the Old Notes, Eligible
Holders of Old Notes (i) have rights to
receive the Additional Interest and (ii)
have certain rights intended for the holders
of unregistered securities. "Additional
Interest" means the increase in the interest
rate borne by Registrable Securities during
the period in which a Registration Default
is continuing pursuant to the terms of the
Registration Rights Agreement (in general,
one-quarter of one percent (0.25%) per annum
for the first 90-day period immediately
after the first such Registration Default
and an additional one-quarter of one percent
(0.25%) per annum for each subsequent 90-day
period (up to a maximum aggregate increase
of one percent (1.00%) until all
Registration Defaults have been cured
whereupon the accrual of Additional Interest
will cease and the interest rate on the Old
Notes will revert to the original rate).
Holders of New Notes generally will not be
and, upon consummation of the Exchange
Offer, Eligible Holders of Old Notes will
generally no longer be, entitled to (i) the
right to receive the Additional Interest,
except in certain limited circumstances, and
(ii) certain other rights under the
Registration Rights Agreement intended for
holders of unregistered securities. See "The
Exchange Offer -
5
<PAGE>
Termination of Certain Rights" and "-
Procedures for Tendering Old Notes."
Accrued Interest on the
Old Notes......................... The New Notes will bear interest at a rate
equal to 10 3/8% per annum from and
including their date of issuance. Eligible
Holders whose Old Notes are accepted for
exchange will have the right to receive
interest accrued thereon from the date of
original issuance of the Old Notes or the
last Interest Payment Date, as applicable,
to, but not including, the date of issuance
of the New Notes, such interest to be
payable with the first interest payment on
the New Notes. Interest on the Old Notes
accepted for exchange, which accrues at the
rate of 10 3/8% per annum, will cease to
accrue on the day prior to the issuance of
the New Notes.
Procedures for Tendering
Old Notes......................... Unless a tender of Old Notes is effected
pursuant to the procedures for book-entry
transfer as provided herein, each Eligible
Holder desiring to accept the Exchange Offer
must complete and sign the Letter of
Transmittal, have the signature thereon
guaranteed if required by the Letter of
Transmittal, and mail or deliver the Letter
of Transmittal, together with the Old Notes
or a Notice of Guaranteed Delivery and any
other required documents (such as evidence
of authority to act, if the Letter of
Transmittal is signed by someone acting in a
fiduciary or representative capacity), to
the Exchange Agent (as defined) at the
address set forth on the back cover page of
this Prospectus prior to 5:00 p.m., New York
City time, on the Expiration Date. Any
Beneficial Owner (as defined) of the Old
Notes whose Old Notes are registered in the
name of a nominee, such as a broker, dealer,
commercial bank or trust company and who
wishes to tender Old Notes in the Exchange
Offer, should instruct such entity or person
to promptly tender on such Beneficial
Owner's behalf. See "The Exchange Offer -
Procedures for Tendering Old Notes." By
tendering Old Notes for exchange, each
registered holder will represent to the
Company that, among other things, (i)
neither the Eligible Holder nor any
Beneficial Owner is an affiliate of the
Company within the meaning of Rule 405 under
the Securities Act, (ii) any New Notes to be
received by the Eligible Holder or any
Beneficial Owner are being acquired in the
ordinary course of business, (iii) neither
the Eligible Holder nor any Beneficial Owner
has an arrangement or understanding with any
person to participate in the distribution of
the New Notes, and (iv) if the Eligible
Holder or Beneficial Owner, as applicable,
is a broker-dealer that acquired Old Notes
for its own account as a result of market
making or other trading activities, such
Eligible Holder or Beneficial Owner must
comply with the prospectus delivery
requirements of the Securities Act in
connection with a secondary resale
transaction of the New
6
<PAGE>
Notes acquired by such person and must agree
that it will deliver a prospectus in
connection with any such resale.
Guaranteed Delivery Procedures.... Eligible Holders of Old Notes who wish to
tender their Old Notes and (i) whose Old
Notes are not immediately available or (ii)
who cannot deliver their Old Notes or any
other documents required by the Letter of
Transmittal to the Exchange Agent prior to
the Expiration Date (or complete the
procedure for book-entry transfer on a
timely basis), may tender their Old Notes
according to the guaranteed delivery
procedures set forth in the Letter of
Transmittal. See "The Exchange Offer -
Procedures for Tendering Old Notes -
Guaranteed Delivery Procedures."
Acceptance of Old Notes and
Delivery of New Notes............. Upon satisfaction or waiver of all
conditions of the Exchange Offer, the
Company will accept any and all Old Notes
that are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The New Notes
issued pursuant to the Exchange Offer will
be delivered as soon as practicable after
acceptance of the Old Notes. See "The
Exchange Offer - Acceptance of Old Notes for
Exchange; Delivery of New Notes."
Withdrawal Rights................. Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time,
on the Expiration Date. See "The Exchange
Offer - Withdrawal Rights."
Certain Federal Income Tax
Considerations.................... Generally, the exchange pursuant to the
Exchange Offer will not be a taxable event
for federal income tax purposes. See
"Certain Federal Income Tax Consequences -
The Exchange Offer."
The Exchange Agent................ First Union National Bank is the exchange
agent (in such capacity, the "Exchange
Agent"). The address and telephone number of
the Exchange Agent are set forth in "The
Exchange Offer - The Exchange Agent;
Assistance."
Fees and Expenses................. All expenses incident to the Company's
consummation of the Exchange Offer and
compliance with the Registration Rights
Agreement will be borne by the Company. See
"The Exchange Offer - Solicitation of
Tenders; Fees and Expenses."
7
<PAGE>
Resales of the New Notes.......... Based on interpretations by the staff of the
Commission set forth in no-action letters
issued to third parties, the Company
believes that New Notes issued pursuant to
the Exchange Offer to an Eligible Holder in
exchange for Old Notes may be offered for
resale, resold and otherwise transferred by
such Eligible Holder (other than (i) a
broker-dealer who purchased the Old Notes
directly from the Company for resale
pursuant to Rule 144A under the Securities
Act or any other available exemption under
the Securities Act or (ii) a person that is
an affiliate of the Company within the
meaning of Rule 405 under the Securities
Act), without compliance with the
registration and prospectus delivery
provisions of the Securities Act, provided
that the Eligible Holder is acquiring the
New Notes in the ordinary course of business
and is not participating, and has no
arrangement or understanding with any person
to participate, in a distribution of the New
Notes. Each broker-dealer that receives New
Notes for its own account in exchange for
Old Notes, where such Old Notes were
acquired by such broker as a result of
market making or other trading activities,
must acknowledge that it will deliver a
prospectus in connection with any resale of
such New Notes. See "The Exchange Offer -
Resales of the New Notes" and "Plan of
Distribution.
8
<PAGE>
DESCRIPTION OF NEW NOTES
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that (i) the New Notes
have been registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof, (ii) holders of the New Notes, except
in limited circumstances, will not be entitled to Additional Interest, and (iii)
holders of the New Notes will not be, and upon consummation of the Exchange
Offer, Eligible Holders of the Old Notes will no longer be, entitled to certain
rights under the Registration Rights Agreement intended for the holders of
unregistered securities. See "Exchange Offer - Termination of Certain Rights."
The Exchange Offer shall be deemed consummated upon the occurrence of the
delivery by the Company to the Registrar under the Indenture of New Notes in the
same aggregate principal amount as the aggregate principal amount of Old Notes
that are validly tendered by holders thereof pursuant to the Exchange Offer. See
"The Exchange Offer - Termination of Certain Rights" and "- Procedures for
Tendering Old Notes" and "Description of New Notes."
Maturity Date..................... June 15, 2005.
Interest.......................... 10 3/8% payable in cash semi-annually in
arrears, from June 15, 1997, calculated on
the basis of a 360-day year consisting of
twelve 30-day months.
Interest Payment Dates............ June 15 and December 15 of each year,
commencing December 15, 1997.
Optional Redemption............... The New Notes will be redeemable at the
option of the Company, in whole or in part,
at any time on or after June 15, 2001, at
the redemption prices set forth herein, plus
accrued and unpaid interest thereon, if any,
to the date of redemption. See "Description
of the New Notes Optional Redemption."
In addition, on or prior to June 15, 2000,
the Company may redeem up to 25% of the
originally issued aggregate principal amount
of the New Notes, at a redemption price of
110 3/8% of the principal amount thereof,
plus accrued and unpaid interest thereon, if
any, to the date of redemption with the net
proceeds of a Public Equity Offering,
provided, however, that not less than $75
million in aggregate principal amount of the
New Notes is outstanding immediately after
giving effect to such redemption. See
"Description of the New Notes - Optional
Redemption."
Ranking........................... The New Notes will rank pari passu in right
of payment with all existing and future
unsecured and unsubordinated indebtedness of
the Company and senior in right of payment
to all existing and future subordinated
indebtedness of the Company. The New Notes
will be effectively subordinated to all
secured indebtedness of the Company to the
extent of the assets securing such
indebtedness, including indebtedness under
the $20 million New Revolving Credit
Facility and all existing and future
indebtedness and other obligations of the
subsidiaries of the Company. As of June 29,
1997, the Company and its subsidiaries had
$6.1 million of indebtedness (excluding
trade payables of $21.9 million) outstanding
in addition to the Notes, including stand-by
letters of credit and capital lease
obligations. See "New Revolving Credit
Facility."
9
<PAGE>
Change of Control................. Following the occurrence of a Change of
Control, each holder of New Notes will have
the right to require the Company to purchase
all or a portion of such holder's New Notes
at a purchase price equal to 101% of the
principal amount thereof, plus accrued and
unpaid interest thereon, if any, to the date
of purchase. There can be no assurance that
the Company will have funds sufficient to
meet its obligation to purchase all or a
portion of such holder's New Notes at the
specified purchase price in the event of a
Change of Control. See "Description of the
New Notes - Change of Control."
Certain Covenants................. The indenture under which the New Notes are
being issued (the "Indenture") contains
certain covenants that, among other things,
limit (i) the incurrence of additional
indebtedness by the Company and the
Restricted Subsidiaries (as defined herein);
(ii) the payment of dividends on, and
redemption of, capital stock of the Company
and the Restricted Subsidiaries and the
redemption of certain subordinated
obligations of the Company and the
Restricted Subsidiaries; (iii) certain
investments by the Company and the
Restricted Subsidiaries; (iv) certain sales
of assets and Restricted Subsidiary stock;
(v) the incurrence of liens, other than
Permitted Liens (as defined herein), by the
Company and the Restricted Subsidiaries;
(vi) transactions with affiliates; (vii)
consolidations and mergers of the Company
and transfers of all or substantially all of
the assets of the Company and the Restricted
Subsidiaries; and (viii) the Restricted
Subsidiaries from guaranteeing other
Indebtedness of the Company unless such
Restricted Subsidiaries also guarantee the
New Notes. The Indenture also prohibits
certain restrictions on distributions from
Restricted Subsidiaries. These covenants are
subject to important exceptions and
qualifications. See "Description of the New
Notes - Certain Covenants."
Absence of a Public Market
for the New Notes................. The New Notes are new securities for which
there is currently no established trading
market. Although the Initial Purchasers have
informed the Company that they currently
intend to make a market in the New Notes,
they are not obligated to do so and any such
market making may be discontinued at any
time without notice. Accordingly, there can
be no assurance as to the development or
liquidity of any market for the New Notes.
The Company does not intend to apply for
listing of the New Notes on any securities
exchange or for quotation through The Nasdaq
Stock Market.
RISK FACTORS
An investment in the New Notes involves a high degree of risk. Prospective
investors should carefully consider the matters set forth under "Risk Factors"
beginning on page 13.
10
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth certain summary consolidated financial data
for the periods indicated. The summary consolidated financial data as of and for
the years ended December 31, 1992 and 1993 have been derived from the Company's
audited consolidated financial statements not included herein. The summary
consolidated financial data as of and for the years ended December 31, 1994,
1995, 1996, and as of June 29, 1997 and for the six month period then ended have
been derived from the Company's audited consolidated financial statements, which
are included in this Prospectus. The summary consolidated financial data as of
June 30, 1996 and for the six month period ended June 30, 1996 have been derived
from the Company's unaudited consolidated financial statements included herein.
The unaudited consolidated financial statements have been prepared on the same
basis as the audited consolidated financial statements included herein and, in
the opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the Company's
financial position and results of operations for the unaudited periods.
Operating results for the six months ended June 29, 1997 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997. The summary consolidated financial data should be read in conjunction with
"Selected Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the audited consolidated
financial statements and the notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, -------------------
---------------------------------------------------- JUNE 30, JUNE 29,
1992 1993 1994 1995 1996(a) 1996 1997
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues....................... $232,619 $231,190 $241,443 $245,706 $281,075 $127,612 $156,545
Operating expenses....................... 225,971 226,057 234,630 239,287 274,433 123,867 154,796
-------- -------- -------- -------- -------- -------- --------
Operating income (loss).................. 6,648 5,133 6,813 6,419 6,642 3,745 1,749
Other (income) expense
Interest expense..................... 4,278 4,016 4,946 5,978 7,553 3,092 4,515
Other (income) expense, net.......... 277 207 92 (110) (795) (11) 165
-------- -------- -------- -------- -------- -------- --------
Income (loss) before taxes............... 2,093 910 1,775 551 (116) 664 (2,931)
Provision (benefit) for income taxes..... 430 227 710 220 46 333 (1,223)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
items.................................. 1,663 683 1,065 331 (162) 331 (1,708)
-------- -------- -------- -------- -------- -------- --------
Extraordinary loss on early
extinguishment of debt, less applicable
income taxes of $133 (g)............... -- -- -- -- -- -- (199)
-------- -------- -------- -------- -------- -------- --------
Net Income (loss)........................ $ 1,663 $ 683 $ 1,065 $ 331 $ (162) $ 331 $ (1,907)
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
OTHER FINANCIAL DATA:
EBITDA (b)............................... $ 19,352 $ 16,453 $ 18,596 $ 20,150 $ 22,897 $ 10,918 $ 12,585
EBITDA margin (c)........................ 8.3% 7.1% 7.7% 8.2% 8.2% 8.6% 8.0%
Cash flows provided by (used in)
operating activities................... 5,992 11,197 16,567 17,444 4,677 21 (3,519)
Cash flows (used in) investing
activities............................. (9,855) (9,892) (18,755) (10,490) (34,273) (23,981) (10,255)
Cash flows provided by (used in)
financing activities................... 3,465 6,994 4,120 (9,444) 26,861 23,632 22,709
Depreciation and amortization............ 12,704 11,320 11,783 13,731 16,255 7,173 9,336
Capital expenditures (d)................. 11,637 12,050 20,747 13,270 20,020 9,863 11,006
Ratio of EBITDA to interest expense...... 4.5x 4.1x 3.8x 3.4x 3.0x 3.5x 2.8x
OPERATING DATA:
Tractors operated
Company.............................. 726 616 576 414 561 582 491
Owner-Operators (e).................. 735 774 969 954 1,194 1,248 1,322
-------- -------- -------- -------- -------- -------- --------
Total tractors................... 1,461 1,390 1,545 1,368 1,755 1,830 1,813
Drivers
Company employees.................... 760 589 538 405 473 515 475
Owner-Operators (e).................. 889 844 1,057 1,117 1,277 1,305 1,430
-------- -------- -------- -------- -------- -------- --------
Total drivers........................ 1,649 1,433 1,595 1,522 1,750 1,820 1,905
Trailers................................. 2,666 2,438 2,869 2,645 3,502 3,450 3,433
Terminals................................ 65 65 61 66 105 105 105
Total miles traveled (000's)............. 105,901 104,913 105,443 110,223 126,802 56,048 68,371
Average revenue per mile................. $ 1.85 $ 1.83 $ 1.87 $ 1.81 $ 1.78 $ 1.77 $ 1.78
Average length of haul (miles)........... 444 456 450 463 455 487 429
Number of tank cleaning facilities....... 28 26 27 27 29 30 30
</TABLE>
<TABLE>
<CAPTION>
JUNE 29, 1997
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 8,825
Total assets................................................ 177,528
Long-term debt, including current portion (f)............... 102,202
Redeemable preferred stock.................................. 5,318
Stockholders' equity (g).................................... 13,153
</TABLE>
11
<PAGE>
(footnotes from previous page)
- ------------------
(a) Includes the results of Fleet from June 28, 1996, the date of the
acquisition.
(b) EBITDA represents operating income (loss) for the respective period plus
depreciation and amortization. For the first six months of 1997, a $1.5
million one-time charge was incurred relating to a self-insurance deductible
and has been added back in the calculation of EBITDA. EBITDA is presented to
provide additional information about the Company's ability to meet its
future debt service, capital expenditure and working capital requirements.
EBITDA is not a measure of financial performance under generally accepted
accounting principles ("GAAP") and should not be considered as an
alternative either to net income as an indicator of the Company's operating
performance, or to cash flows as a measure of the Company's liquidity.
(c) EBITDA margin is defined as EBITDA as a percentage of revenues.
(d) Capital expenditures for 1996 and for the six months ended June 30, 1996
consist of $6.2 million and $4.6 million, respectively, for the Company's
new information technology system and $13.8 million and $5.3 million,
respectively, for the acquisition of new trailers and capitalized repairs to
existing trailers.
(e) The Company utilizes the services of owner-operators, who are independent
contractors and provide their own tractors and pay for their own operating
expenses.
(f) The Company has an accounts receivable securitization facility in the amount
of $28 million with an effective rate of interest of LIBOR plus .80%, which
is accounted for as an off-balance sheet item as of June 29, 1997 pursuant
to Statement of Financial Accounting Standards No. 125. Prior to June 29,
1997, this facility was accounted for as long-term debt. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
(g) In connection with the repayment of indebtedness with the proceeds of the
Offering, the Company incurred approximately $199,000 of prepayment
penalties net of tax benefit, which was recorded as an extraordinary item in
the quarter ended June 29, 1997.
12
<PAGE>
RISK FACTORS
Holders of the Notes should consider carefully, in addition to the other
information contained or incorporated by reference in this Prospectus, the
following factors before investing in the New Notes.
SUBSTANTIAL LEVERAGE
The tank truck industry is capital intensive. The Company will continue to
require capital in order to operate and expand its business. As of June 29,
1997, the Company and its subsidiaries had $6.1 million of indebtedness
(excluding trade payables of $21.9 million) outstanding in addition to the
Notes, including stand-by letters of credit and capital lease obligations. After
the issuance of the Notes, the Company's ratio of indebtedness to total capital
was 85% as of June 29, 1997. The Notes are not secured by the Company's assets,
operating subsidiary stock, or any other security. In addition, the Indenture
permits the Company to incur additional indebtedness, subject to certain
limitations, from time to time to finance acquisitions or capital expenditures
or for other purposes. See "Description of the New Notes." The degree to which
the Company is leveraged could have important consequences to holders of the New
Notes, including the following: (i) a substantial portion of the Company's
consolidated cash flow from operations must be dedicated to the payment of the
principal of and interest on its outstanding indebtedness and will not be
available for other purposes; (ii) the Company's ability to obtain additional
financing in the future for working capital needs, capital expenditures,
acquisitions and general corporate purposes may be materially limited or
impaired or such financing may not be available on terms favorable to the
Company; (iii) indebtedness under the New Revolving Credit Facility is secured
and will mature prior to the maturity of the New Notes; (iv) certain of the
Company's borrowings may be at variable rates of interest, including future
borrowings under the New Revolving Credit Facility, which will expose the
Company to the risk of increased interest rates; (v) the Company may be more
highly leveraged than its competitors, which may place the Company at a
competitive disadvantage; and (vi) the Company's high degree of leverage may
reduce its ability to withstand competitive pressure and make it more vulnerable
to a downturn in its business or the economy in general. For the six months
ended June 29, 1997, cash used in operating activities was $3.5 million. See
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
POTENTIAL INABILITY TO REPAY DEBT
The Company's ability to satisfy its interest payment obligations under its
indebtedness will depend largely on its future performance, which, in turn, is
subject to prevailing economic conditions and to financial, business and other
factors beyond its control. In addition, any amounts owing under the New
Revolving Credit Facility will become due before any principal payments on the
New Notes are scheduled to become due and such amounts may need to be
refinanced. Furthermore, the Company does not expect to be able to repay the
principal amount of the New Notes at maturity from available cash and
accordingly will need to refinance the New Notes, or repay the New Notes with
the proceeds of an equity offering, at or prior to their maturity. There can be
no assurance that the Company will be able to generate sufficient cash flow to
service its interest payment obligations under its indebtedness or that cash
flows, future borrowings or equity financing will be available for the payment
or refinancing of the Company's indebtedness. To the extent that the Company is
not successful in repaying or negotiating renewals of its borrowings or in
arranging new financings, it may have to sell significant assets, which could
have a material adverse effect on the Company's business and results of
operations. Among the factors that will affect the Company's ability to effect
an offering of its capital stock or refinance the New Notes are financial market
conditions and the value and performance of the Company at the time of such
offering or refinancing. There can be no assurance that any such offering or
refinancing can be successfully completed. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" and "New Revolving Credit Facility."
13
<PAGE>
HOLDING COMPANY STRUCTURE
Chemical Leaman Corporation is a holding company which derives all of its
operating income from its subsidiaries. In addition, substantially all of the
Company's operating assets are held by its subsidiaries, except for $25 million
of revenue equipment securing the New Revolving Credit Facility, to be held by
Chemical Leaman Corporation. Accordingly, the Company will be dependent on
dividends and other distributions from its subsidiaries to generate the funds
necessary to meet its obligations, including the payment of principal and
interest on the New Notes. Although the Company's subsidiaries do not have any
outstanding indebtedness other than two capitalized leases in the amount of
approximately $818,000 at June 29, 1997, the ability of the Company's
subsidiaries to pay dividends to Chemical Leaman Corporation will be subject to,
among other things, the terms of any future debt instruments of its subsidiaries
and applicable law. Because the Company's subsidiaries are not guaranteeing the
payment of the principal of and interest on the New Notes, the claims of the
holders of the New Notes will be effectively subordinated to the claims of
creditors of the Company's subsidiaries, including trade creditors. The
Indenture, among other things, limits the incurrence of additional indebtedness
by the Company's Restricted Subsidiaries, subject to a number of important
qualifications, and limit the ability of the Restricted Subsidiaries to
guarantee any other indebtedness of Chemical Leaman Corporation without
simultaneously guaranteeing payment of the principal of and interest on the New
Notes. See "Description of the Notes."
RESTRICTIVE COVENANTS; ASSET ENCUMBRANCES
The New Revolving Credit Facility contains certain financial and other
covenants, including, among others, covenants requiring the Company to maintain
certain financial ratios and restricting the ability of the Company and its
subsidiaries to incur indebtedness or to create or suffer to exist certain
liens. Indebtedness under the New Revolving Credit Facility will also mature
prior to the maturity of the New Notes. The ability of the Company to comply
with such provisions may be affected by events beyond its control. Should the
Company be unable to comply with the financial or other restrictive covenants
under the New Revolving Credit Facility at any time in the future there can be
no assurance that the lenders thereunder would agree to any necessary amendments
or waivers. In such a case, the failure to obtain amendments or waivers could
have a material adverse effect upon the Company and its ability to meet its
obligations in respect of the New Notes. A failure to make any required payment
under the New Revolving Credit Facility or to comply with any of the financial
and operating covenants included in the New Revolving Credit Facility could
result in an event of default thereunder, permitting the lenders to accelerate
the maturity of the indebtedness under the New Revolving Credit Facility. Such
an acceleration would also permit the acceleration of the other indebtedness of
the Company and its subsidiaries which contain cross-acceleration or
cross-default provisions, including the Indenture. The Indenture also has
certain covenants which, if not complied with, would result in an event of
default thereunder permitting holders of the New Notes, under certain
circumstances, to accelerate the New Notes. Any such event of default or
acceleration could also result in an event of default or acceleration of other
indebtedness of the Company. If the lenders under the New Revolving Credit
Facility accelerate the maturity of the indebtedness thereunder there can be no
assurance that the Company will have sufficient assets to satisfy its
obligations under the New Notes. In addition, other indebtedness of the Company
and its subsidiaries that may be incurred in the future may contain financial or
other covenants more restrictive than those applicable to the New Revolving
Credit Facility or the New Notes. See "Description of the New Notes."
The Company's indebtedness under the New Revolving Credit Facility bears
interest at rates that will fluctuate with changes in certain prevailing
interest rates (although such rates may be fixed for limited periods of time).
See "New Revolving Credit Facility."
The New Notes will be unsecured and effectively subordinated to all
existing and future secured indebtedness of the Company to the extent of the
assets securing such indebtedness and to all existing and future indebtedness
and other obligations of the subsidiaries of the Company. As of June 29, 1997,
the Company had $6.1 million of indebtedness (excluding trade payables of $21.9
million) outstanding in addition to the New Notes, consisting of $3.9 million of
stand-by letters of credit under the New Revolving Credit Facility and $2.2
million of capital lease obligations. The New Revolving Credit
14
<PAGE>
Facility is secured by $25 million of revenue equipment to be held by Chemical
Leaman Corporation, and claims of holders of the New Notes will be effectively
subordinated to the extent of such assets securing the New Revolving Credit
Facility. The claims of holders of the New Notes upon any distribution of assets
of any subsidiary of the Company in the event of the liquidation or
reorganization of such subsidiary will be subordinated to the prior claims of
present and future creditors of such subsidiary. In such an event, there may not
be sufficient assets remaining to pay amounts due on any or all of the New Notes
then outstanding. The Indenture permits subsidiaries of the Company, under
certain circumstances, to incur indebtedness and permits the Company and its
subsidiaries, under certain circumstances, to secure indebtedness. See "New
Revolving Credit Facility."
COMPETITIVE INDUSTRY
The tank truck industry is highly competitive and is fragmented. The
Company faces competition from a substantial number of tank truck carriers which
have intrastate and interstate operating authority and, to a lesser extent, with
railroad and barge transportation companies. Competition is based primarily on
rates and service. As a result of the federal Motor Carrier Act of 1980, the
Staggers Rail Act of 1980, and other legislation, competition intensified,
creating downward pressure on the industry's pricing structure. There can be no
assurance that the Company will have sufficient resources to maintain its
current competitive position or market share. See "Business - Competition" and
"- Regulation."
DEPENDENCE ON CERTAIN CUSTOMERS
For the years ended December 31, 1995 and 1996 and the first six months of
1997, Dow Chemical North America ("Dow") accounted for approximately 14.1%,
13.7% and 18.7%, respectively, of the Company's total revenues. The Company and
Dow have entered into an agreement under which the Company provides interstate
and intrastate motor carrier transportation for Dow between various geographic
destinations. This contract renews automatically on an annual basis unless
cancelled by either party upon 30 days' written notice to the other party, or by
Dow immediately upon written notice in the event the Company's authorization to
operate its business is revoked by any federal or state regulatory agency having
authority over the Company's operations. Other than Dow, no other customer
accounted for more than 5% of the Company's total annual revenues in 1996. The
sudden loss of or reduction in demand for its services from Dow or from a
significant customer of the Company could have a material adverse effect on the
Company's business and results of operations. See "Business - Customers."
EFFECTS OF ECONOMIC AND OTHER FACTORS
The availability of qualified drivers, changes in fuel prices and the
supply of fuel, increases in fuel or energy taxes, interest rate fluctuations,
economic recession, change in the cost of insurance, customers' business cycles
and the price and resale value of equipment are economic factors over which the
Company has no control. See "Business - Fuel Availability and Cost." In
addition, freight shipments, operating costs and earnings are also adversely
affected by inclement weather conditions. To the extent that increased expenses
resulting from these factors cannot be passed through to customers, there would
be an adverse effect on the Company's profitability. Economic recessions or a
downturn in customers' business cycles or in the liquid and dry bulk chemical
industries also could have a material adverse effect on the Company's operating
results. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
AVAILABILITY OF DRIVERS; PARTIALLY UNIONIZED WORK FORCE
Attracting qualified drivers (principally owner-operators) is an important
factor in the Company's ability to continue to provide high-quality service to
its customers and to efficiently utilize its assets. Although the Company
currently retains an adequate number of drivers, industry-wide shortages of
qualified drivers have occurred from time to time. There can be no assurance
that the Company's business will not be affected by a shortage of qualified
drivers in the future. See "Business - Owner-operators." At June 29, 1997,
approximately 60% of the Company's employee-drivers (15% of the
15
<PAGE>
total driver force) were covered under collective bargaining agreements and no
assurances can be given that this percentage will not increase in the future. A
prolonged work stoppage or strike by its unionized driver work force would have
a material adverse effect on the Company's results of operations. See "Business
- - Employees."
REGULATION
Tank truck carriers are subject to regulation by various federal, state and
local agencies, including the U.S. Department of Transportation ("DOT"), the
Federal Highway Administration and the Surface Transportation Board which
operates under DOT's auspices and exercises many of the regulatory powers
previously delegated to the U.S. Interstate Commerce Commission. Interstate and
intrastate motor carriage has been substantially deregulated as a result of the
enactment of the Motor Carrier Act of 1980, the Trucking Industry Regulatory
Reform Act of 1994 and other laws. Nevertheless, the federal regulatory agencies
retain substantial powers, and the tank truck industry is subject to regulatory
and legislative changes that can affect the economics of the industry by
requiring changes in operating practices or influencing the demand for, and the
costs of providing, services to third parties. See "Business - Regulation." In
addition, operations are subject to various safety laws and regulations, and
environmental laws and regulations, including laws and regulations regarding
underground fuel storage tanks and ownership of property that may contain
hazardous substances and laws and regulations governing air emissions. See
"Business - Environmental Matters" and "- Risk Management and Insurance;
Safety." The tank truck industry may in the future become subject to stricter
air emission standards regulation, including requirements that manufacturers
produce cleaner-running tractors and that fleet operators perform more rigorous
inspection and maintenance procedures.
ENVIRONMENTAL CONSIDERATIONS
The Company transports certain chemicals and hazardous materials and
operates tank wash facilities. As such, the Company's operations and properties
are subject to various federal, state, local and foreign environmental laws and
regulations relating to pollution and protection of the environment, including
those dealing with the transportation, use, storage, handling, treatment,
discharge and disposal of certain hazardous materials, substances and wastes,
and petroleum (collectively, Hazardous Materials), ownership and operation of
property that may contain Hazardous Materials, and underground storage tanks. In
the event of a release of a Hazardous Material as a result of an accident or
otherwise, the Company could be held responsible for cleanup costs, natural
resource damages and other damages and fines or other penalties, all of which
could have a material adverse effect on the Company's operations and business
reputation. See "Business - Risk Management and Insurance; Safety."
Under certain environmental laws, the Company may be liable for the
remediation of environmental pollution at owned and operated sites as well as
third-party sites at which there has been a release or threatened release of a
Hazardous Material. Under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA" or "Superfund"),
and similar state laws, the current and former owner or operator of real
property may be strictly, jointly and severally liable under certain
circumstances for the costs of investigation, cleanup and natural resource
damages relating to Hazardous Materials on, under or emanating from such
property, regardless of whether the owner or operator knew of, or was
responsible for, the presence of such Hazardous Materials. In addition, CERCLA
and similar state laws impose strict, joint and several liability under certain
circumstances for investigation, cleanup and natural resource damages on persons
who disposed of or arranged for the disposal of Hazardous Materials at
third-party sites. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Overview" and "- Liquidity and Capital
Resources" and "Business - Environmental Matters." Under the federal Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"), the holder of a
permit to treat, store or dispose of hazardous waste can be required to
remediate environmental pollution at or emanating from solid waste management
areas at the permitted facility regardless of when the contamination occurred.
RCRA also imposes regulations on generators of hazardous wastes.
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The Company has expended, and will be required to expend in the future,
substantial funds for compliance with such laws and regulations, as well as for
the investigation and remediation of sites at which a Hazardous Material has
been released, or at which there exists a threatened release of a Hazardous
Material. Some risk of environmental liability is inherent in the nature of the
Company's business. No assurance can be given that additional material
environmental costs will not arise as a result of compliance with and liability
under existing and future legislation or other developments. Environmental laws
and regulations are becoming increasingly more stringent. To the extent that the
cost of compliance increases and the Company cannot pass on future increases to
its customers, such increases may have an adverse impact on the Company's
profitability. From time to time, the Company has been cited for violations of
environmental laws and regulations. The Company is currently remediating two
Superfund sites at which it is the only performing party. The Company is also
investigating or remediating approximately 35 other sites at which it is one of
several performing parties. See "Business - Environmental Matters." As of
December 31, 1996, the Company had reserves of approximately $13.1 million for
environmental liabilities. The Company made cash payments of $4.5 million and
$4.4 million with respect to environmental matters and incurred environmental
charges of $2.4 million and $2.3 million in 1995 and 1996, respectively. The
Company expects to continue to incur expenses for the foreseeable future on
environmental matters. No assurance can be given that actual environmental
expenditures will not exceed the Company's expectations or reserves or that any
such expenditures will not have a material adverse effect on the Company's
financial condition or results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
FUEL AVAILABILITY AND COST
Although the Company's owner-operators are responsible for paying their own
fuel costs, significant increases in these costs could result in their seeking
higher purchased transportation fees from the Company or other contractual
opportunities. With respect to the Company's employee drivers, fuel represents a
significant operating expense of the Company. There can be no assurance that the
Company will be able to pass any increases in fuel costs to its customers in the
form of price increases. Significant increases in the price of fuel, if not
offset by increases in prices charged to customers, or any interruption in the
supply of fuel, would have an adverse impact upon the profitability of the
Company. See "Business - Fuel Availability and Cost."
CLAIMS EXPOSURE
The Company currently maintains liability insurance for bodily injury and
property damage in the amount of $100 million per incident. Until March 30,
1997, the deductible for bodily injury and property damage was $2 million
(subject to an aggregate annual stop loss of $9 million). The current deductible
for bodily injury and property damage is $1 million per incident (subject to an
aggregate annual stop loss of $5.5 million), and the current deductible for
workers' compensation insurance, in states where most of the Company's employees
are domiciled, is $500,000 per claim. To the extent that the Company experiences
a material increase in the frequency or severity of accidents or workers'
compensation claims or unfavorable developments on existing claims, the
Company's operating results and financial condition could be materially
adversely affected. In addition, significant increases in insurance costs, to
the extent not offset by price increases, would reduce the Company's future
profitability. See "Business - Risk Management and Insurance; Safety."
DEPENDENCE ON SENIOR MANAGEMENT TEAM
The success of the Company is dependent upon its senior management team, as
well as its ability to attract and retain qualified personnel. There is
substantial competition for qualified personnel in the tank truck industry.
There is no assurance that the Company will be able to retain its existing
senior management or to attract additional qualified personnel. The Company does
not have any employment agreements with any of its executive officers other than
with the President of CLTL. See "Management."
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CONTROLLING STOCKHOLDERS; CHANGE OF CONTROL
As of June 29, 1997, David R. Hamilton, George McFadden and John H.
McFadden beneficially owned an aggregate of 76.8% of the outstanding common
stock of the Company, with certain directors and the management of the Company
owning the balance. The interests of Messrs. Hamilton and McFadden as equity
holders of the Company may differ from the interests of holders of Notes. See
"Principal Stockholders."
There can also be no assurance that Messrs. Hamilton and McFadden will
continue to control the Company. A reduction in the beneficial ownership of the
Company's common stock by Messrs. Hamilton and McFadden below 30% would
constitute an event of default under the New Revolving Credit Facility,
permitting the lenders under the New Revolving Credit Facility to exercise
remedies. Further, if any person other than Messrs. Hamilton and McFadden
acquires beneficial ownership of 50% or more of the Company's common stock, the
Indenture requires the Company to make an offer to purchase all of the
outstanding New Notes under the Indenture. The inability to repay indebtedness
under the New Revolving Credit Facility, if accelerated, or to purchase all of
the New Notes would also constitute an event of default under the Indenture. See
"New Revolving Credit Facility" and "Description of the New Notes - Change of
Control." No assurance can be given that the Company will be able to comply with
its obligations under the New Revolving Credit Facility in the event of a change
of control or to refinance any of its obligations thereunder or other
obligations that might become due by the reason of these provisions. Thus, in
the event the Company were unable to meet its obligations, there may not be any
resources available to meet claims for payment on the New Notes.
SEASONALITY
The business of the Company is subject to limited seasonality, with
revenues generally declining slightly during winter months (namely the first and
fourth fiscal quarters) and over holidays. On a pro-forma basis, adjusted for
the Fleet Acquisition, the Company had approximately 24.9% and 24.4% of its
consolidated revenues in the first and fourth fiscal quarters, respectively, of
1996 and 25.4% and 25.3% of its consolidated revenues in the second and third
fiscal quarters of 1996, respectively. Highway transportation can be adversely
affected depending upon the severity of the weather in various sections of the
country during the winter months. The Company's operating expenses also have
been somewhat higher in the winter months, due primarily to decreased fuel
efficiency and increased maintenance costs of revenue equipment in colder
months. Adjusted for the Fleet Acquisition, in 1996 the Company's average
operating ratio for the first and fourth fiscal quarters was 98.4% compared to
an average operating ratio of 97.1% for the second and third fiscal quarters. No
assurance can be given that the Company will have sufficient working capital or
that borrowings under the New Revolving Credit Facility will be available to
meet shortfalls in the Company's working capital during the winter months as a
result of such seasonality.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Old Notes for resale under the Securities Act. New Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold or otherwise transferred by holders thereof (other than any
such holder which is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act and other than any broker-dealer who purchased Old
Notes directly from the Company for resale pursuant to Rule 144A under the
Securities Act or any other available exemption under the Securities Act)
without compliance with the registration and prospectus delivery provisions of
the Securities Act provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement with any
person to participate in the distribution of
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such Notes. Each broker-dealer that acquired Old Notes for its own account as a
result of market making or other trading activities and that receives New Notes
for its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. The Letter
of Transmittal states that, by so acknowledging and by delivering a prospectus,
a broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the effective date of this Prospectus, it will make
this Prospectus, as it may be amended or supplemented from time to time,
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution." However, to comply with the securities laws of certain
jurisdictions, if applicable, the New Notes may not be offered or sold unless
they have been registered or qualified for sale in such jurisdictions or an
exemption from registration or qualification is available and is complied with.
To the extent that Old Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered and tendered but unaccepted Old Notes will be
adversely affected.
ABSENCE OF PUBLIC MARKET FOR THE NEW NOTES
The New Notes are a new issue of securities, have no established trading
market, and may not be widely distributed. The Company does not intend to list
the New Notes on any national securities exchange or to seek the admission
thereof to trading in The Nasdaq Stock Market. No assurance can be given that an
active public or other market will develop for the New Notes or as to the
liquidity of or the trading market for the New Notes. If a trading market does
not develop or is not maintained, holders of the New Notes may experience
difficulty in reselling the New Notes or may be unable to sell them at all. If a
market for the New Notes develops, any such market may be discontinued at any
time. If a public trading market develops for the New Notes, future trading
prices of the New Notes will depend on many factors, including, among other
things, prevailing interest rates, the Company's results of operations and the
market for similar securities, and the price at which the holders of New Notes
will be able to sell such New Notes is not assured and the New Notes could trade
at a premium or discount to their purchase price or face value. Depending on
prevailing interest rates, the market for similar securities and other facts,
including the financial condition of the Company, the New Notes may trade at a
discount from their principal amount.
ABSENCE OF REGISTRATION UNDER STATE SECURITIES LAWS
The New Notes have not been registered or qualified under any state
securities laws. The Exchange Offer is being made both to U.S. institutional
investors, pursuant to exemptions from such laws for sales to such investors,
and to non-U.S. persons (within the meaning of Regulation S under the Securities
Act), as state securities laws do not apply to sales to persons who are not
residents of any state. In order to acquire the Old Notes, each Holder of Old
Notes was required to represent to the Company that it was either (i) "a
qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act, (ii) an institutional "accredited investor" within the meaning
of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act or
(iii) a non-U.S. person (within the meaning of Regulation S under the Securities
Act). Holders who wish to exchange their Old Notes for New Notes pursuant to the
Exchange Offer will be required to represent to the Company that they remain
institutional investors or non-U.S. persons, as they represented at the time
they acquired their Old Notes. Any Holder who no longer qualifies as such an
institutional investor (e.g., a bank whose charter has been revoked) or who is
no longer a non-U.S. person, as the case may be, will not be entitled to
exchange such Old Notes for New Notes in the Exchange Offer, unless another
state securities law exemption is available. If no such exemption is available,
the Holder will continue to hold the Old Notes, which will continue to be
subject to the restrictions on transfer as set forth in the legend thereon.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by the Company to the Initial Purchasers on June
16, 1997, pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Old Notes in reliance on Rule 144A under the Securities
Act and certain other exemptions under the Securities Act. The Company and the
Initial Purchasers also entered into the Registration Rights Agreement, pursuant
to which the Company agreed, with respect to the Old Notes and subject to the
Company's determination that the Exchange Offer is permitted under applicable
law, to (i) cause to be filed, on or prior to August 15, 1997, a registration
statement with the Commission under the Securities Act concerning the Exchange
Offer, (ii) use its reasonable best efforts to cause such registration statement
to be declared effective by the Commission on or prior to October 14, 1997, and
(iii) to cause the Exchange Offer to remain open for a period of not less than
30 days. This Exchange Offer is intended to satisfy the Company's exchange offer
obligations under the Registration Rights Agreement.
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the conditions set
forth herein and in the accompanying Letter of Transmittal, to exchange $1,000
in principal amount of the New Notes for each $1,000 in principal amount of the
outstanding Old Notes. The Company will accept for exchange any and all Old
Notes that are validly tendered on or prior to 5:00 p.m., New York City time, on
the Expiration Date. Tenders of the Old Notes may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Offer is
not conditioned upon any minimum principal amount of Old Notes being tendered
for exchange. However, the Exchange Offer is subject to the conditions, terms
and provisions of the Registration Rights Agreement. The form and terms of the
New Notes will be identical in all material respects to the form and terms of
the Old Notes, except that (i) the New Notes have been registered under the
Securities Act and, therefore, will not bear legends restricting the transfer
thereof, (ii) subject to certain limited exceptions, holders of New Notes will
not be entitled to Additional Interest, and (iii) holders of New Notes will not
be, and upon consummation of the Exchange Offer, Eligible Holders of Old Notes
will no longer be, entitled to certain rights under the Registration Rights
Agreement intended for holders of unregistered securities. See "- Conditions of
the Exchange Offer."
Old Notes may be tendered only in multiples of $1,000. Subject to the
foregoing, Holders may tender less than the aggregate principal amount
represented by the Old Notes held by them, provided that they appropriately
indicate this fact on the Letter of Transmittal accompanying the tendered Old
Notes (or so indicate pursuant to the procedures for book-entry transfer).
As of the date of this Prospectus, $100 million in aggregate principal
amount of the Old Notes is outstanding, the maximum amount authorized by the
Indenture for all Notes. As of September 16, 1997, there were three registered
holders of the Old Notes, including Cede, which held $98,750,000 aggregate
principal amount of the Old Notes for its participants. Solely for reasons of
administration (and for no other purpose), the Company has fixed the close of
business on _________ __, 1997, as the record date (the "Record Date") for
purposes of determining the persons to whom this Prospectus and the Letter of
Transmittal will be mailed initially. Only an Eligible Holder of the Old Notes
(or such Eligible Holder's legal representative or attorney-in-fact) may
participate in the Exchange Offer. There will be no fixed record date for
determining Eligible Holders of the Old Notes entitled to participate in the
Exchange Offer. The Company believes that, as of the date of this Prospectus, no
such Eligible Holder is an affiliate (as defined in Rule 405 under the
Securities Act) of the Company.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Eligible
Holders of Old Notes and for the purposes of receiving the New Notes from the
Company.
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If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering Eligible Holder thereof as promptly as
practicable after the Expiration Date.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Expiration Date shall be ____________, 1997 at 5:00 p.m., New York City
time, unless the Company, in its sole discretion, extends the Exchange Offer, in
which case the Expiration Date shall be the latest date and time to which the
Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Such notice and
public announcement shall set forth the new Expiration Date of the Exchange
Offer.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, (ii) to extend the Exchange Offer, (iii) if any of the
conditions set forth below under "Conditions of the Exchange Offer" shall not
have been satisfied, to terminate the Exchange Offer by giving oral or written
notice of such delay, extension, or termination to the Exchange Agent, and (iv)
to amend the terms of the Exchange Offer in any manner. If the Exchange Offer is
amended in a manner determined by the Company to constitute a material change,
the Company will, in accordance with applicable law, file a post-effective
amendment to the registration statement (a "Post-effective Amendment") and
resolicit the registered holders of the Old Notes. If the Company files a
Post-effective Amendment, it will notify the Exchange Agent of an extension of
the Exchange Offer by oral or written notice, and will make a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the effectiveness of such Post-effective Amendment. Such
notice and public announcement shall set forth the new Expiration Date, which
new Expiration Date shall be no less than five days after the then applicable
Expiration Date.
CONDITIONS OF THE EXCHANGE OFFER
The Exchange Offer is not conditioned upon any minimum principal amount of
the Old Notes being tendered for exchange. However, notwithstanding any other
provisions of the Exchange Offer, the Company shall not be required to accept
for exchange, or to issue the New Notes in exchange for, any Old Notes, if the
Exchange Offer violates any applicable law or interpretation of the staff of the
Commission. The Company expects that the foregoing conditions will be satisfied.
TERMINATION OF CERTAIN RIGHTS
The Registration Rights Agreement provides that, subject to certain
exceptions, in the event of a Registration Default (as defined below), Eligible
Holders of Old Notes are entitled to receive Additional Interest. Additional
Interest means the increase in the interest rate borne by Registrable Securities
during the period in which a Registration Default is continuing pursuant to the
terms of the Registration Rights Agreement (in general, one-quarter of one
percent (0.25%) per annum for the first 90-day period immediately after the
first such Registration Default and an additional one-quarter of one percent
(0.25%) per annum for each subsequent 90-day period (up to a maximum aggregate
increase of one percent (1.00%) per annum until all Registration Defaults have
been cured, whereupon the accrual of Additional Interest will cease and the
interest rate on the Old Notes will revert to the original rate). A
"Registration Default" with respect to the Exchange Offer shall generally occur
if: (i) the registration statement concerning the exchange offer (the
"Registration Statement") has not been filed with the Commission on or prior to
August 15, 1997; (ii) the Registration Statement is not declared effective on or
prior to October 14, 1997, or (iii) the Company fails to issue New Notes in
exchange for all Old Notes properly tendered and not withdrawn in the Exchange
Offer on or prior to November 13, 1997. Holders of New Notes will not be and,
upon consummation of the Exchange
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Offer, Holders of Old Notes will no longer be, entitled to (i) the right to
receive Additional Interest, except in certain limited circumstances, and (ii)
certain other rights under the Registration Rights Agreement intended for
holders of Registrable Securities. The Exchange Offer shall be deemed
consummated upon the occurrence of the delivery by the Company to the Registrar
under the Indenture of New Notes in the same aggregate principal amount as the
aggregate principal amount of Old Notes that are validly tendered by holders
thereof pursuant to the Exchange Offer.
ACCRUED INTEREST ON THE OLD NOTES
The New Notes will bear interest at a rate equal to 10 3/8% per annum from
and including their date of issuance. Eligible Holders whose Old Notes are
accepted for exchange will have the right to receive interest accrued thereon
from the date of their original issuance or the last Interest Payment Date, as
applicable, to, but not including, the date of issuance of the New Notes, such
interest to be payable with the first interest payment on the New Notes.
Interest on the Old Notes accepted for exchange, which interest accrued at the
rate of 10 3/8% per annum, will cease to accrue on the day prior to the issuance
of the New Notes. See "Description of New Notes - General."
PROCEDURES FOR TENDERING OLD NOTES
The tender of an Eligible Holder's Old Notes as set forth below and the
acceptance thereof by the Company will constitute a binding agreement between
the tendering Eligible Holder and the Company upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, an Eligible Holder who wishes to tender
Old Notes for exchange pursuant to the Exchange Offer must transmit such Old
Notes, together with a properly completed and duly executed Letter of
Transmittal, including all other documents required by such Letter of
Transmittal, to the Exchange Agent at the address set forth on the back cover
page of this Prospectus prior to 5:00 p.m., New York City time, on the
Expiration Date. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE ELIGIBLE HOLDER.
IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. INSTEAD OF DELIVERY BY MAIL, IT
IS RECOMMENDED THAT THE ELIGIBLE HOLDER USE AN OVERNIGHT OR HAND DELIVERY
SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant hereto are tendered (i) by a registered holder of the Old Notes who has
not completed either the box entitled "Special Exchange Instructions" or the box
entitled "Special Delivery Instructions" in the Letter of Transmittal or (ii) by
an Eligible Institution (as defined). In the event that a signature on a Letter
of Transmittal or a notice of withdrawal, as the case may be, is required to be
guaranteed, such guarantee must be by a firm which is a member of a registered
national securities exchange or The Nasdaq Stock Market, a commercial bank or
trust company having an office or correspondent in the United States or
otherwise be an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (collectively, "Eligible Institutions"). If the
Letter of Transmittal is signed by a person other than the registered holder of
the Old Notes, the Old Notes surrendered for exchange must either (i) be
endorsed by the registered holder, with the signature thereon guaranteed by an
Eligible Institution or (ii) be accompanied by a bond power, in satisfactory
form as determined by the Company in its sole discretion, duly executed by the
registered holder, with the signature thereon guaranteed by an Eligible
Institution. The term "registered holder" as used herein with respect to the Old
Notes means any person in whose name the Old Notes are registered on the books
of the Registrar.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Old Notes tendered for exchange will be
determined by the Company in its sole
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discretion, which determination shall be final and binding. The Company reserves
the absolute right to reject any and all Old Notes not properly tendered and to
reject any Old Notes the Company's acceptance of which might, in the judgment of
the Company or its counsel, be unlawful. The Company also reserves the absolute
right to waive any defects or irregularities or conditions of the Exchange Offer
as to particular Old Notes either before or after the Expiration Date (including
the right to waive the ineligibility of any holder who seeks to tender Old Notes
in the Exchange Offer). The interpretation of the terms and conditions of the
Exchange Offer (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such period of time as the Company shall
determine. The Company will use reasonable efforts to give notification of
defects or irregularities with respect to tenders of Old Notes for exchange but
shall not incur any liability for failure to give such notification. Tenders of
the Old Notes will not be deemed to have been made until such irregularities
have been cured or waived.
If any Letter of Transmittal, endorsement, bond power, power of attorney or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and, unless waived by the
Company, proper evidence satisfactory to the Company, in its sole discretion, of
such person's authority to so act must be submitted.
Any beneficial owner of the Old Notes (a "Beneficial Owner") whose Old
Notes are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender Old Notes in the Exchange
Offer should contact such registered holder promptly and instruct such
registered holder to tender on such Beneficial Owner's behalf. If such
Beneficial Owner wishes to tender directly, such Beneficial Owner must, prior to
completing and executing the Letter of Transmittal and tendering Old Notes, make
appropriate arrangements to register ownership of the Old Notes in such
Beneficial Owner's name. Beneficial Owners should be aware that the transfer of
registered ownership may take considerable time.
By tendering, each registered holder will represent to the Company that,
among other things (i) the New Notes to be acquired in connection with the
Exchange Offer by the Eligible Holder and each Beneficial Owner of the Old Notes
are being acquired by the Eligible Holder and each Beneficial Owner in the
ordinary course of business of the Eligible Holder and each Beneficial Owner,
(ii) the Eligible Holder and each Beneficial Owner are not participating, do not
intend to participate, and have no arrangement or understanding with any person
to participate, in the distribution of the New Notes, (iii) the Eligible Holder
and each Beneficial Owner acknowledge and agree that any person participating in
the Exchange Offer for the purpose of distributing the New Notes must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction of the New Notes acquired by
such person and cannot rely on the position of the staff of the Commission set
forth in no-action letters that are discussed herein under "Resales of New
Notes," (iv) that if the Eligible Holder is a broker-dealer that acquired Old
Notes as a result of market making or other trading activities, it will deliver
a prospectus in connection with any resale of New Notes acquired in the Exchange
Offer, (v) the Eligible Holder and each Beneficial Owner understand that a
secondary resale transaction described in clause (iii) above should be covered
by an effective registration statement containing the selling security holder
information required by Item 507 of Regulation S-K of the Commission, and (vi)
neither the Eligible Holder nor any Beneficial Owner is an "affiliate," as
defined under Rule 405 of the Securities Act, of the Company except as otherwise
disclosed to the Company in writing. In connection with a book-entry transfer,
each participant will confirm that it makes the representations and warranties
contained in the Letter of Transmittal.
Guaranteed Delivery Procedures. Eligible Holders who wish to tender their
Old Notes and (i) whose Old Notes are not immediately available or (ii) who
cannot deliver their Old Notes or any other documents required by the Letter of
Transmittal to the Exchange Agent prior to the Expiration Date (or complete the
procedure for book-entry transfer on a timely basis), may tender their Old Notes
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according to the guaranteed delivery procedures set forth in the Letter of
Transmittal. Pursuant to such procedures: (i) such tender must be made by or
through an Eligible Institution and a Notice of Guaranteed Delivery (as defined
in the Letter of Transmittal) must be signed by such Eligible Holder, (ii) on or
prior to the Expiration Date, the Exchange Agent must have received from the
Eligible Holder and the Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the Eligible Holder, the
certificate number or numbers of the tendered Old Notes, and the principal
amount of tendered Old Notes, stating that the tender is being made thereby and
guaranteeing that, within three (3) business days after the date of delivery of
the Notice of Guaranteed Delivery, the tendered Old Notes, a duly executed
Letter of Transmittal and any other required documents will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) such properly completed
and executed documents required by the Letter of Transmittal and the tendered
Old Notes in proper form for transfer (or confirmation of a book-entry transfer
of such Old Notes into the Exchange Agent's account at DTC) must be received by
the Exchange Agent within three (3) business days after the Expiration Date. Any
Eligible Holder who wishes to tender Old Notes pursuant to the guaranteed
delivery procedures described above must ensure that the Exchange Agent receives
the Notice of Guaranteed Delivery and Letter of Transmittal relating to such Old
Notes prior to 5:00 p.m., New York City time, on the Expiration Date.
Book-Entry Delivery. The Exchange Agent will establish an account with
respect to the Old Notes at the DTC ("Book-Entry Transfer Facility") for
purposes of the Exchange Offer promptly after the date of this Prospectus. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of the Old Notes by causing such
facility to transfer Old Notes into the Exchange Agent's account in accordance
with such facility's procedure for such transfer. Even though delivery of Old
Notes may be effected through book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility, a properly completed and duly
executed Letter of Transmittal (or a manually signed facsimile thereof), with
any required signature guarantees, or an Agent's Message (as defined below) in
connection with a book-entry transfer, and other documents required by the
Letter of Transmittal, must, in any case, be transmitted to and received by the
Exchange Agent at one of its addresses set forth on the back cover of this
Prospectus before the Expiration Date, or the guaranteed delivery procedure set
forth above must be followed. Delivery of the Letter of Transmittal and any
other required documents to the Book-Entry Transfer Facility does not constitute
delivery to the Exchange Agent. The term "Agent's Message" means a message
transmitted by the Book-Entry Transfer Facility to, and received by, the
Exchange Agent and forming a part of a book-entry confirmation, which states
that such Book-Entry Transfer Facility has received an express acknowledgment
from the participant in such Book-Entry Transfer Facility tendering the Old
Notes that such participant has received and agrees to be bound by the terms of
the Letter of Transmittal and that the Company may enforce such agreement
against such participant.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all the conditions to the Exchange Offer,
the Company will accept any and all Old Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date.
The New Notes issued pursuant to the Exchange Offer will be delivered as soon as
practicable after acceptance of the Old Notes. For purposes of the Exchange
Offer, the Company shall be deemed to have accepted validly tendered Old Notes,
when, as, and if the Company has given oral or written notice thereof to the
Exchange Agent.
In all cases, issuances of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of such Old Notes, a properly completed and duly executed
Letter of Transmittal and all other required documents (or of confirmation of a
book-entry transfer of such Old Notes into the Exchange Agent's account at DTC);
provided, however, that the Company reserves the absolute right to waive any
defects or irregularities in the tender or conditions of the Exchange Offer. If
any tendered Old Notes are not accepted for any
24
<PAGE>
reason, such unaccepted Old Notes will be returned without expense to the
tendering Eligible Holder thereof as promptly as practicable after the
expiration or termination of the Exchange Offer.
WITHDRAWAL RIGHTS
Tenders of the Old Notes may be withdrawn by delivery of a written notice
to the Exchange Agent, at its address set forth on the back cover page of this
Prospectus, at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes, as applicable), (iii) be signed
by the Eligible Holder in the same manner as the original signature on the
Letter of Transmittal by which such Old Notes were tendered (including any
required signature guarantees) or be accompanied by a bond power in the name of
the person withdrawing the tender, in satisfactory form as determined by the
Company in its sole discretion, duly executed by the registered holder, with the
signature thereon guaranteed by an Eligible Institution together with the other
documents required upon transfer by the Indenture, and (iv) specify the name in
which such Old Notes are to be re-registered, if different from the Depositor,
pursuant to such documents of transfer. Any questions as to the validity, form
and eligibility (including time of receipt) of such notices will be determined
by the Company, in its sole discretion. The Old Notes so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer. Any Old Notes which have been tendered for exchange but which
are withdrawn will be returned to the Eligible Holder thereof without cost to
such Eligible Holder as soon as practicable after withdrawal. Properly withdrawn
Old Notes may be retendered by following one of the procedures described under
"The Exchange Offer - Procedures for Tendering Old Notes" at any time on or
prior to the Expiration Date.
THE EXCHANGE AGENT; ASSISTANCE
First Union National Bank is the Exchange Agent. All tendered Old Notes,
executed Letters of Transmittal and other related documents should be directed
to the Exchange Agent. Questions and requests for assistance and requests for
additional copies of the Prospectus, the Letter of Transmittal and other related
documents should be addressed to the Exchange Agent as follows:
<TABLE>
<S> <C> <C>
By Mail: By Hand/Overnight Express: Facsimile Transmission:
First Union National Bank First Union National Bank (704) 590-7628
1525 West W. T. Harris Blvd. 3C3 1525 West W. T. Harris Blvd. 3C3
Charlotte, North Carolina 28288 Charlotte, North Carolina 28288 To confirm receipt:
Attention: Michael Klotz Attention: Michael Klotz (704) 590-7408
</TABLE>
SOLICITATION OF TENDERS; FEES AND EXPENSES
No person has been authorized to give any information or to make any
representation in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will offers be
accepted from or on behalf of) holders of Notes in any jurisdiction in which the
making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Company may, at its
discretion, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to holders of Notes in
such jurisdiction.
All expenses incident to the Company's consummation of the Exchange Offer
and compliance with the Registration Rights Agreement will be borne by the
Company, including, without limitation:
25
<PAGE>
(i) all registration and filing fees (including, without limitation, fees and
expenses of compliance with state securities or Blue Sky laws), (ii) printing
expenses (including, without limitation, expenses of printing certificates for
the New Notes in a form eligible for deposit with DTC and of printing
Prospectuses), (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company, (v) fees and disbursements of
independent certified public accountants, (vi) rating agency fees, (vii)
internal expenses of the Company (including, without limitation, all salaries
and expenses of officers and employees of the Company performing legal or
accounting duties), and (viii) fees and expenses incurred in connection with the
listing, if any, of the New Notes on a securities exchange.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptance of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss will be recognized by the Company for accounting
purposes upon the exchange of New Notes for Old Notes. The expenses of the
Exchange Offer will be amortized over the term of the New Notes.
RESALES OF THE NEW NOTES
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that the New
Notes issued pursuant to the Exchange Offer to an Eligible Holder in exchange
for Old Notes may be offered for resale, resold and otherwise transferred by
such Eligible Holder (other than (i) a broker-dealer who purchased Old Notes
directly from the Company for resale pursuant to Rule 144A under the Securities
Act or any other available exemption under the Securities Act, or (ii) a person
that is an affiliate of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that the Eligible Holder is acquiring
the New Notes in the ordinary course of business and is not participating, and
has no arrangement or understanding with any person to participate, in the
distribution of the New Notes. The Company has not requested or obtained an
interpretive letter from the Commission staff with respect to this Exchange
Offer, and the Company and the Eligible Holders are not entitled to rely on
interpretive advice provided by the staff to other persons, which advice was
based on the facts and conditions represented in such letters. However, the
Exchange Offer is being conducted in a manner intended to be consistent with the
facts and conditions represented in such letters. If any Eligible Holder
acquires New Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the New Notes, such Eligible Holder cannot
rely on the position of the staff of the Commission enunciated in Morgan Stanley
& Co., Incorporated (available June 5, 1991) and Exxon Capital Holdings
Corporation (available May 13, 1988), or interpreted in the Commission's letters
to Shearman and Sterling (available July 2, 1993) and K-III Communications
Corporation (available May 14, 1993), or similar no-action or interpretive
letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction, unless an exemption from registration is otherwise available. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such broker-dealer as a result of
market making or other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of such New Notes. The Company has
agreed that for a period of 180 days after the effective date of this
Prospectus, it will make this Prospectus, as amended and supplemented, available
to any broker-dealer who receives New Notes in the Exchange Offer for use in
connection with any such resale. See "Plan of Distribution."
26
<PAGE>
CONSEQUENCE OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the offer or sale of the Old Notes pursuant to an exemption from,
or in a transaction not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under the Securities Act, except
pursuant to an exception from, or in a transaction not subject to, the
Securities Act and applicable states securities laws. The Company does not
currently anticipate that it will register the Old Notes under the Securities
Act. See "Risk Factors - Consequences of Failure to Exchange."
OTHER
Participation in the Exchange Offer is voluntary, and holders of Old Notes
should carefully consider whether to participate. Holders of the Old Notes are
urged to consult their financial and tax advisers in making their own decisions
on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of, this Exchange Offer, the
Company will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of Old Notes who do not tender their Old Notes in the
Exchange Offer will continue to hold such Notes and will be entitled to all the
rights, and limitations applicable thereto, under the Indenture, except for any
such rights under the Registration Rights Agreement that by their terms
terminate or cease to have further effectiveness as a result of the making of
this Exchange Offer. See "Description of New Notes." All untendered Old Notes
will continue to be subject to the restrictions on transfer set forth in the
Indenture. To the extent that Old Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered Old Notes could be adversely
affected.
The Company may in the future seek to acquire untendered Old Notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. The Company has no present plan to acquire any Old Notes which are
not tendered in the Exchange Offer.
27
<PAGE>
CAPITALIZATION
The following table sets forth the Company's short-term debt and
capitalization as of June 29, 1997 on an actual basis. This table should be read
in conjunction with the consolidated financial statements of the Company and the
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 29, 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Short-term debt:
Current maturities of long-term debt...................... $ 638(c)
Current maturities of equipment obligations............... --
--------
Total short-term debt....................................... $ 638(c)
--------
--------
Long-term debt (excluding current maturities) (a):
Existing revolving credit debt............................ $ --
New Revolving Credit Facility (b)......................... --
Mortgage debt............................................. --
Long-term equipment obligations and capital leases........ 1,564(c)
Notes offered hereby...................................... 100,000
--------
Total long-term debt........................................ 101,564
--------
Redeemable preferred stock (d).............................. 5,318
Stockholders' equity (e).................................... 13,153
--------
Total capitalization........................................ $120,673
--------
--------
</TABLE>
- ------------------
(a) The Company has an accounts receivable securitization facility in the amount
of $28 million with an effective interest rate of LIBOR plus .80%, which was
accounted for as an off-balance sheet item as of March 30, 1997 pursuant to
Statement of Financial Accounting Standards No. 125. Prior to March 30,
1997, this facility was accounted for as long-term debt and the related
interest as interest expense. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
(b) The New Revolving Credit Facility provides for revolving credit loans of up
to $20 million, has an initial term of three years, will be secured by $25
million of revenue equipment to be held by Chemical Leaman Corporation and
has an interest rate of the prime rate plus 1/2% or LIBOR plus 1.80%. The
New Revolving Credit Facility will be undrawn at the time of the
consummation of the Offering, except for stand-by letters of credit in the
amount of $3.9 million which will be carried forward from one of the
Company's existing revolving credit facilities. See "New Revolving Credit
Facility."
(c) Relates to capital lease obligations which were not repaid in connection
with the Offering.
(d) The Company has three issues of Preferred Stock outstanding. The Company's
Series A Preferred Stock is redeemable at the option of the holders thereof
after August 1, 2002 at stated value of $2.6 million plus accrued and unpaid
dividends and is redeemable at the option of the Company at a premium at any
time after issuance. The Company's Series B Cumulative Convertible Preferred
Stock is redeemable at the option of the Company or the holders thereof, in
each case after May 2006 at stated value of $900,000 plus accrued and unpaid
dividends. The Company's Series C Cumulative Preferred Stock is redeemable
at the option of the holders thereof after May 2006 or at the option of the
Company at any time after issuance, in each case at stated value of $1.8
million plus accrued and unpaid dividends.
(e) In connection with the repayment of indebtedness with the proceeds of the
Offering, the Company incurred approximately $199,000 of prepayment
penalties net of tax benefit, which was recorded as an extraordinary item in
the quarter ended June 29, 1997.
28
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
periods indicated. The selected consolidated financial data as of and for the
years ended December 31, 1992 and 1993 have been derived from the Company's
audited consolidated financial statements not included herein. The selected
consolidated financial data as of and for the years ended December 31, 1994,
1995, 1996, and as of June 29, 1997 and for the six month period then ended have
been derived from the Company's audited consolidated financial statements, which
are included in this Prospectus. The selected consolidated financial data as of
June 30, 1996 and for the six month period ended June 30, 1996 have been derived
from the Company's unaudited consolidated financial statements included herein.
The selected consolidated financial data as of June 30, 1996 has been derived
from the Company's unaudited consolidated financial statements not included
herein. The unaudited consolidated financial statements have been prepared on
the same basis as the audited consolidated financial statements included herein
and, in the opinion of management, include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the Company's
financial position and results of operations for the unaudited periods.
Operating results for the six months ended June 29, 1997 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997. The selected consolidated financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited consolidated financial statements and the notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, --------------------
-------------------------------------------------------- JUNE 30, JUNE 29,
1992 1993 1994 1995 1996(A) 1996 1997
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues $232,619 $231,190 $241,443 $245,706 $281,075 $127,612 $156,545
Operating expenses:
Purchased transportation................... 74,582 77,985 85,470 98,903 122,635 54,542 69,131
Salaries, wages and benefits............... 72,762 71,507 71,499 63,546 67,737 32,531 34,947
Depreciation and amortization.............. 12,704 11,320 11,783 13,731 16,255 7,173 9,336
Operations and maintenance................. 49,979 50,304 52,768 50,240 52,924 22,696 32,158
Taxes and licenses......................... 5,868 4,600 2,829 2,755 2,613 1,175 1,457
Insurance and claims....................... 5,129 5,334 4,870 3,483 4,766 2,015 4,402
Communication and utilities................ 5,028 4,889 5,417 6,056 7,213 3,594 3,320
Loss (gain) on disposition of revenue
equipment, net........................... (81) 118 (6) 573 290 141 45
-------- -------- -------- -------- -------- -------- --------
Total operating expenses................. 225,971 226,057 234,630 239,287 274,433 123,867 154,796
Operating income (loss) 6,648 5,133 6,813 6,419 6,642 3,745 1,749
Other (income) expense
Interest expense........................... 4,278 4,016 4,946 5,978 7,553 3,092 4,515
Other (income) expense, net................ 277 207 92 (110) (795) (11) 165
-------- -------- -------- -------- -------- -------- --------
Income (loss) before taxes................... 2,093 910 1,775 551 (116) 664 (2,931)
Provision (benefit) for income taxes......... 430 227 710 220 46 333 (1,223)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary item...... 1,663 683 1,065 331 (162) 331 (1,708)
-------- -------- -------- -------- -------- -------- --------
Extraordinary loss on early extinguishment of
debt less applicable income taxes of
$133(h).................................... -- -- -- -- -- -- (199)
-------- -------- -------- -------- -------- -------- --------
Net income (loss)............................ $ 1,663 $ 683 $ 1,065 $ 331 $ (162) $ 331 $ (1,907)
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
OTHER FINANCIAL DATA:
EBITDA (b)................................... $ 19,352 $ 16,453 $ 18,596 $ 20,150 $ 22,897 $ 10,918 $ 12,585
EBITDA margin (c)............................ 8.3% 7.1% 7.7% 8.2% 8.2% 8.6% 8.0%
Cash flows provided by (used in) operating
activities................................. 5,992 11,197 16,567 17,444 4,677 21 (3,519)
Cash flows (used in) investing activities.... (9,855) (9,892) (18,755) (10,490) (34,273) (23,981) (10,255)
Cash flows provided by (used in) financing
activities................................. 3,465 6,994 4,120 (9,444) 26,861 23,632 22,709
Capital expenditures (d)..................... 11,637 12,050 20,747 13,270 20,020 9,863 11,006
Ratio of EBITDA to interest expense.......... 4.5x 4.1x 3.8x 3.4x 3.0x 3.5x 2.8x
Ratio of earnings to fixed charges (e)....... 1.42 1.19 1.32 1.08 -- 1.19 --
</TABLE>
(continued on following page)
29
<PAGE>
(continued from previous page)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, --------------------
-------------------------------------------------------- JUNE 30, JUNE 29,
1992 1993 1994 1995 1996(A) 1996 1997
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Tractors operated
Company.................................... 726 616 576 414 561 582 491
Owner-Operators (f)........................ 735 774 969 954 1,194 1,248 1,322
-------- -------- -------- -------- -------- -------- --------
Total tractors........................... 1,461 1,390 1,545 1,368 1,755 1,830 1,813
Drivers
Company employees.......................... 760 589 538 405 473 515 475
Owner-Operators (f)........................ 889 844 1,057 1,117 1,277 1,305 1,430
-------- -------- -------- -------- -------- -------- --------
Total drivers.............................. 1,649 1,433 1,595 1,522 1,750 1,820 1,905
Trailers..................................... 2,666 2,438 2,869 2,645 3,502 3,450 3,433
Terminals.................................... 65 65 61 66 105 105 105
Total loaded miles traveled (000's).......... 105,901 104,913 105,443 110,223 126,802 56,048 68,371
Average revenue per mile..................... $ 1.85 $ 1.83 $ 1.87 $ 1.81 $ 1.78 $ 1.77 $ 1.78
Average length of haul (miles)............... 444 456 450 463 455 487 429
Number of tank cleaning facilities........... 28 26 27 27 29 30 30
BALANCE SHEET DATA:
Working capital.............................. $ 10,641 $ 16,697 $ 12,886 $ 10,732 $ 12,426 $ 12,757 $ 8,825
Property and equipment, net.................. 59,698 59,153 74,869 76,771 108,789 106,634 110,637
Total assets................................. 111,603 127,176 146,536 136,405 182,544 180,534 177,528
Long-term debt, including current portion
(g)........................................ 43,267 53,386 69,223 67,821 109,024 105,083 102,202
Redeemable preferred stock................... 2,600 2,600 2,600 2,600 5,318 5,318 5,318
Stockholders' equity (h)..................... 24,017 22,917 20,245 19,779 15,723 16,334 13,153
</TABLE>
- ------------------
(a) Includes the results of Fleet from June 28, 1996, the date of the
acquisition.
(b) EBITDA represents operating income (loss) for the respective period plus
depreciation and amortization. For the first six months of 1997, a $1.5
million one-time charge was incurred relating to a self-insurance deductible
and has been added back in the calculation of EBITDA. EBITDA is presented to
provide additional information about the Company's ability to meet its
future debt service, capital expenditure and working capital requirements.
EBITDA is not a measure of financial performance under GAAP and should not
be considered as an alternative either to net income as an indicator of the
Company's operating performance, or to cash flows as a measure of the
Company's liquidity.
(c) EBITDA margin is defined as EBITDA as a percentage of revenues.
(d) Capital expenditures for 1996 and for the six months ended June 30, 1996
consist of $6.2 million and $4.6 million, respectively, for the Company's
new information technology system and $13.8 million and $5.3 million,
respectively, for the acquisition of new trailers and capitalized repairs to
existing trailers.
(e) Calculated as the ratio of the sum of income (loss) before income taxes and
fixed charges to fixed charges. Fixed charges consist of interest expense,
preferred stock dividends, deferred finance expense, minority interest
expense, capitalized interest expense and that portion of operating lease
expense representative of the interest factor (deemed to be one-third of
operating lease expense). Earnings were insufficient to cover fixed charges
by $116,000 for the year ended December 31, 1996 and $2,931,000 for the six
months ended June 29, 1997. For the periods presented, the Company had no
deferred finance expense, minority interest expense or capitalized interest
expense.
(f) The Company utilizes the services of owner-operators, who are independent
contractors and provide their own tractors and pay for their own operating
expenses.
(g) The Company has an accounts receivable securitization facility in the amount
of $28 million with an effective rate of interest of LIBOR plus .80%, which
is accounted for as an off-balance sheet item as of June 29, 1997 pursuant
to Statement of Financial Accounting Standards No. 125. Prior to March 30,
1997, this facility was accounted for as long-term debt. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
(h) In connection with the repayment of indebtedness with the proceeds of the
Offering, the Company incurred approximately $199,000 of prepayment
penalties net of tax benefit, which was recorded as an extraordinary item in
the quarter ended June 29, 1997.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Chemical Leaman is the largest tank truck carrier in the U.S. based on
revenues, with a nationwide network of 105 terminals and 30 tank cleaning
facilities as of June 29, 1997. At that date, the Company's fleet consisted of
1,813 tractors and 3,433 specialized trailers. The Company offers a full range
of specialized transportation services, including short and long-haul
transportation, intermodal services, materials handling and third-party
logistics, principally to the chemical industry. As a result, the Company's
operating results are affected by the level of overall chemical output and, in
particular, the level of shipments in the liquid chemical and dry bulk commodity
industries. The Company's customer base includes many of the major chemical
producers in the U.S., such as Dow Chemical North America, E.I. DuPont de
Nemours Co., Air Products and Chemicals, Inc., AlliedSignal, Inc. and Union
Carbide Corporation.
In 1996, approximately 91% of the Company's revenues were derived from
short and long-haul transportation and materials handling, while approximately
9% were derived from tank cleaning and intermodal services. The Company operates
30 tank cleaning facilities throughout the U.S., which not only support the
Company's trucking operations, but also provide tank cleaning services for other
tank truck carriers. In 1996, the Company generated $17.7 million in revenues
from tank cleaning services provided to non-affiliated companies. The Company is
marketing its tank cleaning capabilities to third-party carriers with the
objective of increasing tank cleaning revenues, which result in higher operating
margins than the Company's tank truck operations.
Over the last three years, the Company has continued to focus on shifting
its driver force from Company-employed drivers to owner-operator drivers. At
June 29, 1997 the number of owner-operators was 1,430, as compared to 889 at
December 31, 1992. Because owner-operators are required to provide their own
tractors and pay all expenses associated with their tractors, this shift has
resulted in a steady decline in the level of certain operating expenses as a
percentage of revenues, including salaries, wages, benefits, maintenance, fuel
and insurance. At the same time, purchased transportation and rents have
correspondingly increased as a percentage of revenues. In addition to reducing
the Company's fixed cost structure, the shift from Company-employed drivers to
owner-operators provides the Company with added operating and financial
flexibility.
The Company's strong safety record has enabled the Company to recently
reset its automobile, general and excess liability coverages at an annual
savings of $600,000 commencing in 1997. In addition, the Company improved its
insurance liability coverages, including a reduction in deductible limits per
occurrence from $2 million to $1 million and a reduction in annual aggregate
deductible limits from $9.0 million to $5.5 million, in each case for
occurrences after March 30, 1997.
The Company's exposure to fuel price increases is minimal as most contracts
include fuel price escalation clauses. In addition, the Company's extensive use
of owner-operators further minimizes fuel cost risk as the cost of fuel is borne
by each individual owner-operator. Accordingly, the Company does not participate
in any fuel hedging activities.
The Company acquired the assets of Fleet in June 1996, adding 30 terminal
locations, 762 trailers and 440 tractors (including 264 owner-operator
tractors). The purchase price of $22.9 million consisted of $15.5 million in
cash and the assumption of $7.4 million of capital lease obligations. The Fleet
acquisition provides the Company with a strong presence in the southeastern U.S.
and adds customers with little or no overlap with the Company's existing
customer base. During the last six months of 1996 and the first six months of
1997, Fleet generated $27.5 million and $29.8 million in revenues. The Fleet
acquisition provides the opportunity for cost savings associated with Fleet's
operations by taking advantage of the Company's vertically integrated
capabilities such as tank cleaning and independent contractor services and by
consolidating certain Fleet and CLTL terminals which are located in close
proximity to one another. Additionally, the Company has realized significant
insurance savings as a result of adding Fleet to its existing insurance programs
at no increase in premium.
31
<PAGE>
The Company's new information technology system will provide the Company
with a new order entry system, enhanced order tracking and continuous
communication with drivers via satellite. The new system is expected to be fully
implemented in the first quarter of 1998 and provide productivity and cost
benefits to the Company. The Company has capitalized $11 million of costs as of
June 29, 1997 in connection with this system. These costs will be depreciated
over seven years upon completion of certain of the phases of the project. See
Note 2 of "Notes to Consolidated Financial Statements."
The Company owns property in Bridgeport, New Jersey which has been
designated a Superfund site by the U.S. Environmental Protection Agency. The
Company has certain obligations for the remediation of environmental
contamination at this site. In 1993, the Company obtained a judgment in the U.S.
District Court for the District of New Jersey against its insurers for recovery
of its costs incurred in connection with this remediation effort. In June 1996,
the U.S. Court of Appeals for the Third Circuit affirmed the U.S. District
Court's judgment in favor of the Company in all material respects and remanded
the matter to the District Court for the reallocation of liability among
applicable policies. In November 1996, the U.S. Supreme Court denied the
insurers' petition to review the Court of Appeals' decision, resulting in a
non-appealable judgment against the insurers. The Company has capitalized all of
the costs in connection with the Bridgeport site, which totaled $14.1 million at
June 29, 1997, as these amounts are expected to be recovered from the Company's
insurers. See "Business - Environmental Matters" and Note 11 of "Notes to
Consolidated Financial Statements."
RESULTS OF OPERATIONS
The following table sets forth revenues and expenses as a percentage of
revenues for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 -------------------
--------------------------- JUNE 30, JUNE 29,
1994 1995 1996 1996 1997
---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C>
Total Operating Revenues.............. 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Purchased transportation & rents.... 35.4 40.3 43.6 42.7 44.2
Salaries, wages and benefits........ 29.6 25.9 24.1 25.5 22.3
Depreciation and amortization....... 4.9 5.6 5.8 5.6 6.0
Operations and maintenance.......... 21.9 20.4 18.8 17.8 20.5
Taxes and licenses.................. 1.2 1.1 .9 .9 .9
Insurance and claims................ 2.0 1.4 1.7 1.6 2.8(a)
Communications & utilities.......... 2.2 2.5 2.6 2.8 2.1
Loss (gain) on disposition of
revenue equipment, net........... -- .2 .1 .1 .1
----- ----- ----- ----- -----
Total operating expenses...... 97.2 97.4 97.6 97.0 98.9
</TABLE>
- ------------------
(a) Includes a one-time charge of $1.5 million (1.0% of revenues) relating to a
self-insurance deductible.
SIX MONTHS ENDED JUNE 29, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Operating Revenues. Operating revenues increased by $28.9 million from
$127.6 million in the first six months of 1996 to $156.5 million in the first
six months of 1997. Of this increase, $29.8 million resulted from the
acquisition of Fleet, partially offset by a decline of $0.9 million from
existing operations. Average revenue per mile increased from $1.77 in the first
six months of 1996 to $1.78 in the first six months of 1997, while average
length of haul was 429 miles for the first six months of 1997 as compared to 487
miles for the first six months of 1996. This reduction in length of haul is
attributable to the acquisition of Fleet, which typically hauls shorter
distances than CLTL as a result of its regional focus. In the first six months
of 1997, short and long-haul transportation accounted for 92% of revenues while
tank cleaning and intermodal services accounted for 8%, consistent with the
first six months of 1996.
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Operating Expenses. Operating expenses totaled $154.8 million in the first
six months of 1997 as compared to $123.9 million in the first six months of
1996, an increase of $30.9 million. Of this increased amount, $29.3 million was
attributable to the Fleet acquisition. The balance of the increase is
attributable to a one-time charge of $1.5 million for an insurance claim for
personal injury arising from a trucking accident. Operating expenses as a
percentage of revenue increased from 97.1% for the first six months of 1996 to
98.9% for the first six months of 1997. This increase in operating expenses of
1.8% of revenue was primarily attributable to increases in operations and
maintenance expense and insurance and claims expense, offset by decreases in
salaries, wages and benefits expense and decreases in communications and
utilities expense.
Interest Expense. Interest expense increased from $3.1 million, or 2.4% of
revenues, in the first six months of 1996 to $4.5 million, or 2.9% of revenues,
in the first six months of 1997. The increase in net interest expense is
attributable to the additional debt incurred in connection with the Fleet
acquisition.
Net Income (Loss). The net loss in the first six months of 1997 was
attributable to the one-time insurance charge of $1.5 million, increased
interest, depreciation and operating lease expense in connection with the Fleet
acquisition.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Operating Revenues. Operating revenues increased by $35.4 million or 14.4%
to $281.1 million in 1996 from $245.7 million in 1995. Of this increase, $27.5
million primarily resulted from the inclusion of six months of revenues of
Fleet, which was acquired in June 1996. The balance of the increase of revenues
in 1996 of $7.9 million came from internal growth. Average revenue per mile
decreased from $1.81 per mile in 1995, to $1.78 per mile in 1996, as a result of
downward pricing pressure from the Company's chemical producing customers.
Average length of haul decreased from 463 miles in 1995 to 455 miles in 1996
largely due to the acquisition of Fleet, which typically has a shorter length of
haul given its regional focus. Despite the decrease in average revenue per mile
and average length of haul, total miles traveled increased 16.6 million in 1996
to 126.8 million from 110.2 miles in 1995. In addition, tank cleaning revenues
increased approximately $3.2 million in 1996 to $17.7 million from $14.5
million. In 1996, short and long-haul transportation accounted for 91.4% of
revenues while tank cleaning and intermodal services accounted for 8.6%. In
1995, 92.8% of revenues were derived from transportation services and 7.2% were
derived from tank cleaning and intermodal services.
Operating Expenses. Operating expenses increased by $35.1 million, from
$239.3 million in 1995 to $274.4 million in 1996. This increase is attributable
to the inclusion of the operating expenses of Fleet for the last half of 1996 as
well as increased fuel costs. Fleet's operating expenses as a percentage of
revenues are higher than the Company's taken as a whole as Fleet utilizes
operating leases to finance a substantial portion of its revenue equipment. The
Fleet depreciation and operating lease expense together with Company-wide
increased fuel costs caused total operating expenses as a percentage of revenue
to increase to 97.6% in 1996 as compared to 97.4% in 1995. Salaries, wages and
benefits declined as a percentage of revenue, while purchased transportation and
rents increased, reflecting an increase in the number of owner-operator drivers
relative to employee drivers. Depreciation expense increased from $13.7 million
in 1995 to $16.2 million in 1996. Of this increase, $1.8 million is attributable
to the Fleet acquisition and the balance results from a higher level of revenue
equipment in 1996 as compared to 1995 levels. Depreciation expense as a
percentage of revenue remained relatively constant at 5.8% in 1996 and 5.6% in
1995. Insurance and claims expense was $4.8 million in 1996, representing an
increase of $1.3 million as compared to 1995 levels. Insurance and claims as a
percentage of revenue increased from 1.4% in 1995 to 1.7% in 1996. These
increases are attributable to the Fleet acquisition as well as additional
expense associated with an insurance claim.
Interest Expense. Interest expense increased from $6.0 million in 1995 to
$7.6 million in 1996, increasing from 2.4% of revenues in 1995 to 2.7% of
revenues in 1996. The Company received insurance settlement proceeds of $11.5
million in late 1995, which were applied to reduce outstanding
33
<PAGE>
revolving credit debt. The increase in 1996 is the result of new borrowings and
debt incurred in connection with the Fleet acquisition.
Net Income (Loss). The Company had a net loss of $162,000 in 1996 as
compared to net income of $331,000 in 1995. The net loss in 1996 reflects the
increased depreciation, operating lease expense and interest expense resulting
from the Fleet acquisition, increased fuel costs and a slight reduction of
revenue per mile. In 1996, the Company recorded tax expense of $46,000 despite a
pre-tax loss due to state taxes and certain non-deductible expenses. This
compares to a 40% effective tax rate for 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Operating Revenue. Revenues increased by $4.3 million, or 1.8%, from
$241.4 million in 1994 to $245.7 million in 1995, all of which resulted from
internal growth as the Company expanded its relationships with its major
customers. In 1995, 92.8% of the Company's revenues were generated by short and
long-haul transportation and 7.2% were generated by tank cleaning and intermodal
services. In 1994, transportation services accounted for 93.4% of the Company's
revenues and tank cleaning and intermodal services accounted for 6.6%.
Operating Expense. Operating expenses increased from $234.6 million in
1994 to $239.3 million in 1995. However, operating expenses as a percentage of
revenue remained relatively stable at 97.2% and 97.4% in 1994 and 1995,
respectively.
Interest Expense. Interest expense increased from $5.0 million in 1994 to
$6.0 million in 1995 as the average balance of funded debt was higher in 1995
than in 1994.
Net Income. Income before tax was $551,000 in 1995, representing a decline
of $1.2 million from the 1994 level. This decline is a result of higher
depreciation and interest expense in 1995. After giving effect to income taxes,
the Company reported net income of $331,000 and $1.1 million in 1995 and 1994,
respectively. The Company's effective income tax rate of 40% in 1995 was
consistent with the 1994 level.
LIQUIDITY AND CAPITAL RESOURCES
Following the Offering, the Company's primary source of liquidity will be
cash flows from operations and the New Revolving Credit Facility. The New
Revolving Credit Facility provides for revolving credit loans up to $20 million,
has an initial term of three years, is secured by $25 million of revenue
equipment held by Chemical Leaman Corporation and has an interest rate of the
prime rate plus 1/2% or LIBOR plus 1.80%. The New Revolving Credit Facility was
undrawn at the time of the consummation of the Offering, except for standby
letters of credit in the amount of $3.9 million which were carried forward from
one of the Company's existing revolving credit facilities. See "New Revolving
Credit Facility."
The Company used the net proceeds of the Offering to repay substantially
all of its outstanding indebtedness in the amount of $84 million, consisting of
revolving lines of credit, letters of credit, equipment debt obligations,
capital lease obligations and mortgage indebtedness, together with accrued
interest and prepayment penalties. The balance of the net proceeds of the
Offering were retained for working capital and general corporate purposes. The
Company expects that its ongoing cash requirements will consist primarily of
interest payments on its outstanding indebtedness, including the New Notes and
any borrowings under the New Revolving Credit Facility.
The Company has a $28 million off-balance sheet accounts receivable
securitization facility into which the Company's accounts receivable are sold.
The facility is non-recourse to the Company and provides for advances of 85%
against eligible receivables. The facility, which expires in December 1999, is
rated "A" by Duff & Phelps and carries an interest rate of LIBOR plus 80 basis
points. Prior to March 30, 1997, this facility had been accounted for as
indebtedness on the Company's consolidated balance sheet. See Note 5 of "Notes
to Consolidated Financial Statements."
Net cash provided by (used in) operating activities totaled $4.7 million in
1996 and $(3.5) million in the first six months of 1997, as compared to $17.4
million and $21,000 in 1995 and the first six
34
<PAGE>
months of 1996, respectively. After giving effect to net changes in assets and
liabilities of $(12.8) million in 1996 and $(10.2) million in the first six
months of 1997, respectively, cash declined by $2.7 million during 1996 and
increased by $8.9 million during the first six months of 1997, respectively. The
$8.3 million increase in accounts receivable in 1996 is largely attributable to
the Fleet acquisition. The Company utilized $34.3 million for investing
activities in 1996 including the Fleet Acquisition funded in part by $26.9
million from financing activities. The $7.4 million difference was funded by
$4.7 million from operating activities and the $2.7 million balance from cash.
Net cash used by operating activities totaled $3.5 million in the six-month
period ended June 29, 1997. Net cash utilized for investing activities totaled
$10.3 million in this period. After giving effect to the issuance of the notes
of $100 million and the repayment of long term debt of $83.8 million, financing
activities provided $22.7 million. Cash increased by $8.9 million to $14.7
million at June 29, 1997.
Capital expenditures in 1996 and 1995 were $35.5 million and $13.3 million,
respectively. The 1996 amount consists of $15.5 million with respect to the
Fleet acquisition, $6.2 million for the Company's investment in its new
information technology system and $13.8 million with respect to
the acquisition of new revenue equipment and capitalized repairs to existing
trailers, net of sales of property and equipment. The 1995 amount consists of
revenue equipment acquisitions and capitalized repairs, net of sales of property
and equipment. In the first six months of 1997, the Company had capital
expenditures totaling $11 million, which consisted of $7.9 million in
acquisitions of revenue equipment and capitalized repairs and $3.1 million with
respect to the Company's investment in its new information technology system.
The Company anticipates spending approximately $10 million for the remainder of
1997 and approximately $15 million in 1998.
The Company made cash payments of $4.5 million, $4.4 million and $1.0
million with respect to environmental matters in 1995, 1996, and the first six
months of 1997 respectively, of which $1.6 million, $4.2 million and $0.4
million, respectively, is expected to be recovered from insurers. In 1995, the
Company received $11.5 million in insurance proceeds relating to environmental
matters. The Company expects to make cash payments of $6.3 million with respect
to environmental matters in 1997, of which $1.8 million is expected to be
recovered from the Company's insurers. The Company expects to make cash payments
of $7.9 million with respect to environmental matters in 1998, of which $5.8
million is expected to be recovered from the Company's insurers. The Company
expects to continue to expend funds with respect to environmental matters for
the foreseeable future. See "Business - Environmental Matters" and Note 11 of
"Notes to Consolidated Financial Statements."
The Company will be required in October 1997 to fund approximately $7.4
million of a settlement of a 1987 lawsuit, which is expected to result in an
after-tax charge to earnings of approximately $2.9 million in the quarter ended
September 30, 1997. See "Business - Legal Proceedings" and Notes 10 and 15 of
"Notes to Consolidated Financial Statements."
The Company expects that the net proceeds of the Offering, together with
cash flows from operations and available borrowings under the New Revolving
Credit Facility, will be sufficient to fund the Company's working capital, debt
service, capital and environmental expenditure requirements and anticipated
growth plans for the foreseeable future.
SEASONALITY
The business of the Company is subject to limited seasonality, with
revenues generally declining slightly during winter months (namely the first and
fourth fiscal quarters) and over holidays. Highway transportation can be
adversely affected depending upon the severity of the weather in various
sections of the country during the winter months. The Company's operating
expenses also have been somewhat higher in the winter months, due primarily to
decreased fuel efficiency and increased maintenance costs of revenue equipment
in colder months.
35
<PAGE>
BUSINESS
OVERVIEW
Founded in 1913, Chemical Leaman Corporation is the largest tank truck
carrier in the United States based on revenues. The Company offers a full range
of specialized transportation services, including short and long-haul
transportation, intermodal services, materials handling and third-party
logistics, principally to the chemical industry. In addition, the Company
provides tank cleaning and driver-related services to its own fleet as well as
to independent owner-operators and third-party carriers. In 1996, approximately
91% of the Company's revenues were derived from transportation services, while
approximately 9% were derived from tank cleaning and intermodal services. The
specialized nature of the Company's services, the quality of its customer base
and the stability of chemical industry output have allowed the Company to
generate consistent levels of annual operating income. The Company believes that
these factors, coupled with the Company's current investment in a new
information technology system, position Chemical Leaman for future revenue
growth and profitability. For the twelve months ended June 29, 1997, the Company
had revenues, EBITDA (as defined herein), and a net loss of $310 million, $24.6
million, and $2.4 million, respectively. For the year ended December 31, 1996,
the Company had revenues, EBITDA and net loss of $281.1 million, $22.9 million
and $162,000, respectively. For the six months ended June 29, 1997, the Company
had revenues, EBITDA and net loss of $157 million, $12.6 million and $1.9
million, respectively. The Company has experienced declining levels of net
income since 1994 largely due to increased debt levels and related interest
expense. Additional debt was incurred in order to complete the Fleet acquisition
and in connection with the Company's computer technology system. While EBITDA
has increased in each year since 1993, the EBITDA to interest expense ratio has
declined from 3.8% in 1994 to 3.0% in 1996 and to 2.8% for the six months ended
June 29, 1997. The net loss for the six-months ended June 29, 1997 was mainly
due to a $1.5 million charge for an insurance claim.
Substantially all of the Company's revenues are derived from three wholly
owned subsidiaries - Chemical Leaman Tank Lines, Inc. ("CLTL"), Fleet Transport
Company, Inc. ("Fleet"), and Quala Systems, Inc. ("QSI"). CLTL offers a broad
range of transportation and logistics services for the chemical, petroleum,
building materials, and food industries. CLTL maintains a nationwide network of
terminals. CLTL's revenues and total assets comprised approximately 74% and 73%,
respectively, of consolidated assets and revenues as of and for the six months
ended June 29, 1997. Fleet transports liquid and dry bulk products in the
petrochemical, industrial chemicals, resins and food industries. Fleet maintains
30 terminal locations primarily in the southeastern United States. Fleet's
revenues and total assets comprised approximately 17% and 12%, respectively, of
consolidated assets and revenues as of and for the six months ended June 29,
1997. CLTL and Fleet together maintain a fleet of 1,813 tractors (491
Company-owned tractors and 1,322 owner-operator tractors) and 3,433 trailers at
June 29, 1997. The Company's extensive use of owner-operators increases the
Company's asset utilization and lowers its fixed cost structure. QSI provides
tank cleaning services for the Company's trailers and to third-party carriers.
QSI operates 30 tank cleaning facilities located throughout the country in areas
of high chemical bulk transportation traffic. QSI's revenues and total assets
comprised approximately 6% and 8%, respectively, of consolidated assets and
revenues as of and for the six months ended June 29, 1997.
Chemical Leaman is a core carrier to some of the largest and best-known
chemical manufacturers, including Dow Chemical North America, E.I. DuPont de
Nemours Co., Air Products and Chemicals, Inc., AlliedSignal Inc. and Union
Carbide Corporation. The Company believes it has developed a superior reputation
among its customers due to its strong safety record, the strategic location of
its facilities and the full range of transportation and logistics services
offered. Through its national account marketing program, the Company seeks to
grow the number of chemical producers for which it serves as a core carrier.
36
<PAGE>
INDUSTRY OVERVIEW
The current size of the tank truck carrier market is estimated to be
approximately $8 billion. Of that amount, the independent tank truck carrier
segment, in which the Company competes, accounts for approximately 70% of the
market, with the balance represented by captive or private fleets. The
independent tank truck segment of the market is fragmented, consisting of
approximately 200 carriers, with the top five carriers accounting for
approximately 20% of the segment's 1995 revenues according to Modern Bulk
Transporter. With 1996 revenues of $281 million, Chemical Leaman is the largest
tank truck carrier in the U.S. Substantially all of the independent tank truck
segment involves the transportation of liquid and dry bulk chemicals. Chemical
output in the U.S. has been stable, with the dollar value of organic chemical
shipments, as reported by the U.S. Department of Commerce, increasing from $96.2
billion in 1987 to $121.4 billion in 1994.
The Company believes there are significant growth opportunities as chemical
producers outsource a greater percentage of their transportation and logistics
needs, increasingly through the use of a limited number of core carriers.
Further, the barriers to entry, which include the capital requirements for the
acquisition and maintenance of a fleet of tank trailers, the need for
sophisticated information technology systems, generally rising insurance
requirements, the focus of customers on quality control programs and the
increasing complexity of environmental regulation, all favor larger, better
capitalized carriers. These barriers to entry have restricted the ability of
smaller carriers to expand and in some cases have forced smaller carriers out of
the industry. A number of acquisitions by larger carriers of smaller, regional
carriers have occurred over the past two years, and the Company expects this
consolidation to continue.
The independent tank truck segment is capital intensive and is affected by
a number of factors in addition to those confronting the trucking industry as a
whole. Specialized liquid tank trailers typically cost from $50,000 to $60,000
not including optional equipment such as temperature control systems. Dry bulk
trailers can cost up to $80,000 each. The use of owner-operators can help defray
certain of these expenses, as owner-operators supply their own tractors and pay
all expenses associated with the tractors. Since tank trailers require cleaning
on a frequent basis, tank truck carriers must own or have access to tank
cleaning facilities in order to minimize empty mileage and to ensure
contamination free conditions. In addition, tank washing facilities must comply
with stringent environmental regulations.
Chemical producers are increasingly outsourcing their transportation
logistics function to providers of third party logistics services. These
logistics services involve the coordination of transportation, inventory
management, warehousing, materials management and customer service in a manner
which optimizes the profit contribution of these functions. In order to
capitalize on this trend, the Company recently founded Leaman Logistics for the
purpose of providing third party logistics.
As a result of its leading market position, operating expertise and
logistics capabilities, the Company believes it is well-positioned to benefit
from current industry trends.
BUSINESS STRATEGY
The Company's objective is to continue to enhance its revenue growth and
profitability by pursuing the following key strategies: (i) expanding market
share by marketing on both a national and regional level, (ii) focusing on
improving operating efficiencies by continuing to shift to an owner-operator
driver force, emphasizing safety and leveraging information technology, (iii)
offering value-added related services, including tank cleaning, third-party
logistics and driver-related services, and (iv) seeking selective acquisitions.
EXPAND MARKET SHARE. Although Chemical Leaman is the largest tank truck
carrier in the U.S. based on revenues, the Company believes there are
significant opportunities for it to gain market share. The Company believes it
can handle an even larger proportion of its core customers' bulk transportation
and logistics requirements by building upon existing relationships and
leveraging its reputation for high-quality customer service, competitive pricing
and value-added services. The Company also believes that it can generate
additional revenue opportunities from large chemical
37
<PAGE>
producers that are outsourcing a greater percentage of their transportation
requirements. In addition, the Company aims to gain market share by targeting
regional chemical producers located near the Company's terminals that can
benefit from Chemical Leaman's national presence and extensive capabilities.
FOCUS ON OPERATING EFFICIENCIES. The Company continues to focus on
increasing operating efficiencies without lowering the quality or range of its
services by concentrating on the following key areas:
o Extensive Use of Owner-Operators. The Company's percentage of
owner-operators to total drivers has increased from 54% at December
31, 1992 to 75% at June 29, 1997. Owner-operators provide their own
tractors and pay their own operating expenses. The Company's
extensive use of owner-operators increases the Company's operating
and financial flexibility by improving asset utilization and
reducing fixed costs. The Company is highly selective in its driver
recruiting efforts and has invested substantial resources in its
driver recruitment programs. The Company requires all of its drivers
to participate in extensive training sessions held at its driver
training center which it believes enhances the quality of its
drivers and improves its safety record.
o Continuing Emphasis on Safety. Because of the specialized nature of
many of the products that the Company handles and transports, driver
and equipment safety are critical in obtaining new business and in
maintaining existing customer relationships. The Company has
committed substantial resources to its Safety and Emergency Response
Departments, and its emphasis on safety is reflected in the
Company's low cost of risk and favorable accident experience. The
Company has received national safety awards from the National Tank
Truck Carriers Association in each of the past five years including
first place as safest carrier in 1995 and 1996. The Company received
the American Trucking Association's first place safety award in 1995
and has received the U.S. Department of Transportation's highest
safety rating for 20 years.
o Investment in Information Technology. The Company believes that
maximizing its use of information technology will create significant
competitive advantages by reducing administrative costs and
enhancing the utilization of tractors, trailers and drivers. The
Company is investing in a proprietary information technology system
which will provide the Company with a new order entry system,
enhanced order tracking and continuous communication with drivers
via satellite. The Company expects full implementation of its new
information technology system by the first quarter of 1998.
OFFER VALUE-ADDED RELATED SERVICES. The Company provides tank cleaning
services to Chemical Leaman's fleet and to third-party tank truck carriers
through a nationwide network of 30 tank cleaning facilities. By taking advantage
of its significant purchasing power, the Company facilitates the purchase of
tractors, fuel and tires as well as a comprehensive line of insurance products
by its owner-operator driver force and by third party owner-operators. Chemical
producers continue to focus on their core competencies and therefore
increasingly look to outsource their entire transportation and shipping
functions. In order to capitalize on these opportunities, the Company has
developed logistics capabilities including transportation, inventory and asset
management. The Company is currently providing logistics services to third
parties and believes there are additional opportunities to expand its
third-party logistics business. The Company believes it can increase revenues
and enhance its profitability by marketing these value-added
transportation-related services.
SEEK SELECTIVE ACQUISITIONS. The Company believes that the tank truck
carrier industry is consolidating and that it is well-positioned to take
advantage of this trend. As the largest tank truck carrier in the U.S. based on
revenues, the Company believes that acquisitions will allow it to leverage its
operating and management expertise over a larger base of assets, thereby
increasing profit opportunities. In June 1996, Chemical Leaman acquired Fleet,
which operated 30 terminals located primarily in the southeastern U.S. Fleet
contributed $57.3 million of revenues for the twelve months ended June 29, 1997.
The Fleet acquisition enhanced the Company's geographic terminal coverage and
38
<PAGE>
expanded its customer base. Chemical Leaman will continue to evaluate
acquisition opportunities of high-quality tank truck carrier companies, tank
cleaning services companies and other companies engaged in related businesses
that offer a strategic fit with the Company's existing business, provided that
such acquisitions may require the consent of the Company's lenders. See "Risk
Factors - Substantial Leverage."
SERVICES PROVIDED
Chemical Leaman operates through its transportation, tank cleaning,
owner-operator services and third-party logistics business units. Each business
unit is led by an experienced senior manager with specific asset management and
profit responsibility. The Company believes that organizing its operations
through these business units, supplemented by technology as an enabler of
operating efficiencies, positions the Company to achieve its goal of enhanced
revenue growth and profitability.
Transportation Services
The Company's trucking operations serve two distinctly different product
groupings, liquid chemicals and dry bulk chemicals, each of which is managed on
a separate basis. Within the liquid chemical portion of the Company's business,
the Company performs two distinctly different types of trucking activity. The
first, which accounts for most of the Company's liquid chemical trucking
revenues, involves relatively short haul movements with little or no opportunity
for back haul (i.e., a loaded return trip to the point of origination), and
generally is provided to a limited number of chemical-producing customers served
by a strategically located terminal. The second trucking activity involves a
more traditional long haul, reloadable trucking business using standardized
equipment and coordinated through a central dispatch and control operation.
The Company's dry bulk business primarily involves the transportation of
plastic resins throughout the U.S., Canada and Mexico, and to a lesser degree
the transportation of food grade products and cement. Plastics are produced
predominantly on the U.S. Gulf Coast due to the availability of natural gas and
ethylene feed stocks, both of which are critical components of plastic
production. Consumption of plastics occurs throughout the U.S., with a strong
concentration in the Northeast and Midwest U.S. Accordingly, producers of
plastic pellets normally transport their products in large quantity via rail to
regional transloading terminals where the product is transferred to dry bulk
truck trailers for delivery to end users.
As an adjunct to its trucking business, the Company operates an intermodal
business that involves an alliance with Union Pacific Railroad's
Bulktainer(Registered) division, which uses a container product that can be
carried on a flatbed truck and transloaded onto railcars for further
transportation to the consignee. This relationship gives the Company's customers
a gateway from trucking to an extensive rail network and provides an attractive
economic alternative for the hauling of liquid chemicals over great distances.
Tank Cleaning
The Company provides tank cleaning services to the U.S. trucking industry
under the QualaWash(Registered) service mark. In addition to cleaning the
Company's trailers, $17.7 million and $9.6 million in revenues were generated in
1996 and the first six months of 1997, respectively, by providing tank cleaning
services to third-party carriers. The Company operates 30 tank cleaning
facilities strategically located throughout the country in areas of high
chemical bulk transportation traffic, affording customers easy access to
cleaning services.
Owner-Operator Services
The Company offers products and services to its owner-operators at
favorable prices. By offering purchasing programs which take advantage of the
Company's significant purchasing power for products and services such as
tractors, fuel and tires as well as automobile, general liability and workers'
compensation insurance, the Company believes it strengthens its relationships
with its owner-operators and results in improved driver recruitment.
39
<PAGE>
Third-Party Logistics
Chemical Leaman's experience and leadership position in the tank truck
industry has led to its recent implementation of a third-party logistics and
load brokerage business unit which complements the Company's core trucking
activities.
An increasing number of chemical producers are seeking to outsource their
transportation logistics functions in order to focus on their core competencies.
In order to capitalize on this trend, the Company has established third-party
logistics capabilities. As a result of the Company's size and reputation in the
industry, as well as a strategic focus on the provision of logistics services as
a value added service, a number of opportunities have arisen allowing the
Company the opportunity to provide a broader range of logistics management
services to selected chemical producers. Among these services are mode and
carrier selection for truck, rail, ocean and air transportation as well as rate
negotiation, carrier performance evaluation, cost analysis and, in some cases,
on site management of the shipper's captive transportation function.
The Company has developed load brokerage capabilities in order to enhance
its ability to handle its customers' trucking requirements. To the extent that
the Company does not have the equipment necessary to service a particular
shipment, the Company will broker the load to another carrier, thereby meeting
the customer's shipping needs and generating additional revenues for the
Company, in the form of commissions, at attractive margins. Through its
relationship with over sixty bulk carriers, the Company can assure timely
response to customer needs.
MARKETING AND SALES
The Company conducts its marketing efforts at the national, regional and
local level. In addition to its 10 national account salespeople and 10 regional
salespeople, a large part of the Company's marketing is conducted locally by the
Company's terminal managers.
Customers with a national presence operate at numerous plant locations
throughout the U.S. The national accounts salespeople are responsible for the
development of existing customer relationships in an ongoing effort to increase
business at customer locations at which the Company is not the primary provider
of transportation services. In addition, the national accounts salespeople are
responsible for developing new customer relationships with national chemical
producers. Historically, the Company has had a very loyal customer base, which
makes the national accounts development approach particularly successful.
The regional sales force concentrates primarily on the development and
maintenance of customers in geographic areas in which the Company already has
established operations. The regional sales persons are further supported by the
sales efforts of terminal managers who also have responsibility for business
development in their respective markets.
The Company markets its tank cleaning services through a sales organization
comprised of three regional sales managers reporting to a Vice President of
Sales and Marketing. The regional sales managers are responsible for increasing
sales revenues within their respective territories. Territories are organized
geographically with each encompassing two operating regions and between six and
eleven cleaning facilities. The sales effort is enhanced by the active
participation of seven regional general managers and 30 facility managers.
The Company's third-party logistics marketing effort, which is conducted by
four people, targets chemical producers and related companies that have
significant transportation expenses.
CUSTOMERS
The Company's client base consists of many of the largest chemical
producers in the U.S. The Company is a core carrier for Dow Chemical North
America, E.I. DuPont de Nemours Co., Air Products and Chemicals, Inc.,
AlliedSignal, Inc. and Union Carbide Corporation. During 1996, the Company's top
twenty-five customers accounted for approximately 55% of total revenues. Other
than
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Dow Chemical North America which accounted for 13.7% of the Company's
revenues in 1996, no other customer represented more than 5% of the Company's
1996 revenues.
Most business is priced on a revenue per mile or per load basis and
includes an adjustable fuel surcharge. The Company provides electronic data
interchange capability for orders and billing and maintains a centralized
customer satisfaction center which furnishes logistics services, rate quotes and
research.
The Company's customer service function is operated on a centralized basis
in order to ensure that each customer's order or inquiry is handled on an
expeditious and consistent basis.
OWNER-OPERATORS
The Company had a force of 1,905 drivers at June 29, 1997, of which 1,430
were owner-operators and 475 were Company employees. The Company enters into
standard contractual agreements with its owner-operators. Under these
agreements, the owner-operators supply one or more tractors to the Company and
are compensated on the basis of a fixed percentage of the revenue generated from
the shipments they haul. In addition, owner-operators pay all expenses
associated with their tractors, including wages, benefits, fuel, insurance,
maintenance, highway use taxes and debt service. While under contract with the
Company, owner-operators must drive exclusively for the Company. In addition,
the contracts with owner-operators require the owner-operators to indemnify the
Company from and against any and all claims brought against the Company,
including claims on account of bodily injury, property damage or under
environmental laws and regulations, arising out of any act or omission of the
owner-operators or their employees in the ownership, maintenance, use or
operation of the equipment or the conduct of the owner-operators' business.
The Company dedicates significant resources to recruiting and retaining
owner-operators and employee drivers. The Company's 1996 driver turnover ratio
of approximately 30% is considered low by industry standards. All drivers are
subject to specified guidelines relating to driving experience, safety records
and tank truck experience. In addition, all drivers must participate in the
Company's driving school and must pass a physical examination in accordance with
DOT guidelines.
INFORMATION TECHNOLOGY
The Company is currently investing approximately $10 million in a
proprietary information technology system to support the Company's operations.
The information technology project will: (i) centralize customer service order
taking, load scheduling and provide a computerized load optimization model,
which is designed to lower Company costs and improve driver and asset
utilization, (ii) provide field operating personnel with customer account and
profitability data on a real time basis, and (iii) improve the speed and
accuracy of billing and customer load status reporting through utilization of
satellite transmission of information to the Company's customer service center.
The new system is expected to be fully implemented by the first quarter of 1998
and provide productivity and cost benefits to the Company.
Most of the Company's tractor fleet, including both Company-owned and
owner-operator tractors, are equipped with OmniTRACS(Registered) mobile
satellite communications systems which provide continuous monitoring and two-way
communications with tractors in transit. This information is used to track load
status, optimize the use of drivers and equipment and respond to emergency
situations. The Company's Internet Website enables customers to access the
OmniTRACS(Registered) system to view the exact status of their loads in transit
at their convenience.
REVENUE EQUIPMENT
The Company's equipment consists primarily of tractors and specialized
trailers which can accommodate a broad range of specialty and commodity
chemicals. At June 29, 1997, the Company's fleet was comprised of 1,813
tractors, of which 491 were owned by the Company and the remaining 1,322 were
owned or leased by owner-operators. The Company owned 3,433 tank trailers at
June 29,
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<PAGE>
1997 which have an average age of 14 years. Tractors and trailers are typically
financed with either debt or capital lease financing. A significant portion of
tractors are rebuilt after 500,000 miles of service which is a cost effective
alternative to purchasing new tractors. Tank trailers have a useful life of more
than 20 years. A typical tank trailer measures 42.5 feet in length, eight feet
in width and 10.5 feet in height. The volume of the trailer ranges from 5,000 to
7,000 gallons with a payload capacity of up to 55,000 pounds. The cost of a new
standard stainless steel tank trailer ranges from $47,000 to $85,000, depending
on specifications.
SUPPLIERS
The number of vendors used by the Company has been reduced over the years
in an effort to achieve operating efficiencies. There is no concentration of
goods and services procured from any one supplier. Fuel, tires and hoses are
sourced from a variety of vendors and there are no national contracts covering
these purchases. Brenner Tank, Inc. is the supplier of choice for tank trailers,
and Pentron, Inc. performs substantially all of the Company's tank repairs.
Tractor rebuilding is handled by Lehigh Consolidated Industries. Communications
equipment is purchased from a variety of sources.
PATENTS AND TRADEMARKS
The Company owns patents, trademarks, tradenames and service marks which
assist in maintaining its competitive position. QualaWash(Registered), a service
mark used in the Company's tank cleaning operations, is of primary importance to
the Company. Other significant rights include the trademarks
Chemshuttle(Registered) and Bulkmodal(Registered). The Company believes that
other than QualaWash, no single patent, trademark or other individual right is
of such importance, and, accordingly, the expiration or termination thereof
would not materially affect its business.
TERMINALS AND FACILITIES
The Company maintains a network of 105 terminals located throughout the
U.S. and Canada, which are strategically located near customers' plants.
Terminals are staffed with two to six people including a terminal manager,
driver manager and administrative support personnel. Each terminal manager is
responsible for profitability and asset utilization. Administrative personnel
perform billing and payroll functions, process accounts payable and review
driver logs. The Company conducts
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<PAGE>
equipment maintenance services at 39 terminal locations. The Company also
operates 30 tank cleaning facilities, of which 24 are co-located with Company
trucking terminals.
Set forth below are the locations of the Company's terminals and QualaWash
facilities as of June 29, 1997:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NUMBER OF QUALAWASH NUMBER OF QUALAWASH
LOCATION TERMINALS FACILITIES LOCATION TERMINALS FACILITIES
-------- --------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
Alabama............... 2 -- Missouri.............. 1 --
California............ 4 2 New Jersey............ 8 3
Connecticut........... 3 1 New York.............. 6 2
Delaware.............. 1 -- North Carolina........ 4 2
Florida............... 1 -- Ohio.................. 3 1
Georgia............... 7 3 Oregon................ 1 --
Illinois.............. 6 1 Pennsylvania.......... 14 --
Kentucky.............. 4 1 South Carolina........ 4 3
Louisiana............. 6 2 Tennessee............. 5 2
Maine................. 1 -- Texas................. 9 3
Maryland.............. 2 -- Virginia.............. 1 --
Massachusetts......... 1 -- West Virginia......... 5 2
Michigan.............. 3 2 Canada................ 3 --
</TABLE>
QUALITY ASSURANCE
EnviroPower, Inc., a subsidiary of the Company, provides an audit function
for the Company's tank cleaning facilities which is intended to ensure
disposition of tank cleaning waste materials in compliance in all material
respects with applicable environmental laws and regulations. EnviroPower, Inc.
also provides the same audit function for any tank cleaning facility which
provides tank cleaning services to the Company.
EMPLOYEES
At June 29, 1997, the Company had 1,461 employees, including 475 drivers,
136 mechanics, 203 tank cleaning personnel and 647 support personnel including
clerical, administrative, dispatch and executive personnel. In addition, at June
29, 1997 the Company's driver force included 1,430 owner-operators, who are
independent contractors.
As of June 29, 1997, employees covered under various collective bargaining
agreements included 284 drivers, 75 mechanics and 122 tank cleaning personnel.
All other personnel are non-union employees. Owner-operators operate under
standardized lease agreements and are responsible for their own equipment and
benefits.
The Company believes that relations with its employees are satisfactory.
RISK MANAGEMENT AND INSURANCE; SAFETY
The primary risks associated with the Company's business are bodily injury
and property damage, workers' compensation claims and to a lesser extent cargo
loss and damage. The Company maintains insurance against these risks and is
subject to liability as a self insurer to the extent of deductible amounts under
each policy. The Company currently maintains liability insurance for bodily
injury and
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<PAGE>
property damage in the amount of $100 million per incident, subject to a
deductible per incident of $1 million (reduced from $2 million for occurrences
after March 30, 1997) and an aggregate annual stop loss of $5.5 million (reduced
from $9.0 million for occurrences after March 30, 1997). The Company's current
deductible for workers' compensation is $500,000 per claim. As a result of the
Company's favorable safety record, the Company recently reset its insurance
programs and improved its liability coverages effective March 30, 1997 at an
annual fixed cost reduction of $600,000.
The Company's cost of risk was 1.7% of revenue for 1996, which the Company
believes is low as compared to the industry average. This performance is the
result of careful driver recruiting, extensive driver training and the emphasis
on a safety conscious culture throughout the Company. In 1996, the Company had
.65 reportable accidents per million miles, as compared to .80 for the tank
truck industry as a whole. The Company has received national safety awards from
the National Tank Truck Carriers Association in each of the past five years
including first place as safest carrier in 1995 and 1996. The Company received
the American Trucking Association's first place safety award in 1995 and for 20
years has received the U.S. Department of Transportation's highest safety
rating.
The Company employs a safety staff of 12 professionals who manage the
Company's Safety and Emergency Response System that is deployed throughout the
Company's terminals and other facilities nationwide. The Company also employs
safety specialists to perform compliance checks and conduct safety tests
throughout the Company's operations. Chemical Leaman's safety programs include
training seminars, mandatory preemployment drug testing, random post employment
drug testing, driver safety meetings, safety bulletins and participation in
national safety associations. In addition, every new driver is required to
attend a one week program at the Company's driver training school in
Indianapolis, Indiana, which includes intensive safety instruction.
FUEL AVAILABILITY AND COST
The Company has fuel surcharge provisions in many of its customer contracts
which limit the Company's risk with respect to changing fuel prices. In
addition, the Company's owner-operators are responsible for supplying their own
fuel. The Company has a fuel purchase program for owner-operators pursuant to
which the Company negotiates fuel discounts which are passed along to owner-
operators. However, any increase in fuel taxes or fuel prices that are not able
to be passed along to the Company's customers, or any interruption in the supply
of fuel, could have a material adverse impact on the Company's operating
results.
COMPETITION
The tank truck industry is highly competitive and is fragmented. The
Company competes primarily with other tank truck carriers which have intrastate
and interstate operating authority and, to a lesser extent, with railroad and
barge transportation companies. Intermodal transportation has increased in
recent years as reductions in train crew size and the development of new rail
technology have reduced costs of intermodal shipping. Competition from
non-trucking modes of transportation and from intermodal transportation would
likely increase if state or federal fuel taxes were to increase without a
corresponding increase in taxes imposed upon other modes of transportation.
Competition is based primarily on rates and service. The Company believes
that it enjoys competitive advantages over other tank truck carriers due to its
overall fleet size, its reputation in the industry for service, the wide range
of equipment it offers, its offering of value-added services and its nationwide
network of terminals and tank cleaning facilities.
The Company's largest competitors in the transportation of liquid chemicals
are Trimac Transportation, Montgomery Tank Lines, Matlack Systems Inc., DSI
Transports Inc., Superior Carriers and Central Transport. The Company competes
in the dry bulk transportation segment primarily with Bulkmatic Transport Co.
and A&R Transport Inc.
The Company also competes with other motor carriers for the services of
Company drivers and owner-operators. The Company's overall size and its
reputation for good relations with owner-
44
<PAGE>
operators have enabled it to attract an adequate number of qualified
professional drivers and owner-operators. See "Risk Factors - Availability of
Drivers; Partially Unionized Work Force."
Competition in the tank cleaning services industry comes from
independently-owned and operated facilities and certain large bulk carriers that
also conduct tank cleaning operations. The Company competes for tank cleaning
business on a national scale primarily with Allwaste Tank Cleaning Inc. and
Brite-Sol, a division of Matlack, Inc. The Company competes primarily based on
its ability to provide high quality tank cleaning with quick turnaround time,
utilizing environmentally sound procedures, at facilities located in close
proximity to major interstate highways and central dispatching points for tank
trailers.
REGULATION
Interstate and intrastate motor carriage has been substantially deregulated
as a result of the enactment of the Motor Carrier Act of 1980, the Trucking
Industry Regulatory Reform Act of 1994, the Federal Aviation Administration
Authorization Act of 1994 and the ICC Termination Act of 1995. Carriers can now
readily enter the trucking industry and rates and services are largely free of
regulatory controls. However, interstate motor carriers do remain subject to
certain regulatory controls imposed by agencies within the DOT, such as the
Federal Highway Administration and the Surface Transportation Board. In
addition, the Company's operations are subject to various environmental laws and
regulations, including laws and regulations dealing with underground fuel
storage tanks and ownership of property that may contain hazardous substances
and laws and regulations governing air emissions. The trucking industry may in
the future become subject to stricter air emission standards regulation,
including requirements that manufacturers produce cleaner-running tractors and
that fleet operators perform more rigorous inspection and maintenance
procedures.
There are additional regulations specifically relating to the tank truck
industry including testing and specifications of equipment and product handling
requirements. Interstate motor carriers are also subject to regulations relating
to noise emissions standards. The Company may transport most types of freight to
and from any point within the contiguous 48 states over any route selected by
the Company. The trucking industry is subject to possible regulatory and
legislative changes (such as increasingly stringent environmental regulations or
limits on vehicle weight and size) that may affect the economics of the industry
by requiring changes in operating practices or by changing the demand for common
or contract carrier services or the cost of providing truckload services. In
addition, the Company's tank wash facilities are subject to stringent local,
state and federal environmental regulations.
Interstate motor carrier operations are subject to safety requirements
prescribed by the DOT. For example, the DOT has issued regulations governing the
transportation of hazardous materials. Such matters as weight and dimension of
equipment are also subject to federal and state regulations. Since 1989, DOT
regulations have imposed mandatory drug testing of drivers. To date, the DOT's
national commercial driver's license and drug testing requirement have not
adversely affected the availability to the Company of qualified drivers. New
alcohol testing rules adopted by the DOT in January 1994 became effective in
January 1995. These rules require certain tests for alcohol levels in drivers
and other safety personnel. The Company does not believe the rules will
adversely affect the availability of qualified drivers.
The Federal Aviation Administration Authorization Act of 1994, which became
effective on January 1, 1995, essentially deregulated intrastate transportation
by motor carriers. This Act preserves state authority to impose highway route
controls or limitations based upon the size or weight of a motor vehicle or
limitations based upon the hazardous nature of the cargo. More importantly, this
Act prohibits individual states from regulating pricing or service levels and
strictly limits state regulation over entry or exit. The states retained the
right to continue to require certification of carriers, but this certification
is based only upon two primary fitness criteria: safety and insurance. Prior to
January 1, 1995, the Company had intrastate authority in many of the contiguous
48 states. Since that date, the Company has either been "grandfathered in" or
has obtained the necessary certification to continue to operate in the states in
which the Company provides intrastate service. In states that the Company was
45
<PAGE>
not previously authorized to operate, it has obtained certificates (or permits)
allowing it to operate or is in the process of obtaining such certificates. The
Company does not have authority to provide intrastate operations in Alaska,
Arizona, Colorado, Hawaii, Idaho, Minnesota, Montana, Nebraska, New Mexico,
North Dakota, Oklahoma, South Dakota, Utah, Vermont, and Wyoming.
From time to time, various legislative proposals are introduced to increase
federal, state, or local taxes, including taxes on motor fuels. The Company
cannot predict whether, or in what form, any increase in such taxes applicable
to the Company will be enacted.
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to a wide variety of
increasingly complex and stringent federal, state, local and foreign laws and
regulations, including those governing the use, storage, handling, transport,
generation, treatment, release, discharge and disposal of certain hazardous
materials, substances and wastes, and petroleum (collectively "Hazardous
Materials"), the remediation of contaminated soil and groundwater, and the
health and safety of employees (collectively, "Environmental Laws"). As such,
the nature of the Company's operations exposes it to the risk of claims with
respect to such matters and there can be no assurance that material costs or
liabilities will not be incurred in connection with such claims.
The Company believes that it is in compliance in all material respects with
all applicable Environmental Laws. Changes in Environmental Laws have resulted
in claims against the Company which arise from unintentional contamination as a
consequence of past waste disposal and treatment practices. Company management
has instituted policies and procedures intended to achieve compliance with all
applicable Environmental Laws. Compliance with such Environmental Laws is one of
the principal cornerstones of its business strategy due to its critical
importance to both the customer and the Company's operations.
Environmental issues confronting the Company may be separated into two
separate and distinct categories. The first category is exposure to remedial and
investigatory costs associated with the Company's historic operations. The
second is exposure to costs associated with ongoing environmental compliance.
The Company's wholly-owned subsidiary, EnviroPower, Inc., is staffed with
environmental experts who manage the Company's environmental exposure relating
to historical operations and develop policies and procedures, including periodic
audits of the Company's terminals and tank cleaning facilities, in order to
minimize the existence of circumstances that could lead to future environmental
exposure. None of the current audits has identified any material potential
liability under Environmental Laws at or involving existing Company facilities,
except for the Bridgeport, New Jersey site and certain other sites discussed
below. EnviroPower manages and oversees the Company's involvement in two sites
located in Bridgeport, New Jersey and West Caln Township, Pennsylvania, which
have been designated as Superfund Sites by the U.S. Environmental Protection
Agency ("EPA"). EnviroPower is also the Company's principal interface with the
EPA and various state environmental agencies. The Company is currently solely
responsible for remediation of the following two sites:
Bridgeport, New Jersey. During 1991, the Company entered into a Consent
Decree with the EPA filed in the U.S. District Court for the District of New
Jersey, U.S. v. Chemical Leaman Tank Lines, Inc., Civil Action No. 91-2637 (JFG)
(D.N.J.), with respect to its site located in Bridgeport, New Jersey, requiring
the Company to remediate groundwater contamination. The Consent Decree required
the Company to undertake Remedial Design and Remedial Action ("RD/RA") related
to the groundwater operable unit of the cleanup. Costs associated with
performing the RD/RA were $1.2 million in 1996. No decision has been made as to
the extent of soil remediation to be required, if any.
In August 1994, the EPA issued a Record of Decision ("ROD") selecting a
remedy for the wetlands operable unit at the Bridgeport site at a cost estimated
by the EPA to be approximately
$7 million. The Company has submitted comments to the EPA that dispute the
merits of the EPA's remedy. In the last quarter of 1996, the EPA issued demands
to the Company for reimbursement of approximately $2.5 million in alleged EPA
past response costs at the site for the groundwater and wetlands operable units,
and the Company expects that additional demands may be issued in the future.
46
<PAGE>
The Company is involved in settlement negotiations related to the matter. The
government has not made a claim against the Company for natural resource
damages, if any.
The Company is in litigation with its insurers to recover its costs in
connection with the environmental cleanup at the Bridgeport site. Chemical
Leaman Tank Lines, Inc. v. Aetna Casualty & Surety Co., et al., Civil Action No.
89-1543 (SSB) (D.N.J.). On April 7, 1993, the U.S. District Court for the
District of New Jersey entered a judgment requiring the insurers to reimburse
the Company for substantially all past and future environmental cleanup costs at
the Bridgeport site. The insurers appealed the judgment to the U.S. Court of
Appeals for the Third Circuit, but before the appeal was decided the Company and
its primary insurer settled all of the Company's claims, including claims
asserted or to be asserted at other sites, for $11.5 million. This insurer
dismissed its appeal, but the excess carriers did not. On June 20, 1996, the
U.S. Court of Appeals affirmed the judgment against the excess insurance
carriers, except for the allocation of liability among applicable policies, and
remanded the case for an allocation of damage liability among the insurers and
applicable policies on a several basis. On September 15, 1997, the District
Court issued an order allocating damage liability among the applicable policies.
The Company expects to receive insurance proceeds sufficient to recover
substantially all of the costs of remediating the Bridgeport site, including
attorney fees and expenses.
West Caln Township, Pennsylvania. The EPA has alleged that the Company
disposed of Hazardous Materials at the William Dick Lagoons Superfund Site
located in West Caln Township, Pennsylvania. In 1991, the EPA issued ROD I,
requiring the installation of a public water supply for some residents near the
site. In November 1991, the EPA issued special notice letters to the Company and
another potentially responsible party ("PRP") soliciting implementation of ROD
I. In March 1992, the EPA issued a unilateral order to the Company and the other
party directing them to implement ROD I. The Company declined to comply based on
its belief that it had sufficient cause not to comply.
In April 1993, the EPA issued ROD II, selecting a remedy for the soil
remediation phase of this cleanup program. The EPA and the Company agreed that
the Company would be afforded the opportunity to implement its preferred remedy
for the soil remediation phase and to settle its differences with the EPA
regarding the public water supply issue. Pursuant to a Consent Decree lodged
with the U.S. District Court for the Eastern District of Pennsylvania on October
10, 1995, U.S. v. Chemical Leaman Tank Lines, Inc., Civil Action No. 95-CV-4264
(RJB) (E.D.P.A.), the Company paid the EPA $713,674 in June 1996, $713,674 in
October 1996, and approximately $300,000 in November 1995, and established a
$300,000 irrevocable standby letter of credit. These payments settled the EPA's
claim relating to past response costs and failure to install a public water
supply in accordance with ROD I. The Consent Decree requires the Company to make
an additional payment to the EPA of $700,000 in October 1997, perform an interim
groundwater remedy at the site, and finance the soil remedy. The Consent Decree
does not cover the final groundwater remedy or other site remedies, or claims,
if any, for natural resource damages.
Other Environmental Matters. The Company has been named as a PRP under
CERCLA and similar state laws at approximately 35 former waste treatment and/or
disposal sites. In general, the Company is among several PRPs named at these
sites. Based on the information known at this time, the Company's involvement at
these sites generally arises from shipment of wastes by or for the Company in
the ordinary course of business over many years to sites, now contaminated, that
are owned and operated by third parties. Given the nature of the Company's
involvement and the expected participation of a number of other PRPs at these
sites, the Company does not believe its liability at these third party sites
will be material. There can be no assurance, however, that costs associated with
these sites, individually or in the aggregate, will not be material. The Company
is also incurring expenses resulting from the remediation of certain
Company-owned sites. In April 1997, the Company received a request from the New
York State Department of Environmental Conservation to perform a Remedial
Investigation and Feasibility Study relating to certain former surface
impoundments previously closed by the Company at its Tonawanda, New York
Terminal. The Company has indicated its willingness to perform a mutually
acceptable Remedial Investigation and Feasibility Study. In 1994, the Company
entered into an Administrative Consent Order ("ACO") with the West Virginia
Division of Environmental Protection ("DEP") to undertake the investigation and
remediation of a former
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<PAGE>
lagoon at its former facility in Putnam County, West Virginia. In accordance
with the ACO, the Company has submitted a workplan to DEP to address potential
sludge and soil contamination. The extent of groundwater remediation to be
required, if any, has not been determined.
The Company has also undertaken the removal of all underground storage
tanks at its owned and operated facilities. This project is being managed by
EnviroPower staff and will be completed by the end of 1998 at an estimated cost
of $2 million, of which $1.5 million has been expended to date.
Although the extent and timing of the litigation, settlement and possible
cleanup costs at the foregoing sites, other than certain phases of the
Bridgeport and West Caln Township sites, are not reasonably estimable at this
time, it is anticipated that the Company will continue to incur costs with
respect to such sites and there can be no assurance that such costs will not
have a material adverse effect on the Company's financial condition or results
of operations. The Company has recorded total charges to income of $2.3 million
and $2.4 million in 1996 and 1995, respectively, with regard to the foregoing
environmental matters and expects to continue to incur costs for environmental
matters generally for the foreseeable future.
LEGAL PROCEEDINGS
The Company is a party to a lawsuit filed in 1987 against the Company and
approximately 25 other defendants in the Superior Court of New Jersey, Passaic
County (A.L.U. Textile Combining Corp. et al. v. Texaco Chemical Co., et al.,
No. L-23905-87). The approximately 175 plaintiffs seek damages claimed to exceed
$100 million resulting from a fire set to a building by trespassing arsonists.
The plaintiffs allege that the Company was negligent by delivering a shipment of
naphthalene to an outdoor facility where it could be ignited by trespassers. The
Company has denied any liability and has asserted cross-claims against the other
defendants. Discovery in the lawsuit has not yet been concluded.
On September 19, 1997, the Company agreed to settle all claims in this
lawsuit for $19 million. It is expected that the payment will be made in October
1997. Although the Company has insurance coverage with several companies and
syndicates for that amount, a portion of the insurance coverage is carried by
insurers which are currently insolvent. As a result, the Company initially must
fund the portion of the settlement, aggregating $7,397,390, for which the
insolvent carriers provided coverage, with the solvent insurers paying the
balance of the settlement. Most of the insolvent insurers have entered into an
arrangement approved by the British courts, pursuant to which the Company
expects to receive additional coverage payments of $794,659 approximately 60
days after payment of the settlement amount. In addition, based on its review of
the most recent annual report to creditors of the insolvent insurers and
discussions with representatives of such insurers, the Company expects periodic
payments over the next 10 years up to the aggregate amount of $3.2 million.
In addition to the matters described above and under "Environmental
Matters," the Company is a party to routine litigation incidental to its
business, primarily involving claims for personal injury or property damages
incurred in the transportation of chemicals. Except as described above and under
"Environmental Matters," the Company is not a party to any litigation, and is
not aware of any threatened claims, that could materially adversely affect the
Company's financial condition or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David R. Hamilton................. 57 Chairman of the Board, Chief Executive
Officer and President
Philip J. Ringo................... 55 President and Chief Executive Officer of
CLTL; Director
Eugene C. Parkerson............... 53 Executive Vice President, Administration;
President of PPI; Director
David M. Boucher.................. 48 Senior Vice President, Chief Financial
Officer, Secretary; Director
Reuben M. Rosenthal............... 51 President of QSI and EnviroPower; Director
Fernando C. Colon-Osorio.......... 48 Director
G. Michael Cronk.................. 54 Director
Charles E. Fernald, Jr............ 57 Director
Samuel C. Hamilton, Jr............ 66 Director
John H. McFadden.................. 50 Director
George McFadden................... 56 Director
Samuel F. Niness, Jr.............. 62 Director
</TABLE>
David R. Hamilton is the Company's Chairman of the Board, President and
Chief Executive Officer. He has been a director of the Company since 1978 and
has been the Company's Chief Executive Officer since 1987. Mr. Hamilton was
previously Chief Executive Officer of Szabo Food Services, Inc., Oak Brook,
Illinois. He is a graduate of Rice University (AB) and the Harvard Business
School (MBA). He is the brother of Samuel C. Hamilton, Jr., a director of the
Company.
Philip J. Ringo has served as the President and Chief Executive Officer of
CLTL and a director of the Company since 1995. He joined the Company in 1995,
having previously served as President of The Morgan Group, Inc. and Chief
Executive Officer of Morgan Drive Away, Inc., Elkhart, Indiana from 1992 to
1995. Mr. Ringo is a graduate of Princeton University (BA) and the Harvard
Business School (MBA). He has served as a director of Genesee and Wyoming
Industries since 1978.
Eugene C. Parkerson is Executive Vice President, Administration of the
Company. He has served as a director of the Company since 1987 and as the
President of PPI since 1990. Prior to joining the Company as Senior Vice
President in 1987, Mr. Parkerson served as Executive Vice President of Szabo
Food Services, Inc. He is a graduate of the University of Utah (BS) and the
University of Kansas (MBA).
David M. Boucher joined the Company in 1994 as Senior Vice President, Chief
Financial Officer, Secretary and a director of the Company. Prior to that, he
was the Chairman of the Board and Chief Executive Officer of IVT Group, Inc., a
company engaged in title insurance underwriting, from 1989 to 1994 and Chairman
of the Board and Chief Executive Officer of Fidelity Bond and Mortgage Company
from 1987 to 1989. From 1974 to 1987, Mr. Boucher served in various capacities
with Fidelity Bank, N.A., most recently as Senior Vice President and Head of
Merchant Banking. He is a graduate of Susquehanna University (BS) and Drexel
University (MBA).
49
<PAGE>
Reuben M. Rosenthal has been the President of QSI since 1996 and the
President of EnviroPower, Inc. since 1993, and he serves as a director of the
Company. From 1989 to 1993, Mr. Rosenthal was the Company's Senior Vice
President, Sales and Marketing. Prior to that, he was Senior Vice President at
Emery Worldwide/Purolator Courier. Mr. Rosenthal is a graduate of the University
of Maryland (BA).
Fernando C. Colon-Osorio is a director of the Company. He has been the
President and Chief Executive Officer of Acumen Consulting Group, Inc. since
1994. From 1993 to 1994, Mr. Colon-Osorio was President of Advanced Modular
Solutions. From 1992 to 1993, he served as Executive Vice President of Kendall
Square Research. Mr. Colon-Osorio is a graduate of the University of Puerto Rico
(BS) and the University of Massachusetts (MS, PhD).
G. Michael Cronk is a director of the Company. He is currently President of
International, ARAMARK Global Food and Support Services. Mr. Cronk joined
ARAMARK in 1980, where he has held a variety of management and executive
positions. He is a graduate of St. Martin's College (BS) and attended the
Advanced Management Program at the Harvard Business School.
Charles E. Fernald, Jr. has served as a director of the Company since 1976.
He is currently President of Transport Capital Advisors, a transportation
consulting firm. Mr. Fernald served as Chief Financial Officer of the Company
from 1974 until 1994. He is a graduate of the University of Notre Dame (BBA) and
Drexel University (MBA).
Samuel C. Hamilton, Jr. has been a director of the Company since 1991. He
is a self-employed petroleum geologist and real estate investor. Mr. Hamilton is
a graduate of the University of Texas (BA, BS, MA). He is the brother of David
R. Hamilton, the Chairman of the Board, Chief Executive Officer and President of
the Company.
John H. McFadden has been a director of the Company since 1988. Since 1995,
he has been a partner in the law firm of McFadden, Pilkington & Ward. From 1987
to 1995, he was a partner in the law firm of Pepper, Hamilton & Scheetz, LLP. He
is a graduate of Harvard University (AB), Columbia University (MBA) and Fordham
University (JD). Mr. McFadden is the brother of George McFadden, a director of
the Company.
George McFadden is a director of the Company. He has been a partner in the
investment firm of McFadden Brothers since 1978. He is a graduate of Vanderbilt
University (BA) and Columbia University (MBA). Mr. McFadden is also a director
of Triangle Pharmaceuticals, Inc. and Ball Corporation. Mr. McFadden is the
brother of John McFadden, a director of the Company.
Samuel F. Niness, Jr. has been a director of the Company since 1971. Mr.
Niness retired as Chairman of the Board and President of the Company in October
of 1987. He is a graduate of Trinity College (BA).
DIRECTOR COMPENSATION
The Company pays cash compensation to outside board members who are not
otherwise consultants to the Company. Each such board member is entitled to
receive $4,000 for each meeting of the Board of Directors, or any committee
thereof, attended by such board member in person or by telephone.
50
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal year ended December 31,
1996, certain compensation information with respect to the Company's Chief
Executive Officer and the four other executive officers whose total annual
salary and bonus exceeded $100,000 during 1996 (the "named executive officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($)
--------------------------- ---- ---------- --------- ----------------
<S> <C> <C> <C> <C>
David R. Hamilton........................................ 1996 $1,365,559 $375,000 $ 35,561(1)
Chairman, Chief Executive Officer and President
Eugene C. Parkerson...................................... 1996 272,058 0 188,922(2)
Executive Vice President - Administration; and
President of PPI
David M. Boucher......................................... 1996 222,673 100,000 0
Senior Vice President, Chief Financial Officer and
Secretary
Philip J. Ringo.......................................... 1996 324,035 96,278 0
President and Chief Executive Officer of CLTL
Reuben M. Rosenthal...................................... 1996 230,769 110,000 144,470(3)
President and Chief Executive Officer of QSI and
EnviroPower
</TABLE>
- ------------------
(1) Consists of $3,535 in split dollar life insurance premiums and $32,026 in
death benefit only life insurance premiums.
(2) Consists of $180,000 in additional compensation paid to Mr. Parkerson in
connection with the Company's repurchase of stock options; $3,097 in split
dollar life insurance premiums; and $5,825 in death benefit only life
insurance premiums.
(3) Consists of $135,000 in additional compensation paid to Mr. Rosenthal in
connection with the Company's repurchase of stock options; $2,852 in split
dollar life insurance premiums; and $6,618 in death benefit only life
insurance premiums.
EMPLOYMENT CONTRACT
The Company has entered into an Employment Agreement (the "Agreement") with
Mr. Ringo, the President of CLTL, effective July 14, 1995, which provides for a
minimum annual base salary of $300,000, a bonus based on the attainment of
certain operating goals, and certain fringe benefits. In the event Mr. Ringo's
employment is terminated due to disability, Mr. Ringo will continue to receive
his annual compensation until disability payments commence. In the event that
Mr. Ringo's employment is terminated by the Company within the first three years
for any reason other than just cause, the Agreement requires the Company to pay
Mr. Ringo one year's base salary and to continue health insurance benefits for
Mr. Ringo and his dependents for one year; provided, however, that if Mr. Ringo
is reemployed within a one-year period after termination, these severance
benefits will be reduced by the amount of compensation Mr. Ringo receives from
such employment. If there is a change of control of the Company within five
years from the date of the Agreement such that David Hamilton and George
McFadden no longer control the Company, the Agreement allows Mr. Ringo to
terminate his employment and receive two years' base salary, plus health
benefits for up to two years.
The Agreement also entitles Mr. Ringo to various rights with respect to his
Company Common Stock, including registration rights, tag-along rights in the
event David Hamilton and George McFadden elect to sell their shares in the
Company to a third-party, and preemptive rights. In the event the Company elects
to redeem certain outstanding shares of its capital stock, the Agreement gives
Mr. Ringo the right to purchase additional shares of Common Stock to increase
his equity ownership in the Company to 3% on a fully-diluted basis. In addition,
the Agreement (i) requires the Company to buy back Mr. Ringo's shares upon
termination of his employment due to his death or disability, and (ii) grants
the Company the right to purchase any or all of Mr. Ringo's stock if his
employment is terminated at any time for just cause. In addition, the Agreement
provides that the Company will indemnify Mr. Ringo for reasonable attorneys'
fees and litigation costs in the event his former employer commences a lawsuit
based on alleged violations of the non-compete agreement entered into by Mr.
Ringo and his former employer.
51
<PAGE>
Under the provisions of separate stock purchase agreements between the
Company and Messrs. Boucher, Parkerson and Rosenthal, pursuant to which they
purchased certain shares of Common Stock of the Company (see "Certain
Transactions" below), if during their term of employment with the Company,
either David Hamilton ceases to serve as the Company's Chairman and Chief
Executive Officer or David Hamilton and George McFadden cease to control the
Company, each of Messrs. Boucher, Parkerson and Rosenthal will be entitled to
terminate his employment with the Company and receive his base salary and
benefits for twelve months after such termination.
PENSION PLAN
Substantially all salaried non-union employees of the Company, including
the Company's executive officers, are eligible to participate in a Company
pension plan. The plan is a qualified plan under the Internal Revenue Code and
provides benefits funded by Company contributions. Contributions are paid to a
Master Trustee for investment. Benefits are subject to maximum limitations under
the Internal Revenue Code. Therefore, with regard to 1996, the maximum salary
that can be recognized under the plan is $150,000 and the maximum benefit at age
65 is limited to $120,000. The following table is representative of the annual
benefits payable under the Company's pension plan to an employee currently age
65, whose remuneration remained unchanged during the last five years of
employment and whose benefits will be paid for the remainder of the employee's
life.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
COVERED -------------------------------------------------
REMUNERATION* 10 20 30 40
- ------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
$ 75,000................................................. $ 9,375 $18,750 $28,125 $37,500
100,000................................................. 12,500 25,000 37,500 50,000
125,000................................................. 15,625 31,250 46,875 62,500
150,000................................................. 18,750 37,500 56,250 75,000
175,000................................................. 18,750 37,500 56,250 75,000
200,000................................................. 18,750 37,500 56,250 75,000
300,000................................................. 18,750 37,500 56,250 75,000
400,000................................................. 18,750 37,500 56,250 75,000
</TABLE>
- ------------------
* "Covered Remuneration" for the named executive officers means the amount shown
in the salary column of the Summary Compensation Table. Credited full years of
service for the named executive officers are as follows: Mr. Hamilton, 9
years; Mr. Parkerson, 9 years; Mr. Rosenthal, 6 years; Mr. Boucher, 2 years;
and Mr. Ringo, 1 year. The amounts shown in the Pension Plan Table do not
reflect any deduction for Social Security or other offset amounts.
52
<PAGE>
CERTAIN TRANSACTIONS
In 1995 and 1996, the Company sold shares of Common Stock to certain of its
officers and directors. As consideration for these shares, certain executive
officers and directors executed promissory notes in favor of the Company. In
September 1996, Mr. Boucher purchased 8,750 shares for $262,500, payable under a
promissory note bearing interest at an annual rate of 7.25% and maturing in
September 2006. In September 1996, Mr. Parkerson purchased 11,650 shares for
$349,500, of which $104,656 was paid in cash and $244,844 is payable under a
promissory note bearing interest at an annual rate of 7.25% and maturing in
September 2006. In August 1995 and September 1996, Mr. Ringo purchased a total
of 17,450 shares for $523,500, payable under (i) a promissory note for $67,500,
bearing interest at an annual rate of 7.25% and maturing in December 2005, and
(ii) a promissory note for $456,000, bearing interest at an annual rate of 6.83%
and maturing in December 2004. In September 1996, Mr. Rosenthal purchased 8,750
shares for $262,500, of which $74,412 was paid in cash and $188,088 is payable
under a promissory note bearing interest at an annual rate of 7.25% and maturing
in September 2006. In September 1996, Mr. Colon-Osorio purchased 6,975 shares
for $209,250, payable under a promissory note bearing interest at an annual rate
of 7.25% and maturing in September 2006.
In September 1996, the Company paid $180,000 to Eugene Parkerson in
consideration of the cancellation of an option for the purchase of 10,000 shares
of the Company's Common Stock. Also, in September 1996, the Company paid
$135,000 to Reuben Rosenthal in consideration of the cancellation of an option
for the purchase of 7,500 shares of the Company's Common Stock.
On January 25, 1995, the Company extended a loan to David Hamilton in the
principal amount of $2,500,000 pursuant to a promissory note with a maturity
date of December 31, 2004 and interest payable annually at the rate of 8.25%. On
January 2, 1996, the Company extended a loan to Mr. Hamilton in the principal
amount of $1,000,000 pursuant to a promissory note with a maturity date of
December 31, 2004 and interest payable annually at the rate of 6.5%. Mr.
Hamilton paid interest to the Company with respect to these loans in the amount
of $91,605 in 1995 and $260,388 in 1996.
In 1988, David Hamilton purchased Common Stock from the Company and paid
for the stock by executing a $1,520,000 promissory note in favor of the Company.
The promissory note matures in 1998 and bears interest at an annual rate of
9.39%. Mr. Hamilton made interest payments to the Company under the note in the
amount of $142,728 in each of 1994, 1995 and 1996.
As of June 29, 1997, the Company advanced $683,116 to David Hamilton, its
Chairman, President and Chief Executive Officer. The non-interest bearing
advance is repayable on demand.
On January 1, 1995, the Company and George McFadden, a director of the
Company, entered into a consulting agreement under which Mr. McFadden renders
advice and assistance with respect to investment banking matters, general
corporate finance matters and the management of the Company's pension plans. The
agreement provides for Mr. McFadden to receive a monthly consulting fee of
$60,000, plus additional amounts as determined from time to time by the Board of
Directors of the Company. The agreement is terminable by either party upon 18
months prior written notice. Payments to Mr. McFadden for these services
included $720,000 in 1994, $730,000 in 1995 and $1,251,000 in 1996.
On December 11, 1995, Chemical Leaman and Acumen Consulting Group, Inc.
("Acumen") entered into a Service Agreement under which Acumen agreed to assist
in the development and implementation of the Company's new information
technology system on a fee for service basis. The president, controlling
stockholder and a director of Acumen is Fernando Colon-Osorio, a director of the
Company. In 1995 and 1996, Chemical Leaman paid $670,000 and $2,525,000,
respectively, to Acumen for services rendered under the Service Agreement. In
addition, on July 1, 1996, the Company and Mr. Colon-Osorio entered into a
Consulting Agreement for Mr. Colon-Osorio to assist the Company with the
management of its new information technology system. The Consulting Agreement
provides for Mr. Colon-Osorio to receive a consulting fee of $20,834 per month
and the potential to
53
<PAGE>
receive a bonus of up to 100% of the base consulting fee, payable at the end of
1996 and 1997. The Consulting Agreement has a termination date of December 31,
1997.
On June 10, 1994, in connection with the termination of his position as
Chief Financial Officer of the Company, Charles Fernald, Jr., a director of the
Company, entered into an agreement under which the Company agreed to pay Mr.
Fernald $131,729 from June 18, 1994 until June 17, 1995, $100,000 per year from
June 18, 1995 until June 17, 1998 and $10,000 per year from June 18, 1998 until
December 31, 2004. Under the agreement, the Company also reimburses Mr. Fernald
for payment of medical insurance premiums.
On July 1, 1992, the Company and Samuel Niness, Jr., a director of the
Company, entered into a consulting agreement under which Mr. Niness renders
advice to the Company and agreed not to compete with the Company in exchange for
a monthly fee of $4,500. The consulting agreement terminates on June 30, 1999.
In 1994 and 1995, John McFadden, a director of the Company, was a partner
of Pepper, Hamilton & Scheetz LLP, which renders legal services to the Company.
54
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of the Company's
Common Stock as of June 29, 1997 with respect to each of the Company's
directors, the named executive officers, all directors and executive officers as
a group and each person who owns more than 5% of the Company's Common Stock.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SHARES BENEFICIALLY OUTSTANDING SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED OF COMMON STOCK
- --------------------------------------- -------------------- ------------------
<S> <C> <C>
David R. Hamilton............................. 216,600(2) 37.3%
George McFadden............................... 186,200(3) 32.0%
John H. McFadden.............................. 43,400 7.5%
G. Michael Cronk.............................. 13,600 2.3%
Samuel F. Niness, Jr.......................... -- --
David M. Boucher.............................. 8,750 1.5%
Philip J. Ringo............................... 17,450 3.0%
Eugene C. Parkerson........................... 11,650 2.0%
Samuel C. Hamilton, Jr........................ 1,000 .2%
Charles E. Fernald, Jr........................ -- --
Reuben M. Rosenthal........................... 8,750 1.5%
Fernando C. Colon-Osorio...................... 6,975 1.2%
Karen Szabo Lloyd............................. 30,200(4) 5.2%
Directors and executive officers as a group
(12 persons)................................ 518,445 89.2%
</TABLE>
- ------------------
(1) Unless otherwise specified, the address of each listed beneficial owner is
102 Pickering Way, Exton, PA 19341.
(2) Includes 61,200 shares held in trust for the benefit of Mr. Hamilton's
children.
(3) Includes 35,800 shares owned by other family members and 105,200 shares
owned in trust for the benefit of Mr. McFadden and other family members.
(4) Issuable upon conversion of preferred stock.
55
<PAGE>
NEW REVOLVING CREDIT FACILITY
In connection with the Offering of the Old Notes, Chemical Leaman
Corporation entered into a revolving credit facility with CoreStates Bank, N.A.
(the "New Revolving Credit Facility"). The material terms of the New Revolving
Credit Facility are discussed below.
The New Revolving Credit Facility provides for up to $20 million of
revolving loans and letters of credit. Borrowings under the New Revolving Credit
Facility may be used for general corporate purposes, including for working
capital and the purchase of revenue equipment. Amounts outstanding under the New
Revolving Credit Facility will bear interest at a variable rate at the Company's
election of (i) the Base Rate (as defined therein) plus 1/2% or (ii) LIBOR (as
defined therein) plus 1.80%. The Company will be required to pay a letter of
credit fee of 1.80% per annum of letters of credit outstanding and a commitment
fee of 3/8% per annum of the unused portion of the facility. In addition, a
$100,000 administrative fee was payable at the closing. The New Revolving Credit
Facility will mature in June 2000, subject to a maximum of two annual extensions
at the option of the Company upon the approval of CoreStates. The New Revolving
Credit Facility was undrawn at the closing of the Offering, except for $3.9
million of stand-by letters of credit which were rolled over from an existing
facility.
The New Revolving Credit Facility will be secured by $25 million of revenue
equipment to be held by Chemical Leaman Corporation and leased to certain of its
subsidiaries and availability under the facility is limited to 80% of the value
of such equipment. Borrowings under the New Revolving Credit Facility are
subject to the further condition that a material adverse change has not
occurred.
The New Revolving Credit Facility contains financial covenants including a
minimum net worth test and a minimum fixed charge coverage ratio. In addition,
the New Revolving Credit Facility contains covenants that restrict certain
mergers, acquisitions and sales of assets, the incurrence of indebtedness and
making of guarantees, the payment of dividends, the repurchase of stock, the
making of loans to shareholders and the granting of liens. In addition, the New
Revolving Credit Facility prohibits a redemption or repurchase of the New Notes
while a default exists under the New Revolving Credit Facility, and will require
a prepayment of the New Revolving Credit Facility in the event of a repurchase
of the New Notes upon a Change of Control under the Indenture. See "Description
of the Notes - Change of Control" and "- Certain Definitions."
The New Revolving Credit Facility contains customary events of default,
including failure to pay principal, interest or fees when due, non-compliance
with covenants, a representation or warranty shall prove to be false in any
material respect, the occurrence of certain bankruptcy events, cross-defaults to
other indebtedness, the existence of certain unstayed and undischarged
judgments, the occurrence of a change of control under the New Revolving Credit
Facility and the occurrence of a material adverse change. A change of control
would occur under the New Revolving Credit Facility if the beneficial ownership
of the Company's common stock by David R. Hamilton, George McFadden and John H.
McFadden and the Estate of Joseph C. Szabo were to fall below 30%.
56
<PAGE>
DESCRIPTION OF THE NEW NOTES
The New Notes will be issued under an Indenture dated as of June 16, 1997,
(the "Indenture") among the Company and First Union National Bank, as trustee
(the "Trustee"). For purposes of this section, references to the "Company" mean
only Chemical Leaman Corporation and not any of its subsidiaries. References to
the New Notes, Old Notes or Notes include the Exchange Notes unless the context
otherwise requires. Upon the issuance of the Exchange Notes, if any, or the
effectiveness of a Shelf Registration Statement, the Indenture will be subject
to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
following summary of the material provisions of the Indenture does not purport
to be complete and is subject to, and qualified by, reference to the provisions
of the Indenture, including the definitions of certain terms contained therein
and those terms made part of the Indenture by reference to the Trust Indenture
Act, as in effect on the date of the Indenture. The definition of certain terms
used in the following summary are set forth below under "- Certain Definitions."
GENERAL
The New Notes will be general unsecured senior obligations of the Company
limited to $100,000,000 aggregate principal amount. The New Notes will be issued
only in fully registered form without coupons, in denominations of $1,000 and
integral multiples thereof. Principal of, premium, if any, and interest on the
New Notes are payable, and the New Notes are transferable, at the office or
agency of the Company in The City of New York maintained for such purposes
(which initially will be the corporate trust office of the Trustee); provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the Person entitled thereto as shown on the security register.
No service charge will be made for any registration of transfer, exchange or
redemption of the Notes, except in certain circumstances for any tax or other
governmental charge that may be imposed in connection therewith.
MATURITY, INTEREST AND PRINCIPAL
The New Notes will mature on June 15, 2005. Interest on the New Notes will
accrue at the rate of 10 3/8% per annum and will be payable semi-annually on
each June 15 and December 15, commencing December 15, 1997, to the holders of
record of New Notes at the close of business on the June 1 and December 1,
respectively, immediately preceding such interest payment date. Interest on the
New Notes will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from the Issue Date. Interest will be computed
on the basis of a 360-day year of twelve 30-day months. The interest rate on the
Notes is subject to increase under certain circumstances if the Company is not
in compliance with its obligations under the Registration Rights Agreement. See
"Exchange Offer."
OPTIONAL REDEMPTION
Optional Redemption. The New Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after June 15, 2001, at the
redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest thereon, if any, to the date of
redemption, if redeemed during the 12-month period beginning on June 15 of the
years indicated below:
REDEMPTION
YEAR PRICE
- ---- ----------
2001........................................................ 105.188%
2002........................................................ 103.458%
2003........................................................ 101.729%
2004 and thereafter......................................... 100.000%
57
<PAGE>
Optional Redemption upon Public Equity Offering. On or prior to June 15,
2000, the Company may, at its option, use the net proceeds of a Public Equity
Offering to redeem up to 25% of the originally issued aggregate principal amount
of the New Notes, at a redemption price in cash equal to 110 3/8% of the
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the date of redemption; provided, however, that not less than $75 million in
aggregate principal amount of Notes is outstanding following such redemption.
Notice of any such redemption must be given not later than 60 days after the
consummation of the Public Equity Offering.
As used in the preceding paragraph, a "Public Equity Offering" means an
underwritten public offering of Capital Stock (other than Redeemable Capital
Stock) of the Company made on a primary basis by the Company pursuant to a
registration statement filed with and declared effective by the Commission in
accordance with the Securities Act resulting in net cash proceeds to the Company
(after deducting any underwriting discounts and commissions) of at least $50
million.
Selection and Notice. In the event that less than all of the New Notes are
to be redeemed at any time, selection of New Notes for redemption shall be made
by the Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the New Notes are listed or, if the New
Notes are not listed on a national securities exchange, on a pro rata basis, by
lot or by such method as the Trustee will deem fair and appropriate; provided,
however, that no New Notes of a principal amount of $1,000 or less shall be
redeemed in part; provided, further, however, that any such redemption made with
the net proceeds of a Public Equity Offering shall be made on a pro rata basis
or on as nearly a pro rata basis as practicable (subject to the procedures of
The Depository Trust Company or any other depositary). Notice of redemption will
be mailed by first class mail at least 30 but not more than 60 days before the
redemption date to each holder of New Notes to be redeemed at its registered
address. If any New Note is to be redeemed in part only, the notice of
redemption that relates to such New Note will state the portion of the principal
amount thereof to be redeemed. A New Note in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof upon
cancellation of the Old Note. On and after the redemption date, interest will
cease to accrue on Notes or portions thereof called for redemption so long as
the Company has deposited with the paying agent for the New Notes funds in
satisfaction of the applicable redemption price pursuant to the Indenture.
CHANGE OF CONTROL
The Indenture provides that, following the occurrence of a Change of
Control (the date of such occurrence being the "Change of Control Date"), the
Company will be obligated, within 20 days after the Change of Control Date, to
make an offer to purchase (a "Change of Control Offer") all of the then
outstanding New Notes at a purchase price (the "Change of Control Purchase
Price") in cash equal to 101% of the principal amount thereof, plus accrued and
unpaid interest thereon, if any, to the purchase date. The Company will be
required to purchase all New Notes properly tendered into the Change of Control
Offer and not withdrawn.
In order to effect such Change of Control Offer, the Company will, not
later than the 20th business day after the Change of Control Date, be obligated
to mail to each holder of New Notes notice of the Change of Control Offer, which
notice will govern the terms of the Change of Control Offer and will state,
among other things, the procedures that holders must follow to accept the Change
of Control Offer. The Change of Control Offer will be required to be kept open
for a period of at least 20 business days.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the purchase price for all
of the New Notes that might be tendered by holders of New Notes seeking to
accept the Change of Control Offer. If the Company fails to repurchase all of
the New Notes tendered for purchase, such failure will constitute an Event of
Default under the Indenture. See "- Events of Default" below.
The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act, and any other applicable securities laws
or regulations and any applicable requirements
58
<PAGE>
of any securities exchange on which the Notes are listed, in connection with the
repurchase of Notes pursuant to a Change of Control Offer, and any violation of
the provisions of the Indenture relating to such Change of Control Offer
occurring as a result of such compliance shall not be deemed a Default.
CERTAIN COVENANTS
The Indenture contains the following covenants, among others:
Limitation on Indebtedness. The Company shall not, and shall not cause or
permit any of the Restricted Subsidiaries to, directly or indirectly, create,
incur, assume, issue, guarantee or in any manner become liable for or with
respect to, contingently or otherwise (in each case, to "incur"), the payment of
any Indebtedness (including any Acquired Indebtedness); provided, however, that
(i) the Company may incur Indebtedness (including Acquired Indebtedness) and
(ii) a Restricted Subsidiary may incur Acquired Indebtedness, if, in either
case, immediately after giving pro forma effect thereto, the Consolidated Fixed
Charge Coverage Ratio of the Company is at least equal to (i) if the date of
such incurrence is on or prior to December 31, 2000, 2.00:1.0, and (ii) if the
date of such incurrence is after December 31, 2000, 2.25:1.0.
Notwithstanding the foregoing, the Company and, to the extent specifically
set forth below, the Restricted Subsidiaries may incur each and all of the
following (collectively, "Permitted Indebtedness"):
(i) Indebtedness of the Company under the New Revolving Credit
Facility in an aggregate principal amount at any time outstanding not to
exceed $20.0 million (it being understood that additional Indebtedness may
be incurred under the New Revolving Credit Facility pursuant to other
provisions of this covenant);
(ii) Indebtedness of the Company or any Guarantor under the Indenture
and the Notes;
(iii) Indebtedness of the Company or any Restricted Subsidiary not
otherwise referred to in this paragraph that is outstanding on the issue
date of the Old Notes ("Issue Date"), except Indebtedness to be repaid in
connection with the issuance of the Old Notes;
(iv) Indebtedness of the Company or any Restricted Subsidiary in
respect of performance bonds, bankers' acceptances, letters of credit of
the Company or any Restricted Subsidiary and surety bonds provided by the
Company or any Restricted Subsidiary in the ordinary course of business,
not to exceed $10.0 million in the aggregate at any time outstanding;
(v) Indebtedness of any Restricted Subsidiary owed to and held by the
Company or any Restricted Subsidiary, and Indebtedness of the Company owed
to and held by any Restricted Subsidiary which is unsecured and
subordinated in right of payment to the payment and performance of the
Company's obligations under the Indenture and the New Notes; provided,
however, that an incurrence of Indebtedness that is not permitted by this
clause (v) shall be deemed to have occurred upon (a) any sale or other
disposition of any Indebtedness of the Company or any Restricted Subsidiary
referred to in this clause (v) to a Person (other than the Company or any
Restricted Subsidiary), (b) any sale or other disposition of Capital Stock
of any Restricted Subsidiary which holds Indebtedness of the Company or
another Restricted Subsidiary such that such Restricted Subsidiary ceases
to be a Restricted Subsidiary and (c) the designation of a Restricted
Subsidiary which holds Indebtedness of the Company or any other Restricted
Subsidiary as an Unrestricted Subsidiary;
(vi) any guarantee of Indebtedness by a Restricted Subsidiary incurred
in compliance with the covenant described under "- Limitations on
Guarantees by Restricted Subsidiaries;"
(vii) Interest Rate Protection Obligations of the Company or any
Restricted Subsidiary covering Indebtedness of the Company or such
Restricted Subsidiary (which Indebtedness (a) bears interest at fluctuating
interest rates and (b) is otherwise permitted to be incurred under this
covenant) to the extent the notional principal amount of such Interest Rate
Protection
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Obligations does not exceed the principal amount of the Indebtedness to
which such Interest Rate Protection Obligations relate;
(viii) Indebtedness of the Company or any Restricted Subsidiary under
Currency Agreements relating to (a) Indebtedness of the Company or such
Restricted Subsidiary and/or (b) obligations to purchase or sell assets or
properties, in each case, incurred in the ordinary course of business of
the Company; provided, however, that such Currency Agreements do not
increase the Indebtedness or other obligations of the Company outstanding
other than as a result of fluctuations in foreign currency exchange rates
or by reason of fees, indemnities and compensation payable thereunder;
(ix) Purchase Money Indebtedness and Capitalized Lease Obligations of
the Company or any Restricted Subsidiary not to exceed $10.0 million in the
aggregate outstanding at any time;
(x) (a) Indebtedness of the Company or any Guarantor to the extent the
proceeds thereof are used to Refinance Indebtedness of the Company or any
Guarantor or any Restricted Subsidiary and (b) Indebtedness of any
Restricted Subsidiary that is not a Guarantor to the extent the proceeds
thereof are used to Refinance Indebtedness of any Restricted Subsidiary
that is not a Guarantor, in each case incurred under the first paragraph of
this covenant or Indebtedness referred to under clause (iii) (other than
the Indebtedness to be repaid as described under "Use of Proceeds") of this
paragraph; provided, however, that, in the case of either clause (a) or
(b), (1) the principal amount of Indebtedness incurred pursuant to this
clause (x) (or, if such Indebtedness provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration of the maturity thereof, the original issue price of such
Indebtedness) shall not exceed the sum of the principal amount of
Indebtedness so refinanced (or, if such Indebtedness provides for an amount
less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof, the original issue
price of such Indebtedness, plus any accreted value attributable thereto
since the original issuance of such Indebtedness), plus the amount of any
premium required to be paid in connection with such Refinancing pursuant to
the terms of such Indebtedness or the amount of any premium reasonably
determined by the Company or a Restricted Subsidiary, as applicable, as
necessary to accomplish such Refinancing by means of a tender offer or
privately negotiated purchase, plus the amount of expenses in connection
therewith; and (2) Indebtedness incurred pursuant to this clause (x) shall
not reduce the Average Life to Stated Maturity of the Indebtedness so
refinanced; and
(xi) in addition to the items referred to in clauses (i) through (x)
above, additional Indebtedness of the Company or any Restricted Subsidiary
not to exceed an aggregate principal amount at any time outstanding of
$10.0 million.
Limitation on Restricted Payments. The Company shall not, and shall not
cause or permit any of the Restricted Subsidiaries to, directly or indirectly:
(i) declare or pay any dividend or make any other distribution or
payment on or in respect of Capital Stock of the Company or any Restricted
Subsidiary or any payment made to the direct or indirect holders (in their
capacities as such) of Capital Stock of the Company or any Restricted
Subsidiary (other than dividends or distributions made to the Company or a
Restricted Subsidiary and dividends and distributions payable solely in
Capital Stock of the Company (other than Redeemable Capital Stock) or in
rights to purchase Capital Stock of the Company (other than Redeemable
Capital Stock)); or
(ii) purchase, redeem, defease or otherwise acquire or retire for
value any Capital Stock of the Company or any Restricted Subsidiary (other
than any such Capital Stock owned by the Company or a Restricted
Subsidiary); or
(iii) make any principal payment on, or purchase, defease, repurchase,
redeem or otherwise acquire or retire for value, prior to any scheduled
maturity, scheduled repayment, scheduled sinking fund payment or other
Stated Maturity, any Subordinated Indebtedness (other than any Subordinated
Indebtedness owed to and held by the Company or a Restricted Subsidiary);
or
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(iv) make any Investment (other than a Permitted Investment) in any
Person (other than in the Company, any Restricted Subsidiary or a Person
that becomes a Restricted Subsidiary, or is merged with or into or
consolidated with the Company or a Restricted Subsidiary (provided the
Company or a Restricted Subsidiary is the survivor), as a result of or in
connection with such Investment)
(each such payment or Investment (other than an exception thereto) described in
the preceding clauses (i), (ii), (iii) and (iv) is referred to as a "Restricted
Payment"), unless, at the time of and after giving effect to the proposed
Restricted Payment (the amount of any such Restricted Payment, if other than in
cash, shall be the Fair Market Value of the asset(s) proposed to be transferred
by the Company or such Restricted Subsidiary, as the case may be, pursuant to
such Restricted Payment):
(A) no Default shall have occurred and be continuing;
(B) the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under the "Limitation on Indebtedness"
covenant described above; and
(C) the aggregate amount of all Restricted Payments declared or made
from and after the Issue Date would not exceed the sum of (1) 50% of
cumulative Consolidated Net Income of the Company during the period
(treated as one accounting period) beginning on the Issue Date and ending
on the last day of the fiscal quarter of the Company immediately preceding
the date of such proposed Restricted Payment for which consolidated
financial information of the Company is available (or, if such cumulative
Consolidated Net Income of the Company for such period shall be a deficit,
minus 100% of such deficit), plus (2) the aggregate net cash proceeds
received by the Company either (x) as capital contributions in the form of
common equity to the Company after the Issue Date or (y) from the issuance
or sale of Capital Stock (excluding Redeemable Capital Stock but including
Capital Stock issued upon the conversion of convertible Indebtedness, in
exchange for outstanding Indebtedness or from the exercise of options,
warrants or rights to purchase Capital Stock (other than Redeemable Capital
Stock)) of the Company to any Person (other than to a Restricted Subsidiary
of the Company) after the Issue Date (excluding the net cash proceeds from
any issuance and sale of Capital Stock financed, directly or indirectly,
using funds borrowed from the Company or any Restricted Subsidiary until
and to the extent such borrowing is repaid), plus (3) in the case of the
disposition or repayment of any Investment constituting a Restricted
Payment made after the Issue Date, an amount (to the extent not included in
Consolidated Net Income and to the extent such disposition or repayment
does not reduce the amount of Investments outstanding under clause (viii)
of the second succeeding paragraph hereunder) equal to the lesser of the
return of capital with respect to such Investment and the initial amount of
such Investment which was treated as a Restricted Payment, in either case,
less the cost of the disposition of such Investment and net of taxes, plus
(4) so long as the Designation thereof was treated as a Restricted Payment
made after the Issue Date, with respect to any Unrestricted Subsidiary that
has been redesignated as a Restricted Subsidiary after the Issue Date in
accordance with "- Limitation on Designations of Unrestricted Subsidiaries"
below, the Fair Market Value of the Company's interest in such Subsidiary
calculated in accordance with GAAP, provided that such amount shall not in
any case exceed the Designation Amount with respect to such Restricted
Subsidiary upon its Designation, minus (5) the Designation Amount (measured
as of the date of Designation) with respect to any Subsidiary of the
Company which has been designated as an Unrestricted Subsidiary after the
Issue Date in accordance with "- Limitation on Designations of Unrestricted
Subsidiaries" below.
For purposes of the preceding clause (C)(2), upon the issuance of Capital
Stock either from the conversion of convertible Indebtedness or exchange for
outstanding Indebtedness or upon the exercise of options, warrants or rights,
the amount counted as net cash proceeds received will be the cash amount
received by the Company at the original issuance of the Indebtedness that is so
converted or exchanged or from the issuance of options, warrants or rights, as
the case may be, plus the incremental amount of cash received by the Company, if
any, upon the conversion, exchange or exercise thereof.
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None of the foregoing provisions of this covenant will prohibit (i) the
payment of any dividend within 60 days after the date of its declaration, if at
the date of declaration such payment would be permitted by the provisions of the
Indenture; (ii) so long as no Default shall have occurred and be continuing or
would arise therefrom, the redemption, repurchase or other acquisition or
retirement of any shares of any class of Capital Stock of the Company in
exchange for, or out of the net cash proceeds of, a substantially concurrent
issue and sale of other shares of Capital Stock (other than Redeemable Capital
Stock) of the Company to any Person (other than to a Restricted Subsidiary);
provided, however, that any such net proceeds and the value of any Capital Stock
issued in exchange for such retired Capital Stock are excluded from clause
(C)(2) of the second preceding paragraph; (iii) so long as no Default shall have
occurred and be continuing or would arise therefrom, any redemption, repurchase
or other acquisition or retirement of Subordinated Indebtedness made by exchange
for, or out of the net cash proceeds of, a substantially concurrent issue and
sale of (A) Capital Stock (other than Redeemable Capital Stock) of the Company
to any Person (other than to a Restricted Subsidiary); provided, however, that
any such net cash proceeds and the value of any Capital Stock issued in exchange
for Subordinated Indebtedness are excluded from clause (C)(2) of the second
preceding paragraph; or (B) Indebtedness of the Company or any Guarantor so long
as such Indebtedness (1) is subordinated to the Notes and the Note Guarantees of
such Guarantor, as the case may be, at least to the same extent as the
Subordinated Indebtedness so purchased, exchanged, redeemed, repurchased,
acquired or retired, (2) has no Stated Maturity earlier than the Stated Maturity
for the final scheduled principal payment of the Notes and (3) shall not reduce
the Average Life to Stated Maturity of the Subordinated Indebtedness so
redeemed, repurchased, acquired or retired; (iv) Investments constituting
Restricted Payments made as a result of the receipt of non-cash consideration
from any Asset Sale made pursuant to and in compliance with the covenant "-
Disposition of Proceeds of Asset Sales"; (v) the purchase, redemption or other
acquisition, cancellation or retirement for value of Capital Stock, or options,
warrants, equity appreciation rights or other rights to purchase or acquire
Capital Stock, of the Company or any Restricted Subsidiary, or similar
securities, held by officers or employees or former officers or employees of the
Company or any Restricted Subsidiary (or their estates or beneficiaries under
their estates), upon death, disability, retirement or termination of employment,
not to exceed $1.0 million in any consecutive 12-month period; (vi) the payment
of dividends on the Outstanding Preferred Stock as required pursuant to the
terms of the Company's Articles of Incorporation as in effect on the Issue Date;
(vii) the redemption of shares of the Company's Series A Preferred Stock, no par
value per share, outstanding on the Issue Date required by the holder thereof
after August 1, 2002 pursuant to the Company's Articles of Incorporation as in
effect on the Issue Date; or (viii) Investments not to exceed $5.0 million in
the aggregate outstanding at any time. In computing the amount of Restricted
Payments previously made for purposes of clause (C) of the second preceding
paragraph, Restricted Payments under the immediately preceding clauses (i),
(iv), (v), (vi), (vii) and (viii) shall be included.
Limitation on Transactions with Affiliates. The Company shall not, and
shall not cause or permit any of the Restricted Subsidiaries to, directly or
indirectly, conduct any business or enter into or suffer to exist any
transaction or series of related transactions with, or for the benefit of, any
of their respective Affiliates or any beneficial holder of 10% or more of any
class of Capital Stock of the Company or any officer, director or employee of
the Company or any Restricted Subsidiary (each, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the Restricted Subsidiary, as the case may be, than those which
could have been obtained in a comparable transaction at such time from Persons
who do not have such a relationship, (ii) with respect to any Affiliate
Transaction or series of Affiliate Transactions involving aggregate payments or
value equal to or greater than $1.0 million, the Company shall have delivered an
officers' certificate to the Trustee certifying that such Affiliate Transaction
or series of Affiliate Transactions has been approved by a majority of the Board
of Directors of the Company, including a majority of the disinterested directors
of the Board of Directors of the Company, and (iii) with respect to any
Affiliate Transaction or series of Affiliate Transactions involving aggregate
payments or value equal to or greater than $5.0 million, the Company shall have
obtained a written opinion from an Independent Financial Advisor stating that
the terms of such Affiliate Transaction or series of Affiliate Transactions
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are fair, from a financial point of view, to the Company or the Restricted
Subsidiary involved, as the case may be.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions with or among the Company and the Restricted
Subsidiaries; (ii) customary directors' fees, indemnification and similar
arrangements, consulting fees, employee salaries, bonuses or employment
agreements, compensation or employee benefit arrangements and incentive
arrangements with any officer, director or employee of the Company or any
Restricted Subsidiary entered into in the ordinary course of business (including
customary benefits thereunder) and payments under any indemnification
arrangements permitted by applicable law; (iii) the issue and sale by the
Company to its stockholders of Capital Stock (other than Redeemable Capital
Stock); (iv) any dividends made in compliance with "- Limitation on Restricted
Payments" above; (v) loans and advances to officers, directors and employees of
the Company or any Restricted Subsidiary for travel, entertainment, moving and
other relocation expenses, in each case made in the ordinary course of business;
(vi) the incurrence of intercompany Indebtedness permitted pursuant to clause
(v) of the second paragraph of "- Limitation on Indebtedness" above; (vii)
Affiliate Transactions consummated prior to the Issue Date and any renewal or
replacement thereof on terms and conditions no less favorable in any respect
than that existing on the Issue Date; (viii) payments to George McFadden
pursuant to the Consulting Agreement (as in effect on the Issue Date) not to
exceed $1.25 million in any fiscal year (exclusive of reimbursement of expenses)
of; (ix) loans and advances to David R. Hamilton made after the Issue Date not
to exceed $350,000 in the aggregate at any one time outstanding; and (x)
payments to Acumen Consulting Group, Inc. as required by and pursuant to the
terms of the Service Agreement (as in effect on the Issue Date).
Disposition of Proceeds of Asset Sales. The Company shall not, and shall
not cause or permit any Restricted Subsidiary to, directly or indirectly, make
any Asset Sale, unless (i) the Company or such Restricted Subsidiary, as the
case may be, receives consideration at the time of such Asset Sale at least
equal to the Fair Market Value of the assets sold or otherwise disposed of and
(ii) at least 85% of such consideration consists of (A) cash or Cash
Equivalents, (B) properties and capital assets to be used in the same line of
business being conducted by the Company or any Restricted Subsidiary on the
Issue Date or (C) Capital Stock in any Person which thereby becomes a Restricted
Subsidiary whose assets consist primarily of properties and capital assets used
in the same line of business being conducted by the Company or any Restricted
Subsidiary on the Issue Date. The amount of any (i) Indebtedness (other than any
Subordinated Indebtedness) of the Company or any Restricted Subsidiary that is
actually assumed by the transferee in such Asset Sale and from which the Company
and the Restricted Subsidiaries are fully released shall be deemed to be cash
for purposes of determining the percentage of cash consideration received by the
Company or the Restricted Subsidiaries and (ii) notes or other similar
obligations received by the Company or the Restricted Subsidiaries from such
transferee that are converted, sold or exchanged within thirty days of the
related Asset Sale by the Company or the Restricted Subsidiaries into cash shall
be deemed to be cash, in an amount equal to the net cash proceeds realized upon
such conversion, sale or exchange for purposes of determining the percentage of
cash consideration received by the Company or the Restricted Subsidiaries.
The Company or such Restricted Subsidiary, as the case may be, may (i)
apply the Net Cash Proceeds of any Asset Sale within 365 days of receipt thereof
to (x) repay Indebtedness of the Company or any Restricted Subsidiary which is
secured by a Lien on the assets or property of the Company or a Restricted
Subsidiary which was the subject of such Asset Sale and permanently reduce any
related commitment or (y) repay any Indebtedness (other than Subordinated
Indebtedness and other than any Indebtedness owed to the Company or any
Restricted Subsidiary) of the Company or any Guarantor in an amount not to
exceed the Other Senior Debt Pro Rata Share and permanently reduce any related
commitment, or (ii) commit in writing to acquire, construct or improve
properties and capital assets to be used in the same line of business as being
conducted by the Company or any Restricted Subsidiary on the Issue Date and so
apply such Net Cash Proceeds within 365 days after the receipt thereof.
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To the extent all or part of the Net Cash Proceeds of any Asset Sale are
not applied, or the Company determines not to so apply such Net Cash Proceeds,
within 365 days of such Asset Sale as described in clause (i) or (ii) of the
immediately preceding paragraph (such Net Cash Proceeds, the "Unutilized Net
Cash Proceeds"), the Company shall, within 20 days after such 365th day or at
any earlier time after such Asset Sale, make an offer to purchase (the "Asset
Sale Offer") all outstanding Notes up to a maximum principal amount (expressed
as a multiple of $1,000) of Notes equal to such Unutilized Net Cash Proceeds, at
a purchase price in cash equal to 100% of the principal amount thereof, plus
accrued and unpaid interest thereon, if any, to the Purchase Date; provided,
however, that the Asset Sale Offer may be deferred until there are aggregate
Unutilized Net Cash Proceeds equal to or in excess of $10.0 million, at which
time the entire amount of such Unutilized Net Cash Proceeds, and not just the
amount in excess of $10.0 million, shall be applied as required pursuant to this
paragraph. An Asset Sale Offer will be required to be kept open for a period of
at least 20 business days.
With respect to any Asset Sale Offer effected pursuant to this covenant,
among the Notes, to the extent the aggregate principal amount of Notes tendered
pursuant to such Asset Sale Offer exceeds the Unutilized Net Cash Proceeds to be
applied to the repurchase thereof, such Notes shall be purchased pro rata based
on the aggregate principal amount of such Notes tendered by each Holder. To the
extent the Unutilized Net Cash Proceeds exceed the aggregate amount of Notes
tendered by the Holders of the Notes pursuant to such Asset Sale Offer, the
Company may retain and utilize any portion of the Unutilized Net Cash Proceeds
not applied to repurchase the Notes for any purpose consistent with the other
terms of the Indenture.
In the event that the Company makes an Asset Sale Offer, the Company shall
comply, to the extent applicable, with the requirements of Section 14(e) of the
Exchange Act, and any other applicable securities laws or regulations and any
applicable requirements of any securities exchange on which the Notes are
listed, and any violation of the provisions of the Indenture relating to such
Asset Sale Offer occurring as a result of such compliance shall not be deemed a
Default.
Limitation on Liens. The Company shall not, and shall not cause or permit
any Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien
(except Permitted Liens) of any kind, upon any of its property or assets,
whether now owned or acquired after the Issue Date, or any proceeds therefrom,
or assign or convey any right to receive income therefrom; provided, however,
the Company or any Guarantor may secure either (i) Subordinated Indebtedness, if
the Notes, in the case of the Company, and the Note Guarantee, in the case of a
Restricted Subsidiary that is a Guarantor, are secured by a Lien on such
property, assets or proceeds that is senior in priority to the Lien securing
such Subordinated Indebtedness or (ii) any other Indebtedness, if the New Notes,
in the case of the Company, and the Note Guarantee, in the case of a Restricted
Subsidiary that is a Guarantor, are equally and ratably secured thereby.
Limitation on Guarantees by Restricted Subsidiaries. The Company shall not
cause or permit any of the Domestic Subsidiaries, directly or indirectly, to
guarantee the payment of any Indebtedness of the Company ("Other Indebtedness")
unless such Domestic Subsidiary (A) is a Guarantor or (B) simultaneously
executes and delivers a supplemental indenture to the Indenture pursuant to
which it will become a Guarantor under the Indenture; provided, however, that if
such Other Indebtedness is (i) pari passu in right of payment with the New
Notes, the Note Guarantee of such Domestic Subsidiary shall be pari passu in
right of payment with the guarantee of the Other Indebtedness; or (ii)
Subordinated Indebtedness, the Note Guarantee of such Domestic Subsidiary shall
be senior in right of payment to the guarantee of the Other Indebtedness (which
guarantee of such Subordinated Indebtedness shall provide that such guarantee is
subordinated to the Note Guarantee of such Domestic Subsidiary to the same
extent and in the same manner as the Other Indebtedness is subordinated to the
Notes); provided, further, however, that each Domestic Subsidiary issuing a Note
Guarantee will be automatically and unconditionally released and discharged from
its obligations under such Note Guarantee upon the release or discharge of the
guarantee of the Other Indebtedness that resulted in the creation of such Note
Guarantee, except a discharge or release by, or as a result of, any payment
under the guarantee of such Other Indebtedness by such Domestic Subsidiary.
Notwithstanding the
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foregoing, but subject to the requirements of "- Consolidation, Merger, Sale of
Assets, Etc.," any Note Guarantee by a Domestic Subsidiary shall be
automatically and unconditionally released and discharged upon any sale,
exchange or transfer, to any Person not an Affiliate of the Company, of all of
the Capital Stock of such Domestic Subsidiary, or all or substantially all the
assets of such Restricted Subsidiary, pursuant to a transaction which is in
compliance with the Indenture (including, but not limited to, the covenant
described in "- Disposition of Proceeds of Asset Sales" above). The Company may,
at any time, cause a Domestic Subsidiary to become a Guarantor by executing and
delivering a supplemental indenture providing for the guarantee of payment of
the New Notes by such Domestic Subsidiary on the basis provided in the
Indenture.
Restrictions on Preferred Stock of Restricted Subsidiaries. The Company
shall not sell, and shall not cause or permit any of the Restricted Subsidiaries
to issue, any Preferred Stock of any Restricted Subsidiary (other than to the
Company or to a Wholly-Owned Restricted Subsidiary) or permit any Person (other
than the Company or a Wholly-Owned Restricted Subsidiary) to own any Preferred
Stock of any Restricted Subsidiary.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company shall not, and shall not cause or permit any
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist, or enter into any agreement with any Person that would cause to
become effective, any consensual encumbrance or restriction of any kind, on the
ability of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise,
or make any other distribution on or in respect of its Capital Stock or any
other interest or participation in, or measured by, its profits, to the Company
or any other Restricted Subsidiary, (b) pay any Indebtedness owed to the Company
or any other Restricted Subsidiary, (c) make loans or advances to, or guarantee
any Indebtedness or other obligations of, the Company or any other Restricted
Subsidiary or (d) transfer any of its property or assets to the Company or any
other Restricted Subsidiary, except any encumbrance or restriction (i) existing
under the New Revolving Credit Facility as in effect on the Issue Date relating
to assets subject to a Lien created thereby; (ii) with respect to a Restricted
Subsidiary that is not a Restricted Subsidiary on the Issue Date, in existence
at the time such Person becomes a Restricted Subsidiary (but not created in
contemplation thereof); provided, however, that such encumbrances and
restrictions are not applicable to the Company or any other Restricted
Subsidiary, or the properties or assets of the Company or any other Restricted
Subsidiary; (iii) customary non-assignment provisions in leases entered into in
the ordinary course of business and consistent with past practices; (iv)
Purchase Money Indebtedness for property acquired in the ordinary course of
business that only imposes encumbrances and restrictions on the property so
acquired; (v) any agreement for the sale or disposition of the Capital Stock or
assets of any Restricted Subsidiary; provided, however, that such encumbrances
and restrictions described in this clause (v) are only applicable to such
Restricted Subsidiary or assets, as applicable, and any such sale or disposition
is made in compliance with "- Disposition of Proceeds of Asset Sales" above to
the extent applicable thereto; and (vi) any encumbrance or restriction existing
under any agreement that Refinances the agreements containing the encumbrance or
restrictions in the foregoing clauses (i) and (ii); provided, however, that the
terms and conditions of any such restrictions permitted under this clause (vi)
are not materially less favorable to the holders of the New Notes than those
under or pursuant to the agreement evidencing the Indebtedness Refinanced.
Limitation on Designations of Unrestricted Subsidiaries. The Company may
designate after the Issue Date any Subsidiary (other than a Guarantor) as an
"Unrestricted Subsidiary" under the Indenture (a "Designation") only if:
(i) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(ii) the Company would be permitted to make an Investment (other than
a Permitted Investment) at the time of Designation (assuming the
effectiveness of such Designation) pursuant to the first paragraph of "-
Limitation on Restricted Payments" above in an amount (the "Designation
Amount") equal to the Fair Market Value of the Company's interest in such
Subsidiary on such date calculated in accordance with GAAP; and
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(iii) the Company would be permitted under the Indenture to incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to the covenant described under "- Limitation on Indebtedness" at
the time of such Designation (assuming the effectiveness of such
Designation).
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant "-
Limitation on Restricted Payments" for all purposes of the Indenture in the
Designation Amount.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, at any time (x) provide credit support for or subject any of its
property or assets (other than the Capital Stock of any Unrestricted Subsidiary)
to the satisfaction of, any Indebtedness of any Unrestricted Subsidiary
(including any undertaking, agreement or instrument evidencing such
Indebtedness), (y) be directly or indirectly liable for any Indebtedness of any
Unrestricted Subsidiary or (z) be directly or indirectly liable for any
Indebtedness which provides that the holder thereof may (upon notice, lapse of
time or both) declare a default thereon or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity upon the occurrence
of a default with respect to any Indebtedness of any Unrestricted Subsidiary
(including any right to take enforcement action against such Unrestricted
Subsidiary), except any non-recourse guarantee given solely to support the
pledge by the Company or any Restricted Subsidiary of the Capital Stock of an
Unrestricted Subsidiary. No Unrestricted Subsidiary shall at any time guarantee
or otherwise provide credit support for any obligation of the Company or any
Restricted Subsidiary. All Subsidiaries of Unrestricted Subsidiaries shall
automatically be deemed to be Unrestricted Subsidiaries.
The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") if:
(i) no Default shall have occurred and be continuing at the time of
and after giving effect to such Revocation;
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of the
Indenture; and
(iii) any transaction (or series of related transactions) between such
Subsidiary and any of its Affiliates that occurred while such Subsidiary
was an Unrestricted Subsidiary would be permitted by "- Limitation on
Transactions with Affiliates" above as if such transaction (or series of
related transactions) had occurred at the time of such Revocation.
All Designations and Revocations must be evidenced by Board Resolutions of
the Company delivered to the Trustee certifying compliance with the foregoing
provisions.
Reporting Requirements. For so long as the New Notes are outstanding,
whether or not the Company is subject to Section 13(a) or 15(d) of the Exchange
Act, or any successor provision thereto, the Company shall file with the
Commission (if permitted by Commission practice and applicable law and
regulations) the annual reports, quarterly reports and other documents which the
Company would have been required to file with the Commission pursuant to such
Section 13(a) or 15(d) or any successor provision thereto if the Company were so
subject, such documents to be filed with the Commission on or prior to the
respective dates (the "Required Filing Dates") by which the Company would have
been required so to file such documents if the Company were so subject. The
Company shall also in any event (a) within 15 days after each Required Filing
Date (whether or not permitted or required to be filed with the Commission) (i)
transmit (or cause to be transmitted) by mail to all holders of Notes, as their
names and addresses appear in the Note register, without cost to such Holders,
and (ii) file with the Trustee, copies of the annual reports, quarterly reports
and other documents which the Company is required to file with the Commission
pursuant to the preceding sentence, or, if such filing is not so permitted,
information and data of a similar nature, and (b) if, notwithstanding the
preceding sentence, filing such documents by the Company with the Commission is
not permitted by Commission practice or applicable law or regulations, promptly
upon written request supply copies of
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such documents to any holder of New Notes. In addition, for so long as any New
Notes remain outstanding, the Company will furnish to the holders of New Notes
and to securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act, and, to any beneficial holder of New Notes, if not obtainable
from the Commission, information of the type that would be filed with the
Commission pursuant to the foregoing provisions, upon the request of any such
holder.
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
The Indenture provides that the Company shall not, in any transaction or
series of related transactions, merge or consolidate with or into, or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets as an entirety to, any Person or Persons, and the
Company shall not permit any of the Restricted Subsidiaries to enter into any
such transaction or series of related transactions if such transaction or series
of related transactions, in the aggregate, would result in a sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially all of
the properties and assets of the Company and the Restricted Subsidiaries
(determined on a consolidated basis for the Company and the Restricted
Subsidiary), to any Person or Persons, unless at the time and after giving
effect thereto (i) either (A)(1) if the transaction or transactions is a merger
or consolidation involving the Company, the Company shall be the Surviving
Person of such merger or consolidation or (2) if the transaction or transactions
is a merger or consolidation involving a Restricted Subsidiary, such Restricted
Subsidiary shall be the Surviving Person of such merger or consolidation, or
(B)(1) the Surviving Person shall be a corporation organized and existing under
the laws of the United States of America, any State thereof or the District of
Columbia and (2)(x) in the case of a transaction involving the Company, the
Surviving Person shall expressly assume by a supplemental indenture executed and
delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Notes and the Indenture and the
Registration Rights Agreement, and in each case, the Indenture and the
Registration Rights Agreement shall remain in full force and effect, or (y) in
the case of a transaction involving a Restricted Subsidiary that is a Guarantor,
the Surviving Person shall expressly assume by a supplemental indenture executed
and delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of such Restricted Subsidiary under its Note Guarantee and the
Indenture and the Registration Rights Agreement, and in each case, such
Indenture and the Registration Rights Agreement shall remain in full force and
effect; (ii) immediately after giving effect to such transaction or series of
related transactions on a pro forma basis, no Default shall have occurred and be
continuing; (iii) the Company, or the Surviving Person, as the case may be,
immediately after giving effect to such transaction or series of related
transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), could incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) under the "-
Limitation on Indebtedness" covenant described above; and (iv) immediately after
giving effect to such transaction or series of related transactions on a pro
forma basis, the Company, or the Surviving Person, as the case may be, shall
have a Consolidated Net Worth not less than the Consolidated Net Worth of the
Company immediately prior to such transaction or series of related transactions.
No Guarantor (other than a Guarantor whose Note Guarantee is to be released
in accordance with the terms of its Note Guarantee and the Indenture as provided
in the second sentence under "- Certain Covenants - Limitation on Guarantees by
Restricted Subsidiaries" above) shall, in any transaction or series of related
transactions, consolidate with or merge with or into another Person, whether or
not such Person is affiliated with such Guarantor and whether or not such
Guarantor is the Surviving Person, unless (i) the Surviving Person (if other
than such Guarantor) is a corporation organized and validly existing under the
laws of the United States, any State thereof or the District of Columbia; (ii)
the Surviving Person (if other than such Guarantor) expressly assumes by a
supplemental indenture all the obligations of such Guarantor under its Note
Guarantee and the performance and observance of every covenant of the Indenture
and the Registration Rights Agreement to be performed or observed by such
Guarantor; (iii) immediately after giving effect to such transaction or series
of related transactions
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on a pro forma basis, no Default shall have occurred and be continuing; and (iv)
immediately after giving effect to such transaction or series of related
transactions on a pro forma basis, such Guarantor, or the Surviving Person, as
the case may be, shall have a Consolidated Net Worth not less than the
Consolidated Net Worth of such Guarantor immediately prior to such transaction
or series of related transactions.
In connection with any consolidation, merger, transfer, lease or other
disposition contemplated hereby, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an officers' certificate and an opinion of counsel, each stating that
such consolidation, merger, transfer, lease or other disposition and the
supplemental indenture in respect thereof comply with the requirements under the
Indenture. In addition, each Guarantor, in the case of a transaction described
in the first paragraph hereunder, unless it is the other party to the
transaction or unless its Note Guarantee will be released and discharged in
accordance with its terms as a result of the transaction, will be required to
confirm, by supplemental indenture, that its Note Guarantee will continue to
apply to the obligations of the Company or the Surviving Person under the
Indenture.
Upon any consolidation or merger of the Company or any Guarantor or any
transfer of all or substantially all of the assets of the Company in accordance
with the foregoing, in which the Company or a Guarantor is not the Surviving
Person, the Surviving Person shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture and the Notes
and the Registration Rights Agreement or such Guarantor under the Indenture, the
Note Guarantee of such Guarantor and the Registration Rights Agreement, as the
case may be, with the same effect as if such successor corporation had been
named as the Company or Guarantor, as the case may be, therein; and thereafter,
except in the case of (a) a lease or (b) any sale, assignment, conveyance,
transfer, lease or other disposition to a Restricted Subsidiary of the Company
or such Guarantor, the Company shall be discharged from all obligations and
covenants under the Indenture and the New Notes and such Guarantor shall be
discharged from all obligations and covenants under the Indenture and the Note
Guarantee of such Guarantor, as the case may be.
The Indenture will provide that for all purposes of the Indenture and the
New Notes (including the provision of this covenant and the covenants described
in "- Limitation on Indebtedness", "- Limitation on Restricted Payments" and "-
Limitation on Liens"), Subsidiaries of any Surviving Person shall, upon such
transaction or series of related transactions, become Restricted Subsidiaries
unless and until designated as Unrestricted Subsidiaries pursuant to and in
accordance with "- Limitation on Designations of Unrestricted Subsidiaries" and
all Indebtedness, and all Liens on property or assets, of the Company and the
Restricted Subsidiaries in existence immediately prior to such transaction or
series of related transactions will be deemed to have been incurred upon such
transaction or series of related transactions.
EVENTS OF DEFAULT
The following are "Events of Default" under the Indenture:
(i) default in the payment of the principal of or premium, if any,
when due and payable, on any of the New Notes (at its Stated Maturity, upon
optional redemption, required purchase, sinking fund, scheduled principal
payment or otherwise); or
(ii) default in the payment of an installment of interest on any of
the New Notes, when due and payable, continued for 30 days or more; or
(iii) the Company or any Guarantor fails to comply with any of its
obligations described under "- Consolidation, Merger, Sale of Assets,
Etc.," "- Certain Covenants - Change of Control" or "- Certain Covenants -
Disposition of Proceeds of Asset Sales"; or
(iv) the Company or any Guarantor fails to perform or observe any
other term, covenant or agreement contained in the New Notes, the Note
Guarantees or the Indenture (other than a default specified in (i), (ii) or
(iii) above) for a period of 30 days after written notice of such failure
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requiring the Company to remedy the same shall have been given (x) to the
Company by the Trustee or (y) to the Company and the Trustee by the holders
of 25% in aggregate principal amount of the New Notes then outstanding; or
(v) default or defaults under one or more agreements, indentures or
instruments under which the Company or any Restricted Subsidiary then has
outstanding Indebtedness in excess of $5.0 million individually or in the
aggregate and either (a) such Indebtedness is already due and payable in
full or (b) such default or defaults results in the acceleration of the
maturity of such Indebtedness; or
(vi) any Note Guarantee ceases to be in full force and effect or is
declared null and void or any Guarantor denies that it has any further
liability under any Note Guarantee, or gives notice to such effect (other
than by reason of the termination of the Indenture or the release of any
such Note Guarantee in accordance with "- Certain Covenants - Limitation on
Guarantees by Restricted Subsidiaries"); or
(vii) one or more judgments, orders or decrees of any court or
regulatory or administrative agency for the payment of money in excess of
$5.0 million either individually or in the aggregate shall have been
rendered against the Company or any Restricted Subsidiary or any of their
respective properties and shall not have been discharged and either (a) any
creditor shall have commenced an enforcement proceeding upon such judgment,
order or decree or (b) there shall have been a period of 60 consecutive
days during which a stay of enforcement of such judgment, order or decree,
by reason of a pending appeal or otherwise, shall not be in effect; or
(viii) certain events of bankruptcy, insolvency or reorganization with
respect to the Company or any Material Subsidiary of the Company shall have
occurred; or
(ix) any holder of at least $10.0 million in aggregate principal
amount of Indebtedness of the Company or any Restricted Subsidiary shall
commence judicial proceedings to foreclose upon assets of the Company or
any of its Restricted Subsidiaries having an aggregate Fair Market Value,
individually or in the aggregate, in excess of $10.0 million or shall have
exercised any right under applicable law or applicable security documents
to take ownership of any such assets in lieu of foreclosure.
If an Event of Default (other than as specified in clause (viii) with
respect to the Company), shall occur and be continuing, the Trustee, by notice
to the Company, or the holders of at least 25% in aggregate principal amount of
the Notes then outstanding, by notice to the Trustee and the Company, may
declare the principal of, premium, if any, and accrued interest on all of the
outstanding New Notes due and payable immediately, upon which declaration, all
such amounts payable in respect of the New Notes will become and be immediately
due and payable. If an Event of Default specified in clause (viii) above with
respect to the Company occurs and is continuing, then the principal of, premium,
if any, and accrued interest on all of the outstanding Notes will ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any holder of New Notes.
After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the holders of a
majority in aggregate principal amount of the outstanding New Notes, by written
notice to the Company and the Trustee, may rescind such declaration if (a) the
Company has paid or deposited with the Trustee a sum sufficient to pay (i) all
sums paid or advanced by the Trustee under the Indenture and the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, (ii) all overdue interest on all New Notes, (iii) the principal of
and premium, if any, on any New Notes which have become due otherwise than by
such declaration of acceleration and interest thereon at the rate borne by the
New Notes, and (iv) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the New Notes; and (b) all
Events of Default, other than the non-payment of principal of, premium, if any,
and interest on the New Notes that has become due solely by such declaration of
acceleration, have been cured or waived.
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No holder of any of the New Notes has any right to institute any proceeding
with respect to the Indenture or any remedy thereunder, unless the holders of at
least 25% in aggregate principal amount of the outstanding New Notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee under the New Notes and the Indenture, the Trustee
has failed to institute such proceeding within 15 days after receipt of such
notice and the Trustee, within such 15-day period, has not received directions
inconsistent with such written request by holders of a majority in aggregate
principal amount of the outstanding New Notes. Such limitations do not apply,
however, to a suit instituted by a holder of a New Note for the enforcement of
the payment of the principal of, premium, if any, or interest on such New Note
on or after the respective due dates expressed in such New Note.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent Person would
exercise under the circumstances in the conduct of such Person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
under the Indenture is not under any obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any of the holders
unless such holders shall have offered to the Trustee reasonable security or
indemnity. Subject to certain provisions concerning the rights of the Trustee,
the holders of a majority in aggregate principal amount of the outstanding New
Notes have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred on the Trustee under the Indenture.
The Company is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company and the Guarantors of their
respective obligations under the Indenture and as to any default in such
performance. The Company is also required to notify the Trustee within five
business days of any event which is, or after notice or lapse of time or both
would become, an Event of Default.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate the obligations
of the Company and the Guarantors with respect to the outstanding Notes
("defeasance"). Such defeasance means that the Company will be deemed to have
paid and discharged the entire Indebtedness represented by the outstanding New
Notes, except for (i) the rights of holders of outstanding New Notes to receive
payment in respect of the principal of, premium, if any, and interest on such
New Notes when such payments are due, (ii) the Company's obligations to issue
temporary New Notes, register the transfer or exchange of any New Notes, replace
mutilated, destroyed, lost or stolen New Notes and maintain an office or agency
for payments in respect of the New Notes, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and (iv) the defeasance provisions of the
Indenture. In addition, the Company may, at its option and at any time, elect to
terminate the obligations of the Company and any Guarantor with respect to
certain covenants that are set forth in the Indenture, some of which are
described under "- Certain Covenants" above, and any omission to comply with
such obligations will not constitute a Default or an Event of Default with
respect to the New Notes ("covenant defeasance").
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the holders of the New Notes, cash in United States dollars, U.S. Government
Obligations (as defined in the Indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest on the outstanding New Notes at maturity; (ii) the Company shall have
delivered to the Trustee an opinion of counsel to the effect that the holders of
the outstanding New Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such defeasance or covenant defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such defeasance or covenant
defeasance had not occurred (in the case of defeasance, such
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opinion must refer to and be based upon a ruling of the Internal Revenue Service
or a change in applicable federal income tax laws); (iii) no Default shall have
occurred and be continuing on the date of such deposit or insofar as clause
(viii) under the first paragraph under "- Events of Default" is concerned, at
any time during the period ending on the 91st day after the date of deposit;
(iv) such defeasance or covenant defeasance shall not cause the Trustee to have
a conflicting interest with respect to any securities of the Company or any
Guarantor; (v) such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, any material agreement or
instrument to which the Company or any Guarantor is a party or by which it is
bound; (vi) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; and (vii) the Company shall have delivered to the Trustee an
officers' certificate and an opinion of counsel, each stating that all
conditions precedent under the Indenture to either defeasance or covenant
defeasance, as the case may be, have been complied with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer of the New Notes, as
expressly provided for in the Indenture) as to all outstanding New Notes when
(i) either (a) all the New Notes theretofore authenticated and delivered (except
lost, stolen or destroyed New Notes which have been replaced or paid and New
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all New Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company or any Guarantor has
irrevocably deposited or caused to be deposited with the Trustee funds in an
amount sufficient to pay and discharge the entire Indebtedness on the New Notes
not theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the New Notes to the date of deposit together
with irrevocable instructions from the Company directing the Trustee to apply
such funds to the payment thereof at maturity or redemption, as the case may be;
(ii) the Company or any Guarantor has paid all other sums payable under the
Indenture by the Company and the Guarantors; and (iii) the Company and each of
the Guarantors have delivered to the Trustee an officers' certificate and an
opinion of counsel each stating that all conditions precedent under the
Indenture relating to the satisfaction and discharge of the Indenture have been
complied with.
AMENDMENTS AND WAIVERS
From time to time, the Company and the Guarantors, when authorized by
resolutions of their boards of directors, and the Trustee may, without the
consent of the holders of any outstanding Notes, amend, waive or supplement the
Indenture or the New Notes for certain specified purposes, including, among
other things, curing ambiguities, defects or inconsistencies, qualifying, or
maintaining the qualification of, the Indenture under the Trust Indenture Act,
or making any change that does not materially adversely affect the legal rights
of any holder; provided, however, that the Company has delivered to the Trustee
an Opinion of Counsel (as such term is defined in the Indenture) stating that
such change does not materially adversely affect the legal rights of any holder.
Other amendments and modifications of the Indenture or the New Notes may be made
by the Company, the Guarantors and the Trustee with the consent of the holders
of not less than a majority of the aggregate principal amount of the outstanding
New Notes; provided, however, that no such modification or amendment may,
without the consent of the holder of each outstanding New Note affected thereby,
(i) change the maturity of the principal of or any installment of interest on
any such New Note or alter the optional redemption or repurchase provisions of
any such New Note or the Indenture in a manner adverse to the Holders of the New
Notes; (ii) reduce the principal amount of (or the premium) of any such New
Note; (iii) reduce the rate of or extend the time for payment of interest on any
such New Note; (iv) change the place or currency of payment of principal of (or
premium) or interest on any such New Note; (v) modify any provisions of the
Indenture relating to the waiver of past defaults (other than to add sections of
the
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Indenture or the New Notes subject thereto) or the right of the holders of New
Notes to institute suit for the enforcement of any payment on or with respect to
any such New Note or any Note Guarantee or the modification and amendment
provisions of the Indenture and the New Notes (other than to add sections of the
Indenture or the New Notes which may not be amended, supplemented or waived
without the consent of each Holder therein affected); (vi) reduce the percentage
of the principal amount of outstanding New Notes necessary for amendment to or
waiver of compliance with any provision of the Indenture or the Notes or for
waiver of any Default in respect thereof; (vii) waive a default in the payment
of principal of, premium, if any, or interest on, or redemption payment with
respect to, the New Notes (except a rescission of acceleration of the New Notes
by the holders thereof as provided in the Indenture and a waiver of the payment
default that resulted from such acceleration); (viii) modify the ranking or
priority of any New Note or the Note Guarantee of any Guarantor; (ix) modify the
provisions of any covenant (or the related definitions) in the Indenture
requiring the Company to make and consummate a Change of Control Offer upon a
Change of Control or an Asset Sale Offer in respect of an Asset Sale or modify
any of the provisions or definitions with respect thereto in a manner materially
adverse to the Holders of New Notes affected thereby otherwise than in
accordance with the Indenture; or (x) release any Guarantor from any of its
obligations under its Note Guarantee or the Indenture otherwise than in
accordance with the Indenture.
The holders of a majority in aggregate principal amount of the outstanding
New Notes, on behalf of all holders of New Notes, may waive compliance by the
Company and the Guarantors with certain restrictive provisions of the Indenture.
Subject to certain rights of the Trustee, as provided in the Indenture, the
holders of a majority in aggregate principal amount of the New Notes, on behalf
of all holders of the Notes, may waive any past default under the Indenture
(including any such waiver obtained in connection with a tender offer or
exchange offer for the New Notes), except a default in the payment of principal,
premium or interest or a default arising from failure to purchase any New Notes
tendered pursuant to an Offer to Purchase pursuant thereto, or a default in
respect of a provision that under the Indenture cannot be modified or amended
without the consent of the Holder of each New Note that is affected.
GOVERNING LAW
The Indenture and the New Notes and the Note Guarantees are governed by the
laws of the State of New York, without regard to the principles of conflicts of
law.
CERTAIN DEFINITIONS
"Accounts Receivable Subsidiary" means Pickering Way Funding Corp. and any
other present or future Subsidiary of the Company that is, directly or
indirectly, wholly owned by the Company (other than director qualifying shares)
and organized for the purpose of and engaged in (i) purchasing, financing, and
collecting accounts receivable obligations of customers of the Company or its
Subsidiaries, (ii) the sale or financing of such accounts receivable or
interests therein and (iii) other activities incident thereto.
"Acquired Indebtedness" means Indebtedness of a Person (i) assumed in
connection with an Asset Acquisition from such Person or (ii) existing at the
time such Person becomes a Restricted Subsidiary of any other Person (other than
any Indebtedness incurred in connection with, or in contemplation of, such Asset
Acquisition or such Person becoming such a Restricted Subsidiary).
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of Voting Stock, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.
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"Affiliate Transaction" has the meaning set forth under "- Limitation on
Transactions with Affiliates."
"Asset Acquisition" means (i) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person will
become a Restricted Subsidiary or will be merged or consolidated with or into
the Company or any Restricted Subsidiary or (ii) the acquisition by the Company
or any Restricted Subsidiary of the assets of any Person which constitute
substantially all of the assets of such Person, or any division or line of
business of such Person, or which is otherwise outside of the ordinary course of
business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease or other disposition (including, without limitation, any merger,
consolidation or sale-leaseback transaction) to any Person other than the
Company or a Restricted Subsidiary, in one or a series of related transactions,
of (i) any Capital Stock of any Restricted Subsidiary; (ii) all or substantially
all of the assets of any division or line of business of the Company or any
Restricted Subsidiary; or (iii) any other properties or assets of the Company or
any Restricted Subsidiary other than in the ordinary course of business. For the
purposes of this definition, the term "Asset Sale" will not include (a) any
sale, issuance, conveyance, transfer, lease or other disposition of properties
or assets that is governed by the provisions described under "Consolidation,
Merger, Sale of Assets, Etc."; provided, however, that any transaction
consummated in compliance with "- Consolidation, Merger, Sale of Assets, etc."
above involving a sale, conveyance, transfer, lease or other disposition of less
than all of the properties or assets of the Company shall be deemed to be an
Asset Sale with respect to the properties or assets of the Company that are not
so sold, conveyed, transferred, leased or otherwise disposed of in such
transaction; (b) sales of property of equipment that have become worn out,
obsolete or damaged or otherwise unsuitable for use in connection with the
business of the Company or any Restricted Subsidiary, as the case may be; (c)
any sale, conveyance, transfer, lease or other disposition of accounts
receivables to an Accounts Receivable Subsidiary in the ordinary course of
business; or (d) any transaction consummated in compliance with "- Certain
Covenants - Limitation on Restricted Payments." For purposes of the covenant
described under "- Certain Covenants - Disposition of Proceeds of Asset Sales,"
the term "Asset Sale" shall not include any sale, conveyance, transfer, lease or
other disposition of any property or asset, whether in one transaction or a
series of related transactions, (i) involving assets with a Fair Market Value
not in excess of $250,000 or (ii) constituting a Capitalized Lease Obligation.
"Asset Sale Offer" has the meaning set forth under "- Disposition of
Proceeds of Asset Sales."
"Average Life to Stated Maturity" means, with respect to any Indebtedness,
as at any date of determination, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from such date to the date or dates
of each successive scheduled principal payment (including, without limitation,
any sinking fund requirements) of such Indebtedness multiplied by (b) the amount
of each such principal payment by (ii) the sum of all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participation, rights in or other equivalents (however designated) of
such Person's capital stock, and any rights (other than debt securities
convertible into capital stock), warrants or options exchangeable for or
convertible into such capital stock.
"Capitalized Lease Obligation" means any obligation under a lease of (or
other agreement conveying the right to use) any property (whether real, personal
or mixed) that is required to be classified and accounted for as a capital lease
obligation under GAAP, and, for the purpose of the Indenture, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP consistently applied.
"Cash Equivalents" means, at any time, (i) any evidence of Indebtedness
with a maturity of not more than one year issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof); (ii) certificates of deposit
or acceptances with a maturity of not
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more than one year of any financial institution that is a member of the Federal
Reserve System having combined capital and surplus and undivided profits of not
less than $500,000,000; (iii) commercial paper with a maturity of not more than
one year issued by a corporation that is not an Affiliate of the Company
organized under the laws of any state of the United States or the District of
Columbia and rated at least A-1 by Standard & Poor's Corporation or at least P-1
by Moody's Investors Service, Inc.; and (iv) repurchase obligations with a term
of not more than seven days for underlying securities of the types described in
clauses (i) and (ii) above entered into with any financial institution meeting
the qualifications specified in clause (ii) above.
"Change of Control" means the occurrence of any of the following events
(whether or not approved by the Board of Directors of the Company): (i) any
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act), other than Permitted Holders, is or becomes the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that
a Person shall be deemed to have "beneficial ownership" of all securities that
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of 50%
of the total voting power of the then outstanding Voting Stock of the Company;
(ii) the Company consolidates with, or merges with or into, another Person
(other than a Wholly-Owned Restricted Subsidiary) or sells, assigns, conveys,
transfers, leases or otherwise disposes of all or substantially all of its
assets to any Person (other than a Wholly Owned Restricted Subsidiary), other
than any such transaction where the holders of the Voting Stock of the Company
immediately prior to such transaction own, directly or indirectly, not less than
a majority of the total voting power of the then outstanding Voting Stock of the
surviving or transferee corporation immediately after such transaction; (iii)
during any consecutive two-year period, individuals who at the beginning of such
period constituted the Board of Directors of the Company (together with any new
directors whose election by such board or whose nomination for election by the
stockholders of the Company was approved by a vote of 66 2/3% of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors of the Company
then in office; or (iv) any order, judgment or decree shall be entered against
the Company decreeing the dissolution or split up of the Company and such order
shall remain undischarged or unstayed for a period in excess of sixty days.
"Change of Control Offer" has the meaning set forth under "- Change of
Control."
"Consolidated Cash Flow Available for Fixed Charges" means, for any period,
(i) the sum of, without duplication, the amounts for such period, taken as a
single accounting period, of (a) Consolidated Net Income, (b) to the extent
reducing Consolidated Net Income, Consolidated Non-cash Charges, (c) to the
extent reducing Consolidated Net Income, Consolidated Interest Expense, and (d)
to the extent reducing Consolidated Net Income, Consolidated Income Tax Expense
less (ii) other non-cash items increasing Consolidated Net Income for such
period.
"Consolidated Fixed Charge Coverage Ratio" means the ratio of the aggregate
amount of Consolidated Cash Flow Available for Fixed Charges of the Company for
the four full fiscal quarters immediately preceding the date of the transaction
(the "Transaction Date") giving rise to the need to calculate the Consolidated
Fixed Charge Coverage Ratio for which consolidated financial information of the
Company is available (such four full fiscal quarter period being referred to
herein as the "Four Quarter Period") to the aggregate amount of Consolidated
Fixed Charges of the Company for such Four Quarter Period. For purposes of this
definition, "Consolidated Cash Flow Available for Fixed Charges" and
"Consolidated Fixed Charges" will be calculated, without duplication, after
giving effect on a pro forma basis for the period of such calculation to (i) the
incurrence of any Indebtedness of the Company or any of the Restricted
Subsidiaries during the period commencing on the first day of the Four Quarter
Period to and including the Transaction Date (the "Reference Period"),
including, without limitation, the incurrence of the Indebtedness giving rise to
the need to make such calculation, as if such incurrence occurred on the first
day of the Reference Period, (ii) an adjustment to eliminate or include, as
applicable, the Consolidated Cash Flow Available for Fixed Charges and
Consolidated Fixed Charges of the Company directly attributable to assets which
are the subject of any Asset Sale or
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Asset Acquisition (including, without limitation, any Asset Acquisition giving
rise to the need to make such calculation as a result of the Company or one of
the Restricted Subsidiaries (including any Person who becomes a Restricted
Subsidiary as a result of the Asset Acquisition) incurring Acquired
Indebtedness) occurring during the Reference Period, as if such Asset Sale or
Asset Acquisition occurred on the first day of the Reference Period and (iii)
the retirement of Indebtedness during the Reference Period which cannot
thereafter be reborrowed occurring as if retired on the first day of the
Reference Period. In calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio," (1) interest on Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so determined
thereafter will be deemed to accrue at a fixed rate per annum equal to the rate
of interest on such Indebtedness in effect on the Transaction Date; (2) if
interest on any Indebtedness actually incurred on the Transaction Date may
optionally be determined at an interest rate based upon a factor of a prime or
similar rate, a eurocurrency interbank offered rate, or other rates, then the
interest rate in effect on the Transaction Date shall be deemed to have been in
effect during the Reference Period; and (3) notwithstanding clause (1) above,
interest on Indebtedness determined on a fluctuating basis, to the extent such
interest is covered by agreements relating to Interest Rate Protection
Obligations, will be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements. If the Company or any
Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a
third Person, the above definition will give effect to the incurrence of such
guaranteed Indebtedness as if the Company or any Restricted Subsidiary had
directly incurred or otherwise assumed such guaranteed Indebtedness. For
purposes of this definition, with respect to any calculation pursuant to which
the Four Quarter Period includes a fiscal quarter prior to March 30, 1997,
"Consolidated Cash Flow Available for Fixed Charges" and "Consolidated Fixed
Charges" will be calculated, without duplication, as if the Accounts Receivable
Subsidiary was an Unrestricted Subsidiary at all times during such Four Quarter
Period.
"Consolidated Fixed Charges" means, for any period, the sum of, without
duplication, the amounts for such period of (i) Consolidated Interest Expense;
and (ii) the aggregate amount of cash dividends and other distributions paid or
accrued during such period in respect of Redeemable Capital Stock of the
Company.
"Consolidated Income Tax Expense" means, for any period, the provision for
federal, state, local and foreign income taxes payable by the Company and the
Restricted Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Interest Expense" means, for any period, without duplication,
the sum of (a) the interest expense of the Company and the Restricted
Subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP, including, without limitation, (i) any amortization of debt discount
attributable to such period, (ii) the net cost under Interest Rate Protection
Obligations (including any amortization of discounts), (iii) the interest
portion of any deferred payment obligation, (iv) all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing and (v) all capitalized interest and all accrued interest,
and (b) all but the principal component of Capitalized Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by the Company and the Restricted
Subsidiaries during such period and as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, for any period, the consolidated net
income (or loss) of the Company and the Restricted Subsidiaries for such period
as determined in accordance with GAAP, adjusted, to the extent included in
calculating such net income, by excluding, without duplication, (i) all
extraordinary gains or losses (net of fees and expenses relating to the
transaction giving rise thereto), (ii) income of the Company and its Restricted
Subsidiaries derived from or in respect of Investments in Unrestricted
Subsidiaries, except to the extent that cash dividends or distributions are
actually received by the Company or a Restricted Subsidiary, (iii) the portion
of net income (or loss) of the Company and the Restricted Subsidiaries allocable
to minority interests in unconsolidated Persons, except to the extent that cash
dividends or distributions are actually received by the Company or one of the
Restricted Subsidiaries, (iv) net income (or loss) of any Person combined with
the Company or one
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of the Restricted Subsidiaries in a "pooling of interests" basis attributable to
any period prior to the date of combination, (v) gains or losses in respect of
any Asset Sales by the Company or one of the Restricted Subsidiaries (net of
fees and expenses relating to the transaction giving rise thereto), and (vi) the
net income of any Restricted Subsidiary to the extent that the declaration of
dividends or similar distributions by that Restricted Subsidiary of that income
is not at the time permitted, directly or indirectly, by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulations applicable to that Restricted Subsidiary or its
stockholders.
"Consolidated Net Worth" with respect to any Person means the equity of the
holders of Capital Stock of such Person and its Restricted Subsidiaries
(excluding any Redeemable Capital Stock), as reflected in a balance sheet of
such Person determined on a consolidated basis and in accordance with GAAP.
"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, amortization and other non-cash expenses of the Company and the
Restricted Subsidiaries reducing Consolidated Net Income for such period (other
than any non-cash item requiring an accrual or reserve for cash disbursements in
any future period), determined on a consolidated basis in accordance with GAAP.
"Consulting Agreement" means the Consultant Agreement between the Company
and George McFadden dated as of January 1, 1995, as amended and in effect from
time to time.
"covenant defeasance" has the meaning set forth under "- Defeasance or
Covenant Defeasance of Indenture."
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company against fluctuations in currency values.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Defeasance" has the meaning set forth under "- Defeasance or Covenant
Defeasance of Indenture."
"Designation" has the meaning set forth under "- Certain Covenants -
Limitation on Designations of Unrestricted Subsidiaries."
"Designation Amount" has the meaning set forth under "- Certain Covenants -
Limitation on Designations of Unrestricted Subsidiaries."
"Domestic Subsidiary" means a Restricted Subsidiary organized under the
laws of the United States, any State or territory thereof or the District of
Columbia.
"Event of Default" has the meaning set forth under "- Events of Default."
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the Commission thereunder.
"Fair Market Value" means, with respect to any asset, the price which could
be negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing buyer, neither of which is under pressure or
compulsion to complete the transaction. Fair Market Value shall be determined by
the Board of Directors of the Company acting in good faith evidenced by a board
resolution thereof delivered to the Trustee.
"Four Quarter Period" has the meaning set forth in the definition of
"Consolidated Fixed Charge Coverage Ratio."
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"GAAP" means, at any date of determination, generally accepted accounting
principles in effect in the United States which are applicable at the date of
determination and which are consistently applied for all applicable periods.
"guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit. A guarantee shall include,
without limitation, any agreement to maintain or preserve any other Person's
financial condition or to cause any other Person to achieve certain levels of
operating results.
"Guarantor" means each Domestic Subsidiary, formed, created or acquired
before or after the Issue Date, required to become a Guarantor after the Issue
Date pursuant to "- Certain Covenants - Limitation on Guarantees by Restricted
Subsidiaries."
"incur" has the meaning set forth in "- Certain Covenants - Limitation on
Indebtedness." "Incurrence," "incurred" and "incurring" shall have the meanings
correlative to the foregoing.
"Indebtedness" means, with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payable and other accrued
current liabilities incurred in the ordinary course of business, but including,
without limitation, all obligations, contingent or otherwise, of such Person in
connection with any letters of credit, bankers acceptance or other similar
credit transaction and in connection with any agreement to purchase, redeem,
exchange, convert or otherwise acquire for value any Capital Stock of such
Person, or any warrants, rights or options to acquire such Capital Stock, now or
hereafter outstanding, (ii) all obligations of such Person evidenced by bonds,
notes, debentures or other similar instruments, (iii) all indebtedness created
or arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even if the rights and remedies of
the seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade accounts payable
arising in the ordinary course of business, (iv) all Capitalized Lease
Obligations of such Person, (v) all Indebtedness referred to in the preceding
clauses of other Persons and all dividends of other Persons, the payment of
which is secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon
property (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness (the amount of such obligation being deemed to be
the lesser of the value of such property or asset or the amount of the
obligation so secured), (vi) all guarantees of Indebtedness by such Person,
(vii) except for purposes of the covenant under "Limitation on Restricted
Payments," all Redeemable Capital Stock valued at the greater of its voluntary
or involuntary maximum fixed repurchase price plus accrued and unpaid dividends,
(viii) all obligations under or in respect of Currency Agreements and Interest
Rate Protection Obligations of such Person, and (ix) any amendment, supplement,
modification, deferral, renewal, extension or refunding of any liability of the
types referred to in clauses (i) through (viii) above. For purposes hereof, the
"maximum fixed repurchase price" of any Redeemable Capital Stock which does not
have a fixed repurchase price will be calculated in accordance with the terms of
such Redeemable Capital Stock as if such Redeemable Capital Stock were purchased
on any date on which Indebtedness will be required to be determined pursuant to
the Indenture, and if such price is based upon, or measured by, the Fair Market
Value of such Redeemable Capital Stock, such Fair Market Value is to be
determined in good faith by the Board of Directors of the issuer of such
Redeemable Capital Stock. Indebtedness (a) shall never be calculated taking into
account any cash and cash equivalents held by such Person; (b) shall not include
obligations of any Person (x) arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
drawn against insufficient funds in the ordinary course of business, provided
that such obligations are extinguished within two Business Days of their
incurrence or (y) resulting from the endorsement of negotiable instruments for
collection in the ordinary course of business and
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consistent with past business practices; and (c) which provides that an amount
less than the principal amount thereof shall be due upon any declaration of
acceleration thereof shall be deemed to be incurred or outstanding in an amount
equal to the accreted value thereof at the date of determination.
"Independent Financial Advisor" means a nationally recognized accounting,
appraisal or investment banking firm (i) which does not, and whose directors,
officers and employees or Affiliates do not have, a direct or indirect financial
interest in the Company and (ii) which, in the judgment of the Board of
Directors of the Company, is otherwise independent and qualified to perform the
task for which it is to be engaged.
"Interest Rate Protection Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount or any other arrangement involving payments by or to such Person
based upon fluctuations in interest rates.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan or other extension of credit (including by means of a guarantee)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others or otherwise), or any purchase or acquisition by such Person of any
Capital Stock, bonds, notes, debentures or other securities or evidences of
Indebtedness issued by any other Person. Investments shall exclude extensions of
trade credit on commercially reasonable terms in accordance with normal trade
practices. In addition to the foregoing, any Currency Agreement, Interest Rate
Protection Obligation or similar agreement shall constitute an Investment.
"Issue Date" means the original issue date of the Notes under the
Indenture.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
privilege, security interest, hypothecation, cessation and transfer, lease of
real property, assignment for security, claim, deposit arrangement, or
preference or priority or other encumbrance upon or with respect to any property
of any kind, whether real, personal or mixed, movable or immovable, now owned or
hereafter acquired. A Person shall be deemed to own subject to a Lien any
property which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement.
"Material Subsidiary" means each Restricted Subsidiary of the Company that
is a "significant subsidiary" as defined in Rule 1-02 of Regulation S-X under
the Securities Act and the Exchange Act (as such regulation is in effect on the
Issue Date).
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Restricted Subsidiary) net of (i) brokerage
commissions and other reasonable fees and expenses (including fees and expenses
of legal counsel and investment bankers) related to such Asset Sale, (ii)
provisions for all taxes payable as a result of such Asset Sale, (iii) amounts
required to be paid to any Person (other than the Company or any Restricted
Subsidiary) owning a beneficial interest in or having a Lien on the assets
subject to the Asset Sale and (iv) appropriate amounts to be provided by the
Company or any Restricted Subsidiary, as the case may be, as a reserve required
in accordance with GAAP consistently applied against any liabilities associated
with such Asset Sale and retained by the Company or any Restricted Subsidiary,
as the case may be, after such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale (provided that the amount of any such reserves
shall be deemed to constitute Net Cash Proceeds at the time such reserves shall
have been released or are not otherwise required to be retained as a reserve).
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"New Revolving Credit Facility" means the Credit Agreement dated as of June
16, 1997 among the Company, CoreStates Bank, N.A., as Administrative Agent (or
any successor administrative agent), and the other financial institutions
signatory thereto from time to time, as in effect on the Issue Date, and as such
agreement may be amended, renewed, extended, refinanced, substituted or replaced
in whole, supplemented or otherwise modified from time to time, and includes (a)
related notes, guarantees and other agreements executed in connection therewith
and (b) any agreement (i) extending the maturity of all or any portion of the
Indebtedness thereunder, (ii) adding guarantors thereunder and (iii) increasing
the amount to be borrowed thereunder; provided, however, that in the case of
clauses (ii) and (iii), any such agreement is not prohibited by the Indenture.
"Note Guarantee" means the guarantee by each of the Guarantors of the
Notes and the Company's obligations under the Indenture.
"Other Indebtedness" has the meaning set forth under "- Certain Covenants -
Limitation on Guarantees of Restricted Subsidiaries."
"Other Senior Debt Pro Rata Share" means the amount of the Net Cash
Proceeds obtained by multiplying the amount of such Net Cash Proceeds by a
fraction, (i) the numerator of which is the lesser of the aggregate principal
face amount or accreted value of all Indebtedness (other than (x) the Notes and
(y) Subordinated Indebtedness) of the Company and any Guarantor outstanding at
the time of the applicable Asset Sale with respect to which the Company or a
Guarantor, as the case may be, is required to use Net Cash Proceeds to repay or
make an offer to purchase and repay and (ii) the denominator of which is the sum
of (a) the aggregate principal amount of all Notes outstanding at the time of
the applicable Asset Sale and (b) the lesser of the aggregate principal face
amount or accreted value of all other Indebtedness (other than Subordinated
Indebtedness) of the Company or a Guarantor outstanding at the time of the
applicable Asset Sale with respect to which the Company or a Guarantor, as the
case may be, is required to use the Net Cash Proceeds to repay or to offer to
purchase and repay.
"Outstanding Preferred Stock" means all shares of Preferred Stock of the
Company issued and outstanding as of the Issue Date.
"Permitted Holders" means (i) each of (A) David R. Hamilton, (B) George
McFadden and (C) John McFadden; (ii) the spouse, ancestors, siblings,
descendants (including children or grandchildren by adoption) of (A) any of the
Persons described in clause (i) or (B) any spouse, ancestor, sibling or
descendent (including children or grandchildren by adoption) of any of the
Persons described in clause (i); (iii) in the event of the incompetence or death
of any of the Persons described in clauses (i) and (ii), such Person's estate,
executor, administrator, committee or other personal representative, in each
case who at any particular date shall beneficially own or have the right to
acquire, directly or indirectly, Capital Stock of the Company; (iv) any trusts
created for the benefit of the Persons described in clause (i), (ii) or (iii) or
any trust for the benefit of any such trust.
"Permitted Indebtedness" has the meaning set forth under "- Certain
Covenants - Limitation on Indebtedness."
"Permitted Investments" means (a) Cash Equivalents; (b) Investments in
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits; (c) loans and
advances to employees made in the ordinary course of business not to exceed
$250,000 in the aggregate at any one time outstanding; (d) loans and advances to
David R. Hamilton made after the Issue Date not to exceed $350,000 in the
aggregate at any one time outstanding; (e) Interest Rate Protection Obligations
and Currency Agreements permitted under clause (vii) or (viii) of the second
paragraph under "- Certain Covenants - Limitation on Indebtedness;" (f)
Investments represented by accounts receivable created or acquired in the
ordinary course of business; (g) Investments in the form of the sale (on a
"true-sale" non-recourse basis) of receivables transferred from the Company or
any Restricted Subsidiary to an Accounts Receivable Subsidiary as a capital
contribution or in exchange for Indebtedness of such Accounts Receivable
Subsidiary or cash in the ordinary course of business; (h) Investments existing
on the Issue Date and any renewal or replacement thereof on terms and conditions
no less favorable in any respect than that
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existing on the Issue Date; (i) any Investment to the extent that the
consideration therefor is Capital Stock (other than Redeemable Capital Stock) of
the Company; and (j) bonds, notes, debentures or other securities received in
connection with an Asset Sale permitted under "- Certain Covenants - Disposition
of Proceeds of Asset Sales," not to exceed 15% of the total consideration in
such Asset Sale.
"Permitted Liens" means (a) Liens on property of (or Capital Stock of) a
Person existing at the time such Person (i) is merged into or consolidated with
the Company or any Restricted Subsidiary or (ii) becomes a Restricted
Subsidiary; provided, however, that such Liens were in existence prior to the
contemplation of such merger, consolidation or acquisition and do not attach to
any property or assets of the Company or any Restricted Subsidiary other than
the property or assets subject to the Liens prior to such merger, consolidation
or acquisition; (b) Liens imposed by law such as landlords', carriers',
warehousemen's and mechanics' Liens and other similar Liens arising in the
ordinary course of business which secure payment of obligations not more than 60
days past due or which are being contested in good faith and by appropriate
proceedings; (c) Liens existing on the Issue Date; (d) Liens securing only the
Notes; (e) Liens in favor of the Company or any Restricted Subsidiary; (f) Liens
for taxes, assessments or governmental charges or claims that are not yet
delinquent for more than 90 days or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded; provided,
however, that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (g) easements, reservation
of rights of way, restrictions and other similar easements, licenses,
restrictions on the use of properties, or imperfections of title that in the
aggregate are not material in amount and do not in any case materially detract
from the properties subject thereto or interfere with the ordinary conduct of
the business of the Company and the Restricted Subsidiaries; (h) Liens resulting
from the deposit of cash or notes in connection with contracts, tenders or
expropriation proceedings, or to secure workers' compensation, surety or appeal
bonds, costs of litigation when required by law, public and statutory
obligations, obligations under franchise arrangements entered into in the
ordinary course of business and other obligations of a similar nature arising in
the ordinary course of business; (i) Liens on property of the Company securing
the New Revolving Credit Facility; (j) Liens securing Indebtedness consisting of
Capitalized Lease Obligations, Purchase Money Indebtedness (other than
Indebtedness incurred in connection with an Asset Acquisition), mortgage
financings, industrial revenue bonds or other monetary obligations, in each case
incurred solely for the purpose of financing all or any part of the purchase
price or cost of construction or installation of assets used in the business of
the Company or the Restricted Subsidiaries, or repairs, additions or
improvements to such assets; provided, however, that (I) such Liens secure
Indebtedness in an amount not in excess of the original purchase price or the
original cost of any such assets or repair, addition or improvement thereto
(plus an amount equal to the reasonable fees and expenses in connection with the
incurrence of such Indebtedness), (II) such Liens do not extend to any other
assets of the Company or the Restricted Subsidiaries (and, in the case of
repairs, additions or improvements to any such assets, such Lien extends only to
the assets (and improvements thereto or thereon) repaired, added to or
improved), (III) the incurrence of such Indebtedness is permitted by "-
Limitation on Indebtedness" above and (IV) such Liens attach prior to 90 days
after such purchase, construction, installation, repair, addition or
improvement; (k) Liens to secure any Refinancings (or successive Refinancings),
in whole or in part, of any Indebtedness secured by Liens referred to in the
clauses above so long as such Lien does not extend to any other property (other
than improvements thereto); (l) Liens securing letters of credit entered into in
the ordinary course of business and consistent with past business practice; (m)
Liens on and pledges of the Capital Stock of any Unrestricted Subsidiary
securing any Indebtedness of such Unrestricted Subsidiary; (n) leases or
subleases granted to others that do not materially interfere with the ordinary
course of business of the Company and the Restricted Subsidiaries, taken as a
whole; (o) any interest or title of a lessor in the property subject to any
lease or located on the real property subject to any lease; (p) Liens arising
from the rendering of a final judgment or order against the Company or any
Restricted Subsidiary that does not give rise to an Event of Default; and (q)
Liens on property existing at the time such property is acquired by the Company
or any Restricted Subsidiary so long as such acquisition (including the
assumption of any Indebtedness in connection therewith) does not violate any of
the terms of the
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Indenture and such Liens were in existence prior to the contemplation of such
acquisition and do not attach to any other property of the Company or such
Restricted Subsidiary.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock" means, with respect to any Person, Capital Stock of any
class or classes (however designated) of such Person which is preferred as to
the payment of dividends or distributions, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such Person,
over Capital Stock of any other class of such Person.
"Public Equity Offering" has the meaning set forth under "- Optional
Redemption - Optional Redemption upon Public Equity Offering."
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary incurred for the purpose of financing all or any part of
the purchase price or the cost of construction or improvement of any property,
provided that the aggregate principal amount of such Indebtedness does not
exceed the lesser of the Fair Market Value of such property or such purchase
price or cost.
"Redeemable Capital Stock" means any class or series of Capital Stock to
the extent that, either by its terms, by the terms of any security into which it
is convertible or exchangeable, or by contract or otherwise, is or upon the
happening of an event or passage of time would be, required to be redeemed prior
to the final Stated Maturity of the New Notes or is redeemable at the option of
the holder thereof at any time prior to such Stated Maturity, or is convertible
into or exchangeable for debt securities at any time prior to such Stated
Maturity.
"Reference Period" has the meaning set forth under the definition of
"Consolidated Fixed Charge Coverage Ratio."
"Refinance" means, with respect to any Indebtedness, any refinancing,
redemption, retirement, renewal, replacement, extension or refunding of such
Indebtedness.
"Restricted Payment" has the meaning set forth under "- Certain Covenants -
Limitation on Restricted Payments."
"Restricted Subsidiary" means any Subsidiary of the Company (other than an
Accounts Receivable Subsidiary) that has not been designated by the Board of
Directors of the Company, by a board resolution delivered to the Trustee, as an
Unrestricted Subsidiary pursuant to and in compliance with the covenant
described under "- Certain Covenants - Limitation on Designations of
Unrestricted Subsidiaries." Any such designation may be revoked by a board
resolution of the Board of Directors of the Company delivered to the Trustee,
subject to the provisions of such covenant.
"Revocation" has the meaning set forth under "- Certain Covenants -
Limitation on Designations of Unrestricted Subsidiaries."
"Securities Act" mean the Securities Act of 1933, as amended, and the rules
and regulations promulgated by the Commission thereunder.
"Service Agreement" means the Service Agreement dated as of December 11,
1995 by and between Chemical Leaman Tank Lines, Inc. and Acumen Consulting
Group, Inc., as amended and in effect from time to time.
"Stated Maturity" means, with respect to any New Note or any installment of
interest thereon, the dates specified in such New Note as the fixed date on
which the principal of such New Note or such installment of interest is due and
payable, and when used with respect to any other Indebtedness, means the date
specified in the instrument governing such Indebtedness as the fixed date on
which the principal of such Indebtedness or any installment of interest is due
and payable.
81
<PAGE>
"Subsidiary" means, with respect to any Person, (a) any corporation of
which the outstanding shares of Voting Capital Stock having at least a majority
of the votes entitled to be cast in the election of directors shall at the time
be owned, directly or indirectly, by such Person, or (b) any other Person of
which at least a majority of the shares of Voting Capital Stock are at the time,
directly or indirectly, owned by such first named Person.
"Subordinated Indebtedness" means, with respect to the Company,
Indebtedness of the Company which is expressly subordinated in right of payment
to the Notes or, with respect to any Guarantor, Indebtedness of such Guarantor
which is expressly subordinated in right of payment to the Note Guarantee of
such Guarantor.
"Surviving Person" means, with respect to any Person involved in any
consolidation or merger, or any sale, assignment, conveyance, transfer, lease or
other disposition of all or substantially all of its properties and assets as an
entirety, the Person formed by or surviving such merger or consolidation or the
Person to which such sale, assignment, conveyance, transfer or lease is made.
"Transaction Date" has the meaning set forth under the definition of
"Consolidated Fixed Charge Coverage Ratio".
"Unrestricted Subsidiary" means each Accounts Receivable Subsidiary and
each other Subsidiary of the Company (other than a Guarantor) designated as such
pursuant to and in compliance with the covenant described under "- Certain
Covenants - Limitation on Designations of Unrestricted Subsidiaries." Any such
designation may be revoked by a Board Resolution of the Company delivered to the
Trustee, subject to the provisions of such covenant.
"Unutilized Net Available Proceeds" has the meaning set forth under "-
Certain Covenants - Disposition of Proceeds of Asset Sales."
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the Board of Directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency).
"Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary of
which 100% of the outstanding Capital Stock is owned by the Company and/or
another Wholly-Owned Restricted Subsidiary. For purposes of this definition, any
directors' qualifying shares shall be disregarded in determining the ownership
of a Restricted Subsidiary.
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<PAGE>
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the New Notes will initially be issued in the
form of one registered New Note in global form (the "Global New Note"). The
Global New Note will be deposited on the date of the closing of the Exchange
Offer with, or on behalf of, The Depository Trust Company (the "Depositary") and
registered in the name of Cede & Co., as nominee of the Depositary. Interests in
the Global New Note will be available for purchase only by "qualified
institutional buyers," as defined in Rule 144A under the Securities Act
("QIBs").
New Notes that are (i) originally issued to or transferred to institutional
"accredited investors," as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not QIBs or to any other persons who are not QIBs or
(ii) issued as described below under "Certificated Securities," will be issued
in registered form without coupons (the "Certificated Securities"). Upon the
transfer to a QIB of Certificated Securities, such Certificated Securities may,
unless the Global New Note has previously been exchanged for Certificated
Securities, be exchanged for an interest in the Global New Note representing the
principal amount of New Notes being transferred.
The Depositary has advised the Company that it is (i) a limited-purpose
trust company organized under the laws of the State of New York, (ii) a member
of the Federal Reserve System, (iii) a "clearing corporation" within the meaning
of the Uniform Commercial Code, as amended, and (iv) a "Clearing Agency"
registered pursuant to Section 17A of the Exchange Act. The Depositary was
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in such securities between Participants through electronic
book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly. QIBs may elect to hold New
Notes acquired by them through the Depositary. QIBs who are not Participants may
beneficially own securities held by or on behalf of the Depositary only through
Participants or Indirect Participants. Persons that are not QIBs may not hold
New Notes through the Depositary.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global New Note, the Depositary will credit
the accounts of Participants designated by the Exchange Agent with an interest
in the Global New Note and (ii) ownership of the New Notes will be shown, on,
and the transfer of ownership thereof will be effected only through, records
maintained by the Depositary (with respect to the interests of Participants),
the Participants and the Indirect Participants. The laws of some states require
that certain persons take physical delivery in definitive form of securities
that they own and that security interests in negotiable instruments can only be
perfected by delivery of certificates representing the instruments.
Consequently, the ability to transfer New Notes or to pledge the New Notes as
collateral will be limited to such extent. The New Notes will be subject to
certain other restrictions on transferability.
So long as the Depositary or its nominee is the registered owner of a
Global New Note, the Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the New Notes represented by the Global
New Note for all purposes under the Indenture. Except as provided below, owners
of beneficial interests in a Global New Note will not be entitled to have New
Notes represented by such Global New Note registered in their names, will not
receive or be entitled to receive physical delivery of Certificated Securities,
and will not be considered the owners or holders thereof under the Indenture for
any purpose, including with respect to the giving of any directions,
instructions or approvals to the Trustee thereunder. As a result, the ability of
a person having a beneficial interest in New Notes represented by a Global New
Note to pledge such interest to persons or entities that do not participate in
the Depositary's system, or to otherwise take actions with respect to such
interest, may be affected by the lack of a physical certificate evidencing such
interest.
83
<PAGE>
Accordingly, each QIB owning a beneficial interest in a Global New Note
must rely on the procedures of the Depositary and, if such QIB is not a
Participant or an Indirect Participant, on the procedures of the Participant
through which such QIB owns its interest, to exercise any rights of a holder
under the Indenture or such Global New Note. The Company understands that under
existing industry practice, in the event the Company requests any action of
holders of New Notes or a QIB that is an owner of a beneficial interest in a
Global New Note desires to take any action that the Depositary, as the holder of
such Global New Note, is entitled to take, the Depositary would authorize the
Participants to take such action and the Participants would authorize QIBs
owning through such Participants to take such action or would otherwise act upon
the instructions of such QIBs. Neither the Company nor the Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of New Notes by the Depositary, or for maintaining,
supervising or reviewing any records of the Depositary relating to such New
Notes.
Payments with respect to the principal of, premium, if any, and interest on
any New Notes represented by a Global New Note registered in the name of the
Depositary or its nominee on the applicable record date will be payable by the
Trustee to or at the direction of the Depositary or its nominee in its capacity
as the registered holder of the Global New Note representing such New Notes
under the Indenture. Under the terms of the Indenture, the Company and the
Trustee may treat the persons in whose names the New Notes, including the Global
New Note, are registered as the owners thereof for the purposes of receiving
such payments and for any and all other purposes whatsoever. Consequently,
neither the Company nor the Trustee has or will have any responsibility or
liability for the payment of such amounts to beneficial owners of New Notes
(including principal, premium, if any, and interest), or to immediately credit
the accounts of the relevant Participants with such payment, in amounts
proportionate to their respective holdings in principal amount of beneficial
interest in the Global New Note as shown on the records of the Depositary.
Payments by the Participants and the Indirect Participants to the beneficial
owners of New Notes will be governed by standing instructions and customary
practice and will be the responsibility of the Participants or the Indirect
Participants.
CERTIFICATED SECURITIES
If the Depositary is at any time unwilling or unable to continue as a
depository and a successor depositary is not appointed by the Company within 90
days then, upon surrender by the Depositary of its Global New Note, Certificated
Securities will be issued to each person that the Depositary identifies as the
beneficial owner of the New Notes represented by the Global New Note. In
addition, subject to certain conditions, any person having a beneficial interest
in a Global New Note may, upon request to the Trustee, exchange such beneficial
interest for Certificated Securities. Upon any such issuance, the Trustee is
required to register such Certificated Securities in the name of such person or
persons (or the nominee of any thereof), and cause the same to be delivered
thereto.
Neither the Company nor the Trustee shall be liable for any delay by the
Depositary or any Participant or Indirect Participant in identifying the
beneficial owners of the related New Notes and each such person may conclusively
rely on, and shall be protected in relying on instructions from the Depositary
for all purposes (including with respect to the registration and delivery, and
the respective principal amounts, of the New Notes to be issued).
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable. The
Company will have no responsibility for the performance by DTC or its
Participants of their respective obligations as described hereunder or under the
rules and procedures governing their respective operations.
84
<PAGE>
CERTAIN U.S. INCOME TAX CONSIDERATIONS
The following is a summary of the material U.S. federal income tax
consequences associated with the acquisition, ownership and disposition of the
New Notes. The summary is based upon current laws, regulations, rulings and
judicial decisions, all of which are subject to change. The discussion below
does not address all aspects of U.S. federal income taxation that may be
relevant to particular holders in the context of their specific investment
circumstances or certain types of holders subject to special treatment under
such laws (for example, financial institutions, tax-exempt organizations and
insurance companies).
For purposes of the discussion, a "U.S. holder" is an individual who is a
citizen or resident of the U.S., a corporation, partnership or other entity
created under the laws of the U.S. or any political subdivision thereof, an
estate that is subject to U.S. federal income taxation without regard to the
source of income, or a trust, with respect to which a court within the U.S. is
able to exercise primary supervision over its administration and one or more
U.S. fiduciaries have the authority to control all its substantial decisions. A
"Non-U.S. holder" is any holder who is not a U.S. holder.
ELIGIBLE HOLDERS OF THE OLD NOTES ARE URGED TO CONSULT THEIR TAX ADVISORS
CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF ACQUIRING, OWNING AND
DISPOSING OF THE NEW NOTES AS WELL AS THE APPLICATION OF STATE, LOCAL AND
FOREIGN INCOME AND OTHER TAX LAWS.
U.S. HOLDERS
Interest payable on the Old Notes and the New Notes will be includible in
the income of a U.S. holder in accordance with such U.S. holder's regular method
of accounting. Although the New Notes provide that in certain circumstances a
holder may receive additional amounts as Additional Interest or as premium upon
redemption, the Company has determined that the likelihood that such payments
will be made is remote. As a result, the existence of provisions in the
Indenture requiring such payments under certain circumstances will not give rise
to original issue discount. These payments would be recognized as income when
received, regardless of the method of accounting of the U.S. holder. If a New
Note is redeemed, sold or otherwise disposed of, a U.S. holder generally will
recognize gain or loss equal to the difference between the amount realized on
the sale or other disposition of such New Note (to the extent such amount does
not represent accrued but unpaid interest) and such U.S. holder's tax basis in
the New Note. Such gain or loss will be capital gain or loss, assuming that the
U.S. holder has held the New Note as a capital asset, and will be long-term if
the U.S. holder has held the New Note for more than one year at the time of
disposition.
NON-U.S. HOLDERS
An investment in the New Notes by a Non-U.S. holder generally will not give
rise to any U.S. federal income tax consequences if the interest received or any
gain recognized on the sale, redemption or other disposition of the New Notes by
such holder is not treated as effectively connected with the conduct by such
holder of a trade or business in the United States, and in the case of gains
derived by an individual, such individual is not present in the United States
for 183 days or more and certain other requirements (including applicable
reporting requirements) are met. Under current Treasury regulations, in order to
avoid backup withholding of 31% on payments of interest (i) a Non-U.S. holder of
the New Notes generally must certify to the issuer or its agent, under penalties
of perjury, that it is not a United States person and complete and provide the
payor with a U.S. Treasury Form W-8 (or a suitable substitute form), which
includes its name and address, or (ii) a securities clearing organization, bank
or other financial organization that holds customers' securities in the ordinary
course of business (a "financial institution") and holds the New Note, must
certify under penalties of perjury that such a Form W-8 (or suitable substitute
form) has been received from the beneficial owner of the New Notes by it or by a
financial institution between it and the beneficial owner, and must furnish the
payor with a copy thereof.
85
<PAGE>
On April 22, 1996, the Internal Revenue Service proposed regulations (the
"Proposed Regulations") which, if enacted in their current form, could affect
the procedures to be followed by a Non-U.S. holder in establishing such holder's
status as a Non-U.S. holder for purposes of the backup withholding rules
discussed above. The Proposed Regulations, if adopted in their current form,
generally would be effective for payments made after December 31, 1997. Eligible
holders should consult their tax advisors concerning the potential adoption of
the Proposed Regulations and the potential effect of such regulations on an
investment in the New Notes.
EXCHANGE OFFER
The exchange of Old Notes for New Notes pursuant to the Exchange Offer will
not constitute a significant modification of the terms of the Old Notes and,
therefore, such exchange will not constitute an exchange for United States
federal income tax purposes. Accordingly, such exchange will have no United
States federal income tax consequences to U.S. holders of Old Notes and the
holding period of the New Notes will include the holding period of the Old Notes
and the basis of the New Notes will be the same as the basis of the Old Notes
immediately before the exchange.
BOND PREMIUM ON THE NEW NOTES
If a U.S. holder of a New Note purchased the Old Notes for an amount in
excess of the amount payable at the maturity date (or a call date, if
appropriate) of the Old Notes, the U.S. holder may deduct such excess as
amortizable bond premium over the aggregate terms of the Old Notes and the New
Notes (taking into account earlier call dates, as appropriate), under a
yield-to-maturity formula. The deduction is available only if an election is
made by the purchaser or is in effect. This election is revocable only with the
consent of the Service. The election applies to all obligations owned or
subsequently acquired by the U.S. holder. The U.S. holder's adjusted tax basis
in the Old Notes and the New Notes will be reduced to the extent of the
deduction of amortizable bond premium. Except as may otherwise be provided in
future regulations, under the Code the amortizable bond premium is treated as an
offset to interest income on the Old Notes and the New Notes rather than as a
separate deduction item.
MARKET DISCOUNT ON THE NEW NOTES
Tax consequences of a disposition of the New Notes may be affected by the
market discount provision of the Code. These rules generally provide that if a
U.S. holder acquired the Old Notes (other than in an original issue) at a market
discount which equals or exceeds 1/4 of 1% of the stated redemption price of the
Old Notes at maturity multiplied by the number of remaining complete years to
maturity and thereafter recognizes gain upon a disposition (or makes a gift) of
the New Notes, the lesser of (i) such gain (or appreciation, in the case of a
gift) or (ii) the portion of the market discount which accrued while the Old or
New Notes were held by such U.S. holder will be treated as ordinary income at
the time of the disposition (or gift). For these purposes, market discount means
the excess (if any) of the stated redemption price at maturity over the basis of
such Old or New Notes immediately after their acquisition by the U.S. holder. A
U.S. holder of the New Notes may elect to include any market discount (whether
accrued under the Old Notes or the New Notes) in income currently rather than
upon disposition of the New Notes. This election once made applies to all market
discount obligations acquired on or after the first taxable year to which the
election applies, and may not be revoked without the consent of the Service.
A U.S. holder of any New Note who acquired the Old Note at a market
discount generally will be required to defer the deduction of a portion of the
interest on any indebtedness incurred or maintained to purchase or carry such
Old or New Note until the market discount is recognized upon a subsequent
disposition of such New Note. Such a deferral is not required, however, if the
holder elects to include accrued market discount in income currently.
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<PAGE>
BACKUP WITHHOLDING AND INFORMATION REPORTING
A 31% "backup" withholding tax and information reporting requirements apply
to certain payments of interest and original issue discount on an obligation,
and to proceeds of the sale of an obligation before maturity, to certain
non-corporate holders. The Company, and/or any paying and/or collection agent,
including a broker, as the case may be, will be required to withhold from any
payment that is subject to backup withholding a tax equal to 31% of such payment
unless the holder furnishes its taxpayer identification number (i.e., social
security number in the case of an individual) in the manner prescribed in
applicable Treasury regulations, certifies that such number is correct,
certifies (with respect to payments of interest) as to no loss of exemption from
backup withholding and meets certain other conditions. Backup withholding,
however, in any event, generally does not apply to payments to certain "exempt
recipients" such as corporations.
87
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that holds Old Notes that were acquired for its own
account as a result of market making or other trading activities (other than Old
Notes acquired directly from the Company), may exchange Old Notes for New Notes
in the Exchange Offer. However, any such broker-dealer may be deemed to be an
"underwriter" within the meaning of such term under the Securities Act and must,
therefore, acknowledge that it will deliver a prospectus in connection with any
resale of New Notes received in the Exchange Offer. This prospectus delivery
requirement may be satisfied by the delivery by such broker-dealer of this
Prospectus, as it may be amended or supplemented from time to time. The Company
has agreed that, for a period of 180 days after the effective date of this
Prospectus, it will make this Prospectus, as amended or supplemented, available
to any broker-dealer who receives New Notes in the Exchange Offer for use in
connection with any such sale. The Company will not receive any proceeds from
any sales of New Notes by broker-dealers. New Notes received by broker-dealers
for their own accounts pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a combination
of such methods of resale, at market prices at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
of New Notes by broker-dealers may be made directly to a purchaser or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer and/or the purchasers of
any such New Notes. Any broker-dealer that resells New Notes that were received
by it for its own account pursuant to the Exchange Offer and any broker or
dealer that participates in a distribution of such New Notes may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Company has agreed to pay all expenses incident to the Exchange Offer other
than commissions or concessions of any brokers or dealers and will indemnify
Eligible Holders (including any broker-dealer) against certain liabilities,
including liabilities under the Securities Act.
By acceptance of the Exchange Offer, each broker-dealer that receives New
Notes pursuant to the Exchange Offer hereby agrees to notify the Company prior
to using the Prospectus in connection with the sale or transfer of New Notes,
and acknowledges and agrees that, upon receipt of notice from the Company of the
happening of any event which makes any statement in the Prospectus untrue in any
material respect or which requires the making of any changes in the Prospectus
in order to make the statements herein not misleading (which notice the Company
agrees to deliver promptly to such broker-dealer), such broker-dealer will
suspend use of the Prospectus until the Company has amended or supplemented the
Prospectus to correct such misstatement or omission and has furnished copies of
the amended or supplemented prospectus to such broker-dealer.
LEGAL MATTERS
The validity of the New Notes offered hereby is being passed upon for the
Company by Pepper, Hamilton & Scheetz LLP.
88
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1995 and
1996, and June 29, 1997................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1995 and 1996, and for the unaudited
Six Months Ended June 30, 1996 and the audited Six Months
Ended June 29, 1997....................................... F-5
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1994, 1995 and 1996, and for the
Six Months Ended June 29, 1997............................ F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996, and the unaudited Six
Months Ended June 30, 1996 and audited Six Months Ended
June 29, 1997............................................. F-7
Notes to Consolidated Financial Statements.................. F-8
Schedule II -- Valuation and Qualifying Accounts............ F-26
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Chemical Leaman Corporation:
We have audited the accompanying consolidated balance sheets of Chemical Leaman
Corporation (a Pennsylvania corporation) and subsidiaries as of December 31,
1995 and 1996 and June 29, 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1996 and for the six month period ended June 29,
1997. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Chemical Leaman Corporation and
subsidiaries as of December 31, 1995 and 1996 and June 29, 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996 and for the six month period ended June 29, 1997,
in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index to financial
statements is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in our audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
July 25, 1997
(except with respect to
the matters discussed in
Note 12 and Note 15,
as to which the date
is October 3, 1997)
F-2
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 29,
ASSETS 1995 1996 1997
------ -------- -------- --------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (includes restricted
cash of $1,934 at December 31, 1995, $3,541 at
December 31, 1996, and $0 at June 29, 1997)... $ 8,523 $ 5,788 $ 14,723
Accounts receivable, net of allowance of $323 at
December 31, 1995, $570 at December 31, 1996,
and $664 at June 29, 1997..................... 28,850 36,859 15,406
Operating supplies............................... 1,175 1,548 929
Prepaid expenses and other....................... 5,814 7,982 9,692
-------- -------- --------
Total current assets....................... 44,362 52,177 40,750
-------- -------- --------
PROPERTY AND EQUIPMENT:
Land............................................. 5,037 5,131 5,131
Buildings and improvements....................... 25,410 26,728 27,577
Revenue equipment................................ 124,076 147,767 150,028
Other equipment.................................. 31,569 49,087 54,909
-------- -------- --------
Total property and equipment, at cost...... 186,092 228,713 237,645
ACCUMULATED DEPRECIATION........................... 109,321 119,924 127,008
-------- -------- --------
PROPERTY AND EQUIPMENT, net........................ 76,771 108,789 110,637
-------- -------- --------
NOTES RECEIVABLE................................... 2,500 3,500 3,500
RECOVERABLE ENVIRONMENTAL COSTS.................... 8,147 13,680 14,101
OTHER ASSETS....................................... 4,625 4,398 8,540
-------- -------- --------
$136,405 $182,544 $177,528
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 29,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1996 1997
------------------------------------ -------- -------- --------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts and drafts payable...................... $ 13,973 $ 18,028 $ 21,865
Accrued salaries and wages....................... 4,490 4,336 4,321
Other accrued liabilities........................ 1,973 3,828 1,630
Estimated self-insurance liabilities............. 5,778 4,238 3,471
Current maturities of long-term debt............. 2,612 4,364 638
Current maturities of equipment obligations...... 4,804 4,957 --
-------- -------- --------
Total current liabilities.................. 33,630 39,751 31,925
-------- -------- --------
LONG-TERM EQUIPMENT OBLIGATIONS.................... 24,232 53,484 --
-------- -------- --------
LONG-TERM DEBT..................................... 36,173 46,219 101,564
-------- -------- --------
ESTIMATED SELF-INSURANCE LIABILITIES............... 15,337 16,783 17,732
-------- -------- --------
OTHER NONCURRENT LIABILITIES....................... 4,654 5,266 7,836
-------- -------- --------
REDEEMABLE PREFERRED STOCK......................... 2,600 5,318 5,318
-------- -------- --------
STOCKHOLDERS' EQUITY:
Common stock -- 3,000,000 shares authorized;
issued -- 605,400, 550,895, and 550,895 shares
at December 31, 1995 and 1996, and June 29,
1997, respectively; par value $2.50........... 2,810 2,677 2,677
Additional paid-in capital....................... 2,117 533 533
Retained earnings................................ 33,709 32,992 30,857
-------- -------- --------
38,636 36,202 34,067
Less --
Treasury stock, 2,593 shares, at cost......... 16,881 16,881 16,881
Stock subscriptions receivable................ 1,976 3,598 3,598
Minimum pension liability, net of tax......... -- -- 435
-------- -------- --------
Total stockholders' equity................. 19,779 15,723 13,153
-------- -------- --------
$136,405 $182,544 $177,528
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31, ----------------------
------------------------------ JUNE 30, JUNE 29,
1994 1995 1996 1996 1997
-------- -------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES................................. $241,443 $245,706 $281,075 $127,612 $156,545
-------- -------- -------- -------- --------
OPERATING EXPENSES:
Salaries, wages and benefits..................... 71,499 63,546 67,737 32,531 34,947
Purchased transportation and rents............... 85,470 98,903 122,635 54,542 69,131
Operations and maintenance....................... 52,768 50,240 52,924 22,696 32,158
Depreciation and amortization.................... 11,783 13,731 16,255 7,173 9,336
Taxes and licenses............................... 2,829 2,755 2,613 1,175 1,457
Insurance and claims............................. 4,870 3,483 4,766 2,015 4,402
Communication and utilities...................... 5,417 6,056 7,213 3,594 3,320
(Gain) loss on disposition of revenue equipment,
net............................................ (6) 573 290 141 45
-------- -------- -------- -------- --------
Total operating expenses....................... 234,630 239,287 274,433 123,867 154,796
-------- -------- -------- -------- --------
OPERATING INCOME................................... 6,813 6,419 6,642 3,745 1,749
INTEREST EXPENSE, net.............................. 4,946 5,978 7,553 3,092 4,515
OTHER (INCOME) EXPENSE, net........................ 92 (110) (795) (11) 165
-------- -------- -------- -------- --------
Income (loss) before income tax provision........ 1,775 551 (116) 664 (2,931)
INCOME TAX PROVISION (BENEFIT)..................... 710 220 46 333 (1,223)
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM............ $ 1,065 $ 331 $ (162) $ 331 $ (1,708)
-------- -------- -------- -------- --------
EXTRAORDINARY LOSS on early extinguishment of debt,
less applicable income taxes of $133............. -- -- -- -- ($ 199)
-------- -------- -------- -------- --------
NET INCOME (LOSS).................................. $ 1,065 $ 331 $ (162) $ 331 $ (1,907)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONAL STOCK MINIMUM
COMMON PAID-IN RETAINED TREASURY SUBSCRIPTION PENSION
STOCK CAPITAL EARNINGS STOCK RECEIVABLE LIABILITY TOTAL
------ ---------- -------- -------- ------------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994........... $2,940 $3,720 $32,665 $(14,888) $(1,520) $ -- $22,917
Net income....................... 1,065 1,065
Reverse stock split.............. (47) (512) (559)
Retirement of common stock....... (73) (917) (990)
Purchase of common stock......... (1,993) (1,993)
Preferred stock dividends........ (195) (195)
------ ------ ------- -------- ------- ---- -------
BALANCE, DECEMBER 31, 1994......... $2,820 $2,291 $33,535 $(16,881) $(1,520) $ -- $20,245
Net income....................... 331 331
Retirement of common stock....... (48) (592) (640)
Issuance of common stock......... 38 418 (456) --
Preferred stock dividends........ (157) (157)
------ ------ ------- -------- ------- ---- -------
BALANCE, DECEMBER 31, 1995......... $2,810 $2,117 $33,709 $(16,881) $(1,976) $ -- $19,779
Net loss......................... (162) (162)
Retirement of common stock....... (56) (740) (796)
Issuance of common stock......... 150 1,647 (1,622) 175
Issuance of preferred stock...... (227) (2,491) (2,718)
Preferred stock dividends........ (355) (355)
Amortization of pension
intangible asset............... (200) (200)
------ ------ ------- -------- ------- ---- -------
BALANCE, DECEMBER 31, 1996......... $2,677 $ 533 $32,992 $(16,881) $(3,598) $ -- $15,723
Net loss......................... (1,907) (1,907)
Preferred stock dividends........ (178) (178)
Adjustment required to recognize
minimum pension liability...... (435) (435)
Amortization of pension
intangible asset............... (50) (50)
------ ------ ------- -------- ------- ---- -------
BALANCE, JUNE 29, 1997............. $2,677 $ 533 $30,857 $(16,881) $(3,598) (435) $13,153
------ ------ ------- -------- ------- ---- -------
------ ------ ------- -------- ------- ---- -------
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX
DECEMBER 31, MONTHS ENDED
---------------------------- JUNE 30, JUNE 29,
1994 1995 1996 1996 1997
------- ------- -------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)......................................... $ 1,065 $ 331 $ (162) $ 331 $ (1,907)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities--
Depreciation and amortization......................... 11,783 13,731 16,255 7,173 9,336
Provision for doubtful accounts....................... 320 338 318 198 225
Provision (benefit) for deferred income taxes......... 524 (1,777) 813 333 (1,223)
(Gain) loss on disposition of property and
equipment........................................... (6) 573 290 141 45
Extraordinary loss related to early extinguishment of
debt................................................ -- -- -- -- 199
Changes in assets and liabilities..................... 2,881 4,248 (12,837) (8,155) (10,194)
------- ------- -------- --------- ---------
Net cash provided by (used in) operating
activities........................................ 16,567 17,444 4,677 21 (3,519)
------- ------- -------- --------- ---------
INVESTING ACTIVITIES:
Acquisition of business................................... -- -- (15,517) (15,517) --
Additions to property and equipment....................... (20,747) (13,270) (20,020) (9,863) (11,006)
Proceeds from sales of property and equipment............. 1,992 2,780 1,264 1,399 751
------- ------- -------- --------- ---------
Net cash used in investing activities............... (18,755) (10,490) (34,273) (23,981) (10,255)
------- ------- -------- --------- ---------
FINANCING ACTIVITIES:
Payments on equipment obligations......................... (9,248) (20,893) (11,149) (4,633) (62,439)
Proceeds from issuance of equipment obligations........... 17,710 15,986 40,554 27,548 3,998
Increase (decrease) in bank overdrafts.................... 643 (1,529) 923 524 2,882
Proceeds from issuance of long-term debt.................. 100 -- 10,000 2,550 100,000
Payments on long-term debt................................ (1,348) (2,211) (12,491) (1,399) (21,355)
Payments on early extinguishment of debt.................. -- -- -- -- (199)
Issuance (purchase) of common stock....................... (1,993) -- 175 -- --
Retirement of common stock................................ (1,549) (640) (796) (796) --
Preferred stock dividends................................. (195) (157) (355) (162) (178)
------- ------- -------- --------- ---------
Net cash provided by (used in) financing
activities........................................ 4,120 (9,444) 26,861 23,632 22,709
------- ------- -------- --------- ---------
Net increase (decrease) in cash and cash
equivalents....................................... 1,932 (2,490) (2,735) (328) 8,935
CASH AND CASH EQUIVALENTS:
Beginning of year......................................... 9,081 11,013 8,523 8,523 5,788
------- ------- -------- --------- ---------
End of year............................................... $11,013 $ 8,523 $ 5,788 $ 8,195 $ 14,723
------- ------- -------- --------- ---------
------- ------- -------- --------- ---------
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in accounts receivable................ $(3,795) $ 1,912 $ (8,327) $ (5,692) $ (6,772)
Decrease (increase) in prepaid expenses, operating
supplies and other assets............................... 376 (2,560) (3,515) (1,461) (5,283)
(Increase) decrease in recoverable environmental costs.... (2,818) 9,853 (5,533) (7,739) (421)
Decrease in insurance deposit............................. 4,217 -- -- -- --
(Decrease) increase in accounts payable................... (73) 270 3,132 3,694 955
Increase (decrease) in accrued salaries and wages......... 2,516 (2,721) (154) 74 (15)
(Decrease) increase in accrued other...................... (35) 1,644 1,042 1,731 (975)
Increase (decrease) in estimated self-insurance
liabilities............................................. 1,543 (2,302) (94) 1,157 182
Increase (decrease) in other noncurrent liabilities....... 950 (1,848) 612 81 2,135
------- ------- -------- --------- ---------
$ 2,881 $ 4,248 $(12,837) $ (8,155) $ (10,194)
------- ------- -------- --------- ---------
------- ------- -------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for--
Interest.............................................. $ 4,905 $ 6,038 $ 7,442 $ 2,640 $ 4,212
Income taxes.......................................... 401 2,601 326 43 45
Noncash investing and financing activities--
Issuance of capital lease obligations................. 8,623 5,716 6,889 13,196 974
Assets acquired with capital lease obligations........ (8,623) (5,716) (6,889) (13,196) (974)
Fleet capital lease obligations assumed............... -- -- 7,400 -- --
Fleet assets acquired subject to capital lease
obligation.......................................... -- -- (7,400) -- --
Issuance of common stock for a note................... -- 456 1,622 -- --
Stock subscription note receivable.................... -- (456) (1,622) -- --
Amortization of pension intangible asset.............. -- -- 200 100 50
Retained earnings adjustment.......................... -- -- (200) (100) (50)
Adjustment required to recognize minimum pension
liability........................................... -- -- -- -- 435
Stockholders' equity adjustment for minimum pension
liability........................................... -- -- -- -- (435)
Off balance sheet treatment of asset backed
certificate......................................... -- -- -- -- (28,000)
Off balance sheet treatment of accounts receivable.... -- -- -- -- 28,000
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
1. BUSINESS:
Chemical Leaman Corporation (a Pennsylvania corporation) and its
subsidiaries (the "Company") offer a full range of specialized transportation
services, including short and long-haul transportation, intermodal services,
materials handling and third-party logistics, principally to the chemical
industry. In addition, the Company provides tank cleaning and driver-related
services to its own fleet as well as to independent owner-operators and
third-party carriers.
The Company derived approximately 95%, 94%, 84%, 93% and 74% of its
revenues from its wholly owned trucking subsidiary, Chemical Leaman Tank Lines,
Inc. ("CLTL"), for the years ended December 31, 1994, 1995 and 1996, and the
unaudited six month period ended June 30, 1996 and the audited six month period
ended June 29, 1997, respectively. CLTL operates 70 terminals throughout the
United States and the Canadian Provinces of Quebec and Ontario. CLTL has 22 of
its terminals located in the Northeast region of the country. CLTL generated
10%, 15% and 16% of its revenues from a single customer in the years ended
December 31, 1994, 1995 and 1996, respectively, and 16% and 19% for the
unaudited six month period ended June 30, 1996 and the audited six month period
ended June 29, 1997, respectively. CLTL's top ten customers accounted for
approximately 44%, 45% and 47% of CLTL revenues in the years ended December 31,
1994, 1995 and 1996, respectively, and 46% and 50% for the unaudited six month
period ended June 30, 1996 and the audited six month period ended June 29, 1997,
respectively. The Company derives the majority of its remaining revenue from its
wholly owned trucking subsidiary, Fleet Transport Company, Inc. ("Fleet") (see
Note 14), and from tank cleaning services through its wholly owned subsidiary,
Quala Systems, Inc. ("QSI").
The business of the Company is subject to limited seasonality, with
revenues generally declining slightly during winter months (namely the first and
fourth fiscal quarters) and over holidays. Highway transportation can be
adversely affected depending upon the severity of the weather in various
sections of the country during the winter months. The Company's operating
expenses also have been somewhat higher in the winter months, due primarily to
decreased fuel efficiency and increased maintenance costs of revenue equipment
in colder months.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated.
Unaudited Consolidated Financial Information
In the opinion of management, the unaudited consolidated financial
information for the six month period ended June 30, 1996, reflects all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly such information in accordance with generally accepted accounting
principles and are prepared in a manner consistent with the audited consolidated
financial statements.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The most significant estimates with regard to these financial
statements are in the areas of estimated self-
F-8
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
insurance liabilities and environmental recoveries and liabilities. Actual
results could differ from these estimates.
Accounts Receivable
At December 31, 1995 and 1996, and June 29, 1997 substantially all accounts
receivable were due from customers within the chemical processing industry. The
Company does not require any security arrangements with respect to these
receivables (see Note 6).
Operating Supplies
Operating supplies, representing repair parts, fuel and unmounted tires for
revenue equipment, are valued at the lower of first-in, first-out ("FIFO") cost
or market value. The Company records initial and replacement tire purchases as
prepaid expenses and amortizes the amounts over the estimated useful life of 27
months. Recapped tires are also recorded as prepaid expenses, but are amortized
over 16 months.
Prepaid Expenses and Other
Prepaid expenses, which consist principally of tires and hoses placed in
service, are valued at cost and are amortized over their estimated useful lives,
which range from 16 to 27 months.
Property and Equipment
Property and equipment are stated at cost. Depreciation, including
amortization of capitalized leases, is computed using the straight-line method
over the estimated useful lives of the assets, net of estimated salvage values,
or the lease periods, whichever is shorter. Estimated useful lives are as
follows: buildings and improvements, 5 to 30 years; revenue equipment, 2 to 7
years; other equipment, 2 to 10 years. Maintenance and repairs are charged to
operations as incurred. Major repairs and improvements which extend the useful
life of the related assets are capitalized and depreciated over their estimated
useful lives. When assets are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts and any resulting
gain or loss is included in operating results.
Included in other equipment is $7,871,000 at December 31, 1996, and
$10,991,000 at June 29, 1997 of capitalized costs related to the development and
implementation of a new management information system. The Company expects to
incur additional costs related to this project during 1997 which will also be
capitalized. These costs will be amortized over a period of seven years, which
is expected to begin in January 1998.
Recoverable Environmental Costs
Recoverable environmental costs consist principally of recoverable costs
under various insurance policies related to environmental matters at the
Bridgeport Site (see Note 12).
Revenue Recognition
The Company recognizes revenue when shipments are delivered or when tank
cleaning services are provided. Amounts payable to leased operators for
purchased transportation and to Company drivers for wages are accrued when the
related revenue is recognized.
F-9
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
Income Taxes
The Company accounts for income taxes under the liability method, whereby
deferred tax assets and liabilities are recognized for the tax effects of
temporary differences between the financial reporting and tax bases of assets
and liabilities using enacted tax rates.
Environmental Expenditures
Environmental expenditures that relate to an existing condition caused by
past operations and that do not contribute to current or future revenue
generation are expensed. Liabilities are recorded when environmental assessments
and/or cleanups are probable, and the costs can be reasonably estimated (see
Note 12).
Estimated Self-Insurance Liabilities
The Company is currently self-insured up to the following per-occurrence
retention levels:
o Public liability and property damage, cargo losses, and
sudden and accidental environmental losses................ $1,000,000
o Workers' compensation..................................... $ 500,000
o Medical benefits for salaried employees................... $ 100,000
o Collision and other environmental losses.................. No Limit
The Company is responsible up to an aggregate of $9,000,000 and $5,500,000
per year for public liability at December 31, 1996 and June 29, 1997,
respectively, and $4,000,000 per year for workers' compensation liability.
The Company has excess coverage beyond the deductible levels for public
liability, property damage and sudden and accidental environmental losses. The
Company's insurable limit was $100,000,000 at December 31, 1996 and June 29,
1997 with a $2,000,000 deductible at December 31, 1996 and $1,000,000 deductible
at June 29, 1997.
The liability for self-insurance is accrued based on claims incurred, with
the liability for unsettled claims and claims incurred but not yet reported
being estimated based on management's evaluation of the nature and severity of
individual claims and the Company's past claims experience.
Statement of Cash Flows
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
Fair Value of Financial Instruments
The carrying amounts reported in the accompanying statements of financial
position for cash, accounts receivable, and accounts payable approximate fair
value because of the immediate or short-term maturities of these financial
instruments.
The fair value of the Company's debt is estimated based on the quoted
market prices for the same or similar issues or on the current rates offered to
the Company for debt of the same remaining maturities. The book value of the
Company's debt approximates fair market value.
The fair value of the Company's notes receivable is estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities. The fair value of the Company's notes receivable is
$2,486,000, $3,385,000, $3,391,000 as of December 31, 1995, December 31, 1996,
and June 29, 1997, respectively.
F-10
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
Reclassifications
Certain prior period amounts have been reclassified to conform with the
June 29, 1997 presentation.
Changes in Accounting Policies
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"). This statement requires
recognition of impairment losses for long-lived assets whenever events or
changes in circumstances result in the carrying amount of the assets exceeding
the sum of expected future cash flows associated with such assets. The
measurement of the impairment losses to be recognized is to be based on the
difference between the fair values and the carrying amounts of the assets. SFAS
No. 121 also requires that long-lived assets held for sale be reported at the
lower of carrying amount or fair value less cost to sell. The effect of the
adoption of this policy was not material.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation ("SFAS No. 123") was effective for 1996. This statement
provides for a fair value based method of accounting for grants of equity
instruments to employees or suppliers in return for goods or services. With
respect to stock-based compensation to employees, SFAS No. 123 permits entities
to continue to apply the provisions prescribed by APB Opinion No. 25; however,
certain pro forma disclosures must be presented as if the fair value based
method had been applied in measuring compensation cost. There were no
transactions requiring disclosure in 1995 or 1996 or for the six months ended
June 29, 1997.
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities" ("SFAS No. 125"). This
statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. Those
standards are based on consistent application of a financial-components approach
that focuses on control. Under that approach, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls and
the liabilities it has incurred, derecognizes financial assets when control has
been surrendered, and derecognizes liabilities when extinguished. SFAS No. 125
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. SFAS No. 125 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and is to be applied
prospectively. The Company adopted this statement during the first quarter of
1997 and accounts for its $28,000,000 asset backed certificates as a sale for
financial reporting purposes (see Note 6). Accordingly, the asset backed
certificates of $28,000,000 and the associated accounts receivable of
$28,000,000 are not reflected on the consolidated balance sheet as of June 29,
1997.
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 96-1, "Environmental Remediation
Liabilities". This SOP provides that environmental remediation liabilities
should be accrued when the criteria of Financial Accounting Standards Board
(FASB) Statement of Financial Accounting Standards No. 5, "Accounting for
Contingencies", are met, and that the accrual should include incremental direct
costs of the remediation effort and the costs of compensation and benefits for
those employees who are expected to devote a significant amount of time directly
to the remediation effort, to the extent of the time expected to be spent
directly on the remediation effort. The provisions of this SOP are effective for
fiscal years beginning after December 15, 1996. The Company adopted this SOP on
January 1, 1997. The effect of the adoption was not material.
F-11
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
3. INCOME TAXES:
Income tax provision comprises the following:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE SIX
FOR THE YEAR ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, JUNE 30, JUNE 29,
--------------------- ------------ ------------
1994 1995 1996 1996 1997
---- ------ ----- ------------ ------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
U.S. federal:
Current....................... $ 27 $1,894 $(776) $(388) $ --
Deferred...................... 446 (1,692) 918 643 (929)
Foreign......................... 11 -- -- -- --
State:
Current....................... 148 103 9 5 5
Deferred...................... 78 (85) (105) 73 (299)
---- ------ ----- ----- -------
$710 $ 220 $ 46 $ 333 $(1,223)
---- ------ ----- ----- -------
---- ------ ----- ----- -------
</TABLE>
A reconciliation of the statutory to actual income tax provision is as
follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE SIX
FOR THE YEAR ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, JUNE 30, JUNE 29,
------------------ ------------ ------------
1994 1995 1996 1996 1997
---- ---- ---- ------------ ------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Statutory tax (benefit)
provision....................... $603 $187 $(39) $ 226 $ (997)
Increase (decrease) resulting
from:
State income taxes, net of
federal tax benefit.......... 151 104 142 71 63
Benefit of net operating loss
carryforwards................ (91) (99) (311) (156) (75)
Provision (benefit) of foreign
tax credit carryforwards..... (102) (102) 51 51 51
Other, net...................... 149 130 203 141 (265)
---- ---- ---- ----- -------
Actual tax provision (benefit).... $710 $220 $ 46 $ 333 $(1,223)
---- ---- ---- ----- -------
---- ---- ---- ----- -------
</TABLE>
F-12
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
3. INCOME TAXES: -- (CONTINUED)
Gross deferred tax assets at December 31, 1995 and 1996 and June 29, 1997
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 29,
1995 1996 1997
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Gross deferred tax assets:
Self insurance liabilities..................... $ 7,932 $ 7,413 $ 7,190
Pensions....................................... 1,228 1,205 665
Accruals....................................... 901 851 778
AMT and other credit carryforwards............. 2,413 1,921 1,932
NOL carryovers................................. -- 1,487 3,017
Other.......................................... 888 2,220 1,938
------- ------- -------
$13,362 $15,097 $15,520
------- ------- -------
------- ------- -------
</TABLE>
Gross deferred tax liabilities at December 31, 1995 and 1996 and June 29,
1997 consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 29,
1995 1996 1997
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Gross deferred tax liabilities:
Depreciation................................... $ 7,624 $ 7,782 $ 8,488
Recoverable environmental costs................ 3,600 5,145 5,505
Other.......................................... 1,688 2,821 799
------- ------- -------
$12,912 $15,748 $14,792
------- ------- -------
------- ------- -------
</TABLE>
The Company has an alternative minimum tax ("AMT") credit carryforward of
approximately $1,860,000 at December 31, 1996 and $1,911,000 at June 29, 1997
that can be used to offset future regular taxes in excess of AMT. The Company
has approximately $433,000 at December 31, 1996 and $4,636,000 at June 29, 1997
AMT net operating loss ("NOL") carryforwards for financial reporting purposes
which will be used in future years to offset AMT income. The Company has a net
operating loss ("NOL") carry forward of $8,874,000 for tax purposes at June 29,
1997 which begins to expire in 2011.
4. EMPLOYEE BENEFIT PLANS:
The Company maintains two noncontributory benefit plans that cover full-time
salaried employees and certain other employees under a collective bargaining
agreement. Retirement benefits for employees covered by the salaried plan are
based on years of service and compensation levels. The monthly benefit for
employees under the collective bargaining agreement plan is based on years of
service multiplied by a monthly benefit factor. Assets of the plans are invested
primarily in equity securities and fixed income investments. Pension costs are
funded in accordance with the provisions of the applicable law. Pension expense
for these plans was $561,000, $696,000 and $297,000 for the years ended December
31, 1994, 1995 and 1996, respectively, and $257,000 and $168,000 for the
unaudited six month period ended June 30, 1996 and the audited six month period
ended June 29, 1997, respectively.
F-13
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
4. EMPLOYEE BENEFIT PLANS: -- (CONTINUED)
The Company also provides supplemental retirement benefits to its employees
through defined contribution 401(k) plans. Participation in these plans is
elective. Assets of these plans are invested primarily in mutual funds.
The components of net periodic pension cost for the years ended December
31, 1994, 1995 and 1996 and the six month period ended June 29, 1997 are as
follows:
<TABLE>
<CAPTION>
JUNE 29,
1994 1995 1996 1997
------ ------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Service cost................................. $ 863 $ 814 $1,045 $ 536
Interest cost................................ 2,201 2,305 2,377 1,254
Actual return on plan assets................. 37 (5,486) (3,037) (1,608)
Net amortization and deferral................ (2,540) 3,063 (88) (14)
------ ------ ------ ------
$ 561 $ 696 $ 297 $ 168
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
The actuarial assumptions used in accounting for the plans are as follows:
DECEMBER 31
-------------------- JUNE 29,
1995 1996 1997
----------- ------ --------
Discount rates.............................. 8.25%-8.75% 7.75% 7.75%
Rate of assumed compensation increase....... 5% 5% 5%
Expected long-term rates of return on
assets.................................... 9%-9.5% 9%-11% 9%-11%
F-14
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
4. EMPLOYEE BENEFIT PLANS: -- (CONTINUED)
The following table sets forth the funded status of the two plans and the
amount recognized in the Company's consolidated balance sheets at December 31,
1995 and 1996 and June 29, 1997:
<TABLE>
<CAPTION>
1995 1996 JUNE 29, 1997
----------------------------- ----------------------------- -----------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------- ------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Actuarial present
value of benefit
obligations:
Vested............. $18,513 $7,951 $19,686 $ 8,700 $ 20,772 $ 9,341
Nonvested.......... 294 292 343 338 296 320
------- ------ ------- ------- -------- -------
Accumulated benefit
obligations........ $18,807 $8,243 $20,029 $ 9,038 21,068 9,661
------- ------ ------- ------- -------- -------
------- ------ ------- ------- -------- -------
Projected benefit
obligations........ $21,424 $8,243 $22,738 $ 9,038 23,849 9,661
Plan assets at market
value.............. 22,472 7,407 22,471 7,407 23,571 7,368
------- ------ ------- ------- -------- -------
Projected benefit
obligation less
than (in excess of)
plan assets........ 1,048 (836) (267) (1,631) (278) (2,293)
Unrecognized
actuarial gain..... (4,587) (102) (3,272) 692 (3,287) 1,477
Unrecognized prior
service cost....... 1,721 315 1,721 315 1,541 228
Unrecognized
transition
amount............. (894) 61 (894) 61 (596) 35
Adjustment required
to recognize
minimum
liability.......... -- (274) -- (1,068) -- (1,739)
------- ------ ------- ------- -------- -------
Accrued pension
liability, included
in other noncurrent
liabilities........ $(2,712) $ (836) $(2,712) $(1,631) ($ 2,620) ($2,292)
------- ------ ------- ------- -------- -------
------- ------ ------- ------- -------- -------
</TABLE>
The Company charged to operations payments to multiemployer pension plans
required by collective bargaining agreements of $2,471,000, $1,992,000 and
$1,870,000 for the years ended December 31, 1994, 1995 and 1996 and $949,000 and
$923,000 for the unaudited six month period ended June 30, 1996 and the audited
six month period ended June 29, 1997. These defined benefit plans cover
substantially all of the Company's union employees not covered under the
Company's plan. The actuarial present value of accumulated plan benefits and net
assets available for benefits to employees under these multiemployer plans is
not readily available (see Note 10).
SFAS No. 87, "Employers' Accounting for Pensions", requires the recognition
of an additional minimum liability for each defined benefit plan for which the
excess of the accumulated benefit obligation over plan assets exceeds the
pension liability recorded. A portion of this amount has been offset by the
recording of an intangible asset. Because the asset recognized may not exceed
the amount of unrecognized prior service cost and transition obligation on an
individual plan basis, the balance, net of tax benefits, is reported as a
reduction of stockholders' equity at June 29, 1997.
F-15
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
5. SENIOR NOTE OFFERING:
On June 16, 1997 the Company completed the sale of $100 million of Senior
Notes (the "Notes"). The Notes bear interest at a rate per annum of 10 3/8% and
are due 2005. The Notes are redeemable at the option of the Company, in whole or
in part, at any time on or after June 15, 2001, at redemption prices as defined
in the Purchase Agreement. In addition on or prior to June 15, 2000, the Company
may redeem up to 25% of the Notes at a redemption price of 110 3/8% with the net
proceeds of a Public Equity Offering, provided that not less than $75 million in
aggregate principal amount of the Notes is immediately outstanding after giving
effect to such redemption. If there is a change of control in the ownership of
the Company, each Note holder will have the right to require the Company to
purchase all or a portion of such holder's Notes at a purchase price equal to
101% of the principal amount thereof. The Notes rank pari passu in right of
payment with all existing and future unsecured and unsubordinated indebtedness
of the Company and senior in right of payment to all existing and future
subordinated indebtedness of the Company. In connection with the Notes, the
Company is subject to certain covenants that among other things, limit (1) the
incurrence of additional indebtedness by the Company, (2) the payment of
dividends on and redemption of capital stock of the Company, (3) certain
investments by the Company, (4) certain sales of assets, and (5) consolidations
and mergers of the Company. The Company used the proceeds from the Notes to
repay substantially all of the Company's outstanding indebtedness and for
working capital and general corporate purposes. The Notes are classified as
long-term debt on the consolidated balance sheet as of June 29, 1997 (See Note
6).
The Company also entered into the Registration Rights Agreement dated as of
the Closing Date (the "Registration Rights Agreement"), among the Company and
the Initial Purchasers, pursuant to which the Company granted certain
registration rights for the benefit of the holders of the Notes. Under the
Registration Rights Agreement, the Company agreed for the benefit of the holders
of the Notes that it would, at its own cost (i) within 60 days after the Closing
Date file a registration statement (the "Registration Statement") with the
Commission with respect to a registered offer to exchange the Notes for New
Notes, which will have terms substantially identical to the Notes and (ii) use
its best efforts to cause such Registration Statement to be declared effective
under the Securities Act within 120 days after the Closing Date. If for any
reason the Exchange Offer is not consummated within 150 days after the Closing
Date, the Company is obligated under the Registration Rights Agreement to file a
shelf registration statement with the Commission covering resales of the Notes.
If the Company defaults with respect to its obligations under the Registration
Rights Agreement, the Company will be obligated to pay Additional Interest of
0.25% per annum for the first 90-day period (or portion thereof) and an
additional 0.25% per annum for each subsequent 90-day period (up to a maximum
aggregate increase of 1.00% per annum) until all Registration Defaults have been
cured, whereupon the accrual of Additional Interest will cease and the interest
rate on the Notes will revert to the original rate.
6. EQUIPMENT OBLIGATIONS AND LONG-TERM DEBT:
Long-term debt as of December 31, 1995 and 1996, and June 29, 1997 consists
of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 29,
----------------- --------
1995 1996 1997
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Senior Notes............................................ $ -- $ -- $100,000
Asset-backed certificate................................ 23,000 28,000 --
Capital lease obligations............................... 14,863 21,729 2,202
Mortgage notes.......................................... 922 854 --
Less -- Amounts due in one year or less................. (2,612) (4,364) (638)
------- ------- --------
$36,173 $46,219 $101,564
------- ------- --------
------- ------- --------
</TABLE>
F-16
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
6. EQUIPMENT OBLIGATIONS AND LONG-TERM DEBT: -- (CONTINUED)
In May 1993, the Company, through one of its wholly owned subsidiaries,
sold a $23,000,000 Asset Backed Certificate (the "Certificate") to an insurance
company (the "Investor") pursuant to the terms of the related Receivables
Contribution and Purchase Agreement and the Pooling and Servicing Agreement (the
"Agreements"). The Agreements were amended and restated as of December 16, 1994,
and as of December 30, 1996, to allow for increases to the Certificate amount
now totaling $28,000,000. The Certificate is secured by the Company's
receivables, as defined in the Agreements, and may be repurchased at any time
for a purchase price equal to the unpaid principal and interest due. The
Certificate bears interest at a per-annum rate equal to the London Interbank
Offered Rate ("LIBOR") plus .80%. The Certificate is scheduled to mature in
December 1999. In accordance with the terms of the Agreements, the Company held
$1,934,000 and $3,541,400 in a restricted cash account at December 31, 1995 and
1996, respectively, and $0 at June 29, 1997. On March 30, 1997, the Agreements
were amended and restated and the provision permitting the Company to repurchase
the Certificate at any time was eliminated. As a result, the transaction is
accounted for as a sale for financial reporting purposes. Accordingly, the
Certificate of $28,000,000 and the associated accounts receivable of $28,000,000
are not reflected on the consolidated balance sheet as of June 29, 1997.
The capital lease obligations are payable in monthly installments to the
year 2001 at interest rates ranging from 6.2% to 12.0%.
Equipment obligations as of December 31, 1995 and 1996, and June 29, 1997
consist of the following:
DECEMBER 31, JUNE 29,
----------------- --------
1995 1996 1997
------- ------- --------
(IN THOUSANDS)
$20,000,000 Revolving Credit Agreement........... $ -- $ -- $ --
$12,500,000 Revolving Credit Agreement........... 3,479 6,829 --
$26,000,000 Revolving Credit Agreement........... 11,355 24,855 --
$10,000,000 Revolving Credit Agreement........... -- 8,325 --
Other equipment obligations at interest rates
ranging from 7.5% to 12.7%, payable in
installments through 2003...................... 14,202 18,432 --
Less -- Amounts due in one year.................. (4,804) (4,957) --
------- ------- -------
$24,232 $53,484 $ --
------- ------- -------
------- ------- -------
In May 1993, the Company entered into a $10,000,000 Revolving Credit
Agreement with a bank. The agreement was amended in July 1995 and again in July
1996, and the revolving credit line was increased to $12,500,000. This amended
agreement includes a maximum of $8,500,000 in open letters of credit, $3,900,000
of which was utilized at December 31, 1996 and June 29, 1997, respectively. The
Company pays letter of credit fees of 2% of the outstanding balance of issued
letters of credit, and a commitment fee of .5% on the unused credit line.
Borrowings under this agreement bear interest, based upon the election of the
Company, at the Base Rate, as defined, plus .75% per annum or the Adjusted
LIBOR, as defined, plus 3%. Borrowings are secured by liens against specified
revenue equipment. The Company has agreed to various loan covenants, including
the maintenance of certain financial conditions and ratios, limitations on
mergers, asset sales and purchases, and intercompany advances among other
restrictions. The Company was in compliance with all these covenants as of
December 31, 1996. This agreement was terminated and all outstanding amounts
were repaid in June of 1997 with the proceeds of the Note Offering (See Note 5).
F-17
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
6. EQUIPMENT OBLIGATIONS AND LONG-TERM DEBT: -- (CONTINUED)
The $26,000,000 Revolving Credit Agreement is with an asset-based lender.
Borrowings under this agreement bear interest at rates indexed from .75% to 1.5%
above a bank's prime rate, with a floor of 7.5%. This agreement includes a
maximum of $3,750,000 in open letters of credit, of which none were drawn at
December 31, 1996 and June 29, 1997. Borrowings are secured by liens against
certain revenue equipment and are limited to 85% of the depreciated value of
that equipment, as defined. The Company has agreed to various loan covenants,
including the maintenance of certain financial conditions and ratios,
limitations of additional debt or liens, restriction of dividends and
limitations on mergers, asset sales and purchases, and intercompany advances,
among other restrictions. The Company was in compliance with all these covenants
as of December 31, 1996 and June 29, 1997. The agreement is subject to renewal
on June 30, 1998, or alternatively it will convert to a 48-month term loan with
payments beginning August 1, 1998. The Company also pays letter of credit fees
at an annual rate of 2% of the outstanding balance of the issued letters of
credit, and fees on the unused credit line at an annual rate of .5%. This
agreement was terminated and all outstanding amounts were repaid in June of 1997
with the proceeds of the Note Offering (See Note 5).
The $10,000,000 Revolving Credit Agreement is with an asset-based lender.
Borrowings under this agreement bear interest rates indexed from .75% to 1.5%
above a bank's prime rate, with a floor of 6.5%. Borrowings are secured by liens
against certain revenue equipment and are limited to 85% of the depreciated
value of that equipment, as defined. The Company has agreed to various loan
covenants, including the maintenance of certain financial conditions and ratios,
restriction of dividends and limitations on mergers, asset sales and purchases,
and intercompany advances, among other restrictions. The Company was in
compliance with all these covenants as of December 31, 1996 and June 29, 1997.
The agreement is subject to renewal on June 30, 1998, or alternatively it will
convert to a 48-month term loan with payments beginning August 1, 1998. The
Company also pays fees on the unused credit line at an annual rate of .5%. This
agreement was terminated and all outstanding amounts were repaid in June of 1997
with the proceeds of the Note Offering (See Note 5).
In connection with the Offering of the Notes, Chemical Leaman Corporation
entered into a revolving credit facility with CoreStates Bank, N.A. (the "New
Revolving Credit Facility"). The New Revolving Credit Facility provides for up
to $20 million of revolving loans and $8.5 million letters of credit. Borrowings
under the New Revolving Credit Facility may be used for working capital and the
purchase of revenue equipment. Amounts outstanding under the New Revolving
Credit Facility will bear interest at a variable rate at the Company's election
of (i) the Base Rate (as defined therein) plus 1/2% or (ii) LIBOR (as defined
therein) plus 1.80%. The Company will be required to pay a letter of credit fee
of 1.80% per annum of letters of credit outstanding and a commitment fee of
3/8% per annum of the unused portion of the facility. The New Revolving Credit
Facility will mature in June 2000, subject to a maximum of two annual extensions
at the option of the Company upon the approval of CoreStates. The New Revolving
Credit Facility was undrawn at June 29, 1997 except for $3.9 million of stand-by
letters of credit which were rolled over from an existing facility.
The New Revolving Credit Facility is secured by $25 million of revenue
equipment held by Chemical Leaman Corporation and availability under the
facility is limited to 80% of the value of such equipment.
The New Revolving Credit Facility contains financial covenants including a
minimum net worth test and a minimum fixed charge coverage ratio. In addition,
the New Revolving Credit Facility contains covenants that restrict certain
mergers, acquisitions and sales of assets, the incurrence of indebtedness, the
payment of dividends, the repurchase of stock, the making of loans to
shareholders and the granting of liens.
F-18
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
6. EQUIPMENT OBLIGATIONS AND LONG-TERM DEBT: -- (CONTINUED)
The Company does not utilize interest rate swaps or other derivative
financing arrangements to limit its interest rate risk.
Annual maturities of debt following June 30, 1998, excluding letters of
credit, are as follows:
LONG-TERM EQUIPMENT
DEBT OBLIGATIONS
--------- -----------
(IN THOUSANDS)
1998................................................. $ 415 $ --
1999................................................. 489 --
2000................................................. 459 --
2001................................................. 201 --
2002................................................. -- --
Subsequent........................................... 100,000 --
-------- -------
$101,564 $ --
-------- -------
-------- -------
7. STOCKHOLDERS' EQUITY:
In April 1996, the Company completed a reverse merger transaction whereby
stockholders who owned less than 50 common shares had their shares converted
into a right to receive $6,000 per share in cash; 111 shares were converted as a
result of this transaction.
In October 1996, the Company issued a stock dividend effected in the form
of a 199-to-1 stock split to its stockholders whereby each stockholder received
199 shares of common stock for each common share held. The 1995 financial
statements have been adjusted to reflect the stock dividend.
In 1996, officers of the Company were granted and immediately exercised
rights for the purchase of 299 shares of common stock at $6,000 per share, and
as consideration executed promissory notes in favor of the Company with a
maturity date of December 31, 2006, with interest payable annually at the rate
of 7.25%. These notes receivable have been classified as a stock subscription
receivable in stockholders' equity.
In 1995, an officer of the Company was granted and immediately exercised
rights for the purchase of 76 shares of common stock at $6,000 per share, and as
consideration executed a promissory note in favor of the Company with a maturity
date of December 31, 2004, and interest payable annually at the rate of 6.83%.
This note receivable has been classified as a stock subscription receivable in
stockholders' equity.
In 1996, the Company canceled certain options that were granted to Company
officers and paid $315,000 as consideration to the employees to cancel the
options.
In 1988, an officer of the Company exercised rights for the purchase of 250
shares of common stock at $6,080 per share, and as consideration executed a
promissory note in favor of the Company with a term of 10 years and interest
payable annually at the rate of 9.39%. This note receivable has been classified
as a stock subscription receivable in stockholders' equity.
8. MANDATORILY REDEEMABLE PREFERRED STOCK:
In August 1992, the Company issued Series A Preferred stock (the "Series A
Preferred") which has a $20,000 stated value per share and a 6% cumulative
dividend payable quarterly, subject to certain legal and contractual
limitations. The Series A Preferred can be redeemed at a premium by the Company
during the first seven years after issuance, after which time the Company may
redeem the
F-19
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
8. MANDATORILY REDEEMABLE PREFERRED STOCK: -- (CONTINUED)
Series A Preferred at par value plus accumulated unpaid dividends. After ten
years, the Series A Preferred holders have the right to require redemption at
par value plus accumulated unpaid dividends. The Company may not amend certain
of the terms of the Series A Preferred without the prior written consent of the
holders of at least 90% of the then-outstanding shares of Series A Preferred.
The Company may not issue any class or series of capital stock that is senior in
priority to the Series A Preferred while any of the shares thereof are issued
and outstanding. The Series A Preferred, as a class, has the right to elect one
member of the Board of Directors, but has no other voting rights. The Series A
Preferred has no conversion features.
In May 1996, the Company converted 151 shares of common stock held by a
stockholder into 151 Series B convertible preferred shares (the "Series B
Preferred"). The Series B Preferred has a $6,000 stated value per share and a 6%
cumulative dividend payable quarterly, subject to certain legal and contractual
limitations. After ten years, the Series B Preferred holders have the right to
require redemption at par value plus accumulated unpaid dividends. The Series B
Preferred is convertible into an equal number of fully paid and nonassessable
shares of common stock at the option of the Series B Preferred Stockholders. The
Company may not issue any class or series of capital stock that is senior in
priority to the Series B Preferred, except for the shares of Series A Preferred,
while any of the shares thereof are issued and outstanding.
In May 1996, the Company converted 302 shares of common stock held by
stockholders into 302 Series C convertible preferred shares (the "Series C
Preferred"). The Series C Preferred has a $6,000 stated value per share and an
8% cumulative dividend payable quarterly, subject to certain legal and
contractual limitations. After ten years, the Series C Preferred holders have
the right to require redemption at par value plus accumulated unpaid dividends.
The Series C Preferred has no conversion features. The Company may not issue any
class or series of capital stock that is senior in priority to the Series C
Preferred, except for the shares of Series A Preferred, while any of the shares
thereof are issued and outstanding. The Company's shares of Series C Preferred
rank, as to dividends and liquidation, equally with each other, equally with
shares of the Series B Preferred, senior and prior to the Company's common
stock, and senior to, or on a parity with, classes or series of capital stock
(other than the Company's common stock and Series A Preferred) hereafter issued
by the Company.
9. LEASES:
DECEMBER 31,
----------------- JUNE 29,
1995 1996 1997
------- ------- --------
(IN THOUSANDS)
Building, revenue equipment and other equipment
financed under capital leases.................. $20,757 $30,627 $ 4,904
Less -- Accumulated depreciation................. 7,234 10,409 3,313
------- ------- -------
$13,523 $20,218 $ 1,591
------- ------- -------
------- ------- -------
The Company leases certain terminal facilities and revenue equipment under
noncancellable operating leases with terms ranging through the year 2001. Annual
rent expense was $824,000 and $1,369,000 for the years ended December 31, 1995
and 1996, respectively, and $512,000 and $860,000 for the unaudited six month
period ended June 30, 1996 and the audited six month period ended June 29, 1997,
respectively.
F-20
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
9. LEASES: -- (CONTINUED)
The following is a schedule of future minimum lease payments for capital
and operating leases as of June 29, 1997:
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
1997 (6 months)........................................... $ 464 $ 1,598
1998...................................................... 829 3,555
1999...................................................... 730 2,699
2000...................................................... 517 1,381
2001...................................................... 169 650
Subsequent................................................ 16 2,036
------- -------
Total minimum lease payments.............................. 2,725 $11,919
-------
-------
Less -- Amount representing interest...................... 523
-------
Present value of minimum lease payments................... $ 2,202
-------
-------
10. COMMITMENTS AND CONTINGENT LIABILITIES:
Commitments to purchase revenue equipment amounted to approximately
$5,504,000 and $2,555,000 at December 31, 1996 and June 29, 1997, respectively.
In connection with a dispute between the Company and a multiemployer
pension plan covering certain of the Company's union employees, the plan's
trustees have threatened to terminate the Company's participation in the pension
plan with respect to some of its employees. If such termination were to occur,
the plan's trustees have indicated that the Company would be required to pay a
partial withdrawal liability in the amount of approximately $3.8 million over a
period of two years commencing in 1999. The Company is currently negotiating
with the trustees concerning a possible settlement of the dispute, which would
permit all of the Company's covered operations to continue to participate in the
pension plan in exchange for either increased future contributions or increased
covered employment. The Company believes that the ultimate resolution of this
matter will not have a material adverse effect on the Company's financial
condition or results of operations. (See Note 15.)
The Company is a party to a lawsuit filed in 1987 against the Company and
approximately 25 other defendants in the Superior Court of New Jersey, Passaic
County (A.L.U. Textile Combining Corp. et al. v. Texaco Chemical Co., et al.,
No. L-23905-87). The approximately 175 plaintiffs seek damages claimed to exceed
$100 million resulting from a fire set to a building by trespassing arsonists.
The plaintiffs allege that the Company was negligent by delivering a shipment of
naphthalene to an outdoor facility where it could be ignited by trespassers. The
Company has denied any liability and has asserted cross-claims against the other
defendants. Discovery in the lawsuit has not yet been concluded. The Company had
applicable insurance coverage at the time of the incident of $53 million,
subject to a deductible of $250,000 per incident. The plaintiffs have made a
settlement offer in an amount falling within the coverage limit, which the
Company has not accepted, and settlement negotiations are continuing. A portion
of the insurance coverage is carried by insurers which are currently insolvent,
which could result in the Company being required to pay amounts in excess of the
deductible limit to settle or otherwise resolve the lawsuit. If a settlement
cannot be successfully concluded, the Company intends to defend against the
lawsuit (See Note 15).
F-21
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
10. COMMITMENTS AND CONTINGENT LIABILITIES: -- (CONTINUED)
The Company is involved in other litigation in the normal course of
business. After consultation with legal counsel, management is of the opinion
that various claims and litigation currently pending will not materially affect
the Company's financial position or results of operations (see Note 12).
11. RELATED-PARTY TRANSACTIONS:
The Company paid consulting fees of $720,000, $730,000 and $1,251,000 for
the years ended December 31, 1994, 1995 and 1996, respectively, and $861,000 and
$460,000 for the unaudited six month period ended June 30, 1996 and the audited
six month period ended June 29, 1997, respectively, to a director of the
Company. The Company also paid consulting fees totaling $149,000, $162,000 and
$162,000 for the years ended December 31, 1994, 1995 and 1996, respectively, and
$72,000 and $81,000 for the unaudited six month period ended June 30, 1996 and
the audited six month period ended June 29, 1997, respectively, to certain
preferred stockholders.
On December 11, 1995, the Company and a consulting firm ("the Consulting
Firm") entered into a Service Agreement under which the Consulting Firm agreed
to assist in the development and implementation of the Company's new information
technology system on a fee for service basis. The president, controlling
stockholder and a director of the Consulting Firm is a director of the Company.
In addition, on July 1, 1996, the Company and this director entered into a
Consulting Agreement for this director to assist the Company with the management
of its new information technology system. The Consulting Agreement provides for
this director to receive a consulting fee of $20,834 per month and the potential
to receive a bonus of up to 100% of the base consulting fee, payable at the end
of 1996 and 1997. The Consulting Agreement has a termination date of December
31, 1997. The Company paid $670,000 and $2,525,000 for the years ended December
31, 1995 and 1996, respectively, and $1,273,000 and $1,375,000 for the unaudited
six month period ended June 30, 1996 and audited six month period ended June 29,
1997 to this director.
During 1995, the Company extended a $2,500,000 loan to its Chairman and
Chief Executive Officer. The loan is evidenced by a promissory note and bears
interest at 8.25% per annum. Interest under this loan is payable annually, and
the principal is due upon maturity at December 31, 2004. During 1996, the
Company extended an additional $1,000,000 loan to this officer. This loan is
also scheduled to mature December 31, 2004, and bears interest at a rate of
6.50% per annum. The loan amounts are included in notes receivable on the
consolidated balance sheets.
12. ENVIRONMENTAL MATTERS:
For a number of years the Company has been involved in two sites that have
been designated as Superfund sites by the United States Environmental Protection
Agency ("EPA") located in Bridgeport, New Jersey and West Caln Township,
Pennsylvania.
Bridgeport, New Jersey. During 1991, the Company entered into a Consent
Decree with the EPA filed in the U.S. District Court for the District of New
Jersey, U.S. v. Chemical Leaman Tank Lines, Inc., Civil Action No. 91-2637 (JFG)
(D.N.J.), with respect to its site located in Bridgeport, New Jersey, requiring
the Company to remediate groundwater contamination. The Consent Decree allowed
the Company to undertake Remedial Design and Remedial Action ("RD/RA") related
to the groundwater operable unit of the cleanup. Costs associated with
performing the RD/RA were $1.2 million in 1996. No decision has been made as to
the extent of soil remediation to be required, if any.
In August 1994, the EPA issued a Record of Decision ("ROD") selecting a
remedy for the wetlands operable unit at the Bridgeport site. The Company has
submitted comments to the EPA that vigorously dispute the merits of the EPA's
remedy. In the last quarter of 1996, the EPA issued
F-22
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
12. ENVIRONMENTAL MATTERS: -- (CONTINUED)
demands to the Company for reimbursement of approximately $2.5 million in
alleged EPA past response costs at the site for the groundwater and wetlands
operable units, and the Company expects that additional demands may be issued in
the future. The government has not made a claim against the Company for natural
resource damages. The Company and the EPA are negotiating a settlement of the
EPA's response cost claims. If the EPA accepts the Company's latest offer, the
Company will be permitted to reimburse the EPA's cost at the site over a three
year period at a total cost of $3.3 million, plus interest.
The Company is in litigation with its insurers to recover its costs in
connection with the environmental cleanup at the Bridgeport site. On April 7,
1993, the U.S. District Court for the District of New Jersey entered a judgment
requiring the insurers to reimburse the Company for substantially all past and
future environmental cleanup costs at the Bridgeport site. The insurers appealed
the judgment to the U.S. Court of Appeals for the Third Circuit, but before the
appeal was decided the Company and its primary insurer settled all of the
Company's claims, including claims asserted or to be asserted at other sites,
for $11.5 million. This insurer dismissed its appeal, but the excess carriers
did not. On June 20, 1996, the U.S. Court of Appeals affirmed the judgment
against the excess insurance carriers, except for the allocation of liability
among applicable policies, and remanded the case for an allocation of damage
liability among the insurers and applicable policies on a several basis. The
allocation proceeding and the Company's petition for recovery of its legal costs
are presently pending before the U.S. District Court.
It is the belief of environmental counsel to the Company, and management,
that receipt of insurance proceeds sufficient to recover substantially all of
the costs of remediating the Bridgeport site, including attorney fees and
expenses, is likely to occur. On September 15, 1997, the District Court issued
an order allocating damage liability among the applicable policies. The Company
capitalized $1,647,000 and $4,243,000 during 1995 and 1996, respectively, and
$421,000 during the six month period ended June 29, 1997, of current costs
related to the Bridgeport site based upon their probable future recovery. The
deferred costs of $9,437,000, $13,680,000 and $14,101,000 are classified as
recoverable costs in the consolidated balance sheets at December 31, 1995 and
1996, and June 29, 1997, respectively.
West Caln Township, Pennsylvania. The EPA has alleged that the Company
disposed of hazardous materials at the William Dick Lagoons Superfund Site
located in West Caln Township, Pennsylvania. In 1991, the EPA issued ROD I,
requiring the installation of a public water supply for some residents near the
site. In November 1991, the EPA issued special notice letters to the Company and
another potentially responsible party ("PRP") soliciting implementation of ROD
I. In March 1992, the EPA issued a unilateral order to the Company and the other
party directing them to implement ROD I. The Company declined to comply based on
its belief that it had sufficient cause not to comply.
In April 1993, the EPA issued ROD II, selecting a remedy for the soil
remediation phase of this cleanup program. The EPA and the Company agreed that
the Company would be afforded the opportunity to implement its preferred remedy
for the soil remediation phase and to settle its differences with the EPA
regarding the public water supply issue. Pursuant to a Consent Decree lodged
with the U.S. District Court for the Eastern District of Pennsylvania on October
10, 1995, U.S. v. Chemical Leaman Tank Lines, Inc., Civil Action No. 95-CV-4264
(RJB) (E.D.P.A.), the Company paid the EPA $713,674 in June 1996, $713,674 in
October 1996, and approximately $300,000 in November 1995, and established a
$300,000 irrevocable standby letter of credit. These payments settled EPA's
claim relating to past response costs and failure to install a public water
supply in accordance with ROD I. The Consent Decree requires the Company to make
an additional payment to EPA of $700,000
F-23
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
12. ENVIRONMENTAL MATTERS: -- (CONTINUED)
in October 1997, perform an interim groundwater remedy at the site, and finance
the soil remedy at an estimated cost of approximately $4.1 million. The Consent
Decree does not cover the final groundwater remedy or other site remedies, or
claims, if any, for natural resource damages.
Other Sites. On August 5, 1992, the Company entered into a CD with the
City and State of New York settling its liability for alleged contamination of
five municipal landfills located in New York City. The CD, which was entered by
the United States District Court for the Southern District of New York on August
7, 1992, obligated the Company to pay to the State of New York $133,227 by
September 16, 1992. This payment was made as required. The CD also obligated the
Company to pay the City of New York $1,419,183 on June 30, 1995. The Company and
the City of New York agreed in principle to a deferral of the June 30, 1995
payment in exchange for an increase in the total amount due from the Company. In
accordance with that agreement, the Company paid the City of New York $500,000
in June 1995. Three additional payments of $250,000 were made on March 31, 1996,
June 30, 1996, and March 30, 1997. A final payment of $379,576 was made on June
30, 1997.
In addition, the Company has also been named as a defendant and a
potentially responsible party at a number of former waste disposal sites. In
these matters the Company's involvement is relatively limited and generally
arises out of shipment of wastes by or for the Company in the ordinary course of
business over many years to contaminated sites owned and operated by third
parties.
Although the extent and timing of the litigation, settlement and possible
cleanup costs at the foregoing sites, other than certain phases of the
Bridgeport and West Caln Township sites, are not reasonably estimable at this
time, it is anticipated that the Company will expend substantial amounts with
respect to such sites.
The Company has recorded total charges (credits) to income of $2,700,000,
$2,388,000 and $2,280,000 for the years ended December 31, 1994, 1995 and 1996,
respectively, and $(1,392,000) and $760,000 for the unaudited six month period
ended June 30, 1996 and the audited six month period ended June 29, 1997,
respectively, with regard to the foregoing environmental cleanup and related
charges. At December 31, 1995 and 1996, and June 29, 1997, the reserve for
environmental liabilities was approximately, $15,309,000, $13,115,000 and
$12,400,000, respectively, and this reserve is included in estimated
self-insurance liabilities in the consolidated balance sheets.
13. INVESTMENT:
The Company has a zero coupon bond of $2,236,000, which is required as
security under the Company's insurance program. The bond is scheduled to mature
February 15, 2016. The bond is classified as held-to-maturity, and has a value
of $737,000 which consists of the initial purchase price and accretion of income
and is included in other assets on the consolidated balance sheets.
14. ACQUISITION:
In June 1996, the Company and BMI Transportation, Inc. ("BMI") signed an
asset purchase agreement in which the Company purchased certain assets
(equipment and receivables) and assumed certain liabilities, as defined, of
Fleet Transport Company, Inc. ("Fleet"), a division of BMI. The consideration
for the assets purchased was $15,500,000 and the assumption of capital lease
obligations of approximately $7,400,000. Additionally, the Company assumed
certain operating leases related to revenue equipment. The Company retained
$1,500,000 of the purchase price to be utilized to perform any necessary or
appropriate environmental cleanup on the facilities purchased from BMI. This
amount is reflected as a liability in the consolidated balance sheet. To the
extent the Company does not utilize the $1,500,000 on or prior to the second
anniversary of the closing date, the Company is required to
F-24
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS) -- (CONTINUED)
14. ACQUISITION: -- (CONTINUED)
pay one half of the unused portion to BMI with interest thereon at an annual
rate of 8%. The balance of the unused portion is required to be paid to BMI on
the third anniversary of the closing date with interest thereon at an annual
rate of 8%. The acquisition was accounted for under the purchase method of
accounting. Based on the allocation of the purchase price, no goodwill resulted
from this acquisition. Under the terms of the asset purchase agreement, there is
an additional contingent payment of up to a maximum of $7,000,000 that the
Company is required to make if revenues and earnings of Fleet exceed certain
levels, as defined, for the 12-month period ended June 29, 1997. Based on the
revenues and earnings of Fleet for the 12-month period ended June 29, 1997, the
Company does not anticipate making the contingent payment. Operating results for
Fleet are included in the Company's consolidated statement of operations
beginning June 29, 1996. The accompanying statement of operations for the year
ended December 31, 1996 and the audited six month period ended June 29, 1997,
includes $461,000 and $711,000, respectively, of net loss attributable to the
Fleet acquisition.
15. SUBSEQUENT EVENT:
The Company has entered into an agreement to settle a dispute between the
Company and a multiemployer pension plan covering certain of the Company's union
employees. Under the agreement, the Company has agreed to provide a minimum
level of future contributions to the plan for a four-year period ending
September 1, 2001. At that time, the plan trustees may renew their claim that
they have the right to terminate the Company's participation in the plan with
respect to some or all of its employees, and the Company retains any and all
defenses it has with respect to such claim. If the Company's participation were
to have terminated during 1997 with respect to a group of employees, the Company
would have been assessed a partial withdrawal liability of approximately $3.8
million payable over a period of two years commencing in 1999. The Company
anticipates that any withdrawal liability that might be due on account of a
partial withdrawal in or after 2001 will be substantially reduced from that
level.
On September 19, 1997, the Company agreed to settle all claims in the
A.L.U. Textile Combining Corp. et al. v. Texaco Chemical Co., et al. lawsuit
(discussed in Note 10 above) for $19 million. It is expected that the payment
will be made in October 1997. Although the Company has insurance coverage with
several companies and syndicates for that amount, a portion of the insurance
coverage is carried by insurers which are currently insolvent. As a result, the
Company initially must fund the portion of the settlement, aggregating
$7,397,390, for which the insolvent carriers provided coverage, with the solvent
insurers paying the balance of the settlement. Most of the insolvent insurers
have entered into an arrangement approved by the British courts, pursuant to
which the Company expects to receive additional coverage payments of $794,659
approximately 60 days after payment of the settlement amount. In addition, based
on its review of the most recent annual report to creditors of the insolvent
insurers and discussions with representatives of such insurers, the Company
expects periodic payments over the next 10 years up the aggregate amount of $3.2
million.
F-25
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF PERIOD ADDITIONS DEDUCTIONS END OF PERIOD
------------------- --------- ---------- -------------
<S> <C> <C> <C> <C>
FOR SIX MONTH PERIOD ENDED JUNE 29, 1997
Accounts receivable allowance for
doubtful accounts..................... $ 570 $ 225 $ (131) $ 664
FOR YEAR ENDED DECEMBER 31, 1996
Accounts receivable allowance for
doubtful accounts..................... 323 318 (71) 570
FOR YEAR ENDED DECEMBER 31, 1995
Accounts receivable allowance for
doubtful accounts..................... 212 338 (227) 323
</TABLE>
F-26
<PAGE>
================================================================================
ALL TENDERED OLD NOTES, EXECUTED LETTERS OF TRANSMITTAL AND OTHER RELATED
DOCUMENTS SHOULD BE DIRECTED TO THE EXCHANGE AGENT. QUESTIONS AND REQUESTS FOR
ASSISTANCE AND REQUESTS FOR ADDITIONAL COPIES OF THE PROSPECTUS, THE LETTER OF
TRANSMITTAL AND OTHER RELATED DOCUMENTS SHOULD BE ADDRESSED TO THE EXCHANGE
AGENT AS FOLLOWS.
BY MAIL:
FIRST UNION NATIONAL BANK
1525 WEST W. T. HARRIS BLVD. 3C3
CHARLOTTE, NORTH CAROLINA 28288
ATTENTION: MICHAEL KLOTZ
FACSIMILE TRANSMISSION:
(704) 590-7628
BY HAND/OVERNIGHT EXPRESS:
FIRST UNION NATIONAL BANK
1525 WEST W. T. HARRIS BLVD. 3C3
CHARLOTTE, NORTH CAROLINA 28288
ATTENTION: MICHAEL KLOTZ
FACSIMILE TRANSMISSION:
(704) 590-7628
TO CONFIRM RECEIPT:
(704) 590-7408
(ORIGINALS OF ALL DOCUMENTS SUBMITTED BY FACSIMILE SHOULD BE SENT PROMPTLY
BY HAND, OVERNIGHT COURIER OR REGISTERED OR CERTIFIED MAIL)
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED IN CONNECTION WITH ANY
OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
================================================================================
================================================================================
OFFER TO EXCHANGE ALL OUTSTANDING
10 3/8% SENIOR NOTES DUE 2005
($100,000,000 PRINCIPAL AMOUNT)
FOR 10 3/8% SENIOR NOTES DUE 2005
[LOGO]
CHEMICAL LEAMAN CORPORATION
------------------
PROSPECTUS
------------------
, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Chemical Leaman Corporation (the "Company") is a Pennsylvania corporation.
Sections 513 and 518 of the Pennsylvania Corporations and Unincorporated
Associations statute (the "Associations Code"), Sections 1741-1750 of the
Pennsylvania Business Corporation Law of 1988 (the "BCL") and the Company's
By-Laws provide for indemnification of the Company's directors and officers. As
permitted under Section 518 of the Associations Code and 1741-1750 of the BCL,
the Company's By-Laws provide that the Company shall indemnify directors and
officers against all expenses incurred in connection with actions, suits
(whether civil, criminal, administrative or investigative, including derivative
actions) threatened or pending against or completed with respect to, such
officer or director (including expenses incurred or to be incurred by virtue of
being called as a witness) by reason of the fact that he or she is or was a
officer or director of the Company, or by reason of the fact that such officer
or director serves or served as an employee or agent of any entity at the
Company's request, unless the act or failure to act on the part of the officer
or director giving rise to the claim for indemnification is determined by a
court to have constituted willful misconduct or recklessness. In addition, the
Company's By-Laws, consistent of Section 1713 of the BCL, state that the
responsibility or liability of the Company's directors will not be limited if
such liability arises out of a breach or failure by such officer or director to
perform his or her duties under the BCL and such breach or failure to perform
said duties constituted self-dealing or wilful misconduct or recklessness.
Moreover, under the BCL and the Company's By-Laws, the personal liability of the
Company's officers and directors shall not be limited if the responsibility or
liability arises under or any criminal statute or the liability concerns the
payment of tax pursuant to federal, state or local law. Section 1745 of the BCL
and the Company's By-Laws permit the Company to pay expenses incurred in
connection with any such action, suit or proceeding in advance of the final
disposition of such action, suit or proceeding upon the Company receipt of an
undertaking by or on behalf of the representative to repay the amount so
advanced if said person is ultimately determined not to be entitled to
indemnification under the BCL or the By-Laws. The By-Laws provide that the
Company's officers and directors shall have the right to employ his or her own
legal counsel in such action, but the fees and expenses of such counsel incurred
after notice from the Company of its assumption of the defense thereof shall be
at the expense of such person unless: (i) the employment of legal counsel by
such person shall have been authorized by the Company; (ii) such person shall
have reasonably concluded that there may be a conflict of interest between the
Company and such person in the conduct of the defense of such proceeding; or
(iii) the Company shall in fact have employed legal counsel to assume the
defense of such action. The Company shall not be entitled to assume the defense
of any proceeding brought by or on behalf of the Company or as to which such
person shall have reasonably concluded that there may be a conflict of interest
if indemnification under the By-Laws or advancement of expenses are not paid or
made by the Company, or on its behalf, within 90 days after a written claim for
indemnification or a request for an advancement of expenses has been received by
the Company; and such person may, at any time thereafter, bring suit against the
Company to recover the unpaid amount of the claim or the advancement of
expenses. The By-Laws, in accordance with Section 518 of the Associations Code
and Section 1750 of the BCL, further provide that indemnification and
advancement of expenses shall, unless otherwise provided when authorized,
continue as to a person who has ceased to be a director, officer, employee or
agent; and, pursuant to Section 1747 of the BCL, the By-Laws also provide that
the Company shall have the power to purchase and maintain insurance on behalf of
any person who is a director, officer, employee or agent of the Company, or who
is serving at the request of the Company against any liability asserted against
him or her and incurred in any such capacity, or arising out of his or her
status as such, whether or not the Company would have the power to indemnify him
or her against such liability under the BCL.
II-1
<PAGE>
Under the Company's By-laws, it is the policy of the Company to indemnify
officers and directors to the fullest extent permitted by law, and Section 1743
of the BCL mandates indemnification against expenses, including attorney's fees,
actually and reasonably incurred by an officer, director or representative when
such individuals are ultimately successful on the merits or otherwise in defense
of any third-party action or proceedings, or of any derivative or corporate
actions, or in defense of any claim, issue or matter therein.
The foregoing discussion is qualified in its entirety by reference to the
Associations Code, the BCL and the By-Laws of the Company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C>
*1.1 Purchase Agreement, dated as of June 10, 1997, by and among
Chemical Leaman Corporation and Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Schroder Wertheim & Co.
Incorporated.
*2.1 Asset Purchase Agreement, dated June 28, 1996, among Fleet
Transport Company, Inc., Fleet Transport Va., Inc., Bulk
Storage, Inc., BMI Transportation, Inc., Fleet Acquisition
Corporation and Chemical Leaman Corporation.
*2.2 Plan of Merger between CLC Merger Corp. and Chemical Leaman
Corporation, effective March 25, 1996.
*3.1 Articles of Incorporation of Chemical Leaman Corporation as
amended.
*3.2 By-Laws of Chemical Leaman Corporation.
*4.1 Indenture, dated as of June 16, 1997, between Chemical
Leaman Corporation and First Union National Bank, as
trustee, relating to the 10 3/8% Senior Notes due 2005 of
Chemical Leaman Company.
*4.2 Form of New Note (contained in Exhibit 4.1 as Exhibit A-2).
*5.1 Opinion of Pepper, Hamilton & Scheetz LLP regarding legality
of the securities being registered.
*10.1 Registration Rights Agreement, dated as of June 16, 1997, by
and among Chemical Leaman Corporation and Merrill Lynch,
Pierce, Fenner & Smith & Co. Incorporated and Schroder
Wertheim & Co. Incorporated.
*10.2 Revolving Credit Agreement, dated as of June 16, 1997,
between Chemical Leaman Corporation and CoreStates Bank,
N.A.
*10.3 Purchase Agreement, dated September 10, 1996, between
Chemical Leaman Corporation and David M. Boucher.
*10.4 Promissory Note, dated September 10, 1996, for $262,500 by
David M. Boucher to Chemical Leaman Corporation.
*10.5 Pledge Agreement, dated September 10, 1996, by and between
Chemical Leaman Corporation and David M. Boucher.
*10.6 Letter Agreement for cancellation of stock options, dated
September 10, 1996, by and between Chemical Leaman
Corporation and Eugene C. Parkerson.
*10.7 Purchase Agreement, dated September 10, 1996, between
Chemical Leaman Corporation and Eugene C. Parkerson.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C>
*10.8 Promissory Note, dated September 10, 1996, for $244,844 by
Eugene C. Parkerson to Chemical Leaman Corporation.
*10.9 Pledge Agreement, dated September 10, 1996, by and between
Chemical Leaman Corporation and Eugene C. Parkerson.
*10.10 Amendment to Stock Purchase and Pledge Agreement, dated
September 10, 1996, by and between Chemical Leaman
Corporation and Philip J. Ringo.
*10.11 Promissory Note, dated September 10, 1996, for $67,500 by
Philip J. Ringo to Chemical Leaman Corporation.
*10.12 Stock Purchase and Pledge Agreement, dated August 9, 1995,
between Chemical Leaman Corporation and Philip J. Ringo.
*10.13 Promissory Note, dated August 9, 1995, for $456,000 by
Philip J. Ringo to Chemical Leaman Corporation.
*10.14 Letter Agreement for cancellation of stock options, dated
September 10, 1996, by and between Chemical Leaman
Corporation and Reuben M. Rosenthal.
*10.15 Purchase Agreement, dated September 10, 1996, between
Chemical Leaman Corporation and Reuben M. Rosenthal.
*10.16 Promissory Note, dated September 10, 1996, for $188,088 by
Reuben M. Rosenthal to Chemical Leaman Corporation.
*10.17 Pledge Agreement, dated September 10, 1996 by and between
Chemical Leaman Corporation and Reuben M. Rosenthal.
*10.18 Purchase Agreement, dated September 10, 1996, between
Chemical Leaman Corporation and Fernando C. Colon-Osorio.
*10.19 Promissory Note, dated September 10, 1996, for $209,250 by
Fernando C. Colon-Osorio to Chemical Leaman Corporation.
*10.20 Pledge Agreement, dated September 10, 1996, by and between
Chemical Leaman Corporation and Fernando C. Colon-Osorio.
*10.21 Promissory Note, dated November 10, 1988, for $1,520,000 by
David R. Hamilton to Chemical Leaman Corporation.
*10.22 Promissory Note, dated January 25, 1995, for $2,500,000 by
David R. Hamilton to Chemical Leaman Corporation.
*10.23 Promissory Note, dated January 2, 1996, for $1,000,000 by
David R. Hamilton to Chemical Leaman Corporation.
*10.24 Consultant Agreement, dated January 1, 1995, by and between
Chemical Leaman Corporation and George McFadden.
*10.25 Service Agreement, dated December 11, 1995, by and between
Chemical Leaman Tank Lines, Inc. and Acumen Consulting
Group, Inc.
*10.26 Consulting Agreement, dated July 1, 1996, by and between
Chemical Leaman Corporation and Fernando C. Colon-Osorio.
*10.27 Consulting Agreement, dated July 1, 1996, by and between
Samuel F. Niness, Jr. and Chemical Leaman Tank Lines, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C>
*10.28 Agreement and Release, dated June 10, 1994, by and between
Charles Fernald and Chemical Leaman Corporation.
*10.29 Letter Agreement for employment, dated June 1, 1995, by and
among Chemical Leaman Corporation, Chemical Leaman Tank
Lines, Inc., David R. Hamilton, George McFadden and Philip
J. Ringo.
*10.30 Amendment to Letter Agreement, dated October 31, 1995, by
and among Chemical Leaman Corporation, Chemical Leaman Tank
Lines, Inc. and Philip J. Ringo.
*10.31 Exchange Agreement, dated May 22, 1996, by and between
Chemical Leaman Corporation and Karen Lloyd.
*10.32 Uniform Bulk Motor Carrier Contract, dated October 1, 1991,
by and between Chemical Leaman Tank Lines, Inc. and The Dow
Chemical Company.
*10.33 Lease Agreement, dated November 14, 1979, by and between
Pickering Place and Chemical Leaman Corporation.
*10.34 Revolving Credit Agreement, dated June 28, 1996, by and
among Fleet Acquisition Corporation and Associates
Commercial Corporation; First Amendment thereto dated as of
December 31, 1996; and Second Amendment thereto dated as of
March 30, 1997.
*10.35 Amended and Restated Revolving Credit Agreement, dated as of
January 1, 1994, by and among Chemical Leaman Tank Lines,
Inc. ("CLTL") and Associates Commercial Corporation; First
Amendment thereto dated as of June 6, 1994; Second Amendment
thereto dated as of June 30, 1994; Third Amendment thereto
dated as of December 31, 1994; Fourth Amendment thereto
dated as of June 30, 1995; Fifth Amendment thereto dated as
of December 31, 1995; Sixth Amendment thereto dated as of
April 11, 1996; Seventh Amendment thereto dated as of June
30, 1996; Eighth Amendment thereto dated as of December 31,
1996; and Ninth Amendment thereto dated as of March 30,
1997.
*10.36 Credit Agreement, dated July 31, 1995, by and between CLTL
and CoreStates Bank, N.A.; Amendment No. 1 thereto dated May
31, 1996; Amendment No. 2 thereto dated July 31, 1996;
Amendment No. 3 thereto dated November 22, 1996; and
Amendment No. 4 thereto dated January 13, 1997.
*10.37 Receivables Contribution and Purchase Agreement, dated as of
May 14, 1993, by and among CLTL, Quala Systems, Inc.,
Chemical Leaman Corporation, and Pickering Way Funding
Corp.; First Amendment thereto dated as of December 16,
1994; Second Amendment thereto dated as of December 30,
1996; and Third Amendment thereto dated as of March 30,
1997.
*10.38 Pickering Way Funding Trust Pooling and Servicing Agreement,
dated as of May 14, 1993, by and among Pickering Way Funding
Corp., Chemical Leaman Corporation, and Fidelity Bank; First
Amendment thereto dated as of December 16, 1994; Second
Amendment thereto dated as of June 23, 1995; Second
Amendment thereto dated as of December 30, 1996, by and
among Pickering Way Funding Corp., Chemical Leaman
Corporation, and First Union National Bank (as successor
interest to Fidelity Bank); Third Amendment thereto dated as
of March 30, 1997; and Fourth Amendment thereto dated as of
June 11, 1997.
*10.39 Certificate Purchase Agreement, dated December 30, 1996, by
and among Pickering, First Union National Bank and
Transamerica Life Insurance and Annuity Company.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C>
*10.40 Service Marketing Services Agreement, dated May 19, 1995,
between Union Pacific Railroad Company and CLTL.
*10.41 Standard Independent Service Agreement.
*12.1 Statement regarding computation of ratio of earnings to
fixed charges for Chemical Leaman Corporation.
*21.1 Subsidiaries of Chemical Leaman Corporation.
23.1 Consent of Arthur Andersen LLP, independent public
accountants.
*23.2 Consent of Pepper, Hamilton & Scheetz LLP (included in
Exhibit 5.1).
*24(a) Certified Board Resolution re Power of Attorney of Certain
Directors.
*24(b) Power of Attorney of Certain Directors (included on page
II-8 of the Registration Statement).
*25.1 Statement of Eligibility under the Trust Indenture Act of
1939 of First Union National Bank on Form T-1.
*27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal for the 10 3/8% Senior Notes
due 2005.
*99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
- ------------------
* Previously filed.
II-5
<PAGE>
(b) Financial Statement Schedules
Certain schedules have been omitted because they are not applicable, not
required, or the required information is included in the Financial Statements or
the notes thereto.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes: (1) to file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement: (i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any
facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high and of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than 20 percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
and (iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; (2) that, for
the purpose of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Chemical Leaman Corporation, has duly caused Amendment No. 1 to this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Exton, Commonwealth of Pennsylvania, on the 2nd
day of October, 1997.
By: /s/ DAVID M. BOUCHER
-------------------------------------
David M. Boucher
Senior Vice President,
Chief Financial Officer, and
Secretary
Pursuant to the requirements of the Securities Act of 1933, Amendment No. 1
to this Registration Statement has been signed on October 2, 1997 by the
following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<S> <C> <C>
By: * Chairman of the Board,
--------------------------- Chief Executive Officer
David R. Hamilton and President
By: * Executive Vice President,
--------------------------- Administration; Director
Eugene C. Parkerson
By: * Director
---------------------------
Philip J. Ringo
By: * Director
---------------------------
Reuben M. Rosenthal
By: * Director
---------------------------
Fernando C. Colon-Osorio
By: * Director
---------------------------
G. Michael Cronk
By: * Director
---------------------------
Charles E. Fernald, Jr.
By: * Director
---------------------------
Samuel C. Hamilton, Jr.
By: * Director
---------------------------
John H. McFadden
By: * Director
---------------------------
George McFadden
By: * Director
---------------------------
Samuel F. Niness, Jr.
*By: /s/ DAVID M. BOUCHER
---------------------------
David M. Boucher
Attorney-in-fact
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER AND DESCRIPTION OF EXHIBIT
- ---------------------------------
<C> <S> <C>
23.1 Consent of Arthur Andersen LLP, independent public
accountants.
99.1 Form of Letter of Transmittal for the 10 3/8% Senior Notes
due 2005.
</TABLE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made a part of this
Amendment No. 2 to Form S-4 registration statement (File No. 333-32863).
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
October 3, 1997
EXHIBIT 99.1
LETTER OF TRANSMITTAL
CHEMICAL LEAMAN CORPORATION
OFFER TO EXCHANGE
ALL OF ITS
10 3/8% SENIOR NOTES DUE 2005
FOR ITS
10 3/8% SENIOR NOTES DUE 2005
PURSUANT TO THE PROSPECTUS DATED ____ __ 1997
------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1997,
UNLESS EXTENDED.
------------------------------------------------------------------
The Exchange Agent for the Exchange Offer is:
FIRST UNION NATIONAL BANK
By Mail By Hand/Overnight Express:
First Union National Bank First Union National Bank
1525 West W.T. Harris Boulevard 3C3 1525 West W.T. Harris Boulevard 3C3
Charlotte, North Carolina 28288 Charlotte, North Carolina 28288
Attention: Michael Klotz Attention: Michael Klotz
By Facsimile Transmission:
(704) 590-7628
To confirm receipt:
(704) 590-7408
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE
LISTED ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS CONTAINED
HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
The undersigned acknowledges receipt of the Prospectus, dated ____ __,
1997 ("Exchange Offer"), of Chemical Leaman Corporation, a Pennsylvania
corporation (the "Company"), relating to the offer of the Company, upon the
terms and subject to the conditions set forth in the Exchange Offer and in this
Letter of Transmittal and the instructions hereto (which together with the
Exchange Offer and the instructions hereto constitute the "Offer"), to exchange
its 10 3/8% Senior Notes due 2005 ("New Notes") for any and all of its
outstanding 10 3/8% Senior Notes due 2005 ("Old Notes"), at the rate of $1,000
principal amount of the New Notes for each $1,000 principal amount of the Old
Notes. Capitalized terms used but not defined herein have the meanings given to
them in the Exchange Offer.
The undersigned has completed the appropriate boxes below and signed
this Letter of Transmittal to indicate the action the undersigned desires to
take with respect to the Offer.
1
<PAGE>
This Letter of Transmittal is to be used whether the Old Notes are to
be physically delivered herewith, or whether guaranteed delivery procedures or
book-entry delivery procedures are being used, pursuant to the procedures set
forth under "The Exchange Offer" in the Exchange Offer. If delivery of Old Notes
is to be made by book-entry transfer to the account maintained by the Exchange
Agent at The Depository Trust Company ("DTC"), this Letter of Transmittal need
not be manually executed, provided, however, that tenders of Old Notes must be
effected in accordance with the procedures mandated by DTC and the procedures
set forth in the Exchange Offer under the caption "The Exchange Offer --
Procedures for Tendering Old Notes -- Book Entry Delivery." If a person or
entity in whose name Old Notes are registered on the books of the Registrar (a
"Registered Holder") desires to tender Old Notes and such Old Notes are not
immediately available or time will not permit all documents required by the
Offer to reach the Exchange Agent (or such Registered Holder is unable to
complete the procedure for book-entry transfer on a timely basis) prior to the
Expiration Date, a tender may be effected in accordance with the guaranteed
delivery procedures set forth in the Exchange Offer under the caption "The
Exchange Offer -- Procedures for Exchanging Old Notes -- Guaranteed Delivery
Procedures." See Instruction 1.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMEN:
Upon the terms and subject to the conditions of the Offer, the
undersigned hereby tenders to the Company the principal amount of the Old Notes
indicated below. Subject to, and effective upon, the acceptance for exchange of
the Old Notes tendered hereby, the undersigned hereby irrevocably sells, assigns
and transfers to or upon the order of the Company all right, title and interest
in and to such Old Notes and hereby irrevocably constitutes and appoints the
Exchange Agent the true and lawful agent and attorney-in-fact of the undersigned
(with full knowledge that said exchange agent also acts as the agent of the
Company) with respect to such Old Notes, with full power of substitution (such
power of attorney being deemed to be an irrevocable power coupled with an
interest), to take such further action as may be required in connection with the
delivery, tender and exchange of the Old Notes.
The undersigned acknowledges that this Offer is being made in reliance
on an interpretation by the staff of the Securities and Exchange Commission (the
"SEC") that the New Notes issued pursuant to the Exchange Offer in exchange for
the Old Notes may be offered for resale, resold and otherwise transferred by
holders thereof (other than (i) a broker-dealer who purchased Old Notes directly
from the Company for resale pursuant to Rule 144A under the Securities Act of
1933, as amended (the "Securities Act"), or (ii) a person that is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act provided that such New Notes are acquired in the ordinary course
of such holders' business and such holders have no arrangement with any person
to participate in the distribution of such New Notes. See "Morgan Stanley & Co.
Inc.," SEC No-Action Letter (available June 5, 1991); The Exchange Offer under
the caption "The Exchange Offer -- Resales of the New Notes."
The undersigned acknowledges that the New Notes have not been
registered or qualified under any state securities laws. This Offer is being
made to: (i) U.S. persons pursuant to exemptions from such laws for sales to
institutional investors, and (ii) non-U.S. persons (within the meaning of
Regulation S under the Securities Act), as state securities laws do not apply to
sales to persons who are not residents of any state. The undersigned hereby
represents and warrants that the undersigned is either: (i) a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act,
(ii) an institutional "accredited investor" within the meaning of subparagraph
(a)(1), (2), (3) or (7) of Rule 501 under the Securities Act or (iii) a non-U.S.
person (within the meaning of Regulation S under the Securities Act).
THE UNDERSIGNED UNDERSTANDS AND AGREES THAT THE COMPANY RESERVES THE
RIGHT NOT TO ACCEPT TENDERED OLD NOTES FROM ANY TENDERING HOLDER IF THE COMPANY
DETERMINES, IN ITS SOLE AND ABSOLUTE DISCRETION, THAT SUCH ACCEPTANCE COULD
RESULT IN A VIOLATION OF APPLICABLE SECURITIES LAWS.
The undersigned, if the undersigned is a beneficial holder, represents,
or, if the undersigned is a broker, dealer, commercial bank, trust company or
other nominee, represents that it has received representations from the
beneficial owners of the Old Notes stating, (as defined in the Exchange Offer)
that (i) the New Notes to be acquired in connection with the Exchange Offer by
the Eligible Holder and each Beneficial Owner of the Old Notes are being
acquired by the Eligible Holder (as defined in the Exchange Offer) and each
2
<PAGE>
Beneficial Owner in the ordinary course of business of the Eligible Holder and
each Beneficial Owner, (ii) the Eligible Holder and each Beneficial Owner are
not participating, do not intend to participate, and have no arrangement or
understanding with any person to participate, in the distribution of the New
Notes, (iii) the Eligible Holder and each Beneficial Owner acknowledge and agree
that any person participating in the Exchange Offer for the purpose of
distributing the New Notes must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction of the New Notes acquired by such person and cannot rely on
the position of the staff of the Commission set forth in no-action letters that
are discussed in the Exchange Offer under the caption "The Exchange Offer --
Resales of the New Notes," (iv) that if the Eligible Holder is a broker-dealer
holding Old Notes acquired for its own account as a result of market-making
activities or other trading activities, it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of New
Notes received in respect of such Old Notes pursuant to the Exchange Offer;
provided that the delivery of a Prospectus in connection with the exchange of
Old Notes by such an Eligible Holder will not be deemed an admission that such
Eligible Holder is an underwriter within the meaning of the Securities Act, (v)
the Eligible Holder and each Beneficial Owner understand that a secondary resale
transaction described in clause (iii) above should be covered by an effective
registration statement containing the selling security holder information
required by item 507 of Regulations S-K of the Securities Act and (vi) neither
the Eligible Holder nor any Beneficial Owner is an "affiliate," as defined under
Rule 405 of the Securities Act, of the Company or any of the Guarantors except
as otherwise disclosed to the Company in writing.
In addition, if the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of New Notes. If the undersigned is a broker-dealer holding Old
Notes acquired for its own account as a result of market-making activities or
other trading activities, it will deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale of New Notes received in
respect of such Old Notes pursuant to the Exchange Offer however, by so
acknowledging and by delivering a prospectus, the undersigned will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
The undersigned understands and acknowledges that the Company reserves
the right in its sole discretion to purchase or make offers for any Old Notes
that remain outstanding subsequent to the Expiration Date or as set forth in the
Exchange Offer under the caption "The Exchange Offer -- Conditions of the
Exchange Offer," to terminate the Exchange Offer and, to the extent permitted by
applicable law, purchase Old Notes in the open market, in privately negotiated
transactions or otherwise. The term of any such purchases or offers could differ
from the terms of the Exchange Offer.
The undersigned hereby represents and warrants that the undersigned
accepts the terms and conditions of the Offer, has full power and authority to
tender, exchange, assign and transfer the Old Notes tendered hereby, and that
when the same are accepted for exchange by the Company, the Company will acquire
good and unencumbered title thereto, free and clear of all liens, restrictions
charges and encumbrances and not subject to any adverse claim or right. The
undersigned will, upon request, execute and deliver any additional documents
deemed by the Exchange Agent or the Company to be reasonably necessary or
desirable to complete the sale, assignment and transfer the Old Notes tendered
hereby.
The undersigned agrees that all authority conferred or agreed to be
conferred by this Letter of Transmittal and every obligation of the undersigned
hereunder shall be binding upon the successors, assigns, heirs, executors,
administrations, trustees in bankruptcy and legal representatives of the
undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned.
3
<PAGE>
The undersigned understands that tenders of the Old Notes pursuant to
any one of the procedures described under "The Exchange Offer -- Procedures for
Tendering Old Notes" in the Exchange Offer and in the instructions hereto will
constitute a binding agreement between the undersigned and the Company in
accordance with the terms and subject to the conditions of the Offer.
The undersigned understands that by tendering Old Notes pursuant to one
of the procedures describe in the Exchange Offer and the instructions thereto,
the tendering holder will be deemed to have waived the right to receive any
payment in respect of interest on the Old Notes accrued up to the date of
issuance of the New Notes.
The undersigned recognizes that, under certain circumstances set forth
in the Exchange Offer, the Company may not be required to accept for exchange
any of the Old Notes tendered. Old Notes not accepted for exchange or withdrawn
will be returned to the undersigned as the address set forth below unless
otherwise indicated under "Special Delivery Instructions" below.
Unless otherwise indicated herein under the box entitled "Special
Exchange Instructions" below, please deliver New Notes in the name of the
undersigned. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, please send New Notes to the undersigned
at the address shown below the signature of the undersigned. The undersigned
recognizes that the Company has no obligation pursuant to the "Special Exchange
Instructions" to transfer any Old Notes from the name of the Registered Holder
thereof if the Company does not accept for exchange any of the principal amount
of such Old Notes so tendered.
4
<PAGE>
THE UNDERSIGNED BY COMPLETING THE BOX "DESCRIPTION OF OLD NOTES" BELOW
AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AND MADE
CERTAIN REPRESENTATIONS DESCRIBED HEREIN AND IN THE EXCHANGE OFFER.
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(SEE INSTRUCTIONS 1 AND 3 AND THE FOLLOWING PARAGRAPH)
(IMPORTANT: ALSO COMPLETE SUBSTITUTE FORM W-9 ON THE REVERSE SIDE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE(S) OF OWNER(S)
Dated: , 199
--------------------------------------------------------------------
If the holder(s) is/are tendering any Old Notes, this Letter of Transmittal must
be signed by the Registered Holder(s) as the name(s) appear(s) on the Old Notes
or on a security position listing or by person(s) authorized to become
Registered Holder(s) by endorsements and documents transmitted herewith. If
signature is by a trustee, executor, administrator, guardian, officer or other
person acting in a fiduciary or representative capacity, please set forth full
title. See Instruction 3.
Name(s)
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Capacity:
----------------------------------------------------------------------
Address:
-----------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
-------------------------------------------------
Tax Identification or
Social Security No(s).:
--------------------------------------------------------
(SEE INSTRUCTION 12 AND COMPLETE SUBSTITUTE FORM W-9 ON THE REVERSE SIDE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution:
Authorized Signature:
----------------------------------------------------------
Printed Name:
------------------------------------------------------------------
Title:
-------------------------------------------------------------------------
Name of Firm:
------------------------------------------------------------------
Address:
-----------------------------------------------------------------------
- ------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
-------------------------------------------------
Dated: , 199
-------------------------------------------------------------------
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE OLD NOTES OR A
NOTICE OF GUARANTEED DELIVERY AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED
BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION
DATE.
5
<PAGE>
List below the Old Notes to which this Letter of Transmittal relates.
If the space provided below is inadequate, the certificate numbers and principal
amounts should be listed on a separate signed schedule affixed thereto. See
Instruction 7. The minimum permitted tender is $1,000 principal amount of Old
Notes; all other tenders must be in integral multiples of $1,000.
DESCRIPTION OF OLD NOTES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
(I) (II) (III) (IV)
AGGREGATE
PRINCIPAL PRINCIPAL
NAME(S) AND ADDRESS(ES) OF HOLDER(S) CERTIFICATE AMOUNT AMOUNT
(PLEASE FILL IN, IF BLANK) NUMBER(S) REPRESENTED TENDERED
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------
- ------------------------------------------
- ------------------------------------------
- ------------------------------------------
TOTAL
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* Unless otherwise indicated in the column labeled "Principal Amount
Tendered" and subject to the terms and conditions of the Offer, the
undersigned will be deemed to have tendered the entire aggregate
principal amount represented by the Old Notes indicated in the column
labeled "Aggregate Principal Amount Represented." See Instruction 8.
[ ] CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT
AND COMPLETE THE FOLLOWING (See Instructions 1 and 3):
Name(s) of Registered Holder(s):
----------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
---------------------
Name of Eligible Institution that Guaranteed Delivery:
-------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
-------------------------------------------------------------------
Address:
----------------------------------------------------------------
----------------------------------------------------------------
If delivery of Old Notes is to be made by book-entry transfer to the
account maintained by the Exchange Agent at DTC, then tenders of Old Notes must
be effected in accordance with the procedures mandated by DTC and the procedures
set forth in the Exchange Offer under the caption "The Exchange Offer --
Procedures for Tendering Old Notes -- Book Entry Delivery."
6
<PAGE>
SPECIAL EXCHANGE INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5)
To be completed ONLY if Old Notes in a principal amount not exchanged and/or New
Notes are to be registered in the name of or issued to someone other than the
person or persons whose signature(s) appear(s) on this Letter of Transmittal
above.
Issue and mail: (check appropriate box(es)):
[ ] New Notes to: [ ] Old Notes to:
Name(s)
------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
- --------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(ZIP CODE)
- --------------------------------------------------------------------------------
EMPLOYER IDENTIFICATION OR SOCIAL SECURITY NUMBER
(COMPLETE THE SUBSTITUTE FORM W-9)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5)
To be completed ONLY if Old Notes in a principal amount not exchanged and/or New
Notes are to be sent to someone other than the person or persons whose
signature(s) appear(s) on this Letter of Transmittal above or to such person or
persons at an address other than that shown in the box entitled "Description of
Old Notes" on this Letter of Transmittal above.
Mail and deliver: (check appropriate box(es)):
[ ] New Notes to: [ ] Old Notes to:
Name(s)
------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
- --------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(ZIP CODE)
- --------------------------------------------------------------------------------
EMPLOYER IDENTIFICATION OR SOCIAL SECURITY NUMBER
7
<PAGE>
TO BE COMPLETED BY ALL EXCHANGING HOLDERS
(SEE INSTRUCTION 5)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
PAYER'S NAME:
------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
SUBSTITUTE Part 1 - PLEASE PROVIDE YOUR TIN Social security number(s)
Form W-9 IN THE BOX AT RIGHT AND CERTIFY BY OR
SIGNING AND DATING BELOW. -----------------------------------
Employer Identification Numbers
-----------------------------------------------------------------------------------
<S> <C> <C>
Department of the Part 2 - Certificates - Under penalties of perjury, I certify
Treasury that:
Internal Revenue (1) The number shown on this form is my correct taxpayer
Service identification number (or I am waiting for a number to be
Payer's Request for issued for me), and
Taxpayer (2) I am not subject to backup withholding because: (a) I am
Identification exempt from backup withholding, or (b) I have not been
Number ("TIN") notified by the internal Revenue Service (IRS) that I am
subject to backup withholding as a result of a failure to report all
interest or dividends, or (c) the IRS has notified me that I am no longer
subject to backup withholding.
Certification Instructions - You must cross out item (2) above if you have
been notified by the IRS that you are currently subject to backup
withholding because of underreporting interest or dividends on your tax
return.
SIGNATURE DATE Part 3 - Waiting TIN / /
--------------------------- ---------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31 PERCENT OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office of (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
payments of the Purchase Price made to me thereafter will be withheld until I
provide a number.
Signature Date
-------------------------------- --------------------------
8
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Delivery of this Letter of Transmittal and Old Notes: Guaranteed
Delivery Procedures. To be effectively tendered pursuant to the Offer, the Old
Notes, together with a properly completed Letter of Transmittal (or manually
signed facsimile hereof) duly executed by the Registered Holder thereof, and any
other documents required by this Letter of Transmittal must be received by the
Exchange Agent at one of its addresses set forth on the front page of this
Letter of Transmittal and tendered Old Notes must be received by the Exchange
Agent at one of such addresses on or prior to the Expiration Date; provided,
however, that book-entry transfers of Old Notes may be effected in accordance
with the procedures set forth in the Exchange Offer under the caption "The
Exchange Offer -- Procedures For Tendering Old Notes -- Book Entry Delivery." If
the Beneficial Owner of any Old Notes is not the Registered Holder, then such
person may validly tender such person's Old Notes only by obtaining and
submitting to the Exchange Agent a properly completed Letter of Transmittal from
the Registered Holder. LETTERS OF TRANSMITTAL OF OLD NOTES SHOULD BE DELIVERED
ONLY BY HAND OR BY COURIER, OR TRANSMITTED BY MAIL, AND ONLY TO THE EXCHANGE
AGENT AND NOT TO THE COMPANY OR TO ANY OTHER PERSON.
THE METHOD OF DELIVERY OF OLD NOTES AND ALL OTHER REQUIRED DOCUMENTS TO
THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER, AND IF SUCH
DELIVERY IS BY MAIL, IT IS SUGGESTED THAT THE HOLDER USE PROPERLY INSURED,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED. IF OLD NOTES ARE SENT BY MAIL, IT
IS SUGGESTED THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION
DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY
TIME, ON THE EXPIRATION DATE.
If a holder desires to tender Old Notes and such holder's Old Notes are
not immediately available or time will not permit such holder to complete the
procedures for book-entry transfer on a timely basis or time will not permit
such holder's Letter of Transmittal and other required documents to reach the
Exchange Agent on or before the Expiration Date, such holder's tender may be
effected if:
(a) such tender is made by or through an Eligible Institution
(as defined below);
(b) on or prior to the Expiration Date, the Exchange Agent has
received a telegram, facsimile transmission or letter form such
Eligible Institution setting forth the name and address of the holder
of such Old Notes, the certificate number(s) of such Old Notes (except
in the case of book-entry tenders) and the principal amount of Old
Notes tendered and stating that the tender is being made thereby and
guaranteeing that, within three business days after the Expiration
Date, a duly executed Letter of Transmittal, or facsimile thereof,
together with the Old Notes, and any other documents required by this
Letter of Transmittal and Instructions, will be deposited by such
Eligible Institution with the Exchange Agent; and
(c) this Letter of Transmittal, or a manually signed facsimile
hereof, and Old Notes, in proper form for transfer (or a Book-Entry
confirmation with respect to such Old Notes), and all other required
documents are received by the Exchange Agent within three business days
after the Expiration Date.
2. Withdrawal of Tenders. Tendered Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date.
9
<PAGE>
To be effective, a written, telegraphic or facsimile transmission
notice of withdrawal must (i) be timely received by the Exchange Agent at one of
its addresses set forth on the first page of this Letter of Transmittal before
the Exchange Agent receives notice of acceptance from the Company, (ii) specify
the name of the person who tendered the Old Notes, (iii) contain the description
of the Old Notes to be withdrawn, the certificate number(s) of such Old Notes
(except in the case of book-entry tenders) and the aggregate principal amount
represented by such Old Notes or a Book-Entry Confirmation with respect to such
Old Notes, and (iv) be signed by the holder of such Old Notes in the same manner
as the original signature appears on this Letter of Transmittal (including any
required signature guarantees) or be accompanied by evidence satisfactory to the
Company that the person withdrawing the tender has succeeded to the beneficial
ownership of the Old Notes. The signature(s) on the notice of withdrawal must be
guaranteed by an Eligible Institution unless such Old Notes have been tendered
(i) by a Registered Holder (which term for purposes of this document shall
include any participant tendering by book-entry transfer) of Old Notes who has
not completed either the box entitled "Special Exchange Instruction" or the box
entitled "Special Delivery Instructions" on this Letter of Transmittal or (ii)
for the account of an Eligible Institution. If the Old Notes have been tendered
pursuant to the procedure for book-entry tender set forth in the Exchange Offer
under the caption "Exchanging Book Entry Old Notes," a notice of withdrawal is
effective immediately upon receipt by the Exchange Agent of a written,
telegraphic or facsimile transmission notice of withdrawal even if physical
release is not yet effected. In addition, such notice must specify, in the case
of Old Notes tendered by delivery of such Old Notes, the name of the Registered
Holder (if different from that of the tendering holder) to be credited with the
withdrawn Old Notes. Withdrawals may not be rescinded, and any Old Notes
withdrawn will thereafter be deemed not validly tendered for purposes of the
Offer. However, properly withdrawn Old Notes may be retendered by following one
of the procedures described under "The Exchange Offer -- Procedures for
Tendering Old Notes" in the Exchange Offer at any time on or prior to the
applicable Expiration Date.
3. Signatures on this Letter of Transmittal, Bond Powers and
Endorsements; Guarantee of Signatures. If this Letter of Transmittal is signed
by the Registered Holder of the Old Notes tendered hereby, the signature must
correspond exactly with the name as written on the face of the Old Notes without
any change whatsoever.
If any Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any Old Notes tendered hereby are registered in different names, it
will be necessary to complete, sign and submit as many separate copies of this
Letter of Transmittal as there are different registrations of Old Notes.
When this Letter of Transmittal is signed by the Registered Holder or
Holders specified herein and tendered hereby, no endorsements of such Old Notes
or separate bond powers are required. If, however, New Notes are to be issued,
or any untendered principal amount of Old Notes are to be reissued to a person
other than the Registered Holder, then endorsements of any Old Notes transmitted
hereby or separate bond powers are required.
If this Letter of Transmittal is signed by a person other than the
Registered Holder or Holders, such Old Notes must be endorsed or accompanied by
appropriate bond powers, in either case signed exactly as the name or names of
the Registered Holder or Holders appear(s) on the Old Notes.
If this Letter of Transmittal or a Notice of Guaranteed Delivery or any
Old Notes or bond powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and, unless waived by the Company, proper evidence satisfactory to the
Company of their authority so to act must be submitted.
10
<PAGE>
Except as described in this paragraph, signatures on this Letter of
Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by
an Eligible Institution which is a firm which is a member of a registered
national securities exchange or the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent in
the United States or otherwise be an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (each an "Eligible Institution").
Signatures on this Letter of Transmittal or a notice of withdrawal, as the case
may be, need not be guaranteed if the Old Notes tendered pursuant hereto are
tendered (i) by a Registered Holder of Old Notes who has not completed either
the box entitled "Special Exchange Instructions" or the box entitled "Special
Delivery Instructions" on this Letter of Transmittal or (ii) for the account of
an Eligible Institution.
Endorsement on Old Notes or signatures on bond forms required by this
Instruction 3 must be guaranteed by an Eligible Institution.
4. Special Issuance and Delivery Instructions. Tendering holders should
indicate in the applicable box the name and address to which New Notes and/or
substitute Old Notes for the principal amounts not exchanged are to be issued or
sent, if different from the name and address of the person signing this Letter
of Transmittal. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. If no such instructions are given, such Old Notes not exchanged will
be returned to the name and address of the person signing this Letter of
Transmittal.
5. Taxpayer Identification Number and Backup Withholding. Federal
income tax law of the United States requires that a holder of Old Notes whose
Old Notes are accepted for exchange provide the Company with such holder's
correct taxpayer identification number, which, in the case of a holder who is an
individual, is the holder's social security number, or otherwise establish an
exemption from backup withholding. If the Company is not provided with the
holder's correct taxpayer identification number, the exchanging holder of Old
Notes may be subject to a penalty imposed by the Internal Revenue Service. In
addition, interest on the New Notes acquired pursuant to the Offer may be
subject to backup withholding in an amount equal to 31 percent of any interest
payment. If withholding occurs and results in an overpayment of taxes, a refund
may be obtained from the Internal Revenue Service by filing a return.
To prevent backup withholding, each exchanging holder of Old Notes
subject to backup withholding must provide his correct taxpayer identification
number by completing the Substitute Form W-9 provided in this Letter of
Transmittal, certifying that the taxpayer identification number provided is
correct (or that the exchanging holder of Old Notes is awaiting a taxpayer
identification number) and that either (a) the exchanging holder has not been
notified by the Internal Revenue Service that he is subject to backup
withholding as a result of failure to report all interest or dividends or (b)
the Internal Revenue Service has notified the exchanging holder that he is no
longer subject to backup withholding.
Certain exchanging holders of Old Notes (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding requirements. A foreign individual and other exempt holders (e.g.,
corporations) should certify, in accordance with the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9, to such
exempt status on the Substitute Form W-9 provided in this Letter of transmittal.
Nonresident aliens should submit Form W-8, available from the Exchange Agent
upon request.
6. Transfer Taxes. Holders tendering pursuant to the Offer will not be
obligated to pay brokerage commissions or fees or to pay transfer taxes with
respect to their exchange under the Offer unless the box entitled "Special
11
<PAGE>
Issuance Instructions" in this Letter of Transmittal has been completed, or
unless the securities to be received upon exchange are to be issued to any
person other than the holder of the Old Notes tendered for exchange. The Company
will pay all other charges or expenses in connection with the Offer. If holders
tender Old Notes for exchange and the Offer is not consummated, such Old Notes
will be returned to the holders at the Company expense.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes specified in this Letter of
Transmittal.
7. Inadequate Space. If the space provided herein is inadequate, the
aggregate principal amount of the Old Notes being tendered and the security
numbers (if available) should be listed on a separate schedule attached hereto
and separately signed by all parties required to sign this Letter of
Transmittal.
8. Partial Tenders. Tenders of Old Notes will be accepted only in
integral multiples of $1,000. If tenders are to be made with respect to less
than the entire principal amount of any Old Notes, fill in the principal amount
of Old Notes which are tendered in column (iv) of the "Description of Old
Notes." In the case of partial tenders, the Old Notes in fully registered form
for the remainder of the principal amount of the Old Notes will be sent to the
persons(s) signing this Letter of Transmittal, unless otherwise indicated in the
appropriate place on this Letter of Transmittal, as promptly as practicable
after the expiration or termination of the Offer.
Unless otherwise indicated in column (iv) in the box labeled
"Description of Old Notes," and subject to the terms and conditions of the
Offer, tenders made pursuant to this Letter of Transmittal will be deemed to
have been made with respect to the entire aggregate principal amount represented
by the Old Notes indicated in column (iii) of such box.
9. Mutilated, Lost, Stolen or Destroyed Old Notes. Any holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated above for further instructions.
10. Validity and Acceptance of Tenders. All questions as to the
validity, form, eligibility (including time of receipt), acceptance and
withdrawal of Old Notes tendered for exchange will be determined by the Company
in its sole discretion, which determination shall be final and binding. The
Company reserves the absolute right to reject any and all Old Notes not properly
tendered and to reject any Old Notes the Company's acceptance of which might, in
the judgment of the Company or its counsel, be unlawful. The Company also
reserves the absolute right to waive any defects or irregularities or conditions
of the Exchange Offer as to particular Old Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any holder
who seeks to tender Old Notes in the Exchange Offer). The interpretation of the
terms and conditions of the Exchange Offer (including the Letter of Transmittal
and the instructions thereto) by the Company shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes for exchange must be cured within such period of time as the
Company shall determine. The Company will use reasonable efforts to give
notification of defects or irregularities with respect to tenders of Old Notes
for exchange but shall not incur any liability for failure to give such
notification. Tenders of the Old Notes will not be deemed to have been made
until such irregularities have been cured or waived.
11. Requests for Assistance or Additional Copies. First Union National
Bank is the Exchange Agent. All tendered Old Notes, executed Letters of
Transmittal and other related documents should be directed to the Exchange Agent
at the addresses or facsimile number set forth on the first page of this Letter
of Transmittal. Questions and requests for assistance and requests for
12
<PAGE>
additional copies of the Prospectus, the Letter of Transmittal and other related
documents should be addressed to the Exchange Agent as follows:
First Union National Bank
1525 West W.T. Harris Boulevard 3C3
Charlotte, North Carolina 28288
Attention: Michael Klotz
Facsimile Transmission:
(704) 590-7628
To confirm receipt:
Tel. (704) 590-7408
13
<PAGE>
CHEMICAL LEAMAN CORPORATION
OFFER TO EXCHANGE
ALL OF ITS OUTSTANDING
10 3/8% SENIOR NOTES DUE 2005
FOR ITS
10 3/8% SENIOR NOTES DUE 2005
-------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON ________ __, 1997,
UNLESS THE EXCHANGE OFFER IS EXTENDED.
-------------------------------------------------------------------
To Our Clients:
Enclosed for your consideration is a Prospectus dated ____ __, 1997
("Prospectus") and the related Letter of Transmittal (which, together with any
amendments or supplements thereto, collectively constitute the "Exchange Offer")
relating to an offer by Chemical Leaman Corporation, a Pennsylvania corporation
("Company"), to exchange all its outstanding 10 3/8% Senior Notes due 2005 ("Old
Notes") for its 10 3/8% Senior Notes due 2005 upon the terms and subject to the
conditions set forth in the Exchange Offer.
WE ARE THE HOLDER OF RECORD OF OLD NOTES HELD BY US FOR YOUR ACCOUNT. A
TENDER FOR EXCHANGE OF SUCH OLD NOTES CAN BE MADE ONLY BY US AS THE HOLDER OF
RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED
TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER FOR
EXCHANGE OLD NOTES HELD BY US FOR YOUR ACCOUNT.
We request instructions as to whether you wish to have us tender for
exchange on your behalf any or all of such Old Notes held by us for your
account, pursuant to the terms and subject to the conditions set forth in the
Exchange Offer.
Your attention is directed to the following:
1. The Exchange Offer and withdrawal rights will expire at
5:00 P.M., New York City time, on , 1997, unless the Exchange Offer
is extended. Your instructions to us should be forwarded to us in ample time to
permit us to submit a tender on your behalf.
2. The Exchange Offer is made for all Old Notes outstanding,
constituting $100,000,000 aggregate principal amount as of the date of the
Prospectus.
3. The minimum permitted tender is $1,000 principal amount of
Old Notes, and all tenders must be in integral multiples of $1,000.
4. The Offer is conditioned upon the satisfaction of certain
conditions set forth in the Prospectus under the caption "The Exchange
Offer -- Conditions of the Exchange Offer." The Exchange Offer is not
conditioned upon any minimum principal amount of Old Notes being tendered for
exchange.
14
<PAGE>
5. Tendering Eligible Holders (as defined in the Prospectus)
will not be obligated to pay brokerage fees or commissions or, except as set
forth in Instruction 6 of the Letter of Transmittal, transfer taxes applicable
to the exchange of Old Notes pursuant to the Exchange Offer.
6. In all cases, exchange of Old Notes tendered and accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by First Union National Bank ("Exchange Agent") of (i) certificates
representing such Old Notes or timely confirmation of a book-entry transfer of
such Old Notes into the Exchange Agent's account at The Depository Trust Company
("Book-Entry Transfer Facility") pursuant to the procedures set forth in the
Prospectus under the caption "The Exchange Offer -- Procedures for Tendering Old
Notes," (ii) the Letter of Transmittal (or a facsimile thereof), properly
completed and duly executed, with any required signature guarantees, or an
Agent's Message (as defined in the Prospectus) in connection with a book-entry
transfer, and (iii) any other documents required by the Letter of Transmittal.
Accordingly, payment may be made to tendering Eligible Holders at different
times if delivery of the Old Notes and other required documents occurs at
different times.
The Exchange Offer is being made solely by the Prospectus and the
related Letter of Transmittal and is being made to all Eligible Holders of Old
Notes. The Company is not aware of any state where the making of the Exchange
Offer is prohibited by administrative or judicial action pursuant to any valid
state statute. If the Company becomes aware of any valid state statute
prohibiting the making of the Exchange Offer or the acceptance of Old Notes
tendered for exchange pursuant thereto, the Company will make a good faith
effort to comply with any such state statute or seek to have such statute
declared inapplicable to the Exchange Offer. If, after such good faith effort,
the Company cannot comply with such state statute the Exchange Offer will not be
made to, nor will tenders be accepted from or on behalf of, the holders of Old
Notes in such state. In any jurisdiction where the securities, blue sky or other
laws require the Exchange Offer to be made by a licensed broker or dealer, the
Exchange Offer shall be deemed to be made on behalf of the Company by one or
more registered brokers or dealers that are licensed under the laws of such
jurisdiction.
If you wish to have us tender any or all of the Old Notes held by us
for your account, please instruct us by completing, executing and returning to
us the instruction form contained in this letter. If you authorize a tender for
exchange of your Old Notes, the entire aggregate principal amount of such Old
Notes will be tendered for exchange unless otherwise specified in such
instruction form. YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US IN AMPLE TIME TO
PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE
EXCHANGE OFFER.
15
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE
CHEMICAL LEAMAN CORPORATION
OFFER TO EXCHANGE
ALL OF ITS
10 3/8% SENIOR NOTES DUE 2005
FOR ITS
10 3/8% SENIOR NOTES DUE 2005
The undersigned acknowledge(s) receipt of your letter enclosing the
Prospectus dated ____ __, 1997, and the related Letter of Transmittal (which,
together with any amendments or supplements thereto, collectively constitute the
"Exchange Offer") pursuant to an offer by Chemical Leaman Corporation, a
Pennsylvania corporation, to exchange all of its outstanding 10 3/8% Senior
Notes due 2005 ("Old Notes") for its 10 3/8% Senior Notes due 2005.
This will instruct you to tender the principal amount of Old Notes
indicated below (or, if no number is indicated below, the entire aggregate
principal amount) which are held by you for the account of the undersigned, upon
the terms and subject to the conditions set forth in the Exchange Offer.
- --------------------------------------------------------------------------------
Aggregate Principal Amount of Old Notes to be Tendered:* $
---------------------
Dated: , 199
------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGN HERE
Signature(s):
------------------------------------------------------------------
Please print name(s):
----------------------------------------------------------
Address:
-----------------------------------------------------------------------
Area Code and Telephone Number:
------------------------------------------------
Tax Identification or Social Security Number:
----------------------------------
- --------------------------------------------------------------------------------
* Unless otherwise indicated, it will be assumed that the entire principal
amount of the Old Notes held by us for your account are to be tendered for
exchange. The minimum permitted tender is $1,000 principal amount of Old
Notes; all other tenders must be in integral multiples of $1,000.
16
<PAGE>
CHEMICAL LEAMAN CORPORATION
OFFER TO EXCHANGE
ALL OF ITS OUTSTANDING
10 3/8% SENIOR NOTES DUE 2005
FOR ITS
10 3/8% SENIOR NOTES DUE 2005
-------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON ________ __, 1997,
UNLESS THE EXCHANGE OFFER IS EXTENDED.
-------------------------------------------------------------------
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Chemical Leaman Corporation, a Pennsylvania corporation ("Company"), is
offering to exchange all of its outstanding 10 3/8% Senior Notes due 2005 ("Old
Notes") for its 10 3/8% Senior Notes due 2005 upon the terms and subject to the
conditions set forth in the Prospectus dated ____ __, 1997 ("Prospectus") and in
the related Letter of Transmittal (which, together with any amendment or
supplements thereto, collectively constitute the "Exchange Offer") enclosed
herewith.
The Exchange Offer is conditioned upon satisfaction of certain
conditions set forth in the Prospectus under the caption "The Exchange Offer --
Conditions of the Exchange Offer." The Exchange Offer is not conditioned upon
any minimum principal amount of Old Notes being tendered for exchange.
Enclosed herewith for your information and forwarding to your clients
for whose accounts you hold Old Notes registered in your name or in the name of
your nominee are copies of the following documents:
1. The Prospectus dated ____ __, 1997.
2. The blue Letter of Transmittal to tender Old Notes for
exchange (for your use and for the information of your clients).
Facsimile copies of the Letter of Transmittal may be used to tender Old
Notes for exchange.
3. The gray Notice of Guaranteed Delivery (to be used to
tender Old Notes for exchange if certificates for Old Notes are not
immediately available or if such certificates for Old Notes and all
other required documents cannot be delivered to First Union National
Bank ("Exchange Agent") on or prior to the Expiration Date or if the
procedures for book-entry transfer cannot be completed on a timely
basis).
4. A yellow printed form of letter which may be sent to your
clients for whose accounts you hold Old Notes registered in your name
or in the name of your nominee, with space provided for obtaining such
clients' instructions with regard to the Exchange Offer.
5. Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
17
<PAGE>
6. A return envelope addressed to the Exchange Agent.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTRACT YOUR CLIENTS
AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE EXCHANGE OFFER AND WITHDRAWAL
RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1997, UNLESS THE
EXCHANGE OFFER IS EXTENDED.
In order for Old Notes to be validly tendered pursuant to the Exchange
Offer, (i) a duly executed and properly completed Letter of Transmittal (or a
facsimile thereof) together with any required signature guarantees, or an
Agent's Message (as defined in the Prospectus) in connection with a book-entry
delivery of Old Notes, and any other documents required by the Letter of
Transmittal, must be received by the Depositary on or prior to the Expiration
Date, and (ii) either certificates representing tendered Old Notes must be
received by the Exchange Agent or such Old Notes must be tendered by book-entry
transfer into the Exchange Agent account maintained at the Book-Entry Transfer
Facility (as described in the Prospectus), and Book-Entry Confirmation must be
received by the Exchange Agent, all in accordance with the instructions set
forth in the Letter of Transmittal and the Prospectus
If an Eligible Holder (as defined in the Prospectus) desires to tender
Old Notes for exchange pursuant to the Exchange Offer and such Eligible Holder's
Old Note certificates are not immediately available or such Eligible Holder
cannot deliver the Old Note certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or such Eligible Holder
cannot complete the procedure for delivery by book-entry transfer on a timely
basis, such Old Notes may nevertheless be tendered for exchange by following the
guaranteed delivery procedures specified in the Prospectus under the caption
"The Exchange Offer -- Procedures for Tendering Old Notes -- Guaranteed Delivery
Procedures."
The Company will not pay any fees or commissions to any broker or
dealer or any other person for soliciting tenders of Old Notes pursuant to the
Exchange Offer. The Company will, however, upon request, reimburse you for
customary mailing and handling expenses incurred by you in forwarding any of the
enclosed materials to your clients. The Company will pay or cause to be paid any
transfer taxes applicable to the exchange of Old Notes pursuant to the Exchange
Offer, except as otherwise provided in Instruction 6 of the Letter of
Transmittal.
Any inquiries you may have with respect to the Exchange Offer should be
addressed to the Exchange Agent, at its address and telephone numbers set forth
on the back cover of the Prospectus. Additional copies of the enclosed material
may be obtained from the Exchange Agent.
Very truly yours,
Chemical Leaman Corporation
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE
YOU OR ANY OTHER PERSON THE AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR ANY
AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY
STATEMENT OR USE ANY DOCUMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE
EXCHANGE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS THEREIN.
18
